Fran O'Sullivan: Beyond No. 8 wire

Innovation's in our DNA but we have to take it further, Steven Joyce tells Fran O'Sullivan

Time for innovation. Photo / Thinkstock
Time for innovation. Photo / Thinkstock

Steven Joyce is adamant that innovation has always been in New Zealanders' DNA - a product of the isolation which has driven us to a "do-it-yourself" mentality.

But Joyce reckons it is time to go beyond the "Number 8 wire" approach and take home-grown innovation to a more sophisticated level.

The Science and Innovation Minister is "pretty excited" that the first generation of the post-Fortress New Zealand era is now coming through. He believes the generation currently in their 50s and 60s has done "innovation to stay afloat".

"Now you've got another generation coming through which never knew that time and doesn't understand national borders in the same way," enthuses Joyce.

"They see the world as their oyster and aren't daunted. I think that's pretty exciting and there are stacks of those people and companies around like that."

The persistently high New Zealand dollar has pummelled exposed manufacturing companies.

But Joyce maintains the firms that have ended up with the most unique innovations are doing the best. If New Zealand wants a high-wage economy then it will need more innovation, not less.

"If you want to lift the wealth of New Zealanders you have to actually catalyse more innovation," he stresses. "That's not just better widgets. It's services models. NZTE is a crucial part of the mix - and when you talk to Taits, a lot of their innovation has been driven by their market. We tend to go to market too late, preferring to grow here first. Some of the newer ones are much more 'in-market' at an earlier stage."

Joyce has plenty of business smarts himself. He started his first radio station in New Plymouth at 21. With two partners he built up RadioWorks over 17 years, until, as a listed company, it consisted of 22 local stations and four national networks with 650 staff in 20 branches. He launched nationwide music stations The Edge and Solid Gold FM, and developed The Rock Network before retiring as managing director of RadioWorks in 2001, after CanWest purchased it.

Joyce has visited more than 200 firms to more closely understand the NZ business environment. He points out New Zealand is a pretty small market. Firms choose different models; they operate a niche, or have a global distribution channel - although Fonterra is the only one doing that to any degree. Or they work into international channels.

The Government has a role in propelling New Zealand's young innovative companies on to a faster business growth track. It can extend their international reach through NZ Trade and Enterprise (NZTE); facilitate access to others in the innovation ecosystem and ensure greater access to early stage capital.

Finding out what early stage companies really need on the capital front is one of the issues the Government is canvassing in a funding review. "There is this whole debate about whether R&D grants should be repayable on sale and whether that applies to other forms of Government support.

"We want to advance that debate."

Joyce's interest has been sparked by an Israeli incubator model where the Government licences private Joyce looks beyond the No 8 wire approach

No textbook says you could be successful in chocolate from New Zealand. But [Whittakers] are passionate about what they do.sector incubators and puts money into them to distribute to companies under an "early out" policy. "They get a flow of people going through them, then get the money back and recycle it - that is a model we could do."

The R&D space is more complex.

The Government puts up about $115 million in R&D funding each year. Joyce says he worries when grants get as high as 30, 40, or 50 per cent, whether that is too generous. "It needs to be tested."

He is wary of the push by entrepreneurs Selwyn Pellett and Rod Drury for the Government to require companies to repay R&D funding when they are sold to foreign buyers. "You have to think carefully what you are incentivising; you want to see R&D happening in New Zealand.

"The danger when it comes to ownership, is saying that only local entrepreneurs can have access. If we could attract a Nestle or Danone to build a facility in New Zealand in the high value foods area, would that be something that the Government would be prepared to supply an R&D grant to? I would argue probably yes, as it enhances the overall ecosystem and employs New Zealand citizens."

Under current Government contracts, if a company moves off-shore and discontinues R&D in New Zealand the R&D grants can be clawed back, up to a certain limit.

Joyce believes NZ companies need to have a strong "front-of-house" presence offshore. "When I went to Silicon Valley and talked to the VCs (venture capitalists) and Wildfire's Victoria Ransom, they unanimously said you have to have a strong United States presence in that market. But you should always keep your back end in New Zealand because it's very expensive to run ICT research and development out of the US."

New Zealand's success does not come down to officials choosing sectors. It is dependent upon the entrepreneurs themselves.

He illustrates this by talking about the Whittaker family from Porirua which has made a name for itself making chocolate.

"No textbook says you could be successful in chocolate from New Zealand. But they are passionate about what they do."

Joyce wants to see greater encouragement for those with entrepreneurial bent.

He hopes the new Callaghan Innovation institute and the developments at Wynyard Quarter will fire things up. He is impressed with the hubbing plan there but thinks the the opportunity has been undersold.

- NZ Herald

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Head of Business for NZME

Fran O'Sullivan has written a weekly column for the Business Herald since its inception in April 1997. In her early journalistic career she was a political journalist in Wellington and subsequently an investigative journalist who broke many major business stories including the first articles that led to the Winebox Inquiry in both NBR and the Sydney Morning Herald. She has specific expertise in relation to China where she has been a frequent visitor since the late 1990s. She is a former Editor of the National Business Review; has twice been awarded Qantas Journalist of the Year and is a multiple winner of the Westpac Financial Journalism Supreme Award.

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