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SMEs play key role in economic transformation

21 February 2006

SMEs play key role in economic transformation

Speech to "The people behind the profit" Research Symposium, New Zealand Centre for SME Research, Massey University, Wellington

Good morning and thank you for the opportunity to speak at your symposium. Minister for Small Business Lianne Dalziel sends her apologies.

Your symposium today is timely as our government works further on our agenda of economic transformation. Research on the drivers of company performance will help us as we work with business to lift productivity and drive up levels of high value exports.

To create higher standards of living for all New Zealanders our country needs more globally competitive firms.

That means we need to lift our productivity - by this I do not mean we have to adopt a sixty-hour working week to churn out more of the same products.

Higher productivity is achieved through increasing the value of the work we do - working smarter not harder. It means we have to focus on products and services that are a cut above what we are producing now, and that grab the attention of consumers in world markets.

It also means that our business owners and managers have to lift their personal performance, as well as that of business processes employed in their firms.

There are other areas we also need to focus on:

We need to lift our game when it comes to business investment.

We need to focus more on science and innovation in New Zealand and the commercialisation of innovation.

We also need to improve our international linkages, not just to ease access to markets, but so we can see and learn what globally competitive actually means, and so that we can benchmark our performance against the world's best.

The transformation of the New Zealand economy will come from the ability of our firms to forge a high skill, high productivity, innovative and high wage economy.

And, with such a large proportion of small and medium enterprises (SMEs) in the economy, we can only achieve our goal if we raise the productivity and competitiveness of our SMEs.

But to do this we need to understand the drivers of growth and how can we better support business to enable us to reach our goals.

These are questions I and my colleague, the Minister for Small Business Lianne Dalziel, will be asking of business in the coming months.

This is not a job for the government alone.

We need to work closely with business, workers' representatives, academics and educators, scientists, regions, and communities to lift our level of ambition about what can be achieved for our country, and lift our nation's economic performance further.

Our top priorities are:

- The review of the structure of business taxation, to encourage business growth and productivity. Legislation is also before Parliament to allow for accelerated depreciation rates on short life assets.

- A fresh look at regulatory frameworks, working with business to achieve higher quality regulation.

- Faster internet access and at more competitive prices.

- Boosting science and research funding further, and developing a more secure funding path.

- Strengthening the incentives for greater collaboration between Crown Research Institutes, tertiary institution researchers, and industry, to achieve far more commercialisation of our innovations here in New Zealand.

- Refocusing spending programmes and business assistance in the economic development area to impact more directly on productivity and innovation, and on export potential.

Sector strategy development alongside industry will continue to be important in key areas like manufacturing, food and beverages where a taskforce is currently working, and in primary sectors, like forestry and pip fruit, which face challenging international market conditions.

We will also be rolling out major infrastructure programmes in our largest city - Auckland. Investment in energy projects and land transport infrastructure has been committed for major improvements over the next decade.

Economic transformation is undoubtedly a long-term process.

After many years in politics, I know there are no silver bullets or quick fix solutions because we are dealing with a complex set of issues and possibilities.

That is why your work as academics and researchers is so very important.

You can make a significant contribution to a better understanding of the factors that contribute to firm performance. Sound research provides compelling evidence that allows us to focus on the things that really count. Your work also identifies and plugs gaps in our knowledge base.

My first challenge to you is to produce research that challenges the norm.

I am keen to explore the new areas where we can build competitive advantage, and to look at better ways of kick-starting the sort of growth in high-value exports that we need, especially among our SMEs.

In my view we need more "at the edge' thinking to explore the potential for the economic shifts we are seeking. There are few better equipped to explore this potential than the people in this room.

One area of great interest to me is innovation. New Zealand is a nation of inventors and adaptors. There is a strong culture of pragmatic problem solving. We are a closely networked community, and ideas travel well. We are good at collaborating to celebrate success as a team. All of that contributes to a highly innovative climate. Much of this innovative activity occurs in SMEs.

But realistically, there are difficulties. Innovation tends to incur high up-front costs, there are typically long lead times in converting a good idea into a commercially viable offering, there are high risks and our private equity markets are notoriously thin.

The end result is that despite having good basic conditions for innovation, far too often we see great business ideas or industry innovations going offshore early in their development.

I want to better understand how small firms can overcome the barriers to investing in research and development, acquiring the skills and capital that they need to reach their goals. I also want to learn why so few of our SMEs are exporting and about some of the barriers to international trade.

An APEC/OECD survey currently underway on barriers to SME exporting will help improve our understanding of the issue.

Part of the solution will be government and business using our knowledge base and working together to identify the best ways to overcome barriers and enable small business to grow.

My second challenge to you is to ensure your work makes a difference.

As Minister for Economic Development, I am interested to know that research is presented in a way that is useful to business. Information must be business-friendly and relevant to the current environment and to the information needs of business.

It would be good to see a consolidation of the seminal works on company performance.

Perhaps as researchers you could recommend a "top ten reads" for all New Zealand SMEs and present the distilled wisdom of that work in a way that resonates with and challenges ambitious SMEs.

I also want to know that developments in the private sector are guiding the research agenda. I understand that the New Zealand Centre for SME Research has been busy investigating the behaviours and performance of 250 firms through its "Business-measure' project, with more work planned for this year.

Partnership between government and the research community will be crucial to economic transformation. I applaud the good work underway under the umbrella of the private sector/public sector Business Capability. The research community has a key role in the development of effective evidence-based policy.

Greater collaboration within the research community will also be vital. Symposia like this one are useful for sharing information on your research interests, but where can I find the shared database that lists all the research done in this field, in academia, as well as government agencies and consultancies?

And, how often do you seek to collaborate on or jointly bid for, research in order to utilise the combined knowledge and experience that is so vital to the production of world-class research?

I am sure your expertise will continue to play an important role in our future economic transformation and I'm very much looking forward to hearing feedback from your symposium. Thank you.


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