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Budget 06 Q&A: Market Development Assistance

Budget 06: Expansion of Market Development Assistance Scheme

What is the Market Development Assistance Scheme?
The scheme is delivered through the Enterprise Development Grant-Market Development. As a result of the extra funding, annual funding for this scheme will increase from $6.1 million to $25.9 million from 2006-07. From 2008-09 annual funding will rise again, to $27.6 million a year.

The scheme is based on a similar scheme in Australia and research has found that these schemes add value to businesses and export growth.

The scheme is aimed at encouraging the integration of more New Zealand businesses into global markets through market development projects.

Improving international linkages in this way can benefit a small economy as it:
• helps firms identify and access new markets and take advantage of new opportunities
• allows firms to develop market niches and exploit economies of scale
• exposes firms to international competitive pressure, ideas, knowledge and technology that drive innovation and productivity improvements
• provides firms access to global production networks, which can act as conduits for the transfer of knowledge, technologies, skilled labour, foreign direct investment and work and management practices
• builds management capability through experience gained in operating in global markets.

How does the Enterprise Development Grant-Market Development work?
It provides financial assistance for eligible New Zealand businesses to undertake international market development activity.

Details about firm eligibility conditions are covered in the question below.

Specifically, the grant covers up to 50 percent of a firm’s eligible market development expenditure that is related to developing new markets and improving current market positions offshore. Eligible projects and costs include market visits, in-market representation, advertising/promotion/marketing materials, exhibiting at trade fairs and events, and market research.

An important condition is that companies need to be undertaking a new market development strategy or a strategy in a new market. The fund cannot be used for business as usual.

There must be a proposed change in the current business model – that is, there is a change of geographical market, client base, product line, competitors, value proposition, distribution/partner channels or marketing mix. The strategy needs to have the intent to provide a significant improvement in the business situation of the applicant, with the end objective of an increase in revenue growth.
If there is no change in the business model, value proposition or marketing mix, then the strategy would be considered business as usual.
The fund also has a preference for supporting new initiatives that are likely to have significant impact on the applicant’s business, as opposed to incremental improvements to their current business situation.

What companies are eligible for the grant?
Currently, firms need to be New Zealand-registered and registered for GST, with annual turnover of no more than $20 million. Under the expansion of the scheme, this threshold will be raised to $50 million. Firms must also demonstrate that they are committed to and capable of undertaking significant and sustainable market development activity.

Provision will also be made for firms with turnover greater than $50 million to access the fund if they collaborate to help the smaller firms undertake sustainable market development activity.

Why is the eligibility cap being lifted from $20 million to $50 million annual turnover?
With the increase in funding available it is considered that it is appropriate to increase the cap to the $50 million as originally agreed by Cabinet when the scheme was first introduced. The higher cap is also aimed at increasing the number of medium size firms which carry out or expand their market development activity, in line with the fund's ultimate aim of growing more globally competitive firms to help grow the New Zealand economy.

Why will there be no eligibility cap on large firms that do joint marketing projects with small firms?
Because this is aimed at encouraging larger firms to collaborate with smaller firms so that small firms can leverage off the success, experience and capability of their larger partners in the proposed marketing activity.

How much funding can applicants apply for?
A company can apply for up to $100,000 per July-June financial year in eligible costs, which the firms must match. As a minimum, the smallest amount a firm in the scheme must spend on its market access activities is $40,000 – of which $20,000 may be reimbursed by NZTE under this scheme. A lifetime cap of $500,000 will apply for applicants.

Do applicants need to be operating in overseas markets already?
Applicants do not have to be currently active in international market development, however the size of the projects targeted by this grant may mean that businesses new to international markets will be unable to mount projects that meet the funding requirements.

When can firms apply for a grant under the expanded scheme?
From July 1 application details will be available from NZTE’s website (www.nzte.govt.nz). Firms that are in the standby pool from the last round of applications will be contacted by NZTE and given priority. From 1 October firms will be informed if their applications are successful.

ENDS

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