By MICHAEL BARNETT*
Our Government is currently setting up Industry New Zealand to deliver its goal to grow an exclusive, innovative economy for the benefit of all.
What exactly Industry New Zealand will do has not yet been announced, other than focusing strongly on employment creation and managing policies and programmes for industry and regional development.
New Zealand needs to create jobs, but we also have some other related employment problems to address. There is now worldwide competition for people with brainpower and multiple skills.
Younger New Zealanders are graduating and heading overseas in large numbers, and skilled tradespeople are following. They rightly want to participate in the global competition and cannot do this by staying here.
Another dimension of the employment problem we face is that, unfortunately, we have not pursued the high-tech and knowledge-based industries. We are now lagging behind the rest of the world. Worse still, we do not have a system that encourages innovation, nor do we have the funding structures in place that would be capable of taking an innovative idea and developing it through to a commercial entity that is able to employ and to be invested in.
Which gets me to what I saw in Israel.
What Israel has done is very simple, but powerful. The Government has gone out of its way to "incubate" and nurture good ideas by putting in place a supportive structure. Over a period of 10 years, it has changed the shape of its economy.
Incubator funding relies on an assessment of a research and development capability that can be transformed into a business activity.
A committee selects incubator ideas from applicants, and those that qualify will receive 85 per cent funding support from Government. The applicant or other supporters find the balance.
The scheme was launched in the early 1990s with a fund of $US20 million - today it stands at $US400 million. About 1500 incubator projects have been through the scheme.
When the scheme started there were no Israeli companies listed on the New York Stock Exchange. Today, Israel has the highest number of high-tech companies on the exchange.
The scheme has been so successful that the private sector is now starting its own incubator scheme, and linking them directly to venture capital funding.
What I saw in Israel was a purposeful effort to harness bright ideas and put them into an environment where they could incubate a business.
The strategy was not directly about creating jobs, but identifying a passionately held idea and nurturing its growth into a product or service that is capable of attracting investment.
In Israel, the motivation for the programme was huge influx of Russian migrants. Many were well-educated but lacked resources and business skills, and there was a risk of high unemployment.
The scheme works by inviting applicants to bring forward an idea. It might be a proposal to adapt and redesign agricultural technology for a more advanced use; it might be the development of a new high-tech product or service.
Once the idea is deemed worth supporting in principle, it is put into an "incubator" linked to an appropriate university or technology institute, where a development programme is mapped out.
Resource requirements are identified and provided.
Another key step is to set up the "idea" within a business structure, including management and shareholding. The incubator, or the person who has the idea, will be able to take up some shareholding, and be provided with a corporate structure, business plan and funding for about a two-year period.
At the end of the incubation process, the business is expected to be sufficiently established to qualify for support from private sector venture capital.
I looked at two different incubators in Israel: agriculture-based and high-tech product developments. What I learned is that, to advance a knowledge-based economy, we don't have to deny our heritage of primary agriculture.
We could start the growth of a new tier of small to medium-size businesses by building on our traditional resource industries - farming, forestry, fishing, horticulture - and areas like design, building and construction.
If we are prepared to start with areas we are good in, we can encourage people stay at home instead of heading offshore to advance their careers.
We can leverage off our traditional strengths: horticulture, food technology, fishing and marine products, wool, along with Kiwi ingenuity and practical skills.
When I look at what Israel has done, and then look at the hundreds of millions of dollars our Government spends on employment, with no long-term promise of success, I firmly believe that if some of those funds were directed to such an incubator venture, we could in time join the high-tech knowledge-based race.
We would also keep more of New Zealand's innovative brains in the country and grow a bigger venture capital market to develop some of our smart ideas.
New Zealand must create an environment that encourages people with ideas to move ahead step-by-step, to do the R&D and get a supportive business team around them; to be passionate and take ownership to make the idea happen.
Israeli business incubators
Nanomotion Ltd. Developed and now manufactures precision positioning system equipment. Investment: $US16 million, sales: $4 million, employees: 50.
3T Ltd. Developed and now manufactures true temperature pyrometers. Investment: $US5.75 million, sales: $3 million, employees: 40.
Compugen Ltd. Accelerator of biological data computation. Investment: $US28 million, sales: $10.5 million, employees: 100.
Visionix Ltd. Developed optical surfaces characterisation system and now quality tests spectacle lenses. Investment: $US20 million, sales: $7.5 million, employees: 35. Visionix also raised $12 million in a IPO on the Frankfurt Stock Exchange in January 2000.
* MICHAEL BARNETT, chief executive of the Auckland Regional Chamber of Commerce, recently visited Israel where he discovered a Government business "incubator" scheme that in 10 years has transformed the economy from reliance on agriculture to include a strong knowledge-intensive sector with lots of employment opportunities.
Incubate ideas to keep talent in this country
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