R&D spend by mediumsize businesses seen as low

AUCKLAND: Midmarket firms, which make up 6% of all business, are not investing enough into research and development needed to grow, a new report reveals.

Of these firms, 23% spend less than 1% of their revenue on R&D, and 26% do not budget at all for R&D, as outlined in an MYOB report of 185 surveyed businesses late last year.

In New Zealand, there are 31,000 mediumsized enterprises which contribute 40% to the country’s gross domestic product and dominate the manufacturing, construction and trade industries.

MYOB general manager Carolyn Luey said a lack of skilled staff was the main barrier to innovation for many.

‘‘I think of Kiwi businesses as really forwardthinking and progressive, and so I was a bit surprised that less than 49% are spending less than 1% on R&D, which isn’t a lot of money,’’ Luey said.

Mediumsized firms should be investing 3% of their revenue into R&D, she said.

The report found the average amount a business invested in innovation was 1.5% of ITS revenue, and just 5% of firms stated they would spend the recommended 3%.

A third of businesses with a turnover of more than $10 million said they would spend less than 1% and 19% of businesses which earn less than $5 million said the same. Of those earning less than $5 million, 7% said they would spend more than 5% on R&D.

Callaghan Innovation chief executive Viv Crone said the level of R&D by New Zealand businesses significantly lagged behind their overseas counterparts.

‘‘Over the last year we have seen a lift in the level of investment by mediumsized businesses but we’re not there and it’s not good enough yet,’’ Crone said.

‘‘Businesses are not researching and developing new products and services, new ways of producing, new business models that will enable them to thrive and survive, and that’s the real concern that I have.

‘‘Investment in R&D means topline revenue growth will be stronger, providing more jobs for the New Zealand economy that are more highly skilled, and that’s why the Government is happy to support the growth in R&D investment.’’

Energy and agriculture sectors were lagging the most in R&D investment, she said.

‘‘That’s a real concern because agriculture is a huge part of our economy and also facing one of the biggest changes over the next decade.

‘‘There’s a lot of risks if New Zealand businesses don’t start doing this. Firstly, they will be left behind. We’re competing in a global world now . . . and we know that artificial intelligence, big data and automation is going to hit our workforce over the next decade, and we must be planning for that as businesses.’’

According to Statistic New Zealand’s Business Operations Survey, the number of companies investing in R&D is increasing rapidly, up 13% year on year.

Companies with 20 to 49 employees had the largest overall increase in R&D expenditure, up 59% to $237 million.

Professional, scientific and technical services and manufac turing sectors account for 77% of New Zealand’s total R&D spend.

Many firms were not geared up for growth, with 19% of firms stating they would like to maintain their current market status; 15% did not know what their longterm goals were.

Just 16% indicated they were looking to grow this year.

‘‘It’s quite surprising that so few bigger businesses are looking to grow — 17% just want to stick to the status quo and 13% were more interested in providing a comfortable lifestyle for their owners and directors,’’ Luey said.

Thirtyeight% of mediumsized firms with an annual turnover greater than $10 million were comfortable maintaining their place in the market.

Growth and customer satisfaction was not considered to be the greatest indicators of success with 28% of firms stating they measured it on how much they increased revenue.

‘‘The midmarket is a really important part of the New Zealand economy. If it starts to stagnate then that will start to stagnate the number of jobs they can offer, and the amount of investment they are pouring into the economy,’’ Luey said.

‘‘These businesses should think about the future of the industries they operate in and what more they could be doing to grow by leveraging technology, investing in R&D and thinking differently about how they can address pressures.’’