Posts Tagged ‘RS&T’
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.
Are university educations paying off? The knowledge wave turns to knowledge dumper for clever US cities – same for NZ?
Former Business Week writer Michael Mandel has spotted an inverse relationship between growth and education in the US during most of the last decade.
You can’t tell if the same thing is going on New Zealand because we don’t collect income per capita stats for cities (or regularly for our regions), though for the latter there may be a hint that same thing has been going on here.
Looking at which US cities did best between 2000-2008, Mandel found the fastest growing cities wealth-wise were:
• Hamou-Bayou Cane-Thibodaux, Louisiana
• Jacksonville, North Carolina
• Manhattan, Kansas (yep, you are in Kansas now)
• Farmington, New Mexico
• Fayetteville, North Carolina
• Killen-Temple-Fort Hood, Texas
• Lawton, Oklahoma
• Odessa, Texas
All had 33% plus per capita gdp growth over the period.
Mandel says the common themes are guns (there’s three military bases in there) and oil. [BigCake would add that there are also all south of the Mason-Dixie Line – Yeah, The South is going to do it again].
The wealth slowcoaches (all had negative growth) were:
• San Jose-Sunnyvale- Santa Clara, California
• Greely, Colorado
• Ann Arbor, Michigan
• Flint, Michigan
• Atlanta-Sandy Springs-Marietta, Georgia
• Raleigh-Cary, North Carolina
• Austin-Round Rock-San Marcos, Texas
“Uh oh,” says Mandel. “This is not the list you might have expected, in a world where brains and innovation are supposed to be important. There’s Silicon Valley at the top (or the bottom) of the list, where incomes didn’t recover from the popping of the tech bubble that peaked in 2000. But other tech-type metro areas, such as Raleigh and Austin were hit hard as well.
“Is this inverse relationship between growth and education going to persist into the future?,” he asks. “Impossible to say. My personal view is that the lack of rewards for education–which show up in the individual income statistics as well–is correlated to the lack of commercially-successful breakthrough innovations, which would immediately sop up all the excess college graduates.
“To put it another way, innovative industries tend to locate where they can get a lot of college graduates. That means high education areas attract new companies, boosting growth.
“But without innovation, the whole economic development dynamic changes. You can’t attract growing innovative companies because they are few and far between. For their part, companies are more likely to view cost as a main consideration in deciding where to locate. Goodbye San Jose and Austin, hello China and India.”
BigCake couldn’t find comparable data for New Zealand, but did find some local evidence to support Mandel’s observation, for the first half of the decade at any rate.
Between 2000 and 2004, the fastest growing regions (not the same as cities I know) in New Zealand were Canterbury and Manawatu-Wanganui, neither really a knowledge economy. Wellington was the next fastest growing, but bunched up with Otago and Southland.
Auckland had a middling performance, sitting just below the national average for the period.
Not sure these numbers refute what people like Paul Callaghan say about the importance of knowledge-based companies in generating wealth.
I’d bet the average wage in Santa Clara is hugely higher than that of Bayou Cane.
Mandel notes in a subsequent blog that the 2000-2008 period is out of kilter with the long-term trend and “I’m paying big bucks to put my children through college…
“But we have to be alert to possible changes in the economics of college.”
Also as Mandel says there could just be a hiatus in innovation (waiting for the next knowledge wave). Also in New Zealand’s a knowledge and wealth transfer takes place between cities with universities and crown research institutes and the regions. The regions are wealthy because of this.
Anyone got other thoughts?
Individualistic, egalitarian, reserved, adventure seeking, short termist seeks place in the world
That’s a Kiwi by the way. (The one on the right by KIWIdesign) Cultural legacies matter in a whole lot of ways, including in business.I’ve been reading (belatedly) Malcolm Gladwell’s book Outliers which looks at the nature of success. In it Gladwell writes:
“Cultural legacies are powerful forces. They have deep roots and long lives. They persist generation after generation, virtually intact, even as the economic and social and demographic conditions that spawned them have vanished and they play such a role in directing attitudes and behaviour that we cannot make sense of our world without them.”
These legacies can be good and bad.
New Zealand does have some great ones that make doing business here, in some ways, easier than other countries. We’re mostly incorruptible, like to get on with the job, get stuck in etc.
Our non-conformity means we look at problems differently and we have a low PDI (power distance index – hat tip, Gladwell) which basically means we don’t take sh!t from authority figures.
But there’s also some bad stuff.
The Government’s Chief Science Advisor Peter Gluckman this week started a list:
• Our egalitarianism leads us to avoid a focus on intellectual activity
• The seduction of our misplaced national mythology – “number 8 fencing wire”, “punching above our weight”, “we think we are innovative”
And these, he suggests are hand me downs of the “post war period of protectionism and farming for Britain at a time when commodity was king and in that time we built up an almost untouchable pattern of high social spending so that shifting expenditure towards productive areas with long delays before return, such as RS&T, is difficult…”
This is the recent past. As Gladwell says, cultural legacies have deep roots (though as far as Pakeha in New Zealand are concerned that’s relative).
So have a look at who’s shaped our present-day economy:
• Whalers and sealers – tough, independent, adventurers and who probably mostly buggered off
• Maori – initially did well then got screwed
• Soldiers – in the mid 19th they were about 10 percent of our population. Anyway people who did as they were told
• Gold miners – same as sealers
• Farm workers from southern England – uneducated, hardworking, practical
• Irish – same as above but they could sing and dance.
NZ Trade and Enterprise last year commissioned a study on the impact on business of all this legacy stuff.
It’s basic finding was that Kiwis are “highly individualist, egalitarian, reserved, adventure and discovery seeking, and have a short time horizon”.
Hah, sounds like BigCake.
And the effect on our business culture of all this?
• We opt for leisure over work much more quickly than other countries – the bach, boat and BMW attitude of many of our small businesses. “Paradoxically, as a result of mediocre economic performance we find ourselves forced to work longer and longer hours just to stand still.”
• We have a Kiwi-centric view of the world. “That results in us being judged as being quite different to how we think about ourselves. We quickly resort to contracts and combined with thinking for our customers we can be seen as inflexible with a take it or leave it and she’ll be right attitude and more interested in the immediate transaction rather than building the long-term relationships favoured by many trading partners.
• DIY, including not delegating and holding ownership tight
• Tall poppy syndrome where we’re too scared to stick our head above the parapet (urrgh!)
• Self deprecation – we sometimes don’t realise the significance or importance of what we have just invented or made.
Given all this, and our distance from markets, we do pretty bloody well.
