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Innovative companies perform better across business indicators

Tuesday 6th July 2010

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Innovative New Zealand companies perform better than their non-innovative competitors across a range of business indicators according to a Statistics NZ survey and were more likely to have experienced profitability and productivity increases from 2008 to 2009.

The ‘Innovation in New Zealand’ survey to August 2009, of almost 36,000 companies with six or more employees, indicated that 46% implemented some form of innovation activity in the past couple of years, the same rate as in 2007 and 2005 when the information was first collected. Four types of innovation, product, process, marketing or organisational were categorised by the department.

“The report does provide evidence that larger businesses have a higher innovation rate and are more active in research and development,” said Shaun Hendy, deputy director of the MacDiarmid Institute for Advanced Materials and Nanotechnology, and a science and innovation blogger.

“The other pleasant surprise is that our small to medium businesses with 20 to 49 employees, particularly those in manufacturing, tend to be those innovating on a world stage.”

Of the almost 1,300 businesses with 20-49 employees who had product innovations, 48% introduced new to New Zealand products and 23% introduced new to the world products in the two years to 2009. In its commentary, Statistics NZ says this can be explained through markets.

“The New Zealand market is small compared with the world market, so the number of products is limited,” the report said.

“Therefore there is greater scope in the New Zealand market to create innovative products. New Zealand businesses may introduce products from overseas to the New Zealand market, so the products are therefore new to New Zealand. The world market has a greater product range, and therefore possibly more innovative products, so the scope to innovate something new to the world is limited.”

The report clearly showed that innovative companies had higher performance indicators than non-innovators. Forty seven percent of innovative companies had an increase in sales compared to 35% for non-innovators, 39% an increase in productivity compared to 23% for non-innovators, 34% of innovators an increase in profitability against 29% for non-innovators and 30% of innovators had an increase in market share compared to 14% of non-innovators.

Of those companies that describe themselves as product innovators, 39% reported that more than 10% of sales came from new or improved products.

In total, businesses spent $2.5 billion on product development activities, equivalent to 0.5% of total expenditure. The telecommunications industry had the highest average spend per business at $830,000 a year, while 55% of businesses who invested in innovation spent more than $1,000 per employee.

Hendy said one disappointing feature of the survey is that New Zealand’s innovation rate has remained static since the last one in 2007.

“Businesses perceive that the most important barriers to innovation as being its cost and a lack of management time and resource,” he said. “In fact these concerns have increased. These constraints are presumably more significant for smaller businesses, so New Zealand’s preponderance of small businesses must contribute to our poor innovation performance.”

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