Raising capital used to be the issue for start-ups, now it's a dire lack of talent, industry heads say. Photo / 123rf
Covid may have been unprecedented but the biggest issue for many businesses right now is a shortage of workers. It's putting increasing stress on business owners and hindering the economic recovery from the pandemic. In part one of a week-long series, Chris Keall investigates how the tech sector is battling a lack of talent.
What keeps New Zealand's tech leaders up at night?
"The problem is no longer raising capital," Movac partner Lovina McMurchy says. "It's finding talent."
LATEST: Prisons, partners tapped as Datacom stretches to hire another 250
The Herald recently revealed that vacancies at ANZ had blown out to 300 as the bank struggles to find IT workers and those with experience in risk and compliance.
ANZ's issues are the tip of the iceberg, McMurchy says.
"The boom of VC [venture capital] money in our tech sector (domestic, offshore, government) is supporting a phenomenal amount of hiring which companies are struggling to meet.
"The biggest corporates are hiring away many from tech start-ups and the Aussie tech companies are looking to New Zealand to fill their openings.
"We have moved from capital being our constraining factor to talent being the blocker to growth. Opening the border to tech workers is one piece of the solution but we need to figure out how to get more Kiwis into high-paid tech jobs."
Tech firms canvassed by the Herald, from the large, like Vodafone NZ, to the small, like cloud computing software startup Portainer, said recruiting for specialised or senior roles was a challenge - especially in emerging areas like artificial intelligence and machine learning, in the case of Vodafone NZ and its peers, or the fast-growing area of "container" software, which bundles an app and everything needed in a virtual box, which can then sit in any data centre or local server.
"We have some exciting projects underway to upgrade and build the critical digital infrastructure that underpins our economy, but there's just not enough skilled tech workers in Aotearoa to fill all of our vacancies," Vodafone NZ chief information officer Andrew Haddad says.
"Skilled people in New Zealand in areas like DevOps [which combines software development and quality control over IT operations], artificial intelligence, architecture and software engineering are in hot demand. With the current immigration settings, it is much harder to bring in skilled migrants to fill the gaps while we work on longer-term solutions around training more Kiwis to do these roles. With a large-scale transformation project under way, we are needing to fill digital skills gaps with international workers who can work remotely.
"Additional Government support would be helpful to ensure ongoing economic growth, productivity and innovation – and in the short term to make it easier for tech companies like ours to bring in skilled engineers and workers from overseas, and longer-term more funding for digital training initiatives."
At the smaller end of town, Portainer is something of a poster child for the situation that dozens of tech startups find themselves in. The Hobsonville Point-based company recently raised $10 million.
Co-founder Neil Cresswell is keen to put those funds to work boosting staff numbers from 30 to 50 by the year's end.
"It's still very hard in New Zealand to get people who deeply understand the technology that underpins Portainer," Cresswell says.
"In a way, Covid helped us as we have had an influx of talent returning to New Zealand."
In another, of course, the outbreak has made life harder, by choking off the flow of immigrants. According to an NZTech report, some 3683 people immigrated to NZ to fill tech roles in 2019. That crashed to a handful in 2019.
The IT skills shortage predates the outbreak, however.
An August 2020 issues paper compiled by MBIE and NZTech (an industry body representing multinational and local tech firms), quoted research from 2016 (currently being updated) that found there were 76,065 workers in digital technology working for firms that contributed a collective $6.5 billion to GDP. Some 73 per cent of firms in the sector reported having "hard-to-fill" vacancies.
The shortage of skilled IT workers is causing headaches for the owners of tech firms.
"Wage inflation for developers is going through the roof," WaikatoLink general manager, commercialisation Matt McMahon says.
Certainly, average salaries in the tech sector are significantly higher than the New Zealand average. In 2019, they were $119,442 compared to a New Zealand average of $59,703, according to the NZTech/MBIE report. Perks are on the up, too, such as 2degrees' recent announcement it would top-up paid parental leave payments to 100 per cent of base salary for the 26-week statutory leave period. The telco said its new policy was "part of a wider ambition to both attract and retain the brightest talent in an increasingly competitive market".
Straker Interactive co-founder Grant Straker - who has recently been on a drive to hire 40 more staff - says the tech labour skill has led to bidding wars for staff, which in turn led to "too much staff movement … This could mean people will look offshore to get stability and a lower cost base for development. This is certainly what happened in the early 2000s".
In the short term, the squeeze will probably only get worse. "Demand for digital skills will only increase, in New Zealand and overseas, and across the wider economy," Straker says.
NZRise - a lobby group representing locally-owned tech firms - says there has been a longstanding problem of over-reliance on skilled immigrants.
Like another group - the Institute of IT Professionals (ITP), it wants to see the Government do more to "top up the funnel" by getting more secondary school and tertiary students engaged in classes and courses that could lead to a tech career - across the board, but especially in terms of female, Māori and Pasifika students.
TechNZ chief executive Graeme Muller recently told his members participation tech courses had increased over the past two or three years, but only by around 2.5 per cent per year.
Earlier, ITP head Paul Matthews said part of the issue is that while recent education reform explicitly added information technology to the secondary school curriculum, put it on the same vocational tier as woodwork and other manual trades, sending students the wrong signals.
There could be promising news on this front. Matthews is currently chairing a Skills Workstream group that will feed into MBIE's new Digital Technologies Industry Transformation Plan. Draft recommendations will be released shortly.
Matthews' organisation already does a lot of work hosting or co-ordinating short courses for people working in the IT industry who want to upskill in areas from cybersecurity or "agile" IT and management. Most of the big tech companies also help to underwrite short-courses at our universities and polytechs that allow technology workers to reskill or upskill mid-career.
Labour and National went into the 2020 election with lookalike policy (or lack of policy) across areas like venture capital, broadband and cybersecurity. National did, however, differentiate itself with the promise of a fast-track tech visa; a proposal for 1000 tertiary scholarships per year targeted at students from low-decile schools to undertake science, technology, engineering and maths degrees (the "stem" subjects); and a pledge to establish stem-focused partnership schools and restore funding for specialist ICT graduate schools. All went by the wayside as the party went down in flames, with other issues dominating.
Budget 2021 did see an initiative called Digital Boost announced, which will provide $44m to subsidise local partner firms, such as Spark, Xero and Datacom, and multinationals like Google and Facebook, as they offer free training courses and discounted services for small business people who want to learn new digital skills and adopt more digital ways of working.
NZRise cofounder Don Christie welcomed the initiative. But on closer inspection, it's not quite as impressive in scope as it appeared on Budget day. Only $24m of the spending was new. And behind the feel-good "$44m" headlines, Christie said more information was needed on how the money would be spent, and how successful outcomes would be defined and measured.
And Muller says we simply need to think a lot bigger. He wanted to see some big-bang initiatives to boost the tech sector. But like other tech sector figures polled by the Herald, he saw Budget 2021 as a missed opportunity.
"The Budget was relatively devoid of tech," he tells the Herald.
"We have to attract highly trained professionals and experienced tech entrepreneurs to invest here in Aotearoa. The Government could easily double the size of the $12b technology industry, which really would snowball the economy's recovery."
MBIE's report says better data literacy could add $4.4b to GDP.
"The New Zealand tech sector is being hampered by labour constraints. Technology is on track to become New Zealand's largest export sector before 2030 and the Covid pandemic has highlighted the comparative advantage weightless exports now offer over traditional commodities and the role the sector plays in our economy," Muller continues.
NZ needs skilled tech immigrants, but Muller says that if constraints around bringing new staff into the country continue much longer, "NZTech is deeply concerned that Aotearoa's largest digital firms will be forced to build up their offshore teams and we will see a decreasing New Zealand tech footprint."
The MBIE/NZTech report says one path to boosting NZ's tech skills base could be to reassess the Government's procurement rules.
Those currently include the much-touted Rule 16, which outlines a "priority outcome" to "increase New Zealand businesses' access to Government procurement.
But NZRise says the language is too vague; that it is relatively more expensive for local firms to tender for Government contracts, and that its research indicates an outsize proportion of contracts are going to multinationals (the group says lack of transparency makes it impossible to give an exact figure). A sharp case in point was the Government's new immunisation register, awarded to a group led by the multinationals Deloitte, Salesforce and Amazon, without any tender - even a severely truncated process in a nod to pandemic urgency - that would have given capable local firms a look-in.
Another beef: NZRise says the onus and cost of procurement rule enforcement is put on local suppliers - who it pitches as the IT firms most likely to foster and increase local tech talent long-term.
The August 2020 MBIE/NZTech report also highlighted closing the digital divide as another potential avenue to expanding the size of our potential tech workforce.
InternetNZ chief executive Jordan Carter says the 2020 Covid lockdowns revealed the scope of the digital haves and have-nots problem as schools and employers scrambled to set up remote working solutions. Some 200,0000 Kiwis were without internet. While some 19,000 were sent free modems during the early months of the outbreak, Carter was looking for a much bigger play in Budget 2021. But he didn't see it.
"I was disappointed by the lack of digital inclusion policy," Carter said soon after the Budget was delivered.
Measures like procurement reform (given multi-year contracts already in place), closing the digital divide, and boosting tech education will take years.
But WaikatoLink's McMahon says tech employers can't wait. They're in a race to hire talent right now.
Straker says the logical short-term solution is to import more talent. His suggested three-step plan in that area:
• allow a special visa category for tech staff
• allow the visas if the staff are located in the regions and not in Wellington or Auckland
• give the visa if, for every five overseas qualified people a firm employs, it also hires one local person who has retrained or just come out of high school
Straker has lived and breathed the regional idea, opening an outpost in Gisborne to attract staff (including 10 in his latest hiring drive) daunted by Auckland house prices or just after different lifestyle. Xero has also opened a Hawke's Bay office.
Movac's McMurchy offers a different solution to the same problem.
"One idea is to introduce a program where a Government stakeholder with deep links to the tech ecosystem has a pool of visas to help start-ups bring senior talent from offshore. It should be a tool in the toolbox of an organisation like NZ Trade and Enterprise or [Crown venture capital co-investment agency] NZ Growth Capital Partners."
While we wait for any such initiatives, Muller encourages tech companies to take advantage of broader visa schemes. "The visa pathway to use is Other Critical Worker [criteria], applying for a 12-month or longer visa, paying more than $106,000 and explaining why a local can't do the job," he advises.
However, tech companies tell the Herald that the bar has been set too high.
It's hard to get a role approved for a special visa. And, if it is, it's even harder to get an appointee's family in as well - diminishing NZ's appeal.
In the immigration system overall, only 15 highly skilled workers have been able to bring families with them to NZ since restrictions were put in place, in part because of MIQ capacity issues.
A lot of NZ tech companies work in the area of software-as-a-service, or software that works in the cloud - or over the internet, making it relatively easy to have staff working remotely, whether they're 11km or 11,000km away.
BoardPro founder Brett Herkt says offshore workers could be part of the solution as his company expands its workforce this year on the back of a $2m raise.
But it was a case of horses for courses.
"Software development roles are best suited to remote working, while marketing and sales will get best results if they can collaborate face-to-face in the office," Herkt says.
And at Mooven - a fast-growing Auckland-based maker of technology for helping councils and transport authorities deal with traffic disruption caused by construction and roadworks - CEO Micah Gabriels wants to boost staff numbers from 10 to 35 in short order, but he wants to keep them close.
When you're an early-stage firm, it's partly about building a company culture and getting everyone on the same page - and that's hard to do if staff are scattered, Gabriels says.
In January, the Herald reported Rocket Lab was looking for 90 new staff, which would take its total complement to around 700 (about two-thirds of whom are based in NZ).
Founder Peter Beck talked about the lack of skilled staff, but not just at the "rocket scientist level". The CEO saw a "lost generation" of New Zealanders who have had scant trades-training opportunities. His company has introduced internships and boosted its in-house apprenticeship programme in a bid to fill the gap.
Rocket Lab comms director Morgan Bailey updates that the Kiwi-American is only partway through its hiring mission.
"Currently Rocket Lab has approximately 70 open roles across Mahia and Auckland, plus an additional 17 summer internship positions under recruitment right now," Bailey says.
"Like many other organisations, border restrictions are the biggest challenges we face, along with MIQ availability. Despite these challenges, we've reaped the positive effects of Kiwis returning from overseas and employed many highly-skilled returnees, which has been especially good for our test sites and launch operations roles. We've also been able to employ people from the aviation sector following Covid-driven slowdowns."
As with other tech firms, specialist roles are the trickiest. But as with many things Rocket Lab, Beck has led a DIY solution.
"Propulsion engineering spots are the hardest to fill by pure nature of the unique and cutting-edge work we do in this field," Bailey says.
"As a result, we generally recruit a lot of engineering interns direct from university into our propulsion and other specialist teams to grow our own talent from the start of their careers. In order to grow that talent pool we support PhD programmes at New Zealand universities, sponsor rocketry clubs, launched New Zealand's first academic satellite at no cost, and have introduced an aerospace apprenticeship programme."
As part of its Covid response, the government introduced a subsidised apprenticeship scheme with the aim to "bring in 100,000 new tradies."
The initiative provides employers up to $1000 a month for first-year apprentices and up to $500 a month for second years.
The programme covers training in the primary industries, construction, community support, manufacturing and mechanical engineering and technology, electrical engineering, road transport, conservation and information technology.
For McMahon's point of view, it's provided no relief.
"It's easier to hire people in Belorussia despite all their troubles than here in NZ right now," he says.
• Worse than Covid: Hospitality's battle for staff
• Primary challenge: Horticulture on the front line
• Construction: Capacity constrained, costs spiking
• Tourism: 90,000 jobs lost last year- 80,000 vacancies now
• Economic fallout and the human toll
• Solutions: What should the Govt be doing, how firms are adapting
Industrial projects dominate new supply, the study found, comprising 65% of new stock.