Why Kiwis are desperately bad at building profitable business

Why Kiwis are desperately bad at building profitable business
Pic sourced from Te Ara website: Johnny Callender, father of world's first farm bike
If Kiwis would just start being less generous about giving away their best ideas, and the Government a bit more generous in supporting our innovators, New Zealand would have the chance to bring its global ranking for GDP up to the top 10 again.

This is what indicates our standard of living and, alarmingly, we’ve slipped down the ranks from number one in 1900, to an all-time low of 46th at the end of last year.

But it doesn’t have to be this way.

According to Global Innovation Index rankings New Zealand is ranked 17th in the world for innovativeness, but 90th in terms of innovation efficiency. In other words, despite a lack of homegrown innovation heroes to inspire inventive Kiwis our traditional can-do innovativeness hasn’t deserted us.

Bad at making money

The problem is we’re desperately bad at building profitable new businesses out of good ideas, then taking them to the world market and making some serious money. If we want a prosperous future, we have to turn this around.

If we continue to eschew an innovative knowledge-led economy and pin our aspirations on producing cheap protein, we will keep spiralling down the GDP per capita rankings and our standard of living will gurgle down the plug hole with it.

Generous to a fault

The predicament we find ourselves in is partly due to New Zealand’s isolation, which led to the development of national characteristics such as a willingness to work together and help others. Survival and progress depended on sharing ideas and successes.

Examples of such generosity are common.

Most people won’t know that the world’s first farm bike was invented in 1963 by New Plymouth farmer and keen motorcycle mechanic Johnny Callender. He was swamped with orders but faced difficulties expanding – with no registered IP, licensing wasn’t a realistic option and international growth opportunities were virtually nil. His bike used a Suzuki engine, and Suzuki soon built and sold its own version, making it impossible to develop Callender’s invention into a local industry.

Ernest Godward’s egg beater is another classic example of a great Kiwi invention – crucial in the making of the iconic pavlova – but which we lost before we had time to lick the beaters clean. Although he patented the invention, which took egg preparation for sponge cake down to three and a half minutes, from 15 before, in 1900, others got to make the most of it, not us.

Owning the IP

Altruism simply doesn’t work these days in the global economy.

Our focus must now be on owning and controlling the results of our brilliance beyond our small corner of the world and making money from our intellectual property in the lucrative Asian, European and North American markets.

The solution seems simple then – except that Kiwi businesses are swimming against a tide of naivety and unhelpful government policies.

We kid ourselves that all is well and that New Zealand’s economy will always do OK because of our ability to produce quality agricultural and horticultural goods cost efficiently – not to mention charging a premium because we’re apparently 100% pure.

However, if you have tried vine ripened Chilean kiwifruit, you would be starting to feel a bit nervous. And an all out sphincter-clenching fear should set in when you hear of New Zealanders assisting South Americans to convert high altitude tropical land into super productive, low cost, mega-dairy farms. These can carry 50,000 cows on pasture that grows all year round producing three times the grass of a lush Waikato paddock.

But it doesn’t have to be this way.

How to be king

The attitude of many Kiwi business people to IP ownership is out of date with reality and locked in the past. We have to stop kidding ourselves that no one would be so unsporting as to copy us and that our geographical isolation will protect us. The amount of ‘R&D’ undertaken by camera-toting foreign visitors at Fieldays is testament to this myth.

We have to realise that the value of innovative products and technologies doesn’t blow hot and cold like the commodities on which our economy currently depends, and that owning IP is king.

Bungy - a Kiwi invention

Government policy could help drive an innovation-based economy. New Zealand has one of the lowest rates of R&D spending in the OECD. Unlike most developed countries, New Zealand businesses receive no tax incentives for innovating. Compare this to our nearest neighbour Australia, where there is 50% tax deductibility on R&D expenditure. 

Our government also offers no assistance to local companies to own the IP rights they create in while many of the countries we compete against do.

English companies only have to pay 10% tax on profits derived from patented products and technologies.

We are still deriding the Chinese for being copycats. Yet we should be copying their IP strategy.

China’s Science and Technology policy has set a goal of becoming an innovation-oriented society by 2020. This is an all-encompassing plan. China intends to increase R&D expenditure to 2.5% of GDP by 2020, and this includes tax deductions for R&D expenses, government-backed lending, and discounted interest rates to support R&D.

Subsidies and re-imbursement of patent costs are also provided to stimulate patent ownership and ensure that innovators receive the financial returns that good new technologies deserve. China provides subsidies for local and international patent development. And when these are combined with regional and local subsidies, innovative companies in China can get up to 100% of their patenting costs covered. Not surprisingly China is rapidly moving up the ranks of patent ownership, and in the next few years should become the second biggest filer of international patents behind the United States.

The Chinese Government understands that only through strong innovation and IP ownership can China promote the country’s competitiveness, reduce its reliance on foreign technologies and in the process ensure the flow of royalties for the use of technologies coming into China exceeds the outward flow that only benefits other countries.

So, government encouragement of IP ownership is common overseas. It is seen as a good thing for a reason – because encouraging innovation, supporting clever ideas and businesses, and ensuring New Zealanders own and control their money making ideas could transform the New Zealand economy. The end result would be economic diversification and security; stronger, healthier New Zealand businesses; more jobs, more money and a higher standard of living.

It’s a mystery to me why every politician in the country isn’t trumpeting it – or perhaps Intellectual Property is just a bit tricky to grasp?

James & Wells Partner, Ceri Wells, has been involved in patent drafting, litigation, trade mark ownership, unfair competition and copyright matters for 30 years. He’s passionate about making sure business get the best possible bang for their innovative buck.