Innovation in Immigrant-owned Firms in Canada

Statistics Canada

Executive summary

The main objective of this paper is to determine whether the immigration status of the owner of a small or medium-sized enterprise (SME) affects the likelihood of a company implementing an innovation. A number of recent research papers tackled the issue of immigrants and innovation by concentrating on patent filing (a proxy for innovation) by individual immigrants. The novelty of this paper is the fact that it is one of very few to address this issue from the perspective of the firm, as innovation occurs within a firm context. This study uses measures of innovation and intellectual property that provide a much broader perspective of the innovation process than a focus on patents alone.

The data for this research are from the 2011, 2014 and 2017 versions of the Survey on Financing and Growth of Small and Medium Enterprises. The survey target population was derived from Statistics Canada’s Business Register and consisted of all SMEs with under 500 employees and gross annual revenues of $30,000 or more. The outcome variables include product, process, organizational and marketing innovations, and five types of intellectual property: registered trademarks, patents, registered industrial designs, trade secrets and nondisclosure agreements.

Both the unadjusted results (based on raw data) and the adjusted results (based on a sample in which immigrant-owned firms were matched to firms with Canadian-born owners to adjust for the differences in firm and owner characteristics) indicate that immigrant-owned SMEs had a higher probability of implementing a product, process or marketing innovation than firms owned by Canadian-born individuals. Immigrant-owned SMEs had an 8.6% higher likelihood of implementing a product innovation (relative to the 0.27 baseline rate computed for SMEs owned by Canadian-born individuals) and a 20.1% higher probability of implementing a process innovation (relative to the 0.17 baseline rate).

A separate analysis was conducted for firms whose owners were either more recent immigrants (in Canada for less than 20 years) or longer-tenured immigrants (in Canada for 20 years or more). Firms owned by both more recent and longer-tenured immigrants were more likely to implement a process innovation than those with Canadian-born owners, while firms owned by more recent immigrants were also more likely to implement a product innovation.

Regarding the use of five types of intellectual property, the results adjusted for firm and owner characteristics indicate that the effect of immigrant ownership was positive and statistically significant only for one of the five intellectual property types (registered industrial designs); for the probability of using nondisclosure agreements, the effect was negative. Overall, SMEs owned by immigrants or by Canadian-born individuals were largely similar in their use of intellectual property.

One interesting result is the increased likelihood of an SME with a more recent immigrant (in Canada for less than 20 years) owner using patents, compared to firms owned by the Canadian-born. This result may also be partially explained by the tendency of more recent highly educated immigrants to be educated in a more technical field (i.e., science, technology, engineering and mathematics [STEM]) than the Canadian-born.

Finally, the study also analyzed SMEs in the knowledge-based industries (KBIs). The unadjusted results and the results based on the matched sample were similar to those reported for SMEs in the economy as a whole; immigrant-owned firms were more likely to implement a product or process innovation. There was no statistically significant difference in the likelihood of implementing an organizational or marketing innovation.

Taken together, this evidence indicates that an immigrant-owned firm appears somewhat more likely to implement a product or process innovation, regardless of whether the immigrant owner is a recent or longer-tenured immigrant, or whether the firm is in a KBI or the economy as a whole. The results may be related in part to the educational background of immigrants. Immigrant owners are more likely to hold a university degree than Canadian-born owners, which is a difference that is controlled for in this study. However, university-educated immigrants are also twice as likely to be educated in a STEM field and three times as likely to be educated in engineering or computer science as Canadian-born university-educated individuals. This difference could not be controlled for in this study because field of study information was unavailable. Given their backgrounds, immigrant owners educated in STEM fields may be more inclined to focus on product or process innovations than on organizational or marketing innovations.

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