The next wave: Lessons learned from missing research deal

By SIMON COLLINS

New Zealand may have lost out to Australia on a 200-staff Motorola research centre but the electronics giant's interest in such a venture Down Under has helped to end 15 years of purist hands-off economic policy in New Zealand.

When the American firm first came looking 18 months ago, it found no coordinated welcome.

"When we started to talk to Motorola originally, we were not in the ballpark," says Larry Podmore, of the Canterbury Development Corporation.

A report on the knowledge economy by Professor Howard Frederick, then of Victoria University, said Motorola needed to interview 1000 information technology graduates to hire 100 of them in its first year. But New Zealand's total output of IT graduates in 1997 was only 1005.

"In other words, one corporation needed to interview the entire country's one-year graduate output for its own needs," the professor wrote.

But even as Professor Frederick's report was prepared for printing, the National Government modified its policy of leaving tertiary education to the market. Its Bright Future package in August last year included almost 3000 new technological scholarships and fellowships.

Maurice Williamson, then Information Technology Minister, met Motorola executives several times and says their biggest concern was whether New Zealand could supply enough technical graduates.

"They were quite clear that that would be the deal," he says. "They would be interested if they felt we were producing enough of that level of graduates. We offered them the changes that Bright Future was about."

The Labour-Alliance Government kept these initiatives in place. In addition, it promised an extra $100 million a year on economic development. Economic Development Minister Jim Anderton said the Government was prepared to spend up to $2 million to secure a major strategic investment.

"One of the criteria to be considered for a major strategic investment would have to be a new industry that wouldn't be one that just competes with one across the road, with new technology and significant job opportunities - 200 to 400 jobs," he said.

A cabinet paper dated May 29, obtained under the Official Information Act, proposed limiting grants to $1 million for any one project. Grants would be open to both local and foreign companies for investments of at least $50 million over five years which created at least 250 new jobs, where the investment would not be likely to occur in New Zealand without the incentive.

Associate Economic Development Minister Pete Hodgson said last week that decisions on strategic investment policy were still a month away. In the meantime, investors such as Motorola were being handled by the cabinet on a case-by-case basis.

He told Newstalk ZB: "We offered a range of - inducements probably is the best word. We knew pretty well what the Australians offered. We matched that."

Gary Langford, who manages the inward investment team at Trade NZ, said the Motorola package included existing programmes managed by Technology NZ, which provides funding for students on industry research.

He said Motorola was eventually satisfied that the universities collectively could supply the 200 graduates it needed.

Canterbury University's pro-vice-chancellor (research), Dr Bob Kirk, said one result was that Canterbury, Auckland and Victoria Universities were now working together in areas such as astronomy as well as IT.

"Our attitude at Canterbury is that collaboration is the name of the game. That has been distinctly unpopular in some quarters for far too long."

Canterbury Development Corporation chief executive Chris Pickrill, who accompanied NZ Ambassador Jim Bolger on a visit to Motorola's Chicago headquarters just before the decision was made, said Motorola made it clear that it regarded New Zealand's final offer as competitive.

He believes New Zealand lost because Motorola does not have any significant software projects for NZ clients. The biggest potential project, a $200 million programme to upgrade Telecom's cellphone network, was awarded to rival Lucent Technologies in February.

Motorola spokesman Russell Grimmer said the choice of Australia was made on 12 criteria, including availability of skilled talent, universities' willingness to collaborate, lifestyle, Government assistance, "the availability of companies that can also collaborate with us," and whether there was an existing base for corporate services such as staffing.

Australia had an advantage on this last point because Motorola already employs 700 people in research centres in Adelaide and Sydney.

"When all the factors were ticked off on the points scale, I think it was a close call," Mr Grimmer said.

The decision is a blow for New Zealand. Professor Frederick said Motorola could have had a "tipping effect"for the knowledge economy, reversing the current brain drain.

However, there are other prospects - starting with Motorola itself. A delegation from Chicago is due in Auckland to explore alternative ideas for investment in New Zealand. Mr Grimmer said these would not be software-related.

"We are a diverse company. We are in semiconductors, cellphones, radio."

Last week, Mr Langford hosted another group of American software investors who are working with content for mobile devices using third-generation technology.

"One of the parties will definitely be centred in Auckland. The other one is still considering, and has visited Dunedin, Christchurch, Wellington and Auckland," he said.

"So I have no doubt that the 200-person software development centre that Motorola was going to set up will be replaced in short order."

An attraction for others, as for Motorola, is that NZ's small output of information technology graduates are even available. Mr Langford says the United States is taking 50,000 IT immigrants this year to fill some of its own shortage of software people.

And NZ's graduates are cheap. Another Trade NZ official, Guy Tapley, said: "One of the things they [Motorola] were very keen not to do was to bid the price of software engineers up too high, because that would have destroyed a lot of the value of looking at NZ."

Projections collected for Motorola suggest that IT graduates from the country's eight universities and Auckland's two technical institutes will increase from 1025 in 1998 and 1433 this year to 1924 in 2003.

But we have a long way to go. Professor Frederick's report last year found that only 1.9 per cent of New Zealanders have graduated in computer science, maths or engineering, compared with 6.6 per cent of Australians, 8.5 per cent of Americans and 10 per cent of Japanese.

High-Tech Council chairman Trevor Eagle says we need to bring public and private sectors together to promote the knowledge economy.

"We make heroes of our sporting people," he says. "We need to make heroes of our new business people. We really have to put them up on a pedestal so that kids coming out of university want to go and do those things."

The Juice

MOTOROLA'S IMPACT:

* Incentive packages for $50m-plus investments creating 250-plus jobs.

* Scholarships for technology students.

* Universities cooperate on teaching and research.

* Auckland councils unite to win future bids.