Entrepreneurs urged to go back to school

University of Auckland Business School could help the export drive, says NZI. Photo / Brett Phibbs

Tax breaks for investors and tertiary training in entrepreneurship are among the New Zealand Institute's recommendations to help more firms expand overseas.

"Plugging the Gap", its latest report by institute director Rick Boven and researchers Catherine Harland and Lillian Grace, says many businesses on the cusp of "internationalising" struggle to muster the talent and the capital they need to do so.

Because the domestic market is so limited, New Zealand firms tend to be smaller than their offshore counterparts when they look to expand overseas. They are further from their markets and get less government help.

The institute says capital doesn't seem to be a big constraint for very small start-ups, with early funding available from family, friends or mortgaging the house.

Beyond, capital may come from angel networks or local venture capital sources.

"It's generally accepted, though, that once expansion capital is required beyond $1 million to $2 million, many businesses will find it difficult to obtain funding in New Zealand and must attract international investors. Only a small proportion of businesses are able to secure international capital."

Most New Zealand investors, given the choice between low-risk residential property, medium-risk equity or high-risk new businesses targeting international markets, have shied away from new businesses, it says.

That may be rational from the investors' point of view but it doesn't lead to the outcomes the country needs.

"Policies to improve investor returns and attract more funds into the $2 million to $10 million range are therefore needed."

It wants tax changes allowing investors to deduct 20 per cent of their investment against other income at time of investment, and another 50 per cent if capital is lost.

Eligibility for these deductions would be limited to businesses classified as "innovation-based and internationally focused" by an official approval process.

Capital gains should be tax-exempt. "At the moment they may be exempt, depending on who you are and what your intention was at the time of investment."

It favours the involvement of overseas venture capitalists not only for their money but for other benefits such as the ability to effect introductions in offshore markets.

The other major barrier to expanding our export base is talent, says the report.

"The talent challenge is more difficult because managers here are 'can do' self-confident people, many of whom think they are more competent than they really are."

It recommends taking a leaf out of Danish and Singaporean books in the form of world-class higher education in entrepreneurship at the University of Auckland Business School.

The focus should be not just on serving the needs of students but lifting the quality of corporate leadership, through governance arrangements and internship programmes.

The report favours clusters of related businesses to "allow working together to emerge".

Incentives could include free or heavily discounted fast broadband access, and larger market development or research and development support for businesses located within the clusters.