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Investing on R&D will reap rewards for NZ businesses

Credit: Callaghan Innovation

Callaghan Innovation, New Zealand’s Innovation Agency, stressed the virtues of investing in research and development (R&D), highlighting the emergence of billion-dollar Kiwi companies in the last decade.

As reported, commitment to cutting-edge R&D is the common factor among the country’s biggest, newest and promising companies.

Throughout the OECD, the average business expenditure on R&D is about 2.4% of GDP.

Newly released figures from Statistics NZ have shown that Kiwi businesses spent more than NZ $2.1 billion on R&D last year, which showed an increase of more than half a billion dollars in just two years.

It is the biggest increase in a decade, and at this rate, puts the R&D spending on track to hit the Government’s 2% of GDP target within the next decade.

Whether big or small, the evidence suggests companies that prioritise investment in R&D reap the rewards.

Private returns for R&D are around 20% – 30%, much higher than the return on investment (ROI) on physical capital.

What is R&D?

R&D at its most basic level is the investigation on how to be more innovative.

This means applying the type of disruptive technologies such as machine learning, automation, cloud computing, big data, and the genetic revolution to the businesses.

Many businesses still look at R&D as something that they would love to do, but cannot afford to do so. But the truth is they cannot afford not to.

R&D for Survival

Businesses should think about the product innovations that would allow them to take things to the next level, in terms of value of the business and its export-earning potential.

R&D is also critical in preparing for an increasingly uncertain future.

The country has an aging population that is growing old in a warming world, which faces monumental environmental challenges.

The core industries are being questioned by a new generation of consumers. And technology is changing so rapidly that there is a need to run faster in order to keep up.

Addressing these would require established businesses and start-ups to focus on solutions for global problems.

This can be done by harnessing the great science and research going on in the country to go after high-value international markets.

But despite investor enthusiasm for new, innovative companies, many of them still struggle to get all the funding they need.

This happens particularly as they reach their second phase of growth and seek to raise funding between NZ$ 2 million and NZ$ 20 million.

Latest data shows that many businesses have gotten the message.

R&D in the services industries has increased by 64%. Add to that the significant increase in spending in the ICT as well as in commercial and tourism services sectors.

There is still a lot of catching up to do, however, to match global competitors and own aspirations, especially in the primary and manufacturing sectors.

What now?

The Government is preparing to implement a 15% R&D tax credit, which will act as a further incentive for businesses to invest in the innovations that will drive their future growth.

Eligible businesses should now start preparing for the tax credit covering the 2019/2020 income year.

Within the next few months, a new initiative will be launched to help supercharge innovation in New Zealand.

Scale-Up NZ is a free online platform that will make it faster and easier for local people and organisations to find and connect with the people, capital and other help they need to innovate and grow, both here and offshore.

While the country does not yet match its peers internationally, the gap is starting to close.

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