Category Archives: Economy

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.

Innovation Report Card Suggests Room for Improvement

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A new OECD report on New Zealand’s innovation policy has found that despite a sound macro-economic framework, New Zealand still lags in terms of per capita GDP and only invests in R&D at about one third of the OECD average. Some improvements to the innovation policy framework are proposed in the report such as refocussing business support programmes, promoting rollout of high speed Internet and addressing the research funding process.

The study also criticises the fact that a myriad of public agencies are involved in setting innovation policy and distributing funding for research and business support. Will we eventually see a unified agency involved in innovation policy and funding research, science and technology in concert with economic development initiatives?

The OECD report card does however give good marks for the establishment of the Venture Capital Investment Fund and the Seed Coinvestment Fund which provide public-private partnerships to encourage early stage investment into high technology ventures. But there is little analysis as to the performance of these funds. In the past they have been criticised publicly for a lack of investment activity.

The government invited the OECD to carry out the review and responds that some of the areas highlighted have already been addressed with recent policy changes. In particular there is renewed vigour in promoting business linkages into the publicly funded research sector. The Growth and Innovation Advisory Board is held up as an example of how R&D policy is connected to grass roots business; although little has been heard from this body of late.

Having been involved on the periphery of the technology innovation scene for the last five years I have gained a few impressions of my own which I will share. One of the difficulties with the whole sector has been that central and local government agencies tasked with drawing up and enacting economic development policy are in a constant state of flux. With endless rounds of restructuring and change there has not been consistent leadership on promoting innovation as an economic development tool. In any event, governmental agencies are so risk averse that directly involving them in innovation seems almost oxymoronic.

Secondly, the research, science and technology community is predominantly publicly funded through either universities or  Crown Research Institutes. Government agencies dictate research themes and economic development projects in accordance with political directives. But worthy initiatives sometimes struggle because of underinvestment or a failure to commit to long term funding. There is considerable rhetoric about “economic transformation” but it is not backed up by ongoing resourcing or visionary leadership. Because politicians are looking for deliverables within their term of office, there is little appetite for long term funding for the kinds of projects that can make economic transformation a reality rather than an aspirational goal. One only needs to look to the more substantive per capita investment levels of countries like Singapore, Malaysia and Ireland. 

Finally, new knowledge arises from innovation networks not from individuals. Combining complementary assets and resources leads to the kinds of creative processes that add real value to an economy. In recent years, policy has shifted away from investing in supporting the social networks that underpin innovation, despite past successes both here and abroad. The private sector is also underinvested in R&D, but this could be improved through greater collaboration. But collaborative projects do not come alive without vibrant and active communities of interest. Facilitating such communities should remain a priority for those involved in economic development.

[tags] innovation, networks, research, technology, OECD [/tags]

Some Clear Thinking on the Digital Summit

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I enjoyed Tony Clear’s thoughts on what he thinks needs to be on the agenda for the Digital Summit. He floats the idea that we need to be more focussed on “collaboration” – I agree. Whilst government agencies are tending to opt out of directly supporting industry-wide technology networks and collaborative projects; more than ever we need a unified approach to telecommunications and digital content issues. No individual person or organisation appears to have the answer to making a proper economic business case for broadband, so we risk missing the boat if we don’t work together on these issues.

Clear has expertise in the area of virtual team collaboration and related technologies, so he has a lot of credibility when it comes to the topic of collaboration in the tech sector. But I’m sure he is also well aware that the issue cuts a great deal deeper than simply learning how to deploy and utilise e-collaboration applications. It’s also about how the industry gets on and finds partnerships to make things happen.

Interestingly, we are already noticing the beginnings of some far reaching strategic realignment in the telecommunications industry as minority operators realise that a collaborative approach is neccessary to address the opportunities emerging from unbundling. I hope this approach extends beyond simply funding and setting up flash new networks. I really hope somebody is thinking about what kind of creative content and applications will drive consumer uptake in the future.

 I’ve learnt recently that political headwinds and personal agendas can sometimes stop good ideas from seeing the light of day. Let’s hope that the Digital Summit can help break down some of the invisible barriers that stifle innovation in this great little country of ours.

I’d love to get some feedback from readers on this topic.

Crunch Time for Buy NZ Made

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For the last few months I have been wondering why my favourite crunchy peanut butter just doesn’t taste quite as good as it used to. Then recently I heard a radio interview that mentioned how Sanitarium had shifted much of their operation to Australia and then subsequently outsourced peanut butter production to China. Sure enough – upon inspection I noticed three words in tiny print on the bottom corner of the label – “Made in China”. I recoiled in horror.

Now apparently because of sensitivities around trade barriers, there is some cautiousness about enforcing the labelling of some products with country of origin. So we now have (another) paradoxical situation. On the one hand the government has committed to pursue the “Buy NZ Made” policy, whilst on the other it feels obligated not to offend trading partners who are currently flooding the nation with cheap (but inferior) imported goods.

It sometimes feels like we are giving away our sovereignty when we look at how much of our consumer goods are now sourced from offshore. I actually don’t mind paying a few cents more for a New Zealand made food product that tastes better, because I know that it won’t end up in the waste bin half finished!

But is the “Buy NZ Made” campaign going to make a difference? I’m not sure that you can legislate to control consumer preference. Yes I would like to see more “NZ Made” labels on local products, so I can make an informed choice. But retailers have already got the message loud and clear from their customers and are voluntarily labelling goods anyway. And isn’t there already an existing organisation with a recognised logo? Why spend a bunch of my tax dollars reinventing the wheel?

The good news is that Sanitarium have just announced that they intend to recommence producing a line of traditional “more local” brand of peanut butter. I wonder if they appreciate the irony in the fact that it will still be manufactured in the Australian plant?

Is NZ Missing Out on the “Clean Tech” Investment Wave?

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There was an excellent interview with Nick Gerritsen on National Radio this morning. Nick is a unique example of a Kiwi innovator and entrepreneur who has leveraged both his technology start-up expertise and some deep connections into the U.S. venture capital community to kickstart Marlborough based biofuels company fuels company Aquaflow Bionomics.

The company is reportedly negotiating with aircraft manufacturer Boeing to run an airborne trial involving aviation fuel derived from algae and using his firm’s technology. The ramifications of such a project are mind-boggling. Incidentally, Nick is also a director of Celsias a blogsite and virtual initiative that looks at issues around global sustainability and renewable energy. Celsias invites people to submit projects aimed at “global cooling”.

It was interesting to hear his comments about how truely disconnected New Zealand remains from global capital, especially in regards to the surge of investment in “clean tech” or technologies aimed (in particular) at transforming energy production and usage. Gerritsen reckons that NZ has a natural advantage in this area and claims to already have investors from Silicon Valley in close contact with his own venture. Yet local investors to have overlooked the project.

Why then is the NZ investor community standing off from participating? He thinks that the economy has become distorted to the point where domestic consumption and investment in property far outweighs interest in  industries that generate real export revenues. Hence our distance from capital markets does make a difference in terms of constraining investment in local technologies. Since there is little capital available locally, only a fortunate few who have the skills and networks to tap into substantial offshore investment can really make it big, says Gerritsen. He argued that government moves to cultivate venture capital investment have yet to deliver in any meaningful way.

I have already alluded to the potential that exists for New Zealand technology in renewable fuels. Is New Zealand at risk of missing out on the next big technology investment wave?

[tags] technology investment, biofuels, cleantech [/tags]

Competing from Down Under

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A recently released report from Australia’s CEDA economic development thinktank discusses, in frank terms, the challenges of being a distant economy in a global marketplace and offers us many parallels to New Zealand’s own situation.

Contrary to the view that modern transport and communications technologies have reduced the “tyranny of distance” the report reminds us not to be complacent about geographic remoteness from global centres for trade. The increasing trade in services and a trend towards the growth in knowledge sector businesses does not neccessarily obviate the need to be closely connected to markets.

Australia’s relative disconnectedness from global supply chains is cited as a source of concern as is its distance from the deal-making and financial centres of the Northern Hemisphere.  On the plus side of the ledger, open financial markets which encourage both inwards and outwards investment are seen as underpinning Australia’s place in the world of trade. Australian coporates tend to use their financial muscle to buy into businesses abroad that align with their own.

The report also notes that most innovation occurs not so much within newly emergent and high risk areas of science, but amongst manufacturing and industrial sectors. Fostering innovation and building skill levels through immigration and education are seen as critical objectives. With two-thirds of global trade and one-third of research and development conducted by global multinational corporations, the report suggests that attracting and engaging with them is paramount.

Australia’s recent economic prosperity has been driven not by outstanding growth in export volumes but rather by extraordinary prices for commodities. This represents a risk to the economy unless there is greater diversity and an increased contribution from value-added goods and services. Yet investments in human knowledge and knowledge infrastructure have declined.

Notwithstanding that Australia’s prosperity differs in that it is largely founded upon a vast trade in minerals, there remain a great many lessons in the report that are of direct relevance to New Zealand. Not the least of these is that, as our largest trading partner, any downturn in global commodity prices is bound also to affect our own fortunes.

Broadband Treading Water

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The news that even third world nations are getting on with the job of rolling out broadband comes as no big surprise. If 300 million global users are now accessing the Internet through high speed networks, then that is a market segment New Zealand simply cannot ignore.

Whilst we continue the academic debate over telco restructuring and the benefits of fibre versus wireless, other countries are getting on with connecting their businesses and emancipating their burgeoning middle classes through fast access to digital content.

New Zealand is brimming over with digital creativity, whilst emerging economies are crying out for it. It’s bad enough that our domestic network speeds are intermittently slow and patchy, but there is clearly now a tangible opportunity cost because our connectivity to the rest of the world is not that flash either.

We have a very fast research network with very little traffic, I’m told there is spare capacity on the Southern Cross cable and there are a number of high speed urban networks in operation or being planned. Surely digital content and applications providers would pay a small premium to be hosted within a high speed network environment with global reach?

What I cannot fathom is with all the smart people involved in the ICT industry in New Zealand, why nobody seems capable of making a good business case. If we don’t do this soon, then the most exciting digital offering to come out of NZ will likely be websites flogging insurance or similar.

Dental Software Deal Hard to Swallow

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Investors may be spitting blood in the wake of a $77 million takeover bid for Software of Excellence (SOE). American healthcare mammoth Henry Schein cites “cross selling opportunities” as the fundamental attraction for absorbing the newly profitable dental software provider. Are they serious?

Henry Schein is a Fortune 500 company with 12,000 employees across 19 countries and a multi billion dollar turnover. Why are they interested in a tiny software company from the other side of the world? The answer is that the cheapest way for a large U.S. company to innovate is to simply buy in what it needs to dominate a global market whilst simultaneously smothering the competition. That strategy makes a lot of sense – for them.

One doesn’t need to look far afield to find several recent examples of American corporations swooping on New Zealand technology firms, buying up the intellectual property and then shutting down the local side of the business. That’s fine if you are a foundation shareholder looking for a nice fat return, but it doesn’t help the economy much. Jobs are lost and profits head offshore. Sound familiar?

But, I hear you say, haven’t cashed up entrepreneurs reinvested into new ventures? Yes they have, but most of those new companies have not yet made a dollar in profit and some possibly never will. For every headline sale of a tech company abroad, there are a hundred firms that never make it. I guess the question we have to ask ourselves is a simple one. Is it an acceptable model for NZ to be an ideas incubator to the rest of the world and for us to accept that we have neither the organisational heft nor the capital required to fully exploit global markets?

Perhaps incubation and sale is a perfectly acceptable model? But it seems to me that you need to be sequentially churning out lots of quality ventures to make that model work for the broader economy. I don’t think we are quite there yet. Whatever happened to the plan to build and grow 100 by $100 million tech companies?

Considering some of the other recent trade sales, $77 million seems a little on the light side. I hope SOE shareholders don’t sell themselves short.