Another R&D stimulation package leaves out the smaller players?

By Grant Jacobs 12/05/2010

Perhaps because they can’t whisper in the Prime Minister’s ear?

igniting-potentialI’m kidding. (It would be a worry if there were some truth in it.)

More seriously, I would like to understand why.

Don’t get me wrong. My initial impression is that it is a fine initiative for those it does serve. I’m just curious as to why smaller players have been left out.

John Key’s speech outlines several initiatives: Technology development grants, technology vouchers, technology transfer, science capability and introduces the Igniting Potential document (PDF file). The latter is ~60 pages long and I’m still coming to grips with it. In the meantime I will rely on the speeches and summaries.

As (very) small player, this line in the MoRST summary (PDF file) of the requirements for applicants to the new Technology Development grants catches my eye:

and revenues of at least $3 million a year

OK, let’s forget about helping smaller ventures or those at an earlier stage.

It’s like John Key says in his speech:

These grants will be targeted at medium to large, research-intensive firms, which can show that their activities result in wider benefits to New Zealand.

It is good to see the broad issue receiving attention and I applaud that. But why the focus only on larger players?

John Key said:

They are not project based, which cuts down on bureaucracy and lets research-intensive firms determine the best use of the funding.

I hope this is set up to encourage new initiatives to start on seeing the opportunity rather than after protracted application processes. My impression is that one of the key reasons the top institutions are the top research institutions is that they are able to react to new directions swiftly. (The same can be said of businesses.)

But why deny the smaller players? Without supporting them, it would seem to want to ’institutionalise’ R&D in New Zealand.

My concern over the absence of support for smaller players extends to other initiatives in the package. The Technology Transfer Vouchers are limited to ’accredited research organisations.’ Readers are welcome to offer odds that smaller players will be included. (Mine are very low…)

The approach sets up a familiar catch-22. Smaller players can’t get to ’Go’ because the entry point is too high and favours the existing larger players. The best they can hope for is to prostitute ally themselves to one of the larger players, if one fits their venture. (Assuming there is a means to benefit this way.)

If the intention is to allow quicker responses to new opportunities within the existing institutions I appreciate the thinking and support it, but–in my opinion–the criteria that make this work, over and above funding being present, are the skills present, their fit to the venture and how research is managed within the organisation, not the size of the organisation or even it’s past record per se. (Size will affect what kind of research is tackled and how.)

Shortly after writing the draft version of the above I received in my email a news release from NZBio, also available on-line. Running under a subject line of ’NZBIO URGES GOVERNMENT TO INCLUDE INNOVATIVE SMES’ (capitals in the original, it’s a media release), it presents similar concerns:

’One potential concern is that the largest of the new measures is an investment of $189.5 million over four years to create a new type of R&D grant targeted at medium to large research intensive firms. With New Zealand’s predominantly SME economy and a focus on improving tech transfer new enterprises will be created. NZBIO and its members look forward to seeing the Government’s strategy for supporting these small, innovative companies.

’Major contributors to New Zealand’s science and innovation industries are often small to medium sized enterprises. It would severely impact their ability to contribute to New Zealand’s economy if these companies are ineligible for the benefits targeted at larger organisations.

[For the full article, please read the on-line copy.]

As these initiatives are not being launched until late this year, it would be good to think that there is still time to add support for SMEs.


Don’t confuse the meaning of R&D here with that in Labour’s tax credit. (The implementation of this I believe was actually headed by Peter Dunne of United Future.) R&D in Labour’s scheme more-or-less was any ’investigative’ activity that might further the success of a business. My understanding is that the R&D in the current initiative is the more traditional research that takes place in universities, CRIs and so on.

On a personal note, when Labour’s R&D package was announced it explicitly included players of all sizes, right down to self-employed operators. When implemented the small players got quietly dropped from the frame. Talk about offering hope only for it to be dashed.

(Updated to remove the reference to Christine Ross being the CEO of NZBio; the CEO is Bronwyn Dilley. My apologies.)

Other articles at Code for life:

More science in literature done right

Your thoughts on the future of bioinformatics in New Zealand

Alliances of pharmacists & GPs; opportunities to pressure for removal of useless “remedies”?

Myriad Genetics patent of BRCA (breast cancer) genes denied

External (bioinformatics) specialists: best on the grant from the onset

More inclusive re-entry to encourage departure to businesses?

0 Responses to “Another R&D stimulation package leaves out the smaller players?”

  • The point here is that the TechNZ scheme already supports companies of any size.

    This initiative is to help existing research intensive companies (5% of turnover spent on R&D) of a modest size (>$5M turnover), by giving a grant of 20% of their R&D spend up to a max of $2.4M p.a. If you are going to put more money in I think this is the point of leverage on the economy. Getting behind those that have done the journey part way make sense, and by helping here we will free up TechNZ resources to help more SMEs.

    I should add that this is more generous than a 150% tax credit for these companies. The tax credit gives 30% of 50% of the R&D spend (15%), this gives 20% of it.

    The issue still remains about how to get sensible medium-term investment in R&D for NZ. Giving businesses more encouragement won’t solve this problem because they tend to under invest because of the risk and issues around appropriability. The hard bit is to get a process that involves both research providers and businesses to set an agenda for investment that will underpin profitability for companies 5 – 10 years out. This is the real job for the public end of RS&T, something this package doesn’t address (and the CRI review only weakly).

  • Are you in a position to indicate that this is “the” point, or that this is just your guess of why? (If it is “the” point, I would have thought that they’d point it out.)

    Doesn’t your suggestion just leave what I said as it is? Everyone has access to NZTE money. The companies with access to the new funds are already getting TechNZ money, too, e.g. as Adam Bennett wrote:

    “Virtually all of those companies were already receiving taxpayer-funded assistance via Technology NZ grants made for specific projects. Those grants, totalling $50 million this year and $55 million next year, were separate to the funding announced yesterday.”


    The smaller players don’t have access to the new schemes and there is no “more money” announced from another source to similar value/effect.

    If TechNZ grant criteria or targets were altered in some way this might make what you are suggesting happen, but I’ve yet to hear of any news of that. (I’m not suggesting this is a good solution or not, just that it’d match what you’re saying.)

    Getting behind those that have done the journey part way make sense

    This bit doesn’t quite make sense to me (sorry!). These grants are explicitly not project-oriented. The thinking you are offering works for a project. What might be more appropriate would be to say those that have previously proven to have an infrastructure supporting R&D get to do more. The trouble with this is that it denies that smaller players are relevant and I’d disagree with that.

  • Grant, I was at the announcement yesterday – it was pretty clear from talking to government officials etc that the focus for the next little period is on kick-starting R&D activity in medium-sized businesses – a 30 person engineering firm for example that is turning over a few million, exporting, but not being particularly innovative. For years the Government has been injecting small grants into small companies via NZTE and while they are still doing that, there’s a worryingly low level of R&D going on in the larger companies, which is why the private sector R&D is lagging the rest of the world. The big unknown as someone on another thread mentioned is will these type of businesses take the bait – will they reconfigure parts of their businesses to focus on R&D ie: look more strategically and longterm?

  • I don’t think you’re getting what I’m saying Peter. I’m not opposing what they are doing, I’m wondering about what they are not doing. It seems to me that you can apply the same thinking as you offer to smaller businesses, too.

  • If one is to believe the Governments focus on bio-based solutions for changing the the economy, then we must wake up and realise this does nothing towards this end. Backing winners may increase productivity for these companies, but it is not game changing.

    Smart investment in start-ups run by experienced entrepreneurs is where New Zealand is desperate lacking. Our capital markets for these sort companies could be described as non-existent compared with our overseas counter parts. The government must step in here.

    Bio-based solutions require huge amounts of R&D before they make a single dollar of revenue, this is where the government should be placing more money. The $50 million of TechNZ money is great, but until Key and Mapp quadruple this money or the like, I see no hope.

    The big players such and Fonterra and F&P will effectively have their expenses subsidised, whilst effective schemes such as the FoRST Postgraduate Internships, which has allowed my company to bring on two more full-time researchers, have been cut.

    As for the ‘voucher system’ for companies to spend with CRIs, I can easily imagine company chewing through $20,000 per week of these with the ridiculous rates changed. The government would be better off allowing small companies without their own researchers to spend it with contractors.

    Typical hourly rates for a CRI are:
    $160 p/h for a researcher (Usually with a PhD, when you really only need a technician)
    $100 p/h for ANY equipment used

    As a research scientist I know research is expensive. But private companies end up funding the CRI researcher’s own projects. They may spend 15% of there time suppliying overpriced contacted research but the profits of this are spent on their own interests.

    Providing they reach 14% return p/a the government is happy. But as stakeholders in New Zealand science and technology we should not be.

    Start-up companies get ripped off and the ambers are extinguished before the idea has a chance to take flight.

  • Evan,

    It sounds as if you are already aware of this, but a “word to the wise” all the same for other readers.

    The hourly rates you cite look like all-overheads-included rates as mine usually are too. (I am a computational biologist consultant.)

    If university staff were to try convert, say, a post-doc’s salary into a consulting rate, I think they’d find them to be much higher than they expect.

    I have some experience of this as I occasionally get academics saying my rates (substantially lower than those you cite) are high when — compared correctly — they are lower than their own staff. I’ve gotten used to people saying “you’re expensive” when I’m more affordable than the person saying it to me! 🙂

    I’d like to think that my overheads aren’t excessive (I’m trying to offer a competitive rate, after all), but I do have substantial overheads as will the CRIs that you refer to. This will be where the apparently high rates will come from. The question then becomes one of overheads and where do they come from. (I’ve heard one person comment, “on too many business development managers”!)

    Regards overheads for the projects themselves as opposed to elsewhere in the business, contracted projects typically entail a considerable amount of background work that isn’t billed directly. This will be true for the CRIs too. You can’t just turn up on someone’s door unprepared, so to speak.

  • @Evan: What makes you think that CRI researchers have the luxury of doing research on “their own projects” ? CRIs strictly only get funding to work on projects that interest industry – a majority require significant industry co-funding to even be considered for Govt funding. From a CRI perspective, this is the main difference between a CRI and a University. The CRIs are working for industry, the Universities work on whatever sparks their imagination. The new R&D initiative has me worried. It looks like there is money for quick fixes for industry. This approach will work for some areas for some time. However, after a while quick fixes will no longer be available because the underpinning research required to come up with more quick fixes is missing due to lack of funding. All the conservative govt has done is to provide more money for industry – direct science funding has not kept up with technology cost and salary increases. There is no way a medium to large business can fund several years of underpinning work with a 100,000 voucher or two. When we run out of quick fixes, this short term solution will bite us in the bum.

  • Agreed Grant.

    My point is that companies end up paying 100% of a CRI departments overheads, whilst the CRI only spend 15% of their time on the contracted work. Much of the work CRIs do is not profitable at all, so to reach the 14% return they must over charge their services.

    With the Technology Transfer Voucher model proposed by the government, businesses must use them to purchase services from CRI’s. There is no competition for these services and the government should realise there is no incentive for CRIs to be competitively priced. In fact, the only incentive is to charge more and make the 14% return doing the least work as possible.

    In my area, much of the standard benchwork, ie running gels, ELISAs, PCRs etc is done by CRI employees who hold PhDs when the reality is 80% of it could be done by technicians.

    My view is that the CRI model is doomed. People really get in behind early stage business when they have a stake in it. There is nothing that will get a people motivated to work hard for the best outcome than giving them some skin in the game.

    The CRI model ignores this completely. From my experience, as soon as CRIs have a success, the government milks them for all there worth (i.e. IRL’s BioPharm). Because the people running the business have no personal capital in it, the necessary incentives for sucess are just not there.

  • This thread has wandered a bit, but a few quick comments.

    Grant, the issue is you have limited funds where do you put them, particularly when the theoretical arguments for intervention at the business end are weak. Would you stick it in risky untried start-ups or to encourage existing research intensive businesses to do more? As a sub-plot here I should add that this policy makes NZ’s regime competitive with Australia’s tax credits at least for the companies in the target areas.

    Evan, F&P HC would be regarded as an SME in China or the US. The scheme only funds companies up to NZ$240m turnover (assuming 5% spend on R&D). These are little companies globally. I also think you missed the point that the vouchers are available to be redeemed at Universities and CRIs, and I suspect because Universities can marginally cost their services and have access to cheap labour they are likely to get the majority of this business (even though I suspect this wasn’t the intention of those that designed the scheme).

    As a general comment I think there is a lot of confusion between product development and R&D. The relative price of each is different. I work with scientists that are developing significant technology platforms that with a fair wind will return significant value to NZ. This is expensive (equipment, deep experience etc) and it is very much an investment that requires input from CRIs Universities and NZ businesses. I also chair the board of and part own a company that is involved in IP development and exploitation in engineering fasteners. Here the need is product development which is relatively cheap and cheerful. Using a CRI would be fool hardy – that’s not what they are there for. It would be a distraction for them and problematic for us.

    My point is to basically repeat the last para of my original comment. The government and the CRIs are in this for the big strategic returns, this requires significant, high quality investment in mission oriented applied research, but the government and the CRIs need to better involve business in doing this.

    That’s NZ’s real problem, but perhaps a more research intensive private sector might help the necessary conversations to take place.

  • Sorry quick correction. The scheme funds companies with over NZ$240m turnover, but the grant tops out.

  • In addition to the views the SMC have gathered in ‘Science in the Budget’ (see pingback link above) here a few more. These are biased to the smaller business angle, because that’s what I’m trying to think about.

    From the National Business Review:

    (Note comment starting with “The exclusion of smaller entities is a real defect” and ending with a poke at business development groups.)

    Lance Wiggs:

    NZ Herald editorial:

    Check google news for a much, much longer list…

    I’ve had a private comment to the effect that science (in the commercial sector or not) should be not competing or selling on cost but value. I think it’s a point worth thinking about.

  • @ SAB – I have to take issue with your comment that the universities work on whatever takes their imagination. A lot of our research money these days comes in from contract research where we’re being paid for results & we’ve put in a bid for a particular project. Yes, it’s still possible to do the ‘other’ stuff, the blue-skies, imagination-driven research, but it’s not as common as the public perception might be.

  • Alison,

    I wonder if it varies from department to department and from university to university?

    I suspect SAB was just generalising to illustrate a core difference of aims, rather than trying to stereotype or be flippant 😉

    I know what you mean and agree that universities do more than just “pure” blue skies work. As a different example, Auckland University has UniServices to contract out their staff as consultants. (A friend picks up some work this way.) That said, the few university research projects I’m familiar enough with down here (at Otago) are mostly researcher-driven.

  • Grant said “the few university research projects I’m familiar enough with down here (at Otago) are mostly researcher-driven.”

    I think this is great. In my opinion these sort of projects are what the universities are for, as they guarantee long term scientific progress. Given the current funding of science education in NZ it is not surprising that universities take on consultancy work, but my worry is that if universities become too involved in that type of work where they are “paid for results” they can lose the perception that they are scientifically objective (just look at the accusations flying around in the climate change debate).
    On the other hand, with all the expertise in universities, it would seem wasteful if industry couldn’t access it.
    It’s a fine balance really – how much consultancy work should universities be involved in? And is there a way for researcher to carry out consultancy but still remain “untainted” in the public’s eye?

  • Just to add to what SAB wrote:

    I feel that the lack of real understanding of how the different players (CRIs, universities, companies, consultants, etc.) work can result in stereotypes that aren’t helpful. (Saying this of anyone writing here, “ just sayin’ ” as the American saying goes.)

    In a related theme, a recent bioinformatics meeting (see my posts of about two weeks ago) featured issues of competition between different parties.

    I feel these issues (both them) are preventing some things getting done cooperatively.

    Universities work on whatever sparks their imagination

    Talking only about research grant-based work, I think of it as whatever sparks the imagination of the grant committees. A little cynical of me… 🙂

    I think that many people have what they’d like to do and, separately, what they think they can “sell” to the grant committees.

  • DrMike,

    Don’t forget my selection is incredibly small and biased to my own interests. If the wider picture is different I probably wouldn’t even notice… 🙂

    The consultancy/outsourced work I’m familiar with — a very small sample! — strongly leans on narrow “domain knowledge” that can’t easily be gotten other ways, e.g. specific genetic tests, specific knowledge some mathematical/statistical/engineering/etc technique. I can’t imagine them involving much in the way of conflicts.

  • Evan wrote:-
    ” The CRI model ignores this completely. From my experience, as soon as CRIs have a success, the government milks them for all there worth (i.e. IRL’s BioPharm). Because the people running the business have no personal capital in it, the necessary incentives for sucess are just not there. ”

    As a former IRL Biopharm employee who left before it was shut down, that was not the reason it failed. It failed because the staff ( me included ) were unable to deliver consistent quantities of very expensive product to overseas customers. The customers then went to other overseas firms who successfully delivered the product. They wanted to work with IRL Biopharm, but we couldn’t deliver promised product.

    Interestingly, the causes of non-delivery were technical, failure to produce desired fermentation metabolites without contamination, and failure to perform consistent silica gel chromatography.

    The failure was not due to inadequate IRL investment, high CRI chargeout rates, or any other reason, but the simple inability of staff to produce product. The issue was that as failures incremented, quality systems documentation expanded in the vain hope of consistency, unfortunately resulting in consistent failures.

    The increasing quality system needs distracted technical staff, and rational and effective root cause analyses were not performed. Instead, management changes were introduced and the new non-technical managers thought increasing the quality system could fix technical issues.

  • Simon,

    Grant, the issue is

    I appreciate your experience and effort in commenting, but I’m wary of people who write “the issue is”! 🙂

    particularly when the theoretical arguments for intervention at the business end are weak. Would you stick it in risky untried start-ups or to encourage existing research intensive businesses to do more?

    I think you’re thinking of something other than I am.

    All just food for thought:

    With no offence intended, I don’t think casting all smaller players as “risky untried start-ups” is helpful.

    Some smaller players are well-established companies that are simply smaller. Some are “service” companies with an R&D side. Smaller players can be “existing research intensive businesses” and offer research too.

    As just one example a fellow blogger runs a forensic science company, which I understand has R&D projects. I doubt they would be described as a “risky untried start-up” in the sense that I think you are referring to.

    It seems to me that research projects are risky by their nature. If they didn’t involve uncertainty, they wouldn’t need much in the way of testing or study. Large firms can offer projects that in the long-term don’t fly, which when viewed as projects are “risky.” You refer to your own ventures with the caveat “with a fair wind,” which to me says the same “risky” message you place on smaller players. (Nothing negative meant.)

    In a sense perhaps all research projects could be considered “start-ups,” even if the businesses they are hosted within are not?

    With that in mind is the main difference not size per se, but that the infrastructure is in place in these companies and they’ve been through it before? Taken at face value this sounds good (and almost certainly is) but if that’s the basis why exclude smaller players that also meet this criteria? Or, for that matter, other forms of experience outside of these larger businesses? Or new ventures based on old hands? Etc.

    Perhaps picking larger players makes for a softer target and an easier “sell” (?), but others say that many (most?) of NZs R&D successes have come from SMEs, so is only targeting the larger players the best idea for NZ?

    Finally, would the approach offered encourage cost-driven competition rather than value-driven development?

  • Grant, if the issue isn’t about where we should put limited funds, I’m a bit bemused by what it might be. You’ve lost me.

    I think perhaps you are sliding past the distinction between what you do at the margin (what’s our next priority for expenditure) and what we are doing in aggregate. You say “so is only targeting the larger players the best idea for NZ” as if we are doing nothing for really small companies right now.

    If you forgive me – the issue is what is the optimum invention at the margin. Very small companies are probably doing OK particularly when you realize F&P HC put on $100m extra turnover last year.

  • Hmm pushed “Post Your Comment” too quickly so my final sentence is unclear. My point is that more systematic support for F&P HC might be a higher priority than looking after more really small ones.

  • Simon,

    if the issue isn’t about where we should put limited funds

    The first sentence on it’s own would be fine, but can you see how your second sentence is framing it to suit your own answer? (I’m not accusing you of anything here, just noting it.)

    I’m a bit bemused by what it might be

    I’m not attempting to offer a position, I only remarked on the use of the phrase. I’m wary of people who write “the issue is” as it’s often used dogmatically. Please note the wink after what I wrote.

    I think perhaps you are sliding past the distinction between what you do at the margin (what’s our next priority for expenditure) and what we are doing in aggregate. You say “so is only targeting the larger players the best idea for NZ” as if we are doing nothing for really small companies right now.

    C’mon Simon, I’m not “sliding past” anything. Hey, I could reply “I think perhaps you are sliding past almost everything I wrote to misconstrue a few words at the end”…! 😉 That sort of thing isn’t helpful.

    I wrote what you quoted with reference to the new initiatives; you’ve shifted it out of it’s context. Change the quoted passage to “so is having these new initiatives only target[ing] the larger players the best idea for NZ?” if you it helps you.

    Please note that I didn’t put up a position as such. I’m just curious as to what the reasoning might be. The new initiatives do have a fairly striking targeting and asking why smaller players aren’t included seems valid.

  • An old post, but interesting. Australia’s revised tax incentives and rebate package seems to prioritise emerging businesses rather than businesses which already can access capital.

    The argument around FPHC is an interesting one. The base question might be, would they do it anyway? and is the focus perhaps best targeted at helping to creat another FPHC.

    There is still a base problem for businesses of having to get approval to do something they believe in. A tightly configured tax package in addition to technology grants (which is where australia is heading) seem to provide the most seamless support for technology and innovation.

  • Timothy,

    Good of you to drop by and offer your thoughts.

    Old threads never really die, they just get re-started when someone speaks up! 🙂

    Maybe I should pull up roots and wander over to the other side of the Tasman? 😉

    Not in reply to your comment, but just while I’m writing (I haven’t time to read back over the earlier material either…): An issue I have with policy is that I’d really like see the policy-makers present the demographics of the target audience along with the policy, so that it can be seen to what extent they are covering all those in the target audience (or not).

    If a sizeable proportion of innovation is being attempted (not succeeding, that’s a different thing) in small companies, might they then be missing the boat? (I’m not arguing either way, just pointing out that knowing the demographics of the industry might help.)

    There was a recent newspaper article that highlighted the extent to which NZ was a country of small companies. (I’d have to track it down again…) I don’t know what the balance for the R&D sector is, but I am aware of a number of smaller players, and I would imagine there will be many more that I am not aware of. I would like to see the policy-makers show that focusing only on the large players really is justified by more than rhetorical statement or political convenience.

  • 80% of companies in NZ employ less than 20 people. There is no doubt that the R&D funding system intended is aimed at the rest. QED.

  • exactly, I remember Rod Drury talking about their business model, saying they selected SME’s as they are the largest monetised market aside from consumers.