NEW ZEALAND SMEs PERSPECTIVE - CiteSeerX

AN INTERFACE BETWEEN ENTREPRENEURSHIP &INNOVATION

- NEW ZEALAND SMEs PERSPECTIVE -

Prepared for DRUID Nelson & Winter Conference 2001Aalborg University, Denmark

12 - 15 June 2001

Dr Amir PirichStephen Knuckey

John CampbellSustainable Development and Innovation Branch

Ministry of Economic DevelopmentPh: + 64 4 472 0030 Fax: + 64 4 474 2659 www.med.govt.nz

33 Bowen Street, PO Box 1473, WellingtonNEW ZEALAND

Economists, with varying success, have often addressed the issue of interface betweenentrepreneurship and innovation. Recently, there has been an increased interest in this field,due to the realisation that entrepreneurs and entrepreneurship can contribute to society invarious ways, including for example, economic growth (Hayek, 1948), business creation(Gartner, 1985), national identity (Bolton, 1971), and the innovation process (Schumpeter,1934). The last point, on the contribution of entrepreneurs to the innovation process, isparticularly critical to public policy making in small and open economies such as NewZealand. New Zealand is predominantly a nation of small and medium size enterprises(SMEs) - we often tend to describe ourselves as a nation of entrepreneurs and refer to "Kiwiingenuity" as a typical feature of our country. In New Zealand, SMEs constitute the majorityof all non-agricultural enterprises, for example, 84% of enterprises employ 5 or less full timeequivalent staff and 96% of enterprises employ 19 or less staff, and as such are morepredominant than in many other countries. In the New Zealand context, SMEs are viewed asthe most critical source of flexibility and innovation, and make a significant contribution toeconomy, both in terms of their number and the proportion of the labour force they employed.The significance of the SME sector in New Zealand is increasing as large firms downsize tocompete in the international market, workers face less job security, and more people turn theirhand to small business either at retirement or as a lifestyle choice. With further opportunitiespresented by globalisation and technological development, the role of SMEs seems likely tocontinue to increase rather than diminish in the coming years. In the context of public policymaking, it is critical to develop an understanding of the interface between entrepreneurshipand innovation, and in particular, of how to stimulate innovative activities and a culture ofentrepreneurship within the larger context of national innovation systems. We explore thebasic notions and theory underlying entrepreneurship, innovation and public policy initiativesin turn.

The views expressed in this paper are those of the authors, notnecessarily the Ministry of Economic Development.

An Interface between Entrepreneurship & Innovation Pirich, Knuckey & Campbell

DRUID Nelson & Winter Conference 2001 2

1. INTRODUCTION

New Zealand is a nation of 3.7 million people, located in the South Pacific at

least 1,200 miles from the nearest other significant nation. Historically, New

Zealand's economy has been agriculturally based - established by the

colonising settlers of the middle and late nineteenth century to serve as

England's farm (Reeve & Pirich, 1998).

As Auckland based history professor James Belich (1998) has argued, New

Zealand was seen as a form of East Anglia in the South Pacific, a society and

economy modelled on the UK. It was assumed that New Zealand would grow

to mirror and then even surpass the UK in its institutions and social and

economic structures. The basic model lasted until the early 1970s.

Change eventually occurred as the result of the inevitable processes of post-

colonial development and other economic factors. Key issues in this were the

entry of the UK into the European Economic Community, oil price shocks, the

growing importance of Asian economies and the New Zealand links to Asian

markets. Within the space of a generation, New Zealand ceased to be

European and, in particular, UK focused. New Zealand began building a new

identity; a combination of both traditional factors and those that related to the

increased social and economic ties to Asia. By 1996, trade with the UK

represented only around 6% of the total for New Zealand, contrasting with a

combined figure of around 40% for Australia and Japan (Reeve & Pirich,

1998).

Despite many far-reaching changes and much national soul searching over

recent years, New Zealand's economy still reflects many of its historical

features. Employment in the agricultural sector represents 10% of the

workforce while exports from the primary sector represent around 50% of the

total. Apart from forestry, primary sector industries are seeing decreases in

their share of exports whereas the services sector has experienced significant

growth in this regard (Reeve & Pirich, 1998). Currently, around 250



companies (out of a registered total of well over 290,000) account for 90% of

exports.

In New Zealand, small and medium enterprises (SMEs) constitute the majority

of all non-agricultural enterprises, for example, 84% of such enterprises

employ 5 or less full time equivalent staff and 96% employ 19 or less staff.

Therefore, SMEs are more predominant than in many other countries.

Therefore, in the New Zealand context, SMEs are viewed as the most critical

source of flexibility and innovation, and make a significant contribution to

economy, both in terms of their number and the proportion of the labour force

they employed.

The significance of the SME sector in New Zealand is increasing as large

firms downsize to compete in the international market, workers face less job

security, and more people turn their hand to small business at retirement or as

a lifestyle choice. With further challenges presented by globalisation and

technological development, the role of SMEs seems likely to continue to

increase rather than diminish in the coming years, as illustrated in the graph

below (OECD, 2001).

Busine ss owne rs as pe rce ntage of labour force

0 .0 5 .0 1 0 .0 1 5 .0 2 0 .0

G re e ce *

Ita ly

Au s tra l ia

P o rtu g a l*

N e w Ze a la n d

C a n a d a

Ice la n d

S p a in

B e lg iu m

Ire la n d

O E C D -2 3

U n ite d K in g d o m

Th e N e th e rla n d s

U n ite d S ta te s

Ja p a n

S w itze rla n d

Fra n ce

G e rm a n y(W e s t)

Fin la n d

S w e d e n

Au s tria

N o rw a y

D e n m a rk

L u xe m b o u rg *

1 9 8 6 1 9 9 8



2. THEORETICAL BACKGROUND

A review of the theories surrounding entrepreneurship and innovation reveals

an immense amount of material. Therefore, we begin by attempting to

become familiar with each of the concepts of innovation and entrepreneurship

independently. The organisation of these ideas into our theoretical framework

will be context dependent. However, our purpose is to use the framework for

thinking about possible government policy mechanisms for facilitating and

stimulating entrepreneurship and innovation in New Zealand SMEs.

2.1 Entrepreneurship

The theories of entrepreneurship and knowledge generation have been

consistently approached from either one or another perspective. Firstly, an

economics perspective:

• Cantillon (1755) described the entrepreneur as one “who assumes the risk

of buying goods, or parts of goods, at one price and attempts to sell them

for profit, either in their original states or as new products.”

• Say (1852) saw the “entrepreneur as a person who judges, combines

factors of production and survives crises.”

• Knight (1921) views the entrepreneur as an “economic pioneer who initiates

change or innovation by managing uncertainty and risk.”

• Hayek (1948) noted that the entrepreneur never has the benefit of perfect

knowledge and therefore must have the ability to adapt quickly. This

concept is elaborated upon later.

• Schumpeter (1934) describes the leadership role of the entrepreneur in an

economy in his belief that entrepreneurs are “continually reorganising the

economic system” via development of new products, new processes and

new markets etc. He is best known for describing entrepreneurship as a

process of ‘creative destruction’.

• Liebenstein (1968) suggests that “successful entrepreneurs are those that

are able to overcome market inefficiencies.”



• Casson’s (1982) entrepreneur is one who can co-ordinate resources

without perfect knowledge.

• Bolton (1971) gives several economic functions of entrepreneurs in society

including market innovation, product and service variety and providing

seedbeds from which large companies will grow.

• Kirzner (1973) believes that the relationship between entrepreneurship and

economic growth is a function of alertness to identification and exploitation

of market opportunities.

• Baumol (1993) concludes this body of work by arguing that

entrepreneurship is a vital component of productivity and growth.

Sautet (2000) argues that the Hayekian understanding of information or

Hayekian Knowledge Problem (HKP) is often absent from mainstream

economic theory. HKP refers to the existence of uncertainty and ignorance in

the marketplace. Given that entrepreneurs thrive on uncertainty and ignorance,

economic theory that does not assume a HKP has insufficient regard for the

role of the entrepreneur in the market system. In other words, the entrepreneur

takes advantage of disequilibrium prices caused by knowledge gaps in the

market. Neo-classical theory, resting on the assumption of perfect knowledge,

therefore implicitly denies the entrepreneur a role in resource allocation.

Sautet (2000) notes that Austrian economics sees entrepreneurial activity as a

process of "discovering the goods to be produced and the methods used to

produce them". In Coase (1960) theory, "the goods to be produced and the

methods of production are given". This argument suggests that for Coase, the

entrepreneur is simply a manager. However, other interpretations of Coase

theory exist. For example, Coase theory may reflect an open-ended universe,

which would require the entrepreneur-manager to continue at an optimal level

of make or buy decisions (Foss, 1993).

These two vastly different interpretations are partly a function of some

ambiguity in Coase's work. Coase has never discussed the role of uncertainty

in depth, which suggests that he does not conceive of a HKP and therefore,

whether prices are in disequilibrium is left unclear (Sautet, 2000).



Williamson (1975) contends, like Coase, that transaction costs can explain the

emergence, the existence and the evolution of organisations by showing that

they result from a constant search for economising on transaction costs on the

behalf of individuals. However, this economic organisation takes place in a

market in which there is no HKP and this analysis therefore allows no room for

the entrepreneur. While a focus on the nature of transaction costs

distinguishes both Coase and Williamson from more pure neo-classical

approaches, the absence of disequilibrium within their analyses retains a neo-

classical view of the market (Sautet, 2000).

Several conclusions can be made regarding the absence of an HKP in

transaction cost economics:

The implication is that if transaction costs are reduced to zero, entrepreneurial

activity is no longer necessary. However, as Kirzner (1973) notes, "zero

transactions costs do not of themselves guarantee that transaction

opportunities will be discovered."

The transaction costs view naturally leads to a cost-benefit analysis. However,

Thomsen (1992) explains that transaction costs analysis does not assume

that "individuals know what it is they don't know". Therefore, "the choice

between carrying out an activity within an organisation or leaving it in the

market cannot be made in terms of costs and benefits: knowing the latter

would require individuals to know and evaluate what could or could not be

discovered if scope were left for entrepreneurship, a logical impossibility."

Consequently, an entrepreneurship approach towards the importance of

transaction costs is required in order to emphasise the discovery aspect

involved in the emergence of a firm.

In this way, Sautet aims to build on the work of modern Austrian School

theorists such as Kirzner, who consider the entrepreneur as the 'prime-mover'

in the firm. Therefore, the idea that the entrepreneur is simply a profit-

maximising decision-maker within the firm is regarded as defunct.



So how is entrepreneurial behaviour distinct from maximising behaviour? In

Kirzner's (1973) theory, it is the notion of 'alertness', a tendency for an

individual to discover what would be profitable to him/her if he/she were to

discover it. This view suggests that entrepreneurship is not a resource that can

be planned. That is, alertness cannot be traded on the market.

Throughout this Kirznerian interpretation of entrepreneurship is the implication

that entrepreneurial activity serves an equilibrating function. This is the

essence of what is known as the Lachmannian problem (Lachmann, 1976). As

the market is a continuous process, the market must be subject to equilibrating

and disequilibrating forces at the same time. Therefore, we simply cannot know

whether the individual's activities are equilibrating or not.

In response, Sautet (2000) develops a new explanation for the emergence of

the firm - entitled the exploitability thesis. The theory develops along the

following lines:

• In order to exploit various opportunities, the entrepreneur must purchase

the necessary inputs or the services of the input owners.

• No production takes place if the entrepreneur cannot secure the necessary

inputs for the exploitation of his/her opportunity.

• Most entrepreneurial opportunities are only fully realised in the long term.

• Consequently, the entrepreneur will often be required to secure the use of

his/her inputs, presumably via a series of long-term contracts.

Sautet (2000) labels this specific entrepreneur the entrepreneur-promoter.

The entrepreneur-promoter knows at the point of discovery which inputs (and

their prices) are required to exploit his/her opportunity over time.

Over time, the general inputs to be used in the exploitation of a particular

opportunity may actually become specific to each other and, consequently,

difficult to replace.



• Therefore, "the only way that the entrepreneur-promoter can exploit his/her

discovered opportunity is by the implementation of a firm" (Sautet, 2000).

Because this thesis takes place in a world of disequilibrium and in which

information is costless, the firm is not only a solution to cost, but also a

solution to a problem of true ignorance and co-ordination.

As the entrepreneur-promoter needs to rely on the entrepreneurial insights of

others, the exploitability thesis contains a social dimension to

entrepreneurship.

Overall, this view of entrepreneurship tells us that "the economic problem is

not how to make or buy, but how to discover and exploit” (Sautet, 2000).

However, Sautet agrees that, while the thesis described so far can explain the

start-up of a firm, in a living and vibrant economy a more pertinent concern is

the continued existence of many firms that is observable. Up to this point, a

relatively simple interpretation of the firm has been used. Consequently, he

begins to explain a role for the more complex firm and what is known as the

double HKP where:

• Not only does there exist an HKP in the marketplace, the entrepreneur-

promoter may also be ignorant of his/her own ignorance regarding what

his/her employees know.

• Therefore, co-ordination of his/her employees is only the beginning for the

entrepreneur; he/she must encourage his/her employees to impart their

knowledge within the context of firm activities.

In summary, there are three key points regarding entrepreneurship that Sautet

(2000) makes:

• Neo-classical theory cannot adequately explain the emergence of the firm.



• In the context of entrepreneurial activity the essence of the firm is co-

ordination rather than ownership.

• The firm must induce entrepreneurial activity because of the nature of the

HKP and double HKP. The firm is the locus of exploitation of a profit

opportunity.

Secondly, a psychological perspective:

• Pickel (1964) and Hornaday & Bunker (1970) suggest that there are certain

personality characteristics that are typical of entrepreneurs.

• McClelland (1976) suggests that the motivation of the entrepreneur is

crucial. Regardless of variations in economic development, social structure

and opportunity, “entrepreneurs with high achievement needs will almost

always find ways to maximise economic achievement.”

• According to Rotter’s (1966) work on locus of control, individuals who are

‘internal’ or believe that they control their own destiny are more likely to be

entrepreneurs.

• Brockhaus (1982) notes that psychological characteristics, past experience

and personal characteristics are all important influences on

entrepreneurship.

Thirdly, a sociological perspective:

• Weber (1976) looked at how symbolic interactions (as a function of religion,

gender, ethnicity etc.) in a society may or may not encourage the

entrepreneur via, for example, a strong work ethic.

• Parsons & Smelser (1956) argue that because societies and economies are

dynamic and entrepreneurs integrate, arbitrate and regulate sub-systems

within a society and an economy, entrepreneurs are effective at managing

changes and conflicts between individuals and systems.



• Storey (1982) argues that as creators of both competition and employment,

entrepreneurs can provide alternatives to bureaucratic relationships such

as that between employers and employees.

• Finally, Vesper (1980) sees class distinctions, warfare, migration patterns,

attitudes towards innovation, social deviance etc. as influencing

entrepreneurship.

As mentioned earlier, the HKP refers to the uncertainty in the marketplace,

which leaves knowledge gaps that entrepreneurs feed off. Moreover, as

Coleman (2000) notes: “the ambiguity inherent in the innovation process

prevents creating such a hard and fast rule” regarding corporate

entrepreneurship [corporate entrepreneurship is defined by Coleman (2000)

to be the “permeation of the entrepreneurial spirit throughout the

organisation”]. In other words, if we accept that the existence of an HKP is

what entrepreneurs thrive on, an HKP must also prevent us from developing a

universal theory of entrepreneurship.

However, there are elements that appear consistently in the creation of

corporate entrepreneurship. Coleman (2000) has reviewed Russell’s (1999)

categorisation of these elements, namely, individual, environmental, and

organisational. Firstly, the individuals in the firm are crucial because, without

entrepreneurial insight which is possessed by people, innovation will not take

place (Coleman, 2000). Therefore, people are important to the creation of

corporate entrepreneurship, not money spent specifically on innovation

(Drucker, 1986).

Secondly, while there is no test to determine entrepreneurs and innovators,

they do appear to share some of the same qualities. These include vision, high

energy level, need to achieve, self-confidence and optimism, tolerance for

failure, creativity, tolerance for ambiguity and internal locus of control

(Coleman, 2000).

There is also a role for the environment (primarily economic) in fostering

entrepreneurial firms. For example, a dynamic environment (Russell, 1999)



means that the incentives for firms to pursue corporate entrepreneurship are

high because their competitive advantages are constantly outdated. Also,

heterogeneity (Zahra, 1999), that is, the presence of diversified markets

encourages entrepreneurial innovation by enlarging the potential scope of the

firm. Moreover, Russell (1999) also argues that a hostile or competitive market

provides a strong incentive for firms to innovate because their advantages are

not protected.

Corporate entrepreneurship is also affected by the organisation itself. Within

this category, we can examine corporate entrepreneurship in terms of the

firm’s strategy, culture, structure and resources (Coleman, 2000).

Therefore, according to Coleman (2000), the three main aspects of a firm’s

entrepreneurial strategy are:

• an ambiguous entrepreneurial vision;

• cost-leader versus differentiation decisions; and

• the entrepreneurial posture of the firm.

Therefore, firstly, it is important that firms’ strategies are flexible so that the

outcomes of business activity are not fixed. Secondly, Dess, Lumpkin &

McGee (1999) note that the ability to combine differentiation and cost

leadership is crucial for firms that are pursuing corporate entrepreneurship.

Thirdly, the extent to which a firm’s management supports risky ventures and

seeks to actively compete with its rivals also determines a firm’s level of

corporate entrepreneurship (Covin & Miles, 1999).

Given that the definition of corporate entrepreneurship is the “permeation of an

entrepreneurial spirit throughout the firm”, culture is clearly important. Russell

(1999) suggests that culture is a powerful governing force regarding corporate

entrepreneurship because norms can encourage innovation, creativity and

searches for new opportunities; ensure resource support and information



sharing; and promote open-mindedness and tolerance for failure. Therefore,

not only is management’s ‘entrepreneurial posture’ important to the creation of

corporate entrepreneurship, but so too are various bottom-up, societal

processes.

Organisational structure is also a factor in creating corporate entrepreneurship.

Like Sautet (2000), Coleman (2000) casts doubt upon the transaction cost

model as a means of encouraging corporate entrepreneurship. The argument

here is that the actions or, in this case, organisational structures that are most

profitable for the firm in the long-run may not necessarily have the lowest

transaction costs (Coleman, 2000). Likewise, there is the risk of incurring

massive short-term costs if the firm maintains an overly long-term competitive

outlook (Coleman, 2000).

The strength of Coleman’s (2000) discussion vis-à-vis Sautet’s (2000) thesis is

that it creates a clearer picture of the emergence and maintenance of the

entrepreneurial firm. By suggesting three areas of study (individual,

environmental and organisational), Coleman (2000) implicitly tells us that

entrepreneurial firms do not simply exist due to gaps of knowledge in the

marketplace. Instead, entrepreneurial firms are made via complex

combinations of internal and external forces. The focus on interdependence in

Coleman’s (2000) discussion is also relevant to our theoretical framework.

For our purposes, though, Coleman’s (2000) weakness is that the discussion is

based on the behaviour of large firms. Whereas entrepreneurship in large firms

can be interpreted in terms of, for example, their organisational structure,

culture, market environment and people, an interface between

entrepreneurship and innovation in the SME is unlikely to be so readily

observable. Essentially, Coleman (2000) seems to be arguing that if large firms

can develop ways of imitating the behaviour of SMEs, then large firms will

become more entrepreneurial. For example, Coleman (2000) states that “small

entrepreneurial firms (our Italics), due to their very nature have the ability to

innovate and adapt at a higher rate than large firms.”



However, Brown & Huang (1998) argue that the claim that small firms are

naturally entrepreneurial is due to the fact that the majority of innovation

research has focused on large firms. While innovation may be the driving force

behind the growth and competitive positions of small firms, this does not mean

that innovation in SMEs is a natural occurrence.

Brown & Huang (1998) looked specifically at technological innovation (i.e.:

actual new products and processes), as opposed to activities such as

discovery, product and process development, organisational change and

invention. Regarding work on innovation theory and economics, which is a

major component of this paper, they found that innovation effort decreases with

firm size because more effort is allocated towards maintaining extensive

product lines in large firms. In contrast to Sautet (2000), for example, this

seems to suggest that transaction costs do have a role in determining

entrepreneurial behaviour.

Brown & Huang (1998) also described chaos theory as being useful regarding

technological innovation because the appearance of a new technological

innovation appears to drive small firms into a flurried search for innovation.

Economic geography has produced mixed findings regarding innovation in

small firms (Brown & Huang, 1998). They found that the regional environment

was less important than internal firm factors concerning innovation in SMEs.

However, in a study of the less developed Aragon region in Spain, Brown &

Huang (1998) found that technology firms were concentrated on city areas and

their developed proximity to nearby developed regions was crucial to their

success. Also, the presence of regional innovation networks and innovation

centres have been identified as major motives for SMEs’ location choices in

Germany (Brown & Huang, 1998).

Because this paper is interested in innovation and entrepreneurship in SMEs it

is easy to dismiss any findings regarding large firms as irrelevant. However, it

may be that, as Nooteboom (1994) has argued, SMEs and large firms are

good at different stages of the innovation process. Therefore, in a dynamic



economy, SMEs and large firms may be complementary. Overall, it is risky to

assume that the task of facilitating and stimulating the entrepreneurial

behaviour of SMEs is independent of large firms and vice versa.

Organisational research has found that an environment’s culture matters

regarding innovation and entrepreneurship in SMEs (Shane, 1993). In this

regard, in seems important to point out that whereas large firms often have the

resources to create their own culture, SMEs may be more dependent on

external sources of culture.

Brown & Huang (1998) offer the following conclusions:

• Small business research has focused on investigating innovation from

different perspectives.

• Most studies have been quantitative and based in the US or Europe.

• The economics discipline has demonstrated that the SMEs are an

important driver of innovation.

Organisational research shows that a number of factors such as networking,

regional innovation centres and careful planning and strategy development

can enhance SMEs’ innovation performance. It must also be noted that

customers are also important sources of innovation for SMEs.

The OECD says that “entrepreneurship” is the result of three dimensions

working together: conducive framework conditions, well-designed government

programmes and supportive cultural attitudes” (OECD, 1998). This view is

entirely consistent with the implications of this discussion so far.

Across these three perspectives of entrepreneurship, two major conclusions

are apparent. Firstly, the economic, psychological and sociological academic

fields accept that entrepreneurship is a process. Secondly, despite the

separate fields of analysis, entrepreneurship is clearly more than just an



economic function. In addition, Morrison (1998) makes two points, which act

as a useful summary and are worth considering later:

• As entrepreneurship is concerned with change, it is not clear that this

change will always be positive, even if (in the words of Schumpeter) the

‘destruction is creative’.

• Entrepreneurship is also commonly associated with choice. However, it is

possible to be pushed into entrepreneurship too.

2.2 Innovation

Innovation has been traditionally defined as the successful implementation of

creative ideas (Stein, 1974; Woodman, Sawyer & Griffith, 1993). Contemporary

economic theorists have tried to address the concept and related issues with

varying success. This is despite widespread recognition of the fact that

innovation is crucial to the success of an economy at both the micro and macro

levels (Leavy & Jacobson, 1997).

Over the last decade a great deal of attention has been directed at the study of

the actors, the institutions, and the relevant linkages that together are deemed

to constitute different models of innovation. An understanding of models of

innovation, including their diffusion and dissemination throughout the economy

and society, is very important. In addition an understanding of what shapes

these developments is critical.

"Innovation has become the industrial religion of the late 20th

century. Business sees it as the key to increase profits and market

shares. Governments automatically reach for it when trying to fix

the economy. Around the world, the rhetoric of innovation has

replaced the post-war language of welfare economics...yet there is

still much confusion over what it is and how to make it happen."

(Economist, 1999).



Damanpour (1991) has viewed innovation as a continuous and cyclical process

involving the stages of awareness, appraisal, adoption, diffusion and

implementation. However, it is also possible to view innovation as an outcome,

where an innovation is the tangible product.

For conceptual reasons, it is possible to divide this outcome view of innovation

into radical and incremental innovations. Pavitt (1991) describes radical

innovations as revolutionary or discontinuous changes. On the other hand,

incremental innovations are conventional or simple extensions of a line of

historical improvements.

Moreover, Drucker (1986) has attempted to clarify such discussion by

suggesting that innovation is not explicitly the improvement or technical

modification of a product. Instead, innovation is the “creation of new value and

new satisfaction for the customer."

Leavy and Jacobson (1997) note that theories of innovation (much like those

concerning entrepreneurship) have tended to focus on a single level of

analysis. They note the aforementioned work of Drucker (1986) as an example

of this at the firm level. The three paradigms that were described above also

compete against one other for prominence in research on innovation.

Moreover, they even criticise themselves in this regard: Leavy (1997) has

previously concerned himself with factors governing innovation at the firm level

too, while Jacobson (1994) established an interest in innovation at the regional

or national level. Innovation at the sectoral level (Nelson, 1992) and at the

global level (Niosi & Bellon, 1996) has also been completed.

It is worth considering some basic models of innovation and related innovation

paradigms. In this context, the subject of analysis is to establish an

understanding on how innovations occur in general. For this purpose, analysis

can start with three competing basic explanations of the innovation

phenomenon, which are (Sundbo, 1995):



• the entrepreneurship paradigm;

• the technology - economic paradigm; and

• the strategic innovation paradigm.

The entrepreneurship paradigm (Sundbo, 1995) is frequently used to describe

innovation activities that occur at the level of individual firms that have gained

favourable market position due to the development of a particular innovation.

This happens without any systematic previous approach to the innovation

process. Rather, there is a "market forced" effort to introduce a new product,

process or service into various markets in order to retain, and possibly enlarge,

the volume of activities, or to facilitate new business opportunities. The focal

point of this paradigm is the entrepreneur - inventor whose individual and

independent actions drive the innovation process. Here innovation per se is

seen as a key to obtaining a better position in the market and generation of

extra profits, and is often generated in a relatively unstructured manner.

However, in recent years, quite a few innovators – entrepreneurs have adopted

a more formal and systematic view towards innovation activity and long-term

business strategy

The technology - economic paradigm (Sundbo, 1995) is usually associated

with innovation policies of large companies, which are users of so-called

"mass-technologies". The key feature of this paradigm is the significant

involvement of engineers and technicians in the development of new

technologies under a company umbrella. Engineers and technicians were not

involved directly in defining the company’s business development strategies,

apart from technical input, but rather were given the task to solve particular

technical issues. There are several ways these individuals approach a

problem, e.g. in-house R&D, co-operation with other companies who are facing

the same issue, buy-in of a solution from someone else, etc. It is important to

note that these options require varying levels of internal R&D competencies for

utilising, developing, exploring and absorbing new technologies.

The strategic innovation paradigm (Sundbo, 1995) is relatively new. Its

emphasis is on firm strategy, market conditions and broad firm competencies



as factors that impact on the innovation process and as such significantly

determine the market performance of a firm. This approach to innovation is

multifunctional and represents a combination of internal competencies, long-

term marketing strategies, market developments, the identification of new

market opportunities or new market approaches, the creation of technological

alliances and partnerships, and the fostering of networks, etc. Innovation is

viewed as both technological and non-technological, i.e. it can be an entirely

new artefact, process, production activity, or a marketing innovation. The key

feature of this paradigm is a strategic manager or management team who are

able to recognise new possibilities in the market and exploit them by using

internal resources together with other available elements. In this context, the

strategic behaviour of enterprises contributes to the economic growth of a

country.

In addition, innovation activity is often modelled in several different ways for

either analysis or policy purposes, and for many years the so-called "linear

model" of innovation was widely used to describe the innovation process.

Because of the dynamics in the last few decades, the traditional linear model of

innovation has become less relevant (Klein & Resenberg, 1986) and,

increasingly, the chain-link model of innovation is becoming a more common

tool of analysis. This chain-link model suggests that the national innovation

system should be examined as an integrated whole and policy developed

accordingly.

These new insights have important implications for the firm. Innovation is not

simply driven from formalised research and development but depends on

access to information, to technologies and to the skills needed to implement

them effectively. Increasing the capabilities of firms to learn and to be aware of

superior technological opportunities is as important as making sure firms have

the resources to innovate (Metcalfe, 1998). In this regard, a significant amount

of innovation originates through design improvements, "learning by doing" and

"learning by using". This process, along with R&D, results in the accumulation

of knowledge and experience, i.e. the development of competencies and

human capital.



3. NEW ZEALAND’S SITUATION

The level of innovation of New Zealand's firms is a reflection of the present

structure and maturity of economy. The New Zealand economy is still

dominated by the primary sectors, although there are a number of emerging

clusters of innovation in the economy. For New Zealand to develop a truly

innovation-driven economy we need to shift the focus away from these

traditional commodity-based products to the development of a diverse,

knowledge-intensive, new and value-added products, processes and services

driven long-term R&D strategy that builds on our existing knowledge base.

The major barrier for innovation-intensive development of the New Zealand

economy at the generic level is a combination of several interrelated factors.

For example, previous policies (dependence on government funded R&D

programmes), lack of larger regional economic co-operation initiatives (Close

Economic Relations with Australia is very important, while APEC has the

potential to become important). Also, distance from major markets, lack of

scale, relatively high transaction costs, remains of a colonial philosophy,

conservative financial and investment sector, general perception of science

and technology are other crucial factors. Consequently, the major barrier for

knowledge-intensive development of the New Zealand economy at the

economy level is also a combination of several interrelated factors. For

example, domination of primary sector, very small enterprises, focus on few

markets, weak processing component, lack of product-process-service

variety, lack of capital, lack of S&T competencies, etc.

Having acknowledged these barriers and issues, the real challenge for New

Zealand is how to overcome these difficulties and build a powerful and

competitive knowledge base. At present New Zealand’s underpinning

knowledge base is extensive, but highly specialised by international standards

in a small number of areas. In particular, these include the agricultural,

biological and earth sciences, especially in relation to pasture and animal

production, indigenous species and pests. We have significant downstream

specialisation of knowledge in food sciences and biotechnology and are



increasingly recognised as a leader in experimenting with new management

approaches, for example in public sector management and organisation, and

in resource law.

However, New Zealand's small population and limited economic wealth

explain much of the current fragmentation in our research and knowledge

base. These issues remain real constraints on our ability to develop a wider

spread of research and commercial specialisation. Major gaps in our

knowledge base are most evident in relation to manufacturing technologies

(products and processes), as illustrated in the table below.

Revealed Comparative Advantage (RCA) by Type of Industry, (Porter, 1998).

High technology Medium-high technology Medium-low technology Low technology

New Zealand 9.0 23.0 43.0 300.8

Australia 41.5 41.8 58.0 245.2

Denmark 63.5 62.7 138.4 167.2

Finland 58.8 57.7 105.1 191.0

Norway 36.9 54.9 154.6 189.5

Sweden 86.6 91.3 100.6 121.9

* The average value for RCA across all countries for any particular industry sector is 100. Forindividual countries, a value greater than 100 indicates that the country’s exports are relativelyspecialised, or it has a revealed comparative advantage, in that industry sector. An RCA value lessthan 100 indicates the some other country(s) shows a revealed comparative advantage in thatindustry sector.

An "innovation-driven economy" requires extensive development of areas with

high value-added potential through significant R&D effort. Key characteristics

of a modern economy are therefore growth in high-technology investment and

production, highly skilled labour and rapid productivity improvement. This

implies major investment in research and development, particularly in the

private sector, and in education, training, new managerial and work

structures. It also requires highly effective interaction between education and

research establishments, the private sector and government.

For New Zealand, the shortage of domestic human and financial resources

inevitably means that expanding high value added economic activities would

require us to constantly expand and refresh our knowledge base. This will



mean an increased capacity to import, adapt, transform and apply globally-

sourced knowledge (especially embodied knowledge) and expertise.

Assessment of the knowledge base in New Zealand and appropriate

strategies to expand it need also to take account of "networked knowledge".

These flows of technology and information between people and institutions

are essential to the innovative process. However, several studies point to an

asymmetry of competencies. That is, there is a mismatch between the supply

and demand for knowledge. These studies suggest that our problem may not

so much be an inferior "stock" of knowledge, but an inability, particularly in the

private sector, to absorb and apply successfully all of the commercially-

relevant and valuable knowledge currently available or accessible.

New Zealanders are generally regarded as technically competent and, by

international standards, quick to pick-up and use new technologies such as

electronic banking, cell-phones, etc. Nonetheless, our economic structure

reflects a predominance of low technology industries. This may be

attributable in large part to a historical bias in the New Zealand finance market

and in public policy towards primary sector production based on resources

and on a (presumed) comparative reliability of income associated with these

industries. Many New Zealand industries are relatively efficient and compare

well with other developed countries on the basis of current competitiveness.

However, most international studies and indicator comparisons suggest that

our knowledge accumulation, technological capability and innovative capacity

are lagging significantly behind most other western countries. In other words,

while we have several small "pockets of excellence", our comparatively low

(overall) levels of innovation and technology threaten our future

competitiveness in both global and domestic markets.

Some specific factors that might explain the comparatively slow development

of knowledge-based and technology-intensive industries are difficult to

ascertain. However, they appear to include:



• constraining public attitudes to, and perceptions of, innovation,

entrepreneurship and profitability;

• low levels of private sector R&D expenditure - due in part to small firm

size, limited domestic market opportunities, inadequate venture capital, tax

treatment of R&D expenditure, etc;

• negative perceptions of science and technological education/careers;

• loss (through emigration and career change) of qualified/skilled S&T

personnel;

• the limited end-user impact, e.g. commercial impact, of much public

investment in RS&T; and

• obstacles to more effective networking and interaction within the

innovation system.

Evidence of New Zealand’s poor R&D performance can be presented in

tables, such as that reprinted below:

GERD(% GDP)

% of GERDfinanced bybusiness

BERD as % ofGDP

No. of S&T publicationsper 100,000 population

OECD 2.17 61.2 1.48 52

ReferenceCountries

2.16 55.7 1.43 98

New Zealand 1.12 31.0 0.32 75All figures for 1997/98 – Source: New Zealand Research & Development Statistics 1997/98 (MORST 1999)Definitions: GERD – Gross Domestic Expenditure on R&D; BERD – Business Enterprise SectorExpenditure; G7 – Canada, France, Germany, Italy, Japan, UK and US; Reference Countries – Australia,Denmark, Finland, Ireland, Norway, Sweden

On the face of it, New Zealand’s R&D statistics look poor. Comparing New

Zealand to international counterparts in terms of total national expenditure on

R&D, New Zealand ranks about 13th in the OECD. Similarly, New Zealand

achieved one of the lowest levels of business funded R&D (31.0%) and

business performed R&D as a percentage of GDP (0.32%) in 1997/98. R&D

intensity (R&D expenditure divided by turnover) was 0.37% in 1997/98 in the

manufacturing sector, compared with an average of 6.6% in OECD countries.

These are all regarded as indicators of the domestic potential to produce

knowledge. However, all statistical comparisons of New Zealand with other

OECD countries, particularly in the case of R&D data, must recognise that New



Zealand never had, nor will we ever have, extremely large defence expenditure

and defence related research activities. This is important because defence is

the largest source of commercial “spillovers”, for example, electronics,

telecommunications and information technologies. However, there are positive

trends emerging, which are often overlooked. R&D expenditure in New

Zealand reached a record high in 1997/98, at an estimated $1,107.4 million,

compared to $889.5 million in 1995/96. This was the biggest increase since the

surveys started. Business expenditure on R&D in New Zealand increased

from 0.27% of GDP in 1995/96 to 0.32% in 1997/98.

Total R&D expenditure in New Zealand increased on average at 6.2% per year

from 1990/91 to 1997/98. Over this period New Zealand’s GERD as a

percentage of GDP has been growing at about 12% on average, compared to

the OECD, where GERD as a percentage of GDP has shrunk by about 1% on

average. Similarly, between 1991 and 1997, New Zealand’s business

expenditure on R&D (BERD) increased on average at 8.5% (as a percentage

of GDP, New Zealand BERD has increased on average at about 2.8%

between 1991 and 1997). In comparison, BERD for the OECD as a whole has

been increasing at around only 2.4% (as a percentage of GDP, BERD in

OECD countries has been shrinking at about 1% per annum, although picked

up over 1995-97). The trends of R&D spending growth in New Zealand are

positive and strongly contrast with the period 1981-1989 when it is estimated

that there was a real decline of around 27% in R&D spending in New Zealand.

New Zealand’s level of scientific publications and growth rate of patent

applications are also relatively high (the growth rate of information and

communication technology patents is phenomenal). Moreover, we perform

strongly in terms of inflows of international knowledge inputs, as evidenced by

a high proportion of high and medium technology imports. However, any

interpretation of the level of indicators needs to be treated with care because

they do not reflect the quality or efficiency of investment. For example, a high

R&D intensity does not necessarily imply that R&D inputs are efficiently used.

Furthermore, relative country results should be treated with caution, especially

when absolute differences are small, as many indicators lack precision.



3.1 Structural Characteristics

As indicated in the previous section, a large number of factors impact on R&D

and innovation including industry structure, skills and networks. This section

considers these factors and the evolution of innovation in New Zealand.

As noted previously, the level and effectiveness of New Zealand firms’ R&D

and innovation activities is a reflection of the present structure and maturity of

the economy. Specifically, certain structural characteristics of the New

Zealand economy create conditions that may make the development and

uptake of new technologies more difficult relative to other developed

economies.

New Zealand’s small economy (some basic statistics on demographics of

New Zealand’s SMEs are attached in Annex 1) limits the scale achievable by

firms focusing on the domestic market, as well as their ability to use domestic

production as a springboard for exports. In addition, because the largest

economic sectors are in primary products and processing with commodities

being the dominant exports, the opportunities to use R&D and advanced

technology for competitive advantage are seen as relatively limited compared

to other sectors. However, we can certainly develop and sell technologically

advanced capital equipment that can be used to process commodities.

Changes in industry structure can influence levels of private expenditure on

R&D. Since 1990 there has been a shift in the emphasis of R&D in the

manufacturing sector, with increasing amounts being performed in producing

machinery equipment, instruments and transport equipment, and in the

service sector. The most significant increases in R&D expenditure between

1995/96 and 1997/98 occurred in the service sector (an increase from $62.5m

to $112.2m), including communications, computer software, and insurance

and technical consultation services. Also, while New Zealand manufacturing

firms have a lower R&D intensity than the OECD average (ignoring imported

R&D), our services sector carries out more R&D than the OECD average.



This structural reality is compounded by the very small size of New Zealand

firms compared to small firms in other developed countries. Small firms are

increasing in terms of both enterprise numbers and employment levels in the

New Zealand economy, leading to a decline in the average number of workers

employed per enterprise from seven in 1994 to just over six in 1998. There

are also a large number of ‘life style’ companies in New Zealand, i.e. where

the owner is satisfied with a comfortable standard of sales and profits and is

not interested in growth or competing in international markets.

The predominance of these types of small firms may limit the ability to take

advantage of scale economies and to generate the resources needed to

upgrade technological competence. Although small firms are thought to have

advantages in terms of flexibility, responsiveness to market changes, filling

niche opportunities, sharing information internally, and making small scale

technological investments, there is often a critical mass of capital, employees,

and sales necessary to capitalise on these advantages. In general, New

Zealand’s very small firms do not have this critical mass. Other industrial

countries tend to have more large multinational companies that both carry out

a large proportion of BERD and provide contracting opportunities for small hi-

tech firms.

Small New Zealand firms are also typically characterised by personal

ownership and management, have little or no specialist managerial staff, and

are not part of larger business enterprises. Consequently, factors such as

transaction costs - in terms of time and financial resources - become more

significant to New Zealand firms. These costs as a percentage of sales are

high for small firms for activities such as gathering relevant information,

securing capital, and buying and implementing new technology. Therefore,

the risk of failure tends to be high when investing in new technologies and,

unless competitive pressures are great, will typically far exceed the risks of

doing nothing. Given these risks, small firms must have a very high

confidence level that new technologies will be successful, and successful with

a minimum of disruption to operations.



Empirical evidence shows that networking has become a key factor in

innovation. That is to say, innovation no longer depends only on how firms,

universities, research institutes, and regulators perform, but, increasingly, on

how they work together. The growing reliance on firm collaboration and

networks, at both the national and international level, is driven partly by the

fact that many firms can no longer bear all the costs and risks of innovation

alone. Another aspect to consider here is that the required knowledge is often

multi-disciplinary and emerges from a wider range of firms and institutions.

In the case of R&D activities, it appears that many New Zealand businesses

are reluctant or unable to enter into partnerships with other firms. Research

on R&D networks in New Zealand show that networks are being formed on an

internal basis between parent companies and subsidiaries, and on an

informal, ad hoc, personal basis, as opposed to formal, structured linkages.

The limited R&D capacity of New Zealand’s businesses may be a key reason.

In other economies, large customer firms serve as a source of technological

solutions and, often, a facilitator of R&D partnerships. In contrast, New

Zealand firms often supply final market products or supply customer firms that

are not large enough to play this facilitator role. Even the larger New Zealand

firms, unless foreign owned, are small by global standards. Therefore, our

large firms do not always have the resources to work with local suppliers to

upgrade the capabilities of the total sector. Therefore, the inter-firm

relationships that operate elsewhere, in which firms benchmark their

capabilities, discuss operations, and share technological information, are

relatively weak here.

Dependency on suppliers for new production technology is a condition that

deserves special mention. Because New Zealand does not have a domestic

machine tool or process technology industry of any significance, firms are

dependent on foreign suppliers, for whom New Zealand is a small market.

The majority of New Zealand firms may have limited leverage on the cost of

the equipment, and may even have limited choice among suppliers willing to

provide the desired level of service. These factors can make technology

upgrades and significant process changes even more daunting when



combined with the usual cost, time, and disruption factors. Other information

on relevant scientific and technological developments relevant to small firms

may also be difficult to access. A number of surveys have found that

research funded by PGSF and the work of the CRIs is not well matched to

firm needs.

4. STRATEGY AND CAPABILITY

The process of innovation and technology diffusion is undergoing substantial

change. The main driving forces are increasing market pressures (stemming

from globalisation, deregulation, changing patterns of demand and new

societal needs), as well as scientific and technological developments (e.g.

increasing multi-disciplinary practices in the production of new knowledge,

diminishing cost of information access and processing). This requires firms to

change their management approaches and competitive strategies to succeed

in a more open environment. However, change is a gradual process in New

Zealand, due in part to the legacy of a protected market and the continued

patterns of competition that remain.

4.1 Evolution of Innovative Capability

In the 1980s, behind protective barriers, firms had built up broad product lines,

irrespective of efficiency or comparative advantage. Their isolation from

international competition meant that in many cases these portfolios lacked

consumer appeal as well as economic sustainability. When protection was

removed, the first result was a wholesale rationalisation of these product lines

and related processes.

After this period of cost cutting and rationalisation in response to deregulation

and liberalisation, New Zealand firms turned their attention to quality, which

became the predominant emphasis of firms’ competitive strategies. This

focus was supported by adjustments to production and operation systems in



the early 1990s. Here the main focus of priorities or outcomes was quality

and timeliness. Firms moved to develop sources of advantage based on

differentiated products and services that did not have to compete wholly on

price.

A second distinctive phase took place during the mid 1990s, characterised by

expanding markets, export growth, renewal of product lines, a wider range of

competitive strategies, and more dynamic human capital. While efforts on

quality and operations continued, attention was given to improving customer

focus and supplier relations by moving operations and focus up and down the

value chain. At the same time, a very large number of New Zealand

enterprises began exporting and took the first steps towards

internationalisation. For example, it has been estimated that some 70% of

medium to large firms and 40% of small firms began exporting in this period

(Infometrics, 1999).

Although this momentum slowed during the ‘Asia Crisis’, the tough conditions

provided a real incentive for further redesign of operations and practices. The

focus of priorities or outcomes has now expanded to include flexibility and, in

a few cases, innovation. For most firms, exporting is still a minor part of the

business (estimated at less than 20% of sales). But at the very forefront of

New Zealand’s business community is a very small number of firms -

estimated at about 50 - which have built up elaborate networks of offshore

distribution and operations in many countries, and are now competing with

distinctive products and innovation.

Despite the great improvements in competitive capability that have been

made over the last decade, there is still much to be learned. Few firms have

yet to match leading international benchmarks (Knuckey et al, 1999); no more

than 10% of firms are approaching international standards of performance on

practices such as human resources, innovation and offshore investments.

Overall, the culture in many New Zealand firms continues to be insular. Firms

still have short rather than long term outlook, most view R&D as an expense

and not as an investment, few have technology/innovation strategies, few



make an effective use of performance measurement or comparison systems,

and firms tend to be risk averse in adopting new technologies. Although New

Zealand firms have moved from a cost-quality focus to a market (timeliness-

flexibility) focus, few are yet to take an innovation focus. This means:

• knowledge of global technological developments is often not viewed as

important;

• benchmarking capabilities against foreign firms is not widespread and

when it is done, typically only includes Australian firms;

• the need to upgrade management skills and improve technical

competence has not been widely recognised, probably because the

competitive environment still does not demand such upgrades; and

• dependence on the domestic market remains high despite the growth in

exports in recent years.

Much of this is a function of managing the transition to an economy that has

become more open as trade barriers have been reduced and markets

deregulated. This is an evolutionary process. The key point from this

evolutionary picture is that as the vast majority of firms are not yet including

innovation as part of their competitive armoury, it is not surprising that they do

not have well-developed innovation and technology practices, including

investing in R&D.

This movement towards globalisation and liberalisation has provided firms

with mixed incentives to perform R&D. On the one hand it is easier to access

foreign technology, reducing incentives for private investment in R&D. But on

the other hand, the returns available to innovative firms are increasing with

the size of the global market, increasing the incentive to do R&D. It can be

expected that as New Zealand firms move down this adjustment path, greater

numbers will recognise that enhanced technical capabilities, including

investments in R&D and new product and process technologies, will become

increasingly important to profitability.



When that happens, the strategy of innovation will become the prime vehicle

for pursuing advantage. We would also expect an improved awareness of

technological developments abroad, which increasingly become critical to

export sales as foreign customers expect a higher and higher level of

technical competence. The positive trends in (as opposed to levels of) New

Zealand’s R&D statistics may reflect this story. These findings indicate a

continued need for firms to make the transition to a more competitive

environment, both as the domestic economy becomes increasingly open to

foreign competition and as the desire to increase exports forces participation

in competitive markets abroad.

4.2 Skills for Innovation and R&D

It is important that New Zealand is developing people with the right skills in

the right fields to support greater capacity for R&D in both research

institutions and businesses. Small New Zealand firms often do not have the

physical and human resources to undertake R&D in-house. Even for those

progressive firms who have developed internal R&D capabilities, the

availability of required skills continues to be a major issue.

In terms of available skills, New Zealand does have relatively good figures in

terms of the number of scientists and engineers in the labour force. Scientists

and engineers accounted for 4.3% of the labour force in 1996, which is higher

than most other European countries. The number of employed scientists and

engineers grew at an annual rate of 5.4% over 1991-96 compared to an

average overall annual labour force rate of 3.4%. However, New Zealand

does not compare well on total R&D research staff, although the numbers

have been rising steadily in recent years. There were 4.4 R&D researchers

per 1,000 labour force in New Zealand in 1997/98, compared to 5.5 in OECD

countries and 6.7 in reference countries.

Of more interest is the potential future supply of human resources in science

and technology, which can be projected on the basis of student enrolments in

these areas. In 1996, over 4,480 students graduated in science and



engineering fields, accounting for about 20% of all graduates. This reveals a

large increase over the 1990 graduate figure of 2,560. However, as a

proportion of total graduates, there was a slight decrease over this period

(from 24% to 20%). The popularity of a science and engineering degree is

much higher in other OECD countries. Science and engineering graduates

comprise over 40% of all graduates in Germany, Finland, Belgium, Italy,

Norway and Switzerland. Indeed, studies have shown that there are negative

perceptions of science and technology education/careers in New Zealand.

However, analysing such skills data is a complex process. There are many

definitional problems with the OECD subject categories as different countries

have different classifications for their degree programmes. For example, in

New Zealand, students graduating with majors in information technology

could be classified as either commerce or science.

Notwithstanding the problems noted above, analysis suggests that New

Zealand’s level of ‘hard’ natural science graduates is very good when

compared with other OECD countries. However, as we shift from hard

sciences to applied technology subjects, like mathematics, computer science

and engineering, New Zealand’s output of graduates declines. However, what

is probably more important is that the rate of technological change is likely to

continually change the demand for skills in the labour market. The pace of

change makes it more likely that today’s workers will need to up-skill more

often, change jobs and probably careers several times during their working

lives. Rather than technological and science skills per se, the most crucial

“skills set” for innovation is likely to consist of:

• soft skills such as teamwork and communication, a willingness to learn

new skills, and motivation to seek new educational opportunities;

• enterprise skills;

• the flexibility to adapt to new technologies; and

• basic skills such as literacy and numeracy.



A key issue then, is whether the education system as a whole is well placed to

help deliver individuals with good combinations of specialist and generalist

skills. Indeed, firm level research undertaken in the last 2-3 years does

suggest that this is the real “skills shortage” reported by firms. In a number of

these studies, most firms’ concerns were with attitude and basic aptitude, and

many firms were dissatisfied with levels of literacy, numeracy, motivation and

discipline. This applies equally to scientists and technologists as it does to

other specialist skill areas.

Maintaining expertise in New Zealand is also a key issue. Although

immigration has in the past primarily served to offset losses from outward

migration, in the year to May 1999 there was a net loss from migration of

10,696 persons. The main concern is not the numbers, but the nature of the

people leaving. While more than 50% of emigrants are low-skilled, the

greatest growth in emigration is coming from physical, mathematical,

engineering and science professionals (including IT). Although net migration

in many high-skilled fields is still positive, levels have declined since 1995.

This raises a question about the equivalency of human capital between

emigrating New Zealanders and immigrants. It is important that New Zealand

businesses are not inhibited in expanding R&D efforts due to lack of required

skills.

4.3 Finance for Innovation and R&D

Access to investment capital for R&D is another problem typically faced by

small firms and entrepreneurs. Three themes stand out. First, small

enterprises lack investment readiness skills: innovators tend to lack

understanding of the implications of different forms of funding, do not know

how to present proposals, and are unwilling or reluctant to share control or

provide information on their ideas/companies in return for capital. This is a

problem for small firms in all countries but the high proportion of very small

firms in New Zealand means that the problems are likely to be more acute

here. Instead, small firms primarily rely on cash flow and borrowed funds. For

those firms that are investment ready and willing to relinquish control for



equity financing, the venture capital market is still immature compared to

overseas markets, but developing rapidly.

Second, although most firms find borrowed funds to be readily available,

financial institutions tend to be more willing to loan to existing firms than to

new ventures (not surprisingly given the higher transaction costs involved),

and access to funds for R&D can be problematic. Third, it is generally

accepted that New Zealand does not have well-developed finance markets for

companies built on intangible assets (again, not surprising given the

immaturity of the market and the relatively high transaction costs).

Increasingly, though, it is these types of firms that will be driving investment in

R&D. However, it is clear that venture capital investors are increasingly

focusing on Internet and e-commerce related companies, albeit at the

expansion stage and higher value deals.

The picture that emerges is that New Zealand firms tend not to be near the

technological frontier (and performing R&D). As above, this can be attributed

to the present structure and maturity of the economy and also due to time lags

in adjusting to the opening of the economy and building capabilities. Part of

this may also be due to the relative isolation of firms from hi-tech competition

or simply that they choose to be followers. This is not unusual. Economies

that are technologically behind tend to catch-up by imitating rather than by

pushing the technological frontier. This accepts that economies benefit from

foreign R&D as well as from domestic R&D.

It should be noted in this context that an economy’s own technological-

generation activities only represent one source of technological advances,

and others will be imported from overseas. For example, a recent OECD

study noted that acquired technology (embodied R&D) typically accounts for

40% to 60% of the total technology embodied in output of OECD countries

examined. New Zealand reached 70%. Indeed, there is evidence supporting

the notion that foreign R&D contributes significantly to productivity in a small

open economy, like New Zealand. At the firm level, embodied R&D is a

substitute for BERD. That is, producers have the choice between developing



technology internally, or purchasing technology from specialist firms.

Producers are likely to purchase technology if the specialist firms can produce

better and cheaper technology because of benefits from scale and

specialisation. In any case, firms can grow by using imported rather than

domestic R&D.

The value of this strategy should not be under-estimated, as it may be the

most efficient solution for the size of firms and industries in New Zealand. The

relative shortage of domestic human and financial resources in our small

economy inevitably means that expanding high value-added economic

activities would require us to constantly expand and refresh our knowledge

base. This will mean an increased capacity to import, adapt, transform and

apply globally-sourced knowledge (especially embodied knowledge) and

expertise.

5. USE OF GOVERNMENT FUNDED R&D

In situations where market incentives for research are weak, where spillover

benefits are likely to be pervasive, or governments seek to ensure

dissemination of the results, governments have tended to provide direct

support for research in government-funded institutions. In the New Zealand

context, the government has several key interests in supporting publicly

funded R&D, namely:

• to underpin own policy development, in particular in social and

environmental areas;

• to address country’s unique characteristics, such as natural environment

and flora & fauna;

• to foster well-functioning education system which can fruitfully interface

with R&D activities; and

• to support areas where there are significant externalities and risk of under-

delivery.



The government plays a major role in funding of research and development

through the Public Good Science Fund (PGSF), Marsden Fund, and

Technology NZ (run by Foundation for Research, Science, and Technology

and the Royal Society of New Zealand) and indirectly invests in R&D through

its funding of universities.

The government also has an ownership interest in a substantial knowledge

base through the Crown Research Institutes (CRIs). Broadly, the New

Zealand government purchases over NZ$600 million per year of science,

research and development mainly from public institutions such as CRIs and

universities.

It is worth mentioning that the New Zealand innovation system traditionally

has been dominated by the role of government, both in funding and

performance. Since 1988 the New Zealand science system, in parallel to

many other changes affecting the public sector as a whole, has undergone a

major restructuring (Reeve & Pirich, 1998). The effect has been to create a

separation between the purchase and provision of research, and the

development of appropriate policy (Reeve & Pirich, 1998). New institutions

have emerged as have new instruments for the funding – or purchase – of

research, including the PGSF in particular. A rigorous process has been

developed for the identification of priorities for the PGSF.

Before the major changes of the late 1980s and early 1990s, the relationship

between the various components in New Zealand’s science research system

was heavily influenced by the position of the state in economic and social life.

New Zealand followed a highly regulated and interventionist style of economic

management which had the effect of bringing within one very large system the

government-funded and owned research laboratories, universities and many

forms of state owned industries also performing research (Reeve & Pirich,

1998).

Today, mostly as a consequence of the radical change to the public sector,

the New Zealand system is characterised by separately organised and



accountable research by government, the universities and industry, although

with areas of overlap in operations and strategic direction. This is defined

through the convergence of research agendas, and the strengthening of

organisational and financial links for the co-ordination of research performed

by the different parties (Reeve & Pirich, 1998). Full collaboration involving

major programmes of joint work and the sharing of research equipment and

resources is less of a feature. A major aspect of the restructuring of the New

Zealand science system and government policy for research science and

technology has been the focus on the roles of government funded (or

purchased) and performed research. This includes the relationship of such

restructuring and policy to a broad set of needs regarding the economy,

society and the environment. The consequence has also been to shape the

space between government and industry both in the performance and

exploitation of research (Reeve & Pirich, 1998). This has been an issue of

key concern, as evidenced by the establishment of the CRIs as quasi-

independent organisations run on commercial lines. The initial impact of the

public sector changes was to emphasise the separate nature and territories of

research for government and industry. Government funded research as

supported by the PGSF was regarded as providing the underpinning

knowledge base for other activities, although clear and direct exploitation by

industry of the government activity was seen as possibly undermining the

distinct roles which each party was expected to fulfil.

Linked to this were concerns about avoiding potential government subsidy of

industry and the crowding-out of activities that ‘should’ be performed and

funded by industry. One effect of this approach was to emphasise a rather

linear model of the innovation process in which government activity provides

the initial stimulus or base of knowledge. This is then subsequently applied

and exploited by industry – although given the concerns over research

appropriateness, the mechanism through which such exploitation would occur

appeared somewhat unclear.

It is important to point out, that significant S&T competencies in New Zealand

are with CRIs, and not with universities and the private sector. In addition,



New Zealand has significant S&T competencies sitting within a number of

government departments, which is yet another paradox of New Zealand

innovation system. This makes further analysis on the innovation system,

even more complex. The S&T competencies that exist within CRIs need to be

better utilised than they are at present, in particular the role of CRIs in tertiary

education needs to be fostered, for example in providing post-graduate

courses for students and facilities to educational establishments. In short, the

rationale for public sector research at the broadest level is that it should:

• enable research to be undertaken and disseminated in a way that

advances social welfare by more than alternative uses of the public’s

funds; and

• achieve results that would not otherwise occur.

The role for government is not clear-cut, and can change over time. It

depends on:

• the private incentives and arrangements for doing research (whether

“crowding out” is likely);

• the ability of government to identify the appropriate areas of research;

• the scope for, and benefits from, wider dissemination of results from public

compared to private research; and

• the cost of undertaking the research within the public sector relative to

contracting it to the private sector (taking into account issues of

specification and control).

Compared with other OECD and reference countries, New Zealand’s share of

R&D financed by government is higher (50% vs 30%), while the share of R&D

financed by business is lower (30% vs 60%). Similarly, compared with other

OECD countries, New Zealand's structure of R&D performance is quite

different. The majority of R&D activities (67%) are carried out by the business

sector in other OECD countries while in New Zealand over 70% of R&D is

carried out by the government sector and university sectors. New Zealand

also has the highest proportion of total research carried out by government



entities (42% compared with the OECD average of 11%). Given the previous

discussion on limits on the capability of New Zealand firms to undertake and

use R&D, the substantial level of government investment in R&D raises an

important question. Namely, is there a barrier between the institutions doing

the R&D and the institutions (i.e. firms) that can add value using R&D?

Broadly speaking, evaluations of government investment in R&D in terms of

the PGSF and Technology New Zealand have provided positive results on

scientific and technological outputs, increased competencies, and improved

collaboration - although the evaluations have so far been limited. However, a

number of studies have identified concerns:

• A study (Pirich & Reeve, 1998) by the Ministry of Research, Science and

Technology in 1998 of the PGSF highlighted:

� presence of asymmetry of competencies in some sub-sectors and

inadequate absorptive capacity among users in some sectors;

� inconsistency of user support across different areas and during the

research programme, and insignificant support from private sector in

funding follow-up R&D projects; and

� lack of stronger links with other funding instruments, such as research

funded through Vote: Education and through other Votes.

• A study by Infometrics (1999) of 30 of New Zealand’s leading exporters

found that there is a high degree of disillusionment with the process of

public funding of R&D, particularly with CRIs. Common issues included:

� the process of applying for funding is cumbersome and time

consuming; two companies indicated that the process was so slow that

the projects they intended to fund were redundant before the process

was completed;

� firms were critical of the lack of commercialisation displayed by

Industrial Research Ltd, its ability or willingness to establish close



working relationships, and were concerned they were spread too thinly

across many areas; and

� retaining control over, or integrity of intellectual property rights was a

contentious issue for some companies using outside research

organisations.

• A Decision Research Ltd survey of 30 manufacturers in 1998 found that

some considered that CRI charges make them an uneconomic option for

R&D.

• A study by BERL in 1995 showed that few firms used external sources of

product innovation, due primarily to the small size of NZ firms, diversity of

interests and high fixed transaction costs which make directing research

activities more difficult. This survey showed that external sources of

innovation used by firms included CRIs (6%), research associations (9%)

and offshore license arrangements (15%).

• The best manufacturing practice survey (Knuckey et al, 1999) found that

the least valuable sources of assistance were public sector agencies

including universities and business schools (9%) and CRIs/research

associations (11%).

This research points to potential barriers for private sector R&D investment in

terms of:

• Applied research undertaken by the government should generate

opportunities for follow-on investment by the private sector because the

project should have been progressed far enough for a commercial return

to be a reality. However, there is relatively little follow-on investment

undertaken in New Zealand.

• This could be due to the projects being irrelevant, or the fact that the

intellectual property for the research is held by government institutions.



• The CRIs, in particular, may not have the right incentives to more

aggressively market their intellectual property (although all are presently

establishing such approaches). This is particularly the case with CRIs

whose income is derived primarily from government resources.

• There is a lack of awareness or understanding in the private sector of

available government initiatives and a need for more focused promotion.

Furthermore, there is concern that the human capital developed as a result of

public investments in science too often remains in public laboratories and

universities rather than being applied to commercial needs. The need to

integrate more effectively New Zealand’s human capital with the private

industry, and build strategic linkages and relationships between the private

sector, technology agencies and intermediaries is a critical issue requiring

initiatives at multiple levels of the national innovation system (Pirich &

Campbell, 1999). The Foresight project is one process that has aimed to link

the government’s investment in science and technology closer to the needs of

the private sector.

Innovation strategies, and hence use of innovation services, are of low

relevance until firms reach the technology frontier. Indeed these services will

also tend to be used by those firms with prior experience of R&D. The results

pointing to a lack of use of universities and CRIs probably reflect the

underdeveloped innovation and technology practices in New Zealand firms.

However, leading firms are increasingly using outside expertise from either

independent firms or CRIs to undertake well-defined R&D. The Infometrics

report indicated that the availability of public funds does motivate these firms

to use outside R&D resources. There is also a capability issue for public

sector agencies involved in the R&D process. Many of the issues that

government institutions such as universities or CRIs face when looking to

promote and facilitate the application of their research are the same faced by

other businesses. CRIs and universities do not always have the mix of skills

required to do this. The picture of innovation that emerges is a complex

process that involves multiple networks, capabilities and resources.



The creation of an environment that facilitates the innovative process will

need to take into account all of these issues, including:

¾ the structure and scale of New Zealand industry;

¾ the adjustment path of the New Zealand economy;

¾ the skills and finance available to undertake R&D and innovation; and

¾ the scale of mechanisms available to foster human capital mobility and

transfer, and the effectiveness of government’s current investment in

science and technology.

5. CONCLUSIONS

This analysis has identified a number of important potential barriers to New

Zealand’s development into a knowledge-intensive, value-added economy. In

particular, it highlights that, in many ways, New Zealand’s innovation system is

in a catch-up phase and our entrepreneurship culture in a process of rapid

development. This reinforces the importance of increasing New Zealand’s

capacity to import, adapt, transform, and apply globally-sourced (especially

embodied) knowledge and expertise along with fostering entrepreneurship. In

addition, macroeconomic, regulatory, taxation, trade, and education policies,

among others, have a strong and even dominant influence on economic

performance. In this context, there is no single lever available to government

to stimulate innovation and entrepreneurship. Instead, an integrated approach

across a range of policy measures will offer the most significant means to

encourage innovation and entrepreneurship. In this context, a strategic

approach to innovation and entrepreneurship has at its core three key

interrelated elements:

• the economic conditions and the incentives supportive of innovative and

entrepreneurial behaviours;

• the sophistication and efficiency of knowledge generation and diffusion; and

• the capability of firms, the workforce and individuals.



Firms will only invest in innovation if they can expect sufficient private returns.

In this context, innovation policy needs to act to enhance returns to

investment in R&D, and innovation generally, while keeping costs to a

minimum. Here, incentives to innovate may derive from measures that drive

firm compliance costs down, and fiscal incentives that act to reduce

expenditures on innovation-related investment. Just as important is the effect

of competition in spurring innovative activity. This is accentuated in the face of

rapid technological change and increasingly sophisticated consumer needs.

Therefore, the policy objectives should:

• minimise the risks associated with innovation (e.g. a stable and supportive

macroeconomic policy);

• where possible, build on the private incentives of individuals and firms

(thereby reflecting better targeting of firm-initiated research to real needs

and opportunities); and

• aim to encourage entrepreneurship in general (e.g. ease of starting and

registering businesses), and risky innovative activity in particular (e.g.

bankruptcy laws that may excessively penalise failure).

The impact of R&D (and innovation generally) strongly hinges on its diffusion

across the public and private sectors and between and within firms. Greater

importance is now placed on measures which utilise and expand the

knowledge base through more effective interaction and networking within the

innovation system (e.g. between the enterprise sector and the science system,

and collaboration between firms). Therefore, the policy objectives should:

• include measures which support and encourage more effective use

amongst SMEs of relevant, globally-accessible, innovations and

technologies;

• strengthen links between firms and public research infrastructure, e.g.

greater use of public/private partnerships and enhancing the role of

intermediary institutions; and

• build up the internal absorptive and innovative capacities of firms, e.g. for

example, encouraging personnel movements between industry-public



sector, especially SMEs, and benchmarking (transmitting best-practices

from elsewhere).

New Zealand’s innovation capability spans a number of critical policy domains:

economic, regional and industry development policy, labour market and

industrial relations policy, education policy, science and technology policy, and

immigration policy. Combined, these policies determine the quality and size of

the available skill and knowledge base and how effectively that knowledge is

creatively applied. Therefore, the policy objectives should:

• foster human capital mobility between CRIs, Universities and private

sector in order to transfer knowledge and ideas;

• facilitate the entry of new participants with innovative ideas, innovative

concepts and technological solutions; and

• promote measures to improve public understanding of the essential

contribution that continuous learning, technological innovation, and

entrepreneurship make to an economy, and to society in general.

Promotion of entrepreneurship culture is one of the key policy objectives and

it represents an integral part of wider activities that contribute to economic

development. Therefore, the following broad areas need to be considered in

policy development:

• developing a culture in which links between business, schools, and

education more generally, are seen as a natural partnership;

• providing opportunities for individuals and communities to build specific

and practical knowledge and skills for enterprise;

• developing confident individuals that have the skills to deal with constant

change and that look at their environment with “eyes of opportunity” where

the glass is half-full rather than half-empty;

• promoting the success of enterprising and entrepreneurial New

Zealanders in both business and social development activities; and

• fostering a culture that encourages risk-taking and accepts failure as

permissible social and individual norms.



Annex 1: Basic Structure of Small and Medium Enterprises in NZFIGURE 1.1 ENTERPRISE NUMBERS BY EMPLOYEE NUMBERS

• Definitions of Small and Medium Enterprises(SMEs) differ across industry sectors andcountries, and can be based upon a numberof criteria. Most important for policyconsideration are the characteristics of thesebusinesses which typically include: personalownership and management, few, if any,specialised managerial staff and not beingpart of a larger business enterprise. In NewZealand most firms sharing thesecharacteristics fall in the 0-19 Full-timeEquivalents (FTEs) bracket.

• SMEs constitute the majority of allenterprises in New Zealand.

• 84% of all enterprises employ 5 or fewerFTEs. 96% of New Zealand enterprisesemploy 19 or fewer FTEs.

FIGURE 1.2 FTES BY INDUSTRY AND ENTERPRISE SIZE

2 ANZSIC Industry Classifications: A- Agriculture, B- Mining, C- Manufacturing, D- Electricity, Gas & Water supply, E- Construction, F- WholesaleTrade, G- Retail Trade, H- Accommodation, Cafes & Restaurants, I- Transport & Storage, J- Communication Services, K- Finance & Insurance, L-Property & Business Services, M- Government Administration and Defence, N- Education, O-Health & Community Services, P- Cultural &Recreational Services, Q- Personal & Other Services.

• The average number of FTEs has fallen inrecent years from 7 in 1994, to just over 6 in1998.

• SMEs employ over 50% of FTEs in thefollowing industries: Agricultural services,Hunting, Forestry & Fishing (66.6%);Construction (72.7%); Retail trade (60.3%);Accommodation, Cafes & Restaurants(60.4%) and Property & Business Services(57.3%).

• > The Construction industry is particularlysignificant with almost three-quarters ofthe FTEs employed in that industryemployed in small and medium enterprises.

• In Government and Utility provider sectors,SMEs make up only a small proportion oftotal FTEs, which is to be expected,considering the size of these operations.

FIGURE 1.3 INTERNATIONAL COMPARISON• Overall, enterprises with 19 or fewer FTEs

have higher mortality rates than enterprisesemploying 20 or more FTEs, suggesting amore vulnerable economic position for SMEscompared to larger enterprises.

• With respect to Industry classification,industries with the highest survival rate into1998 were Electricity, Gas & Water supply,Finance & Insurance, and GovernmentAdministration & Defence.

• Both the utility and government-basedindustries have a significantly lowerproportion of SMEs.

• The Accommodation, Cafes & Restaurantsindustry had the lowest survival rate, andalso had a relatively high proportion of FTEsemployed by small and medium enterprises.

• SMEs form a significant component ofmodern economies, both in terms of thenumber of firms in an economy and theircontribution to a country’s employment.

• Both Italy (55.6%) and New Zealand(42%) exhibit high levels of SMEemployment compared with other OECDnations, indicating that in these twocountries, SMEs form a highly significantcomponent of the economy.

Source: OECD (1997) “Small Business, Job Creation and Growth: Facts, Obstacles and BestPractice.”

F igure 1.1 Number of Enterprises by FT Es (1998)

84%

7%5%

2%1%

1%

0-5

6-9

10-19

20-49

50-99

100+

F igure 1.2 Enterprise S tructure by Employee Numbers (1998)

0%

20%

40%

60%

80%

100%

A B C D E F G H I J K L M N O P Q

ANZ SIC Class ification

20+

6-19

0-5

F ig u re 1 .3 S u rv iv a l R a te s o f 1 9 9 5 E n te rp ris e B ir th s

S ize o f E n te rp r is e

0

1 0

2 0

3 0

4 0

5 0

6 0

7 0

8 0

9 0

1 0 0

0 -5 6 -9 1 0 -1 9 2 0 -4 9 5 0 -9 9 1 0 0 +

1 9 9 6

1 9 9 7

1 9 9 8

Country Year 1-19 20-99 100+

New Zealand 1999 42 18.9 39.1

United States 1993 18.4 18.8 62.7

Canada 1992 25.5 20.8 53.7

France 1992 25.3 21.7 53

Germany 1992 31.3 18.2 50.5

Italy 1991 55.6 15.9 28.5

United Kingdom 1991 31.2 15 53.8

Figure 1.4 Percentage of total FTEs Employed



Annex 2: GDP, Regulatory Barriers and Entrepreneurship

Regulatory barriers to entrepreneurship (1998)

0

0.5

1

1.5

2

2.5

3

United

King

dom

Canad

a

Austra

lia

Irelan

d

New Z

eala

nd

United

Stat

es

Denmark

Norway

Nether

land

s

Portu

gal

Austria

Gre

eceSpa

in

Sweden

Finlan

d

Ger

man

y

Switzer

land

Japa

n

Belgiu

m

Franc

eIta

ly

B arriers to competition

R egulatory and adminis trative opacity

Adminis trative burdens on s tartups

S ource: B as ed on OECD Econmoics Department, International R egulation Databas e, in OECD, Entrepreneurs hip, Growth and P olicy DS T I/IND(2001)1.

GDP per Capita & Entrepreneurship

U.S

F inland

Greece

Hungary

T urkey

Japan

Czech Republic

Norway

U.K

Portugal

Korea

Denmark

PolandMexico

Luxembourg

France

Spain New Zealand

BelgiumAustralia

ItalyGermany

AustriaSweden

NL Ireland

SwitzerlandIceland

Canada

5000

10000

15000

20000

25000

30000

35000

40000

4 5 6 7 8

Entrepreneurship

1999

GD

P p

er C

apita

Notes. Entrepreneur ship based on perceptions of business executives.

S ource: IMD (2000) OECD, in OECD Entr epr eneurship, Growth and Pol icy DS T I/IND (2001)1



References:

Baumol, W.J., (1993), Entrepreneurship, Management and the Structure ofPayoffs, MIT Press, Boston.

Belich, J., (1998), New Zealand Wars, Television New Zealand.

Bolton, J.E., (1971), Small Firms: Report of the Committee of Inquiry on SmallFirms, London: Her Majesty’s Stationery Office.

Boudreaux, D. & Holcombe, R., (1989), The Coasian and Knightian Theoriesof the Firm, Managerial and Decision Economics.

Brockhaus, R., (1982), The Psychology of the Entrepreneurs, in Kent et al,Encyclopaedia of Entrepreneurship, Englewood, Cliffs: Prentice Hall.

Brown, A., & Huang, X., (1998), Innovation Management and ContemporarySmall Enterprise Research downloaded from ‘Small and Medium EnterpriseResearch Centre (Edith Cowan University, Australia) Website’,http://www.sbaer.uca.edu/DOCS/98icsb/r006.htm.

Cantillon, R., (1931 [1755]), Essai sur la Nature du Commerce en General,London, Macmillan. Edited and translated by H. Higgs.

Casson, M.C., (1982), The Entrepreneur, Oxford, Martin Robertson &Company.

Coase, R., (1960), The Problem of Social Cost, The Journal of Law andEconomics, 3: 1-44.

Coleman, D., (2000), Explaining Corporate Entrepreneurship,http://www.southwestern.edu/~colemand/buspaper.htm

Covin, J., Miles, M., (1999), Corporate entrepreneurship and the pursuit ofcompetitive advantage, Entrepreneurship Theory & Practice. 23(3): 47-63.

Damanpour, F., (1991), Organizational innovation: A meta-analysis of effectsof determinants and moderators, Academy of Management Journal, 34: 555-590.

Dess, G., Lumpkin, G., McGee, J., (1999), Linking corporate entrepreneurshipto strategy, structure, and process: Suggested research directions,Entrepreneurship theory & Practice. 23(3): 85-1-2.



Drucker, P.F., (1986), Innovation and Entrepreneurship: Practices andPrinciples. New York: Harper & Row.

Economist, (February 20th 1999), Special Report on Innovation in Industry.

Foss, N.J., (1993), More on Knight and the Theory of the Firm, Managerialand Decision Economics, 14: 269-276.

Gartner, W.B., (1985), A Conceptual Framework for Describing thePhenomena of New Venture Creation. Academy of Management Review 10:696-706.

Hayek, F.A., (1944), The Road to Serfdom, Routledge and Kegan Paul,London.

Hayek, F.A., (1948), Economics and Knowledge, reprinted in Individualismand Economic Order, Chicago: The University of Chicago Press.

Hornaday, J. & Bunker, C., (1970), The Nature of Entrepreneur, PersonnelPsychology 23(1): 47-54.

Infometrics, (1999), Study of Exporting Sectors, commissioned by NZTreasury.

Jacobsen, D., (1994), The Technological and Infrastructural Environment, inNugent, N., & O’Donnell, R., (eds.), The European Business Environment,London: Macmillan.

Kendrick, J., (1999), On the Role of Entrepreneurship in Society, Oxford.

Kirzner, I. M., (1973), Competition and Entrepreneurship, Chicago, Universityof Chicago Press.

Klein & Resenberg, (1986), An Overview of Innovation, in Landau, R., &Rosenberg, N., (eds.) The Positive Sum Strategy: Harnessing Technology forEconomic Growth, Washington, DC: National Academy Press.

Knight, F.H., (1964), Risk, Uncertainity and Profit, New York, Augustus. M.Kelley (originally published 1921).

Knuckey, S., Leung-Wai, J., & Meskill, M., (1999), Gearing Up - A Study ofBest Manufacturing Practice in New Zealand, Firm Capability Team, Ministryof Commerce, Wellington, New Zealand.



Lachmann, L.M., (1976), From Mises to Shackle: An Essay on AustrianEconomics and Kaleidic Society, Journal of Economic Literature, 14 (1): 54-62.

Leavy, B., (1997), Innovation and the established organisation, Journal ofGeneral Management.

Leavy, B, Jacobsen, D., (1997), Innovation – The Case for Multi-levelResearch, Dublin City University Business School Research Papers No. 30.

Leibenstein, H., (1968), “Entrepreneurship and Development”’ AmericanEconomic Review, 58, 72-83.

McClelland, D., (1976), “Preface”, The Achieving Society, Princeton: VanNorstrand.

Metcalfe, S., (1995), The Economic Foundations of Technology Policy:Equilibrium and Evolutionary Perspectives in Paul Stoneman, ed., Handbookof the Economics of Innovation and Technological Change, Cambridge,Mass.: Blackwell Publishers.

Metcalfe, S., (1998), Evolutionary Economics and Creative Destruction, TheGraz Schumpeter Society, Routledge, NY.

Mises, L., (1966), Human Action: A treatise on Economics, third revisededition, Chicago: Henry Regnery.

Morrison, A., (ed.) (1998), Chapter 1: An introduction to entrepreneurship inEntrepreneurship: An international perspective, Oxford: Butterworth-Heinemann.

MoRST, (1999), New Zealand Research and Development Statistics 1997/98,Ministry or Research, Science and Technology, Wellington, New Zealand.

Mowery, D., (1995), The Practice of Technology Policy, in Stoneman, P.,(ed.), Handbook of the Economics of Innovation and Technological Change,Blackwell, Oxford, UK.

Nelson, R., (ed.) (1992), National Systems of Innovation, Oxford: OxfordUniversity Press.

Niosi, J. and Bellon, B. (1996), The Globalization of National InnovationSystems, in J. de la Mothe and G. Paquet (eds), Evolutionary Economics andthe International Political Economy, London: Pinter.



Nooteboom, B., (1994), Innovation and Diffusion in Small Firms: Theory andEvidence, Small Business Economics, 6.

OECD, (1996), The Knowledge Based Economy, Report No:OCDE/GD(96)102, Paris.

OECD, (1998), Description of National Innovation Surveys,DSTI/EAS/STP/NESTI(98)6.

OECD, (2001a), Entrepreneurship, Growth and Policy, DSTI/IND(2001)1.

OECD, (2001b), Drivers of Growth: Information Technology, Innovation andEntrepreneurship, DSTI/IND/STP/ICCP(2001)4/CHAP1/2.

Parsons, T. & Smelser, N.J., (1956), Economy and Society, Glencoe, III: FreePress.

Pavitt, K., (1991), “What makes Basic Research Economically Useful”,Research Policy, Vol. 20.

Pickel, H.B., (1964), Personality and Success: An Evaluation of the PersonalCharacteristics of Successful Small Business Managers, Washington, DC, USGovernment Small Business Series, No 4.

Pirich, A., & Reeve, N., (1998), Evaluation of PGSF - An Overview, Ministry ofR, S&T, Wellington.

Pirich, A., & Campbell, H., (1999), Contemporary National Innovation Systemsin the New Economy, Ministry of Research, Science and Technology, NewZealand.

Porter, M., (1998), The Competitive Advantage of Nations, Macmillan, NewYork.

Reeve, N., & Pirich, A., (1998), Changing the Shape and Focus ofGovernment Funded and Performed Research in the New Zealand InnovationSystem, conference paper presented at the APEC-OECD Conference onNational Innovation Systems in Catching-up Economies, 21 - 23 April 1998,Taipei, Chinese Taipei.

Rotter, J.B., (1966), Generalized Expectancies for Internal versus ExternalControl of Reinforcement, Psychological Monographs: General and Applied80: 609.

Russell, R.D., (1999), Developing a process model of intrapreneurial systems:A cognitive mapping approach, Entrepreneurship Theory & Practice. 23(3).



Sautet, F.E., (2000), An Entrepreneurial Theory of the Firm, Routeledge,London and New York.

Say, J.B., (1852), Traite d’economie politique. Paris: Guillaumin.

Schumpeter, J.A., (1961) [1934], The Theory of Economic Development: Anenquiry into Profits, Capital, Credit, Interest, and the Business Cycle, NewYork: New York University Press.

Shane, S., (1993), Cultural Influence on National Rates of Innovation, Journalof Business Venturing, 8.

Stein, M.I., (1974), Stimulating Creativity, vol. 1. New York: Academic Press.

Storey, D., (1982), Entrepreneurship and the New Firm, New York: Praeger.

Sundbo, J., (1995), Three paradigms in innovation theory, Science and PublicPolicy, vol. 22, no. 6, Surrey, UK: Beech Tree.

Thomsen, E.F., (1992), Prices and Knowledge, London: Routledge.

Vesper, K., (1980), New Venture Strategies, Engelwood Cliffs: Prentice-Hall.

Weber, M., (1976), The Protestant Ethic and the Spirit of Capitalism, NewYork: Scribner.

Williams, M.B., (1973), The Logical Status of the Theory of Natural Selectionand other Evolutionary Controversies, in Bunge, M., (ed.) The MethodologicalUnity of Science, D. Reidel, Dordrecht.

Williamson, O.E., (1975), Markets and Hierarchies, New York: Free Press.

Winter, S., (1963), Economic Natural Selection and the Theory of Firm, YaleEconomic Essays, Yale University Press.

Woodman, R.W., Sawyer, J.E., & Griffin, R.W., (1993), Toward a theory oforganizational creativity, Academy of Management Review. 18 (2): 293-321.

Zahra, S.A., Kuratko, D.F., Jenning, D.F., (1999), Guest editorial:Entrepreneurhsip and the acquisition of dynamic organizational capabilities,Entrepreneurship Theory & Practice. 23(3): 5-10.

NEW ZEALAND SMEs PERSPECTIVE - CiteSeerX

Documents

Transcript of NEW ZEALAND SMEs PERSPECTIVE - CiteSeerX