Category Archives: Economy

Funding Commercialisation of RS&T a Balancing Act

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Throughout 2007 we heard from a number of scientists and business-people imploring the government for much greater assistance in funding research and commercialisation of technology in New Zealand. Universities and CRIs have demonstrated the economic potential through generating some modest additional revenue streams and investments from technology enterprises spun out of research projects over the last decade or so. There has been a modicum of job creation, some upskilling through technology transfer and even some export revenue as a result. All good news. But is it the stuff that “economic transformation” springs from? Perhaps not quite yet.

Mindful that resources are scarce, the “Trilateral Engagement Project” (TEP), a joint effort by FRST, NZTE and TEC, has been tasked with boot-strapping a handful of homegrown technology industries judged to have the potential to grow into high value, global enterprises. This inter-agency collaboration marks a departure from the silo mentality noted in a recent OECD report that criticised New Zealand’s innovation policy.

Having identified these key new industries, the TEP has produced an RFP seeking consultants to research the potential economic impact of each. That seems a little like putting the cart before the horse. What if the reports find that the industries concerned are untenable? Notwithstanding that point, I think it’s a great idea to focus where big economic gains are achievable and around which related industries can cluster. In the past there has been a tendency towards a shotgun approach to economic development in which it was assumed at least a few winning ideas would emerge and thrive if supported with public funds.

In fact, there is no shortage of good ideas. The real issue for the NZ tech sector is access to capital. Because global capital tends to gravitate towards the most bankable ideas, it is important to expose our intellectual property to offshore scrutiny in a sophisticated manner. There is simply insufficient seed capital in New Zealand prepared to wager on high risk technology propositions. You could literally count on one hand the number of early phase tech businesses that received substantial VC funding in NZ last year. Besides that, offshore investors tend to bring a useful network of well-connected deal-makers in their wake. Let’s address that fact openly and help our high tech businesses go global with a mix of local and foreign investment. But at the same time if public funds are to be invested in this process, we need to ensure that founders are fully committed to returning some of the economic gains back home rather than selling out for a low return.

It’s a very narrow tightrope to walk across.

Esphion Goes Softly into the Night

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I have to admit I was a little surprised and saddened to read news of the Esphion sale. Five mill U.S. seems like a low price to me. In fact by my accounting, the sale price is less than the total amount placed by investors in the company since it was founded in 2002! Something doesn’t add up here. Possibly the NZ Herald article does not relay the full story and there may well be good reasons for such a hasty exit. But touted in 2005 as one of the top 100 leading edge tech companies in Asia by Red Herring and having secured several major product installations; Esphion seemed destined to succeed. 

But it looks horribly like yet another example of a clever Kiwi idea struggling to gain traction in a global market and then getting gobbled up by a more powerful competitor. I thought the idea was to grow these companies from home and build a high tech economy?  Will the taxpayers, who subsidised the firm with grants and seed coinvestment, have an opportunity to realise an economic return? There’s little point in business leaders and scientists pitching for more government support for technology commercialisation if there is no accountability about keeping these businesses local.

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In the meantime scroll down half a page and we read that China Railway Construction, a former operating division of the Communist Red Army, is about to undertake a $4.5 billion market listing in China and Hong Kong. How ironic is that? Perhaps we should simply forget about the technology business and get into construction instead?

Scaling Up Kiwi Tech All About Attitude

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Serial technology entrepreneur Selwyn Pellett makes a strong case for scaling up tech sector businesses in a frank interview posted on M-Net earlier this year.  From humble beginnings as a telco engineer to CEO owner of one of New Zealand’s hottest technology firms, Pellett has lived the dream and survived to tell the story.

Pellett’s company Endace is one of a small handful of high growth firms that have kept faithful to their Kiwi roots whilst building revenues into tens of millions. In fact Pellet has set his eye on $100 million plus in revenue and sees little downside. It’s that kind of focus that makes the difference between enduring a mediocre performance or riding a sky rocket to the moon, says Pellett who wants to see more Kiwi firms reach for the stars.

By setting goals high plus leveraging executive sales expertise in big markets like the U.S., Pellett reckons NZ tech firms can indeed go stellar. But it takes determination, long hours of work and lots of travel, he says. The Endace story revolves around a great piece of technology and some good timing. But it is equally about attitude.

There’s now a new multimedia resource available called the Leadership Pathway that provides videocasts of well known New Zealand technology entrepreneurs as they share their inspirational personal journeys in life and business. Cultivating a highly aspirational mindset amongst the next generation of innovators suddenly seems more important than ever.

Do We Really Need Ubiquitous Broadband Infrastructure?

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The term “build it and they will come” is often quoted in the context of infrastructure investment. But does it really apply in the case of broadband?

Contrary to popular mythology, the phrase did not spring from a recent Kevin Costner film (shame on you Google!). In fact it stems from the economic history around the development of rail infrastructure in 19th Century England. I recently found a most instructive First Monday article on this very topic that explains the analogy between rail and broadband. The theory is essentially that if you build the infrastructure then businesses and consumers will perceive the opportunity and be attracted to it.

It’s a great theory. The emergence of better transport infrastructure was indeed a precursor to economic transformation of post-Industrial Europe and America. But if we are now doing business in the “weightless economy”, then does success neccessarily hinge upon widely dispersed physical infrastructure? After all, clever people have been sharing and selling their ideas well prior to the emergence of the Internet. More importantly do we really need ubiquitous (and expensive) high speed broadband to every home? I think not. You don’t see a bus stop or a train station at every front gate, do you?

A great deal of time was taken up at last week’s Digital Summit conference discussing the various merits of dispensing fibre to node and fibre to the home as a solution to the network speed issue. ICT Minister David Cunliffe also placed a lot of emphasis on this issue in his keynote speech. But if every home has a very high speed connection it simply means easier porn downloads and that our kids spend a whole lot more time indoors honing their gaming skills. I’m not convinced that this is going to lead to “economic transformation”.

Telecom has committed to improving domestic supply and new CEO Paul Reynolds has already won a lot of hearts with his collaborative and open style. A breath of fresh air that should bring change. But the real issue for the New Zealand economy is international connectivity – and that may prove to be a much harder nut to crack.

ICT Minister Pulls out Plum from Pre-Xmas Pudding

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Way back in August I wrote about the difficulties being faced by those charged with developing a unifying industry body for the ICT sector and I predicted that ICT-NZ might continue to struggle to gain traction.

Last week Communications and Information Technology Minister David Cunliffe drove the final nail into the coffin of ICT-NZ by announcing the establishment of an ICT industry super body that will also mop up whatever remains of the Digital Strategy funding pool. No doubt this move will provide fuel for conversation over the tea cups at this week’s Digital Summit. At the very least the industry should feel slightly chastened that the Minister himself has had to intervene to find a solution.

The structure and governance arrangements for the new body will be critical to its success. Without proper buy-in from key industry players it will be doomed to circle like a rudder-less ship on a stormy political sea, just like its predecessor. It will also be neccessary for it to articulate a much clearer value proposition to potential members and partners.

Having the government facilitate and partially fund such a body is a departure from the accepted wisdom generally promoted by the economic development ministry however. The ministry has been opposed to public funding of industry networks for quite some time, although the intellectual rationale behind this thinking has never been made clear.

So the government will certainly want a payback on its investment and the new body is expected to provide sectorial advice, be involved in research and manage the Digital Strategy programme. Precisely how industry growth issues will be tackled has yet to be announced.

On balance this is a good outcome. It creates the opportunity for a fresh start and cements government committment to having ICT as a central plank in economic development. But the proof of the pudding will be in the eating.

Movie Subsidies Need More Analysis

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With the Australian government now offering movie producers a whopping 40% rebate on any local expenditure, New Zealand movie-makers, concerned about an exodus to the west, are looking for parity.But can anyone name another industry that receives such exorbitant handouts?

Peter Jackson and his peers certainly deserve the many accolades they have received for bringing a world class industry to our doorstep, but does that mean we have to heavily subsidise it with public money? The industry already receives a 15% rebate for local spend under the large budget screen production scheme. Post-production work performed in NZ also qualifies.  In addition, the film industry has been the beneficiary of government largesse in the form of large grants towards sound studio facilities in both Waitakere and Wellington. The government funded NZ Film Commission also provides co-funding for selected feature films.

The Film Commission claims that 2 million New Zealanders went to see a locally made production of some sort in the last year, so there is no question that the industry is in good heart. Of course part of the reasoning behind providing this support is that it showcases New Zealand scenery and exports our culture to the rest of the world. But I can’t think of any “large budget” local production that has done this since Lord of the Rings (although there has been several smaller budget projects). Animated productions like Halo or Tintin certainly do not showcase New Zealand, although they do help to maintain the resident skill pool.

The bottom line is that there needs to be a full economic analysis before any increase of public investment in the film industry. I’d love to know how many permanent full-time jobs have actually been created for actors, animators and technical support crews over the last five years. My understanding is that many of the crew positions are sub-contracted to itinerant workers on a part-time basis, some of whom depart the country between gigs. What has been the net increase in the tax base as a result of the growth of this industry? Given the complex nature of foreign controlled licensing and distribution, what is the actual export return from a NZ-made feature film?

Film receives most favoured status because of the perceptions of glitz and glamour and because film producers are very good lobbyists. And what politician could resist an offer of front row seats on opening night?

Callaghan Questions Biotech Focus

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Renowned science commentator, author and physics researcher Prof. Paul Callaghan this month embarks on a nationwide speaking tour, sponsored by the Royal Society of New Zealand. Winner of numerous awards and prizes during his career, Callaghan has a simple message for his audience – we need to build on our investment in research, science and technology if we are to grow a prosperous society.

Callaghan is one of a rare species of boundary spanning scientists both willing and able to communicate to those outside of his field. He understands the importance of encouraging the next generation of scientists as well as connecting researchers to entrepreneurs and investors who can help commercialise new scientific knowledge for economic benefit. He is also part of a growing chorus demanding more science funding and a better process for allocating resources within the national innovation system.

Prof. Callaghan’s passion for science is obvious when he speaks in public and I look forward to attending his Wellington event. He discussed at length the importance of science to the economy in an interview on National Radio’s Sunday morning “Ideas” slot recently and reminded us how improvements in our quality of life have come about through advances in technology. He also said that similar sized nations such as Israel, Finland and Ireland are now enjoying bouyant economic times in part due to substantial past investments in research.

He also alluded to some concerns about where the focus lies in terms of New Zealand’s national innovation framework. Citing a strong track record of commercialisation in the physical sciences and engineering technologies, he suggested there was an unwarranted emphasis on biotechnology, despite its promising global outlook. He says New Zealand has struggled to gain traction in biotech because of the huge capital requirements and long lead times that sometimes overwhelm small firms seeking product accreditation and then sales in distant markets.

Callaghan suggested that we need to keep an open mind about where we invest in research, science and technology because good ideas sometimes spring up from unexpected places. He quoted the example of Peter Jackson and the film and graphics industries that grew around his business. Encumbent government Minister Pete Hodgson stated that he was listening to the views of the science community and he was mindful that New Zealand’s investment, although improving, was still below par. He said that forthcoming changes to the tax treatment of R&D from next year should be of assistance to the sector.

Prof. Paul Callaghan tours the main centres from 13th November.

Research Funding Equity Sought by CRIs

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Outspoken AgResearch CEO Andy West has this week raised the volume level over the ongoing debate on the issue of funding uncertainty for Crown Research Institutes (CRIs).

University based research organisations receive public funding based on periodic review of their output performance and through the Marsden Fund. The current arrangements mean that a university PhD project on “Bogan Westies” can theoretically get funding whilst a three year CRI study on bee mites or biofuel feedstock crops might not. The CRIs argue that this is unjust.

The sometimes humourous and occasionally “ACRI-monious” shouting match between Universities and CRIs spills into the public domain periodically. But the debate has a more serious side. It’s bad enough that universities are competing with each other for funding and students but it beggars belief that our national innovation system pits talented researchers against each other in Darwinian fashion. Inevitably some worthy research projects will miss out on resources.

For several reasons I’m entirely in favour of blue skies research that explores social issues or esoteric science which may have no immediate obvious commercial return. Firstly we need to cultivate a pool of intellectual talent across the entire research spectrum and not just in the physical and biological sciences. Secondly, non-commercial research sometimes has unexpected commercial applications and frequently involves building international linkages with agencies and researchers abroad, which can lead to profitable collaborations downstream. Finally supporting a diversity of research is the responsibility of any open and inclusive society.

But as AgResearch point out in their 2020 blueprint for agricultural sciences research in New Zealand, over half of our national income is derived from exporting agricultural produce. Is it fair then that agricultural research organisations feel so hard pressed obtaining secure and long term funding for research that underpins the growth and especially the sustainability of this enterprise?

Are We Overinvested in All Blacks Brand Culture?

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I’m not qualified at all to comment on the detail of the All Blacks embarrassing departure from the World Cup. In fact I don’t even follow the game very closely. What I do know is that as a nation we are far too psychologically invested in the fortunes of fifteen sportsmen.

The NZRFU marketing machine has to accept full responsibility for putting the team on such a high pedestal, in order to feather its nest with huge sums in sponsorship. In fact I’m surprised the team members have time to attend regular practice sessions given the demands to appear in a wide variety of TV commercials promoting airlines, credit cards, sportswear, food and beverages and even underpants. As an “iconic” brand the All Blacks have over-promised and under-delivered. It all looks rather like marketing hype gone mad.

But what concerns me most is that so much of our national self-esteem hangs on the All Blacks performance. New Zealand has so much more to offer than rugby, hakas and bubbling hot mud pools, but we cannot seem to move beyond these cliches. It’s cringeful at times. 

If our emerging technology companies could secure even a tenth of the media coverage and financial backing that the ABs get, imagine how beneficial this would be to the economy. What if our brightest science researchers could get proper long term funding sponsorship and didn’t have to head overseas to make a living.Then we really would have something to celebrate. We need some new heroes.

Will NZ Miss the Pacific Cable Boat?

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Apparently Google are engaged in talks over investing in the Unity cable project aimed at spanning the Pacific Ocean with terabits of new bandwidth. It could turn out to be a wise investment on two fronts. Firstly there is obviously a return on the revenue generated by digital traffic. But secondly it ensures that the burgeoning middle classes of Asia-Pacific have ongoing high speed access to applications hosted in America, amongst which Google is aiming to become the provider of choice.

A lot of commentators are talking like Google is setting itself up as a telecoms operator but this is not true. Google may have the cash, but it does not have the expertise to contemplate such a project. The word is that Google are in fact talking to an Australian telco about the new venture.

 Unity is not the only initiative aiming to add capacity across the Pacific. Verizon are working on a project linking to China and North Asia and Southern Cross have just commenced a major upgrade of the cable that links Australasia to North America. All of which is good for consumers because as domestic networks improve, so the demand for international bandwidth increases.

The slow rollout of domestic high speed bandwidth is often upheld as the reason why we will never see a Google or a Bebo spring out of New Zealand. But it looks more and more like a U.S. centric hub and spoke kind of network, everywhere you look now. Naturally providers of innovative global digital content and services then look to the United States as the preferred site to host their offerings. I think that is why we do not yet see anything special built and hosted here in NZ, despite the fact that digital creativity abounds.

In fact there was a visionary project about five years ago called “First Light” that aimed to set up a direct NZ-Singapore cable. The project failed because of difficulty in negotiating “last mile” access at the Singapore terminal. In retrospect it is now clear that New Zealand missed a major opportunity.