Small Business Blog from Atlantic Canada

This is an example of my earlier article: Issues in Strategy Implementation: Tie Rewards to Results. The Government of Canada is exhibiting a classic case of hoping for behavior A while rewarding for behavior B. Before we get into that, I think a preamble is in order.

According to Industry Canada, there are over 2.3 million small businesses in Canada. Over 1.2 million of these businesses do not have a Canada Revenue Agency payroll account. Of the remaining million or so small businesses,

• 57.4% have 1-4 employees
• 16.8% have 5 to 9 employees
• 11.8% have 10-19 employees
• 8.6% have 20-49 employees
• 3% have 50-99 employees

Collectively, 97.5% of small businesses employ less than 100 people, 2.2% employee between 100 to 499 people while only 0.3% employ over 500. These small businesses contribute close to a quarter of Canada’s GDP. Together small and medium businesses created 1,010,916 jobs in 2003 while large organizations lost 44,037 jobs.

Let me reiterate, of the total number of businesses in Canada, small and medium businesses employ close to 99.7% of Canada’s workforce. Large businesses, defined as organizations with employees over 500, employ only 0.3% of Canada’s workforce.

Now let us turn our attention to a Canadian Federation of Independent Business report titled “Help wanted”. Long term vacancies grow for Canada’s entrepreneurs”. The statistics that we will focus on is the chart titled Labor Shortages by Skill Level, by Province. To summarize that chart:

• only 7% of small businesses are looking to fill skill level O (management level) positions
• 43% are looking for Skill level A (requires some university degree at a bachelor’s level - accountant, lawyer, teacher, doctor, etc.)
• 32% are looking for skill level B (requires college level education or apprenticeship training - carpenter, chef, mechanic, etc.), and
• 17% are looking for employees with no formal education).

The report says there are over 250,000 vacancies in small and medium businesses.To reiterate, 51% of small and medium businesses are looking to hire highly educated people (having a university degree) while 49% of small and medium businesses are looking to hire people with no formal education or some college eduction with apprentice training. So small businesses are looking to hire close to 122,500 people with skill levels C & D.

Finally, let us look at Canadian Immigration (CIC) requirements in the skilled worker category. Canada follows a simplified points system now. The requirements are as follows:

1. At least one year of continuous full-time work experience or equivalent part-time continuous employment and experience must be in Skill types O, A or B. (from Canadian National Occupation List). (21 points for 4 years or more and 15 points for 1 year.)
2. Funds: For a family of four $18,895 or arranged employment in Canada. There is a clause that says, you cannot borrow this money.
3. Education: there is a point system with masters degree of a Ph.D. Receiving a max of 25 points and 5 for just completing high school)
4. Language proficiency: English and/or French (max 8 points)
5. For individuals between 21 to 49 years: 10 points
6. Arranged employment in Canada: 10 points, and
7. Another maximum 10 points for adaptability (spouse’s education, education in Canada, family in Canada, etc).

Applicants need a minimum of 67 points to be eligible for immigration to Canada.While there are a number of immigration categories (skilled worker, family, etc.), I’ll focus on the skilled worker category for our discussion. We can broadly divide applicants into three categories based on the their current immigrant status in Canada.

1. The newbie: These individuals have never been to Canada.

2. The student: These individuals are students who come to Canada typically to pursue masters level education, but they may also pursue bachelors level education or equivalent

3. The worker: These individuals are either intra-company transfers or individuals who have managed to secure employment within Canada after completing their education. They may also be individuals who have been able to secure employment from outside Canada (a near impossible feat but happens occasionally)

On graduation, the student typically finds A level jobs in their field of study. (It has become easier in the last one and half years.) The worker is already gainfully employed. It is the newbie that we shall focus on today. Over a 100,000 immigrants came into Canada in 2006 in the skilled level category. The top four countries they came from are China, India, Philippines and Pakistan. (Breakdown by country is only available for the first three calendar quarters in 2006.)

Let’s see the resources these individuals need to have to meet the financial requirements. First the exchange rate. The 365 day average exchange rates for 2006 between Canada and the above countries are as follows:

1 Canadian Dollar (CAD)= 7.04041 Chinese Yuan (CNY) (High: 7.3162; Low: 6.70800)
1 CAD = 39.98226 Indian Rupee (INR) (High:42.29050; Low: 37.82960)
1 CAD = 45.34857 Philippine Peso (PHP) (High:48.63740; Low:42.17090)
1 CAD = 53.13977 Pakistan Rupee (PKR) (High:54.86240; Low:51.07130)

So in order to meet the Immigration’s funding requirements each of them would need:
Chinese Immigrants: 133,028 CNY in savings
Indian Immigrants: 755,464 INR in savings
Philippine Immigrants: 856,861 PHP in savings
Pakistan Immigrants: 1,004,075 PKR in savings

Salaries depend on the job an individual performs. Median salaries earned are as follows:
In China: CNY 208,221 or CAD 29,575. People with over 5 years experience commanded this salary.
In India: INR 406,204 or CAD 10,160. People with over 5 years experience commanded this salary.
In Philippines: PHP 291,127 or CAD 6,419. People with over 5 years experience commanded this salary.
In Pakistan: approx US $3,757 or CAD 6,767. People with over 5 years experience commanded this salary.

Do you see a problem here? Granted the Asians have a savings culture. But given the cost of living and a savings rate of say 8% per annum, it will take a person from China 8 years, from India 23 years, from Philippines 37 years and from Pakistan 35 years to save the amount needed that CIC needs. Now this is assuming the salaries are constant at that level.

(Keeping all other variables constant, even looking at a family of two, it will take a Chinese 5 years, an Indian 15 years, a Philippino 24 years and a Pakistani 23 years to save up the required amount of CAD 12,695. I am also trying to keep it simple here by assuming a flat constant savings of 8% here. You can however try the same calculation using future values of the annual savings and compounding the amounts. It will not matter much for the Chinese but may help the Pakistani immigrant reduce the time line from 35 years.)

Even if salaries do increase over time, we need to take into account the real rise in salary levels after considering inflation. I am assuming this will not cause a significant dent in the time lines - perhaps a year or so lower. Moreover, this amount does not take into account the total cost of application which includes the fees, travel for the different paperwork, medicals, right of landing fees, airfare and other incidentals. So if anyone out there actually believes, the individuals do not borrow to immigrate, they are deluding themselves. If an individual from any of those countries are earning less than the median salary, it will take them longer to save for the move assuming they meet other requirements.

These people are all competing for the skill level O and skill level A jobs along with immigrants from other categories - the students and the workers - and Canadians. Don’t forget there are people from other countries applying too. I have just chosen the top four. Thousands of skilled worker immigrants, Canadians, international students and international workers are vying for jobs in SMEs and large businesses. How many of such employees can SMEs absorb? A mere 1% of SMEs were short staffed at the management (O) level.

“Occupations facing the least demand are those requiring the highest education”, says the CFIB report. It also goes on to say, “Three in four entrepreneurs operating in the transportation sector are looking for skill level C employees … and workers with skill level D training are in the greatest demand in the hospitality and agricultural sectors.” We see from the above that immigrants who fall in this category are the ones most likely to have access to the resources to immigrate. Individuals from the above countries who fall under skill level C do not have the economic means to immigrate. Their education may not even be in English. So how can they fulfill the requirements for immigration?

Isn’t that hoping for A while rewarding B? The current policy encourages economically well-off individuals to immigrate to Canada thereby increasing the supply of skill level O and skill level A professionals. But is that what the small businesses want? Out of the total Canadian population of 30 odd million, aren’t there 130,000 O and A level skilled workers to be absorbed into the SMEs? SMEs are in need of level C and level D skill level workers. What good is an immigration strategy that does not meet the objectives?

If you are a recently landed immigrant to Canada or in the process of applying, do join the conversation outlining your experiences. You may be able to help others who are considering a move to Canada.
References
1. For more small business statistics over the years, visit Strategis website.

2. Help wanted. Long term vacancies grow for Canada’s entrepreneurs

3. A related article at Robin Sheppard Shapiro - Canada attracting more skilled immigrants