New Zealand business spends one-third the OECD average on research and development, leaving the country vulnerable to cheap international competitors and at risk of falling further behind developed nations.
International accounting firm KPMG's report, released yesterday, highlights this country's lowly ranking on the R&D league tables with business investment just 0.47 per cent of GDP - less than one-third the OECD average and one-fifth what is spent in Sweden.
When Government expenditure is factored in, New Zealand spends 1.17 per cent of GDP on R&D - still half the OECD average.
KPMG New Zealand partner Paul Kiesanowski has pulled local investment data together with a new European survey to illustrate the country's poor showing. He said it was crucial manufacturers recognised the risks of not investing.
At the commodity end, manufacturing was going to be dominated by the likes of China and India so New Zealand needed to be focused on the niche end. History showed that companies that spent heavily on R&D had gone on to international success.
"The likes of Gallagher Group and Fisher & Paykel tend to be the high-profile examples," Kiesanowski said.
"They've developed international niche products that they can get out and export."
It was not just a case of increasing Government spending. There needed to be a strong venture capital environment, and because of its size, New Zealand needed to attract international capital.
F&P Healthcare spends about 7 per cent of its annual revenue on R&D. Chief executive Mike Daniell said that to be successful in a sector like medical products, better devices needed to be developed constantly. Most of the $16 million F&P spends each year goes towards the salaries of its skilled staff.
"We put a lot of thought into insuring that we attract and retain good people," Daniell said.
Andy West, chief executive at Crown research institute AgResearch, said New Zealand was risking its First World status by failing to invest properly in R&D.
"When you are producing commodities, you're a price taker," he said. "In the long term, you can't fund a First World health system unless you are a price maker. You have to invest in education and R&D. There's no alternative."
He said New Zealand would have to make some hard decisions eventually.
"I don't see any major industrialised country that is not investing in R&D."
Research and Technology Minister Steve Maharey said he welcomed the report on R&D spending. He said the Government had increased spending on R&D by 56 per cent since it took power and planned to put even more focus on it in the next three years.
Providing practical incentives for the private sector to invest more was one of the keys, he said, but the government was not considering tax breaks or rebates.