New Zealand's medium-sized businesses aren't investing enough in R&D, MYOB says

Twenty-three per cent of these firms spend less than 1 per cent of their revenue on R&D. Picture / NZME file

Mid-market firms, which make up 6 per cent of all business, are not investing enough into research and development needed to grow, a new report reveals.

Twenty-three per cent of these firms spend less than 1 per cent of their revenue on R&D, and 26 per cent revealed they do not budget at all for R&D, as outlined in an MYOB report of 185 surveyed businesses late last year.

In New Zealand there are 31,000 medium-sized enterprises which contribute 40 per cent to the country's gross domestic product and dominate the manufacturing, construction and trade industries.

MYOB general manager Carolyn Luey said a lack of skilled staff was the main barrier to innovation for many medium-sized businesses.

"I think of Kiwi businesses as really forward-thinking and progressive, and so I was a bit surprised that less than 49 per cent are spending less than 1 per cent on R&D, which isn't a lot of money," Luey said.

"Technology can help address key business pressures; if you think about recruiting staff and staff shortages, new technology can be used to drive greater efficiency out of a business or deliver more automation of manual processes, then you can create more time, and there'll be less demand for additional resources."

Medium-sized firms should be investing 3 per cent of their revenue into R&D, she said.

The report found the average amount a business invested in innovation was 1.5 per cent of their revenue, and just 5 per cent of firms stated they would spend the recommended 3 per cent.

A third of businesses with a turnover of more than $10 million said they would spend less than 1 per cent and 19 per cent of businesses which earn less than $5m said the same. Of those earning less than $5m, 7 per cent said they would spend more than 5 per cent on R&D.

Callaghan Innovation chief executive Vic Crone said the level of R&D by New Zealand businesses significantly lagged behind their overseas counterparts.

"Over the last year we have seen a lift in the level of investment by medium-sized businesses but we're not there and it's not good enough yet," Crone said.

"Businesses are not researching and developing new products and services, new ways of producing, new business models that will enable them to thrive and survive, and that's the real concern that I have.

"Investment in R&D means topline revenue growth will be stronger, providing more jobs for the New Zealand economy that are more highly skilled, and that's why the Government is happy to support the growth in R&D investment."

Energy and agriculture sectors were lagging the most in R&D investment, she said.

"That's a real concern because agriculture is a huge part of our economy and also facing one of the biggest changes over the next decade.

"There's a lot of risks if New Zealand businesses don't start doing this. Firstly, they will be left behind. We're competing in a global world now ... and we know that artificial intelligence, big data and automation is going to hit our workforce over the next decade, and we must be planning for that as businesses."

According to Statistics New Zealand's Business Operations Survey, the number of companies investing in R&D is increasing rapidly, up 13 per cent year on year.

Victoria Crone. Photo / Nick Reed

Companies with between 20 and 49 employees had the largest overall increase in R&D expenditure, with spending up 59 per cent to $237m.

Professional, scientific and technical services and manufacturing sectors account for 77 per cent of New Zealand's total R&D spend.

MYOB's survey found that many firms were not geared up for growth, with 19 per cent of firms stating they would like to maintain their current market status and 15 per cent stating they did not know what their long-term goals were.

Just 16 per cent indicated they were looking to grow this year.

"It's quite surprising that so few bigger businesses are looking to grow - 17 per cent just want to stick to the status quo and 13 per cent were more interested in providing a comfortable lifestyle for their owners and directors," Luey said. "The ones least likely to want to grow are the bigger ones, either earning more revenue or who have more employees, and that's a lot to do with their level of maturity."

Thirty-eight per cent of medium-sized firms who had an annual turnover greater than $10m were comfortable maintaining their current place in the market.

Growth and customer satisfaction was not considered to be the greatest indicators of success with 28 per cent of firms stating they measured it on how much they increased revenue.

"The mid-market is a really important part of the New Zealand economy. If it starts to stagnate then that will start to stagnate the number of jobs they can offer, and the amount of investment they are pouring into the economy," Luey said.

"These businesses should think about the future of the industries they operate in and what more they could be doing to grow by leveraging technology, investing in R&D and thinking differently about how they can address pressures."