Spend up large on R&D

Schizophrenia seems to be a common condition among New Zealand business people. Perhaps that's what it takes to be able to survive in a tough market.

Schizophrenia seems to be a common condition among New Zealand business people. Perhaps that’s what it takes to be able to survive in a tough market.

One moment you’re civility itself as you work to ensure a customer does business with you rather than with your competitor down the road. The next moment you’re ruthlessly cutting margins and corners to get one over that same competitor.

The Catching the Knowledge Wave conference has put another set of symptoms on display. After the wave broke, various interests were calling for the government to lead the country out of the economic mire; at the same time they want the government to make itself scarce so they can do business unhindered by meddling bureaucrats and politicians.

It’s a familiar spectacle: would-be investors calling for cuts in company taxes (or R&D tax breaks), without which they’ll not sink a cent into new ventures (there’s one expatriate New Zealander in California who’s featured in these pages frequently over the past half-year or so pushing that line); in the next breath they’re arguing for a “level playing field”. I’m no psychiatrist, but there does seem to be some conflicted behaviour being displayed here.

Calls for the government to throw business a lifeline are so frequent that you could almost start to believe it was warranted. But if you look at the R&D issue alone, the numbers (contained in a report by the government-created Science and Innovation Advisory Council) suggest the public sector is already doing its bit.

The report says New Zealand’s R&D spending as a proportion of GDP is just 1.12%, compared with an OECD average of 2.17%. The figures are not being dragged down by a government unwilling to invest in innovation, however; it’s private sector R&D which lags. New Zealand businesses account for just 28.2% of total R&D spending, whereas the OECD business average is 68.2%. New Zealand’s spending by businesses on R&D is a third of that in Australia, according to the report.

Proponents of tax incentives for R&D might argue that these figures prove their case: that businesses are so unwilling to spend on research that the government must make it more worth their while. In fact, the government has, changing the rules from this April so that qualifying R&D spending can be immediately written off against tax. The writers of the report point out that the absence of any such incentive at the time they compiled their data probably means business R&D spending has been under-reported, since there was nothing to be gained by those investing in R&D from drawing attention to it.

Those things probably mean there’ll be an improvement when R&D figures are next compiled. And while I’m busy making assumptions, I’d also guess that the New Zealand IT sector is well ahead of local business overall when it comes to R&D spending. Successful software exporter Aoraki, for example, takes the view that it “lives and dies by R&D”, so it sinks a minimum of 10% of revenue into it.

Another Christchurch-based software outfit, Ceritas Digital (until recently Turing Solutions), spends even more, although it describes itself in start-up mode. The company will this year spend about 25% of revenue on R&D as it creates products based on Microsoft’s new .Net platform, in a deliberate “bet the business” strategy.

A US developer, Raining Data, which is roughly the same size as Aoraki in revenue terms, commits about the same on R&D as Ceritas Digital is spending. The company head, who was in New Zealand last week, says it’s usual for US software firms to spend less, but he willingly pours in that amount without looking for government incentives.

Smart businesses don’t need to be told that spending on research and development will pay dividends and are just getting on with it; the not-so-smart ones simultaneously blame the government for their problems and want it to solve them. The IT industry has the chance to show the rest of the business community how it’s done: get out there and spend, spend, spend.

Doesburg is Computerworld’s editor. Send email to Anthony Doesburg. Send letters for publication in Computerworld to Computerworld Letters.

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