Posts Tagged ‘Budget’

R&D spending – which Kiwi companies are not pulling their weight?

NZ company spending on research and development is less than a third that of the OECD average, so who’s not pulling their weight?

Small businesses? Well yes, but they have a good excuse. Around 97% of Kiwi businesses employ fewer than 19 people. R&D wouldn’t be relevant to most of these small and medium sized businesses (SMEs) who’d mainly be trades based, retailers etc

And for those where R&D might be relevant, this activity is in all likelihood going to get squeezed by the need to manage, market, sell and engage in whatever it is that the 19 maximum people actually do for a living.

These SMEs represent just under 40% of the GDP so that’s a good chunk of the economy which just can’t or doesn’t need to do R&D.

This must be the single biggest factor behind the paltry 7% of businesses reporting R&D activity in a 2008 Statistics NZ survey.

The indications are that businesses in the next group up (20 to 50 employees) do a hell of a lot of R&D. This group, along with the SMEs (who for reasons explained above probably don’t contribute much), account for just under half of total business R&D in NZ, the highest relative R&D contribution for businesses of this size in any OECD country.

By now you can probably see where this is going.

Here’s a table showing the falling R&D expenditure of Fonterra. Picking on them because they’re by far NZ’s biggest company and hence the biggest offender.

In 2003-04 Fonterra’s R&D spend was $100 million, so they’ve basically gone backwards. And they’re a along way off what Nestle spends on R&D. I think when Fonterra was created, Nestle was held up a model of the global dairy ingredients business the country needed (as opposed to the milk trader we’ve still got).

But to be fair to the big guy, here’s the figures for the next two biggest agricultural exporters:

And to be even more fair, here’s New Zealand second largest company:

So Fonterra is actually a good R&D investor by large New Zealand company standards.

Among at least one of these companies there are some very antediluvian management attitudes to R&D. Overall, business leadership seems to be missing here and until the private sector steps up it’s hard to see how we’re going to reverse our economic decline.

Dunno if this was meant to be a used as a target for a minimum R&D spend – perhaps for hi-tech companies – but companies wanting a government R&D technology development grant must spend at least 5% of revenue on R&D over a three-year period.

Whatever, you can see how far out of the ball park NZ’s biggest companies are.

So with these miserable R&D contributions by the big companies, you can see why NZ only spends about 1.2% of gdp on research and development, half by the public sector, half by private industries.

The PM’s science adviser Sir Peter Gluckman gives Israel, as an “extreme example”, saying it spends 4.9%, excluding defence, of gdp on research and development.

Interestingly, a big hunk of NZ’s public sector R&D spend goes on the primary industries, so you wonder if the big agricultural companies made a conscious decision to live off a form of R&D welfare. A more generous appraisal could be that the government R&D spend in the primary industries is crowding out the private stuff.

In the Budget the Government announced $321 million over four years in investment in new R&D initiatives, including a $234 million increase in support for business R&D.

Will this get the big R&D slugs moving? It’s a carrot, but sometimes you feel a stick would be handy, if only to make you feel better.