Small innovators could be stifled

This story first appeared in the July issue of EVtalk – CLICK HERE to download the magazine FREE

One of the things that unites intelligent transport and electric vehicles (EVs) is the promise of technology that is not yet available.

Intelligent transport hopes to use artificial intelligence (in the broad sense of automated action on insights gleaned from data) to make transport smarter, more efficient, and more convenient.

Electric vehicles, on the other hand, will need to overcome several technological hurdles before OEMs are comfortable building more of them and mainstream consumers are comfortable purchasing them.

The technology needed for these fields to mature is under development, by both established companies and new start-ups.
In fact, there is a major paradigm shift where resources previously only available to large corporations are now available to anyone; exemplified by access to big computing power.

More and more new technology, or at least novel applications of technology, is being birthed in basements and garages.

New Zealanders, with their “No 8 wire” mentality, are developing a global reputation as being innovators.
While I acknowledge and agree with the points made by some – that this perspective comes with drawbacks if not properly harnessed, channelled, and supported – I think the ability to recognise a problem, have the will to address it, and find novel solutions is the most important part of innovation.
This is the part New Zealanders do in abundance.
The rest, such as access and education about intellectual property and developing an idea to present on a global market, is in my opinion exactly where government and industry bodies should step up.

Because of this, I am dismayed by the proposed changes in research and development (R&D) incentives, put forward by the NZ Government in their recent discussion paper entitled Fuelling Innovation to Transform Our Economy (April 2018).
The proposal does away with some of the incentives available for emerging businesses and provides greater support by way of tax breaks to already established companies.
To qualify for these tax breaks, companies must spend a minimum amount on R&D.
This makes sense except, as is now proposed, when that minimum is outside the realm of possibility for many emerging companies.

To be fair, the new policy still supports start-ups.
The problem is that it supports new companies and established companies, leaving a gap in the middle.
This middle is exactly where, as argued above, support is needed.

The rate of technological change is increasing and companies that don’t evolve with that change are doomed to fail.
Yet, I am not convinced failure is a bad thing.
When companies fail, they either leave a vacuum or they do not.
Where a vacuum exists, innovation will occur.
New companies will step in and either do what the previous company did better, or they will fail too.
The only way companies can achieve “better” is through innovating, either in process or product.

Even when vacuums are not created (or perhaps especially when), it is these smaller companies that are forced to innovate, to do something better than the established companies, to succeed.

Every company should be investing in R&D; it is an investment in themselves and in their products.
They should do so because it is a necessity for survival in a quickly changing world.
I applaud any government incentives that encourages R&D in a healthy business environment.

The marketplace, however, is inherently competitive.
A system that provides support for some companies over others is artificially picking winners and losers.
In the case of the proposed system, incentives offered to big companies will be used to reinforce their position in the marketplace, making it more difficult for smaller companies who might otherwise have been able to compete.
Smaller innovators will be stifled.

I fail to see the logic or fairness in stifling the native innovators, while giving incentives to companies that may previously have made the flawed business decision not to invest in themselves.

No, I take that back – I do see the logic.
New Zealand is lagging compared to other OECD countries in the amount of money being spent on R&D by big companies, and the new policy will probably help New Zealand address that issue.
It remains to be seen if there is any correlation between that statistic and any criteria the normal New Zealander really cares about, such as standard of living, wages, etc.
Any proposed system should attempt to include KPIs that measure benefit to New Zealand and those who live here.

To clarify, I do not mean to sound as if I am against big companies doing R&D, and nor am I against giving them encouragement or incentives.
However, the big companies who already invest in R&D are not the ones whose behaviour the Government is trying to change; they are trying to reach the ones who don’t.

I am concerned that innovators will spend time and money to build their dream, only to have the challenges mentioned toss a spanner in the works.
Support may not be there when they need to grow to compete on the global stage.

My recommendation would be a flat system that treats every company equally, coupled with clear criteria defining and specifying R&D of greatest interest to New Zealand.
Incentives should be based on percentage of resources spent on R&D, relative to company size or operating profit.
This would allow a company of any size to be eligible for incentives.
This could even be taken to its logical conclusion and unify the entire R&D support platform.

Start-ups, and companies making a negative profit while spending resources on R&D, could be eligible for grants using the same equation.

In the name of full disclosure, I am involved with a small tech company that is not yet large enough to spend the minimum necessary to qualify for the proposed benefits.
As such, I recognise I am biased.

However, I am sure there will be many companies that benefit from the proposed solution.