Budget 2015/2016 – nothing new on the innovation front!

But when you divide this by the number of manufacturing companies in New Zealand, which according to Statistic NZ is approximately 22,700, the result is an average R&D grant of around $7,000 per company which is hardly transformational.

It is better than before and definitely better than nothing. However, we need to understand that there is another hurdle in the grant process which discourages our average HERA member contracting company without an R&D track record from applying, and hence transforming into an export-oriented IP-owning manufacturer. Rather, it instead leaves the grants for those who already do research.

To cite just two requirements from CI’s R&D Growth Grant application web site under the heading “Is this Grant for You” – and I think you will agree with me that most of you will be excluded from this scheme:

• Does your firm have at least $300,000 in eligible R&D spend in each of the last two years?
• Have you spent at least 1.5 per cent of your revenue on R&D over the last two years?

There are many good aspects in the Government’s R&D policy such as the readily-accessible student R&D grant scheme which aims to provide innovation-savvy people into the industry, and in the process change the R&D culture of a company. Equally, I fully agree with the web site’s requirement:

• “Are you able to provide us with a sufficiently detailed R&D plan, including an estimate of R&D expenditures over the next three years?

After all, these grants are from taxpayers’ money and this should be spent with accountability. Maybe it is this last requirement where the Government’s transformational focus should be put for the average company without an R&D history. In my view, supporting companies into recognising the need for developing and maintaining a sound business development strategy with R&D-based innovation at its heart is the key.

The current policy provides little incentive towards this fundamental requirement of driving sustainable business development within the majority of NZ’s existing businesses.

Dr Troy Coyle, our research-focused HERA Executive member from NZ Steel, recently sent me a link to a European study on factors affecting business growth and clearly relating to our established lower tech but still high value metals-based manufacturing industry.

Current government policy intent is to support R&D within high-tech sectors typically considered to be IT and biotech. The cited study shows that most growth and employment in OECD countries still emanates from low-to-medium technology industries (LMT). Some relevant quotes are:

• “Growth is primarily based not on the creation of new sectors but on the internal transformation of sectors that already exist”.
• “Over-emphasising the role of high-tech activities ignores this major dimensional change in advanced economies”.
• …”in order to ensure contributed future growth prospects of advanced economies, policy-makers need to focus on the processes of innovation and creativity in firms in all sectors, not just high-tech firms”.
• “Policies should encourage both the generation of knowledge and diffusion between low-tech and high-tech sectors, and promote the inter-relationship between the sectors”.

New Zealand does not rate highly on R&D spend amongst developed countries and interestingly is one of the few countries that does not use tax measures to encourage and support R&D. Perhaps the two things should go together, especially if we really want to see transformation and the achievement of the Government’s goal of moving from 30% to 40% of our economy being based on exports by 2025.

PS: Forgot to mention that I believe a R&D tax-credit scheme on expenses for any R&D action including people employed in R&D who maintain and implement the company’s business development strategy is the most cost-effective incentive to transform the average company. But this is probably for a future Director’s comment.