Category Archives: Economy

Fast Forward Fry-Up

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The government’s announcement of a $700 million “Fast Forward” fund for the food and pastoral industries is a long awaited boost to the research sector, but does it signal a strategic withdrawal from other technological arenas?

Crown Research Institutes (CRIs) are naturally ecstatic at news of the investment because it provides much greater certainty for their businesses going forward. The CRIs have been struggling with recruitment, retention and planning issues in the face of historically low levels of investment in a demoralised agricultural research sector.

But the Prime Minister Helen Clark, speaking on National Radio, emphasised that without recharging the investment in food and pastoral research, New Zealand was at great risk of falling ever further behind on the global stage. With agriculture still comprising almost half our national export income, it was imperative to invest in areas where we had a sustainable competitive advantage.

Clark then poured cold water on Opposition Leader John Key’s comments that the Fast Forward Fund was a grandiose overstatement of the government’s committment. Industry heavy hitters like Fonterra have reportedly already signed up to contribute matching funding and the plan is to draw down on both the interest and capital over a 10 to 15 year period. This would release up to $30 million in the first year, eventually climbing to over $100 million, said agriculture minister Jim Anderton.

Perhaps the only real downside from the deal is that it confirms a mood swing away from stimulating other technology sectors. Prof. Jeff Tallon, who only last week headed up a group of concerned scientists that wrote to the government pleading for more research funding, said that even after this investment, New Zealand still only has about half the RS&T spend of its high tech competitors. Tallon says that although food and pastoral research is important, we need to continue to diversify away from our heavy reliance on agriculture.

I have to admit, Fast Forward does seem more like “Back to the Future” to a time before the government was championing ICT, biotechnology and creative sector as the three planks for high tech based economic growth. However, on the up side it does show that government is listening; and by using a public-private partnership model it also focuses industry to engage fully in the project. One hopes that this will not be the only research funding announcement come Budget time.

Confusion Over IP Guidelines

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The recently released policy on the treatment of intellectual property rights within government ICT contracts may open up downstream opportunities for New Zealand companies who provide software and services to public sector agencies. But industry commentators cannot seem to agree on whether or not it is a good thing.

A few years back a lobby group called ICTX pressed government to change the rules around onselling of intellectual property arising from publicly funded I.T. projects. ICTX cited replication of effort and confusion over copyright as barriers to further commercialisation of such technology. But now that the rules have been clarified, former ICTX members still appear disgruntled.

Others view the new guidelines as an opportunity because it opens the door to vendors retaining ownership of the technology. Under this scenario the developer effectively gets their R&D funded by a government contract, licences out the application and then has the option of pursuing further commercialisation where a wider market exists. That seems like a win-win situation.

But the State Services Commission (SSC) makes it clear that the guidelines are just that. Government agencies still get the final say on what goes into the contract. That’s fair enough, especially in the case where the technology relates to a sensitive area such as Defence, Customs or Police for example.

It is unsurprising that a diversity of views exist on this topic. The ICT sector has still not managed to solve the representation problem, with a myriad of bodies still claiming to speak on its behalf. Now that the SSC has finally responded to industry feedback it seems a little unreasonable to criticise.

Perhaps the best way to resolve the debate is to test the guidelines. Are there any technology applications currently in the pipeline that can be taken down a commercialisation pathway? Having a successful reference site already operating within a government agency is a great selling point after all.

About Face on Brokering FDI

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Economic development Minister Trevor Mallard last year announced an about face in how Investment New Zealand will operate in the future. Investment NZ is a government agency currently involved in attracting foreign direct investment (FDI) capital into the country. But a recent review of the organisation showed that it spent $60 million over four years to attract a net additional investment of only $155 million.

It is not clear from the review whether this result speaks more about the lack of “greenfields” opportunities than it does about any shortcomings in competency. However, it has been decided to refocus instead on encouraging New Zealand firms to grow through investing offshore. The theoretical net result should be more dividends returning home, exposure to new markets and networks, greater access to capital and acquisition of new technology. In principle it sounds like a great road map for adapting to a globalised world – create a few more Fonterras.

But shouldn’t we also still be facilitating new inwards investment – especially in the tech sector? Just because Investment NZ underperformed doesn’t mean we should stop engaging with offshore investors. It just means we need to find a better way to do it. And just because we are currently at about the OECD average for FDI doesn’t mean we can be complacent. Now you see what I mean when I discuss lack of economic leadership and the price of political expediency when it comes to government funded initiatives. It also underlines my point about the inappropriateness of having risk averse government agencies involved in facilitating business. Investment NZ needs to be tweaked for sure, but it doesn’t need to be completely nobbled.

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.