In 1882 a boat-load of frozen meat left New Zealand and arrived in London three months later in excellent condition.
Argentina and Australia had shipped meat before with limited success, but the game-changer was the combination of kiwi meat-care smarts and the innovative step of refrigerating the entire ship’s hold.
The frozen meat tale is a classic illustration of the NZ innovation story. It demonstrated NZ’s capacity for innovation and how technology can make us competitive despite our geographical isolation. But we flunked the intellectual property test in not owning and controlling the IP and protecting the methodology. Very soon foreign meat producers had copied it and were competing against us, without paying for the privilege.
The statistics tell us that NZ is an innovative country, but that we have a dismal record by OECD standards for successfully commercialising our innovations. And we have an over-reliance, now well documented, on marketing commodity products. In 2014, we exported around $11,000 in goods per person in this country; Singapore by contrast exported 10 times that amount per person, principally because only one of their top 10 export items is a commodity.
NZ business has to up its game in this area. We’re far from our markets so the ideal product for us is one that can be sold, licensed and delivered electronically. Prosperity from innovation is also greatest when the innovation is owned and controlled by strong IP rights in all relevant export markets; not surprisingly the biggest and most profitable businesses in the world are IP-rich and own huge IP assets. Developing innovation that the world wants, and licensing, joint venturing or selling the rights overseas is the modern equivalent of refrigerated shipping. Distance from market is no longer an issue.
Successful commercialisation and the necessary investment it requires is difficult in NZ where successes are both uncommon and often go unnoticed, and where the market is small and geographically isolated. Market forces won’t change this situation because of the risk profile. NZ’s R&D expenditure is around 1.26% of GDP – half the average of the OECD where we rank 31st. To up our game we have to provide greater support for research and development – and support the resulting innovation.
Our government has to lead on this. Facing a similar issue in the 1990s, the Israeli Government decided to jump-start science-based industries by providing financial support for commercial R&D; Israel now has the highest gross expenditure on R&D in the world, the largest number of companies listed on the NASDAQ outside of North America, and the highest level of venture capital as a share of GDP. High-tech industries in Israel now represent almost 50% of Israel’s total industrial exports today.
Australia provides tax deductibility for R&D. In the UK, the profits on products covered by a patent are taxed at a significantly reduced rate to encourage ownership of innovation. And in China, government, regional and local subsidies can combine to cover the full costs of international patenting. By contrast, NZ has R&D funds but the paperwork and effort to access them is often a deterrent to the small to medium sized businesses that drive innovation and business in this country, and they receive no help to own and control their commercially valuable ideas through assistance with funding IP costs. It appears we have not learnt from past mistakes and are determined to stay a low wage commodity-focussed economy.
Food for thought.