The Chinese government’s increasing investment in research and development is creating a perfect storm for New Zealand’s innovators. Johnathan Chen, Head of Asia Division, James & Wells, explains what we should be doing about it.
When people talk about assets we automatically assume reference is being made to tangible things like land, vehicles, houses, commercial property, and even bank accounts. But it’s not only these variety of Kiwi assets that others, particularly Chinese investors, are interested in. And with good reason.
We need to wake up and realise it’s time to move on from our pre-occupation with the Chinese trying to snap up our cleaner, greener and more bountiful land. We have many more valuable renewable assets to sell or lease without the aggravation.
China has got the biggest chequebook to fund innovation, and they’ve finally figured out that copying others will not lead to a strong high-wage economy: they now appreciate that they need to own and control technology in order to be a real global powerhouse.
As a result of this, the Chinese government has turned its focus to R&D, with an emphasis on the importance of value-added products and intellectual property.
The Chinese government and regional authorities are encouraging Chinese firms to develop their own technologies, as well as providing subsidies and tax incentives to companies conducting R&D. If you’re in the right sector in China, you can have your R&D efforts fully funded, along with related patenting and trade marking costs, not just for China, but overseas too.
In China, R&D expenditure has tripled since 1995, and the total R&D spend is estimated to have reached US$220 billion (NZ$283 billion) in 2013. China’s R&D spend is in fact set to overtake the US in less than 10 years.
Moving up the innovation rank
The upshot is that the Chinese are hungry for new technology, and the fact that they’re being incentivised and encouraged to develop and acquire it presents a huge opportunity for Kiwi innovators.
The Chinese have got the opposite problem to us: they have amazing abilities to implement, commercialise and distribute products, but get stuck when it comes to 'real' innovation.
That’s not an issue we have. I think it would be fair to say that Kiwis are natural-born innovators. We have intellectual property which we can sell or license - assuming we bother to take steps to own it. And so long as our brains keep working, it’s a resource that should never run out.
We perhaps are not aware of the opportunity because most New Zealand businesses don’t realise that 80 percent of their value lies in intangible assets like their IP.
Historically, we Kiwis haven’t been outstanding at following through with our innovation to profit from it internationally. We currently rank only 65th out of 141 countries for 'Knowledge diffusion' on the Global Innovation Index. That’s where the flow of money for international investment coming out of China offers a ready solution.
China has been trying very hard but struggling to succeed at innovation or breakthroughs. This is not surprising, given its long history of mass production factory lines and the suppression of freedom of thought.
The Chinese however have great ability to reverse-engineer things, they are amazing at implementing and commercialising a product.
Window of opportunity
Coupled with the recent loosening of regulations governing the ability of Chinese nationals to invest capital outside of China, Kiwi companies should be leveraging this opportunity while the Chinese are still hungry.
There is a window of opportunity before they become so advanced in the innovation space that they don't need us. Trust me, that won’t be long with the amount of resources the Chinese government are throwing at innovation and education to encourage more innovative thinking.
If you are finding this hard to believe and asking ‘what technology can a bunch of copycats come up with’, just look at the automotive industry. Ten years ago Korean-made cars were considered ‘copy cars’, but I don’t think anyone would say that about Hyundai and Kia now.
Money for your intellectual property won’t fall into your lap. While New Zealand businesses are well regarded and respected in China, the gap in knowledge and understanding can be a stumbling block. To quote an old Chinese proverb, “To know the road ahead, ask those coming back”.
Recently I was involved with a visiting group of around 30 members from the Shanghai Entrepreneurs Association, who were looking at investment opportunities in New Zealand. Several of them were billionaires. The opportunities are there – you just have to know where to look and how to land them. It’s critical that businesses learn from those who have in-depth knowledge and experience in the Chinese market.
It is high time Kiwis start using their clever thinking as leverage to tap into the abundance of capital flowing out from China. We may have great land to offer, but it’s not unlimited.
Kiwi intellectual property, through ingenuity and innovation is, on the other hand, a limitless renewable resource. It doesn’t take much convincing to see which assets we should be selling.
This article first appeared on Idealog online.