Road to innovation

Exporting innovation is the name of the game for New Zealand, prime minister Helen Clark told parliament in February. David McNickel investigates some options.

David McNickel | Tuesday, April 02 2002

Some interesting facts have emerged in the wake of a paper Helen Clark pre-sented to parliament in early February titled “Growing an Innovative New Zealand”. For most people, the associated media coverage conjured up images of New Zealand as some sort of “Ireland in the South Pacific”, exporting our bright ideas, intellectual property and biotech breakthroughs to an eager global market. And that may very well be the case. But dig a little deeper (assorted documents are online at executive.govt.nz – click the Innovate New Zealand link) and you’ll be confronted with some rather unsettling details.
For a start, New Zealand, in the international wealth stakes, has been sliding for decades. In a Boston Consulting Group (BCG) report commissioned by the government, the slide was described as “dramatic” — with NZ (in OECD per capita GDP terms) moving from third place 50 years ago to 20^th today. The report stated that New Zealand was now “significantly less wealthy than Australia, Singapore and Ireland, and only marginally wealthier than newcomers to the OECD, such as South Korea”.
So what does our “less wealthy” status mean for local businesses? At Silicon Blue, newly appointed CEO Peter Maurer is tasked with taking the Masterton-based software company’s Ocoloco product (an automated suite of web management tools that allows businesses to effectively manage ISP services like hosting, domain name registration, email set-ups and other website functions) to a global market. His company is just the sort of business the government’s “Innovate New Zealand” policies are talking about, and we asked him for some insights into the work of exporting innovation.
Firstly, finance — how much is enough? Although he says “any serious technology company has to get to the US”, Maurer says for most New Zealand businesses, reaching that goal is prohibitively expensive. “I have just been talking to some people who have a real ‘bootstraps’ approach to getting into the US,” says Maurer, “and of course the more bootstrap it is, the more risk you have of not succeeding. In this case they’re looking at a very low-key launch and are talking about $US250,000 — and that’s the absolute basics. In New Zealand dollars that’s around $650,000 and realistically I’d say for $US250,000 — unless you were exceptionally lucky — for that money you’re probably going to learn what not to do in America.”

PIGGY-BACK SUCCESS
So how should an innovative NZ company approach export? Ex-pat New Zealander Neil Scott, (who heads the Archimedes Project at Stanford University in California) suggested the piggy-back approach could work well for local companies. He said finding an established product, like the Palm Pilot, and then piggy-backing on it with an after-market add-on could be an entry point into a larger market for local players. Maurer has a similar outlook, saying that rather than thinking huge (selling airliners to United Airlines as an example), New Zealand companies need to find a piece of the puzzle they can excel in. “Find a niche opportunity. It’s not thinking small per se, but it might be something simple. It’s like taking over a conglomerate where you have a big company made up of a lot of little businesses and some of them are better than others. The pieces individually are worth more than the whole. Ocoloco’s pieces, like the billing engine for example, could be the part that opens doors for us.”
As per the BCG report, this type of alliance or involvement with an offshore investor company offers “established distribution networks”. For example, imagine if a local electronics company, working in conjunction with the local division of hamburger chain McDonald’s, developed a French fry maker that produced fries using 40% less electricity. The technology would quickly be installed around the world in thousands of McDonalds restaurants and sales for the local company would skyrocket.
But could they cope with the demand? One of the most interesting (and perhaps alarming) observations to come out of the BCG report was production-based. The globalisation of business, said BCG, had increased the “minimum scale of traditional manufacturing”, making New Zealand less competitive in attracting foreign investment for those industries. Put simply, the scale of production required today to service a world market is huge. If a local company wanted to supply global car manufacturers Toyota with vehicle carpet, the scale of their production would have to be massive. Could they borrow the billions required to ramp up to that level of production locally? Highly unlikely, especially given that the contract might only be for a couple of years. Large- scale manufacturing is expensive and New Zealand’s “not wealthy” status in OECD terms means we need billions of dollars of foreign investment to make it happen.

GUERILLA WARFARE
Trade New Zealand wants to help. Special projects manager Arjan van der Boon says the Investment New Zealand initiative (visit tradenz.govt.nz) has been established for just this reason. “A lot of New Zealand export companies find it hard to build capability to grow,” he says. “You need to grow in order to do exports, if you build 100 widgets a month in New Zealand and suddenly you get an order from Australia for 1000 widgets then from the US for 10,000, you have to build your capability and expand the company and, in some cases, that’s not possible without investment.” But this presumes a company is making a real world product. In Silicon Blue’s case, the Ocoloco product can be delivered online, meaning no manufacture or packaging required. Even so, Maurer points out that his experience building Australian peripherals supplier APT into Australia’s twelfth-fastest growing privately owned company taught him that rapid growth can impact in unexpected ways. “You need to make sure that structurally the business can cope with bigger volumes,” he says. “With APT we grew over 100% in a year and it got to a point where internal systems were the things that were stopping us growing because we had too many manual processes. So if you want to get big, one of the things you need to make sure of is that your internal systems are automated. It’s not the most important thing at the beginning, but it’s good to get it out of the way while you’re small.”
Ultimately the bottom line for New Zealand is that the real innovation may be less in the products and services we develop here (“fantastic technology alone is not enough,” says Maurer), but more in the techniques we use to gain access to offshore funding and distribution. And thus New Zealand companies will need to get their collective heads around starting the international business equivalent of a guerrilla war — as opposed to launching a full- frontal assault.

david_mcnickel@idg.co.nz