A wider innovation debate

16:00, Dec 16 2012

The recent announcement that New Zealand company Endace may be sold to American-based company Emulex has reignited a long running debate about research and development funding.

The flashpoint of the debate is the fact that Endace was the recipient of $10 million of government grants for research and development. Now, with the company being sold off overseas, the New Zealand taxpayer is unlikely to see any direct return on that investment.

Endace founder Selwyn Pellett — who stepped down from the company a couple of years ago — has criticised the sale, saying it represents a loss for the taxpayer, and that the government should replace the grant system with convertible notes, which would ensure a return for the taxpayer. 

This prompted some sniping from Innovation Minister Steven Joyce on Twitter, criticising Pellett for being perfectly willing to accept innovation grants, only to later turn around and claim the results were bad for the country.

While an online scuffle between a minister and a high profile entrepreneur may make good copy for journalists, keeping the discussion limited to just ‘grants versus convertible notes’ means we are missing the opportunity for a wider debate about how we as a nation can best promote innovation.

What the recent flare up misses is that Government has a far more important role to play in promoting innovation than just handing out grants to promising startups. It needs to be ensuring that New Zealand businesses continue to have the resources that they need to be successful here in this country — and in the modern economy, that means more than just investment capital.


With New Zealand’s skills shortage emerging as a major issue, and not likely to get better as more and more of our graduates head overseas, businesses will struggle to find the skilled workers and entrepreneurs they need. In that environment, it’s vital the Government is promoting innovation by supporting companies that invest in R&D and ensuring they can access the skills needed to compete in the global market place. 

This is why in our most recent MYOB Business Monitor, 55% of businesses supported reintroducing a research and development tax credit and a full 75% supported increased funding for skills, training and apprenticeships. What these businesses need isn’t so much direct injections of money from the Government to help them innovate, it’s the skills to commercialise their innovations and a tax system that incentivises them to do so.

Because this is the thing that is so often overlooked when we discuss research and development: New Zealand actually has a very impressive record of innovation. For example, in this year’s Deloitte Technology Fast 500 for Asia Pacific — a prestigious list of the fastest growing tech companies in the region — 45 companies were based here in New Zealand.

This should be a point of pride for New Zealand, and maintaining that level of innovation should be a priority.

Long term, we cannot compete if the resources for innovation aren’t available in New Zealand. The real challenge for New Zealand is making sure that we have the skills and people to build the next Endace here at home.

Julian Smith (@JulianTSmith) is the general manager for MYOB in New Zealand.