Feature

Whither R&D?

Most companies now realise the importance of research and development, but what are they doing about it?

By Vicki Hyde, NZSM

It may have come as a surprise to some that New Zealand companies spent $200 million on research and development in the year ending June 1990. The figure seems quite high, given the dismal economic situation and New Zealand's traditionally low recognition of the value of R&D.

What may, perhaps, be less of a surprise is New Zealand's very low placement in international comparisons of R&D expenditure. As a percentage of gross domestic product, the country's businesses spent 0.29% on R&D, placing us well down the order; the OECD average is 1.1%. Not surprisingly, Japan and the US head the list at around 2%.

The figures come from a recently released survey of business R&D, the first such survey in New Zealand. The country's reliance on primary produce and its processing was reflected in the figures. This area accounted for one-third of total business R&D expenditure, with the bulk of that directed towards dairy processes, storage techniques and products. Another quarter of the R&D budget went to two areas of new technology -- information and communications technology software and services, and electronic and instrumentation processes and products.

One of the most successful companies in the latter field is Christchurch-based Tait Electronics. Over the last ten years, Tait Electronics has consistently reinvested in company technology, putting around $30 million into R&D and improved production technology.

Company founder Angus Tait sees this commitment as an important one ensuring the company's success. Like many of his successful counterparts, he is somewhat impatient at the short-term view taken by most New Zealand enterprises. New Zealand businesses traditionally deal in the short term. Even "long-term" planning rarely stretches beyond five years.

"We could well take serious heed of other countries where there is more mature realisation of the longer haul in building a business," says Tait.

One country often mentioned in this regard is Japan, where 20-year research programmes are not uncommon in private industry, with even longer strategic planning undertaken in the government sector. A further advantage seen in the Japanese situation is the strong representation of researchers and technically trained staff in senior management levels, and the high public esteem for technical training.

Personnel Problems

In New Zealand, concern at the lack of technically trained personnel in upper management positions is common. This is seen as affecting not only technological companies, but also those involved in the financial infrastructure that supports them.

"There are not very many companies which have a strong technical culture. Chief executives and senior management rarely come from a scientific or engineering background, as opposed to accounting, law, economics or business administration," says Rick Christie, chief executive of the Trade Development Board.

Dr Mervyn Probine would like to go further, and encourage a broader acceptance of technological skills.

"Such people should not only be on the boards of technologically based companies, but they should also be on the boards of banks, finance companies and institutional investors such as insurance companies," he asserts. "We are unlikely to get the private sector investment in R&D that we need if the boards of such companies are technologically blind."

The lack of technical appreciation has been particularly hard-felt since the economic crash of 1987. As a result of the economic downturn, banks have shied away from any suggestion of risk, and sources of venture capital have virtually dried up. Company directors have concentrated on hoarding resources, increasing efficiency and minimising risks. While these are admirable aims, it has meant difficult times for R&D.

Given the current slack position of research and development in New Zealand, what is the likelihood that it will improve in the future? Like many things, it is seen as being tied to a recovery in the economy.

Incentives Desired

Tait sees the need for a financial package of some form to provide support for small, innovative businesses. While he admits that the concept of venture capital has gained a bad name following the collapse of the DFC, he recalls the successes of that institution as a lender of last resort.

"Yes, the schemes were wasteful and poorly targeted, but isn't that a comment on the quality and implementation of the scheme, and not on the principle?" he asks.

Tait attributes the success of his own electronics business, and that of others such as Fisher & Paykel, Production Engineering and Gallaghers, to the availability of incentives -- "that dirty, discredited word".

"The simple facts are that we now have a bunch of companies earning in exports, I estimate, between $100 million and $200 million per annum, all of which were hoisted into that critical orbit by the assistive thrust of incentives," he says.

Tait is concerned that economic ideology has taken over from practical realities. He states baldly that most countries are able to recognise vital national self-interest in supporting emergent innovative technologies, and he expresses despair at "whinging from up there on the Terrace".

Christie has also been concerned at the effects of economic imperatives.

"The huge drive of the last five years for both government and industry to pursue cost savings...runs diametrically against the necessity for much of our industry to invest increasing sums in research and development and applied science," he says.

Christie is aware that it is still too early for a major push at getting the private sector to increase its R&D funding significantly.

"It is vital that we do not further inhibit the [economic] recovery by endeavouring to transfer the relatively high government proportion of expenditure (within an overall low figure) to the private sector," he warns. "We will be net losers if we seriously expect the private sector to take up too much of the responsibility, too soon, in its present fragile state."

Cooperative Efforts

Christie would like to see greater cooperation between the public and private research sectors, particularly where commercialisation of the work is possible. This emphasis is one of the strong threads running through the funding rationale of the Foundation of Research, Science and Technology.

Policy makers at the Ministry of Research, Science and Technology hope that the figures from the R&D survey, combined with surveys of the government and higher education sector R&D programmes, will provide some assistance in assigning priorities to research and its funding.

The system is not without its problems. Perhaps of most concern in the research scene is the constraints applied to the funding.

"The present bidding system confines our scientists entirely to the objectives that have been put forward approximately nine months prior to beginning the work," notes Bevan Cornwall, assistant director of DSIR industrial development. "In the old DSIR system, a director could very quickly give staff permission to pursue a more important line of research unexpectedly revealed, and cease expenditure on a less promising line of investigation."

There are hopes that some discretionary spending allowances will help alleviate this, but it will take some time for the shakedown of the government science sector to start to show results.

Australian Example

Industrialists and researchers are looking towards Australia as a potential model to follow. Over the last ten years, the Australian R&D scene, in both public and private sectors, has undergone considerable changes. A host of incentives have been introduced, including offering a 150% tax break for R&D and requiring foreign winners of Australian government contracts to invest in local R&D.

The result has seen R&D in the Australian private sector double in real terms since 1984/1985, according to CSIRO chief executive John Stocker. Business spending on R&D in Australia runs at close to 0.5% of GDP, and growth has been strong.

"Australia now has the second highest R&D growth rate in the OECD, running at 14.9%," Stocker says.

Probine believes that some of the success comes from improved communication and cooperation between academic and industrial scientists. He cites the development of science parks and the leasing of space in university research laboratories to industrial companies.

The Closer Economic Relations policy is identified as offering good prospects for R&D collaboration between Australia and New Zealand.

"With our two markets joined under CER, it is time we started thinking about sharing the burden of some of our more costly scientific facilities," Stocker notes. "There would be benefits for both our countries in sharing the costs of oceanographic research vessels, high-resolution NMR facilities and many other expensive but vital research tools."

The question remains, how much would this benefit New Zealand R&D? It has already become commonplace for large New Zealand firms to relocate offshore, and many international companies resident here would not consider undertaking R&D in this country.

Associate Professor Mary Earle is worried to see companies moving away. She cites the example of Goodman-Fielder-Wattie, which now has virtually all divisions controlled from Australia, and research facilities over there taking advantage of that country's generous research incentives.

"We lost a major food technologist and processor," she says.

Cornwall sees some hope in the increasing number of liaisons between government and private sectors. He's seen real advantages in developing ties between companies and DSIR Industrial Development, and not just in commercial returns to his division.

"In contrast to the rather depressed attitude currently prevailing in much of our business community, these firms appear to be more optimistic in outlook, are usually export-oriented, and have a higher commitment to R&D than industry in general. We need more of them," he says.

Vicki Hyde is the editor of New Zealand Science Monthly.