Experts ponder solution to lagging research and development spending

BBC Technologies chief executive Geoff Furniss (left) says up to 10 per cent of revenue is spent on R&D.

BBC Technologies chief executive Geoff Furniss (left) says up to 10 per cent of revenue is spent on R&D.

A return to tax credits is being mooted as one way to fire up New Zealand's research and development (R&D) spending.

Although New Zealand's companies have boosted their R&D spending by 20 per cent since 2014, the country is still behind the OECD average.

Statistics show R&D as a proportion of gross domestic product increased to 1.3 per cent in 2016, up from 1.2 per cent in 2014. But the OECD average is 2.4 per cent.

Marcus Driller, of Fisher & Paykel Healthcare, says R&D is vital to his business.

Marcus Driller, of Fisher & Paykel Healthcare, says R&D is vital to his business.

Business investment in R&D was 0.6 per cent of GDP, up from 0.5 per cent in 2014.

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University of Auckland physics professor Shaun Hendy and director of research centre Te Punaha Matatini, said New Zealand's rate of R&D was still "tragic". "At the current growth rate it will take us 20 years to catch up and by that time the rest of the world will have left us behind again."

He said R&D was what would drive economic growth over the long term.

The last Labour government introduced a 15 per cent R&D tax credit but that was overturned by National.

Hendy said the current system of direct grants  had not been as effective as the Government might have hoped and a return to tax credits was worth trying.

It had been effective overseas, he said. "It's perhaps a little bit more expensive than direct grants but I think it would be worth trying. The advantage is you don't have to think hard about what you are trying to support. With direct grants you have tio play the game of picking winners."

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But his business school colleague, Ben Fath, a lecturer in the Graduate School of Management, said internationally R&D spending was concentrated with a small number of large firms. Expecting smaller New Zealand companies to compete with the world's cutting edge if they wanted funding was not fair, he said.

When local businesses were compared to similar ones overseas, the lag in R&D spending was not as large, he said.

If a business did not have good training systems in place, was not collaborating well or did not have a good management structure in place extra investment in R&D still would not deliver the right outcomes, he said.

Instead of focusing funding on R&D, he said work could be put into anything that would help all small businesses to compete more effectively and to catch up. Targeting R&D was a high-risk strategy that meant a lot of money spent on big ideas, trying to pick winners, with potentially small pay-offs.

Marcus Driller, corporate general manager at Fisher & Paykel Healthcare, said his business spent 10 per cent of its revenue on research and development.  He said if revenue was growing at a rate of 12 per cent to 14 per cent, it was expected that research and development spending should follow.  The money was not just spent on research and development engineers but also protecting their intellectual property. 

Geoff Furniss, of BBC Technologies, said R&D ws a major focus of his business, too. It spent between 4 per cent and 10 per cent of its turnover on R&D.  He said the grant system was generally good but it would be helpful to get support for longer-term, larger-scale projects.

But he said access to staff was one of the biggest hurdles to doing R&D. There was a tough market for smart graduates, he said.

He said it was also important that New Zealand continued to produce graduates that would be able to do R&D for businesses. "If you don't have the skilled workforce you're not going to get R&D anyway."

* Stuff Business is the media partner of the Air New Zealand Cargo ExportNZ Awards 2017.

 - Stuff


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