New Zealand Needs A Bold Technology Strategy
In case you’re wondering why we are posting an article about New Zealand, our founder Roger Sharp lives on the side of a mountain in New Zealand’s Southern Alps (check out the hero video on our website’s landing page!).
The Kiwis have a surprisingly vibrant tech scene, and North Ridge Partners is finding it a good place to business. Roger gave this speech to one of the major political parties recently.
New Zealand Needs A Bold Technology Strategy
Technology can play a major role in transforming this economy.
Significant change will be required for that to happen.
I believe that those of us who work in the technology sector have a responsibility to advocate for a more coherent future.
The proposition that I put to you this afternoon is that to build a prosperous future, New Zealand needs to develop a long-term technology strategy.
I know what a difference a vibrant tech sector can make to an economy from my nearly four decades of building, advising, and chairing technology companies around the world.
As I take stock of my own journey, it’s very clear to me that the opportunity has grown significantly more compelling today than it was when I got my first job in the tech sector in San Francisco in 1983.
Simply put, the right technology strategy has the potential to transform our nation. But we need to be brave to do something about it. And this must be a strategy that transcends both politics and electoral terms.
It’s important to start by saying that the views expressed today are my own, and have nothing to do with the Crown enterprises on whose boards I sit. I’m here in my own capacity as a concerned New Zealander who wants a better future for his country.
My message is one that because the economic future of our nation is at stake, this needs to be a strategic debate involving all key stakeholders, and at the risk of repeating myself, it needs to transcend politics.
The Growth Gap
I’m going to kick off by making a statement that may take some mental gymnastics to understand, and that is that…
We live in an exponential world. However, New Zealand is approaching the future in a linear way. This approach isn’t going to work for us as a nation.
Exponential growth is happening all around us. Because we are trained to think in a progressive, linear manner, it’s quite difficult for us to grasp that what seems to be a series of small events can in fact be part of an exponential trend.
The way that translates in economic terms is that we are used to looking at a dollar and trying to turn it into $1.10 then that $1.10 into $1.21, then that $1.21 into $1.33, and so on.
But in an exponential world that $1 would become $2 then $4 and so on.
The profound gap between an exponential $4 and a linear $1.33 is economic wealth – or if you only grew at linear speed, it’s a massive lost opportunity.
Another way of looking at this is for the first time in human history technology gives us the opportunity to grow at staggering rates, but only if we adopt an exponential mindset.
It’s worth quickly travelling through the circumstances that have created this bold environment of new, exciting possibilities.
The combination of Internet availability and speed, cheap computing power, the Cloud, the ability to work remotely, and outsource talent have all contributed to a fundamentally different environment than the one when I launched my first technology start-up, with my wife Christine, in 1984.
Back then we raised money from venture capitalists to write software to try to revolutionise an industry. We invested the money we raised in a Data General minicomputer that was defunct within months. We didn’t have enough money to write the software, but we had plenty of hardware. So, we mortgaged our home and put more money in, then hired expensive people in an expensive office to write code in COBOL, an ancient, inflexible language. Communications were awful, there was no Internet to speak of. Truly the Dark Ages.
Fortunately, the story ended well when we acquired competitors and sold the business in January 1987 to a larger company listed on the Stock Exchange.
It was a very linear experience with many impediments in place to scaling the business. You might ask, what has changed between then and now?
First and foremost, Moore’s Law has continued to deliver massive increases in processing power at a fraction of the cost. Processing power is still doubling every two years. That Data General computer was significantly less powerful than the mobile phone in my pocket today. It cost $75k in 1983, whereas my mobile phone does a lot more and costs around $1k.
Massive computing power is now available via the Cloud, and it is comparatively cheap. The Internet is now accessible to around 60% of the world’s population, and is getting much faster. As a consequence, everything now moves at warp speed, 24/7, and from a tech perspective, it’s borderless. And that is one of the reasons that in New Zealand we have such a significant opportunity before us.
It’s no coincidence that this potent cocktail is changing the shape and face of business in the 21st century. In the 60s, the average tenure of a company on the S&P500 was 34 years. By 2027, that will be just 12 years. Around 50% of the companies on the Fortune 500 list in 2000 - only 20 years ago - don’t exist today.
The upshot of all of this is that two people in a garage with a laptop and the skills to generate exponential growth can now beat long-established businesses. They can steal customers with something shinier, newer, cheaper and better. And they may actually be better funded than the incumbent.
All sorts of things have changed. We are in an environment where our customers can now talk to each other about our offer and our service. They are more in control of our brands than we are.
Traditional models of distribution and delivery are at risk. Like death and taxes, disruption is a fact of life in business. No one is immune. Even disrupters are now being disrupted as life cycles get shorter.
Change is now constant. The Internet is the tool of disruption. It is both our friend and our enemy.
In this environment, old ways of thinking don’t work. We need to seek out new ways of doing things that aren't conventional and are the future, not the past. This means taking risks. If half of New Zealand’s largest companies won’t exist within 20 years, what are we going to replace them with?
I would go a step further and say that our legislative, governance, management structures are not suited to what we need to do next. In fact, I can say with almost complete certainty that we probably are not the people to lead this discussion. If you're aged over 30 your opinion may not be worth that much. There's always someone who has less at stake, fewer constraints than you, and who can move at the speed of light. Which you probably can't.
That’s why the proverbial 25 year old with a laptop in a garage is a person to be listened to if not feared. But that 25 year old probably doesn't want to work for us, and probably has a different set of values.
I realise this all sounds a bit dystopian and scary. But it’s also quite invigorating. It is invigorating because the only thing standing between New Zealand having a dynamic future that can capitalise on the abundance of opportunities today is … ourselves!
Now, having very briefly summarised what’s going on out there, I’m going to tell a few home truths about how slowly our thinking has been evolving in New Zealand.
Some Home Truths
Twenty years ago, New Zealand held the Knowledge Wave conference, looking to the future. That was supposed to be a catalyst for all sorts of new thinking. Yet by any measure what we export today is pretty much the same as it was when the Knowledge Wave was held. Except we export gold kiwifruit as well as green ones.
I realise of course that’s a gross, tongue-in-cheek simplification. Without dismissing the vital nature of our exports of dairy, of kiwifruit, of meat, or tourism, we have the skills and natural assets to diversify our economy through technology, and while some seriously good businesses are being created, we aren’t really focusing on it enough.
There’s an active debate raging about the size of New Zealand’s tech sector. The MBIE/TIN statistics include large, established companies like Fisher & Appliance Appliances, which are both offshore owned and manufacture outside this country. So - definitions are important.
But whether the tech sector is our #3 exporter, or our #13 exporter (as reported last Wednesday in the New Zealand Herald), the conditions are surely right to create thousands of high paid jobs and billions of dollars of new exports.
It sounds good, and it really is a good story – but we need to lift our game. For a first-world country with high aspirations, we have been punching below our weight against other countries. Here’s a snapshot:
From 2013-17 NZ ranked 11th globally for tech readiness, but that has slipped to 15th
In 2015 NZ ranked #32 in R&D spend at 1% of GDP, versus Israel at #1 with 4%
On a per capita basis NZ ranked #30 at US$416 R&D, versus Switzerland at $1,709
On both counts New Zealand ranked at around half of Australia
So - there we have it. By any objective measure we should have been doing much, much better before the pandemic. Then suddenly ... in 2020, everything changed.
The Impact of COVID-19
The pandemic has unleashed an accelerated digital transformation across the globe. Significant opportunities and threats flow to us as a nation from this change. As I see it, COVID-19 has created four unique circumstances that we should harness to our advantage.
They are:
1. Digital acceleration is happening everywhere
2. New Zealand is perceived to be a safe, relatively COVID-free place to live and work
3. Established ways of getting things done are being quickly broken down
4. Our diaspora want to come home
These four unique circumstances have far-reaching implications. Let’s break them down.
1. Digital acceleration is happening everywhere
Companies everywhere are experiencing massive digital growth rates and to some extent atrophy in their conventional channels.
The effect of COVID-19 seem quite random, but one thing is clear more than ever: as a society, technology is what we now use to get stuff done.
Whether it’s Zoom calls with your kids overseas or board meetings by Zoom, whether it’s buying your groceries or your Lotto ticket or renting a campervan, online is the way you now do it much of the time.
And nearly every company on the planet is scrambling to improve its digital capabilities to respond to the demand from consumers who have adapted their buying behaviour.
2. NZ is perceived to be a safe, clean, and desirable place to live and work
In the midst of all of the chaos elsewhere, here in Aotearoa we have:
a safe environment that is the envy of much of the world;
a functioning democracy with a free press, and a generally civil political discourse;
good basic infrastructure with a relatively well-trained and willing workforce;
we comprehend climate change and are working on sustainability; and above all -
a brand cache that can be leveraged
All of these hard-won advantages are present at a time when we have an acute need to diversify and strengthen our economy and lift low levels of productivity. We have a short window in which to leverage them.
3. Some established norms are being broken down, and quickly
Prior to COVID-19, it was completely normal to outsource or offshore substantial functions within a business such as Customer Service and IT Support to places like Manila or New Delhi. However, that started to unravel during the pandemic, when many of these offshore locations were struck badly and people were sent home.
The trouble with working from home in Manila or Delhi is that employees often don’t always enjoy the same basics that they do in the office – stable power, a quiet desk to sit at, or fast broadband. The failure was so absolute, and so rapid, that some companies needed to bring functions home in super quick time as COVID-19 spread around the globe.
Imagine bringing substantial parts of your business home to a high-cost environment during a lockdown. What would ordinarily take months or years had to be achieved in days or weeks - repurposing people, training them, and establishing some sort of rhythm, all while satisfying customers. This has been a Herculean task, that not every company has been up to.
So, cracks are appearing in the offshoring model and we cannot make the same assumptions going forward that we made before the pandemic. Add to that the broken supply chains we are seeing that are limiting the flow of goods around the world, and the loud chorus of nationalism, and you have a powerful cocktail for change.
I believe the end result will be a significant rethink in how businesses are run, that many operations will be on shored again, and that remote working is here to stay - but from places that have good infrastructure and are perceived as safe.
That rolls nicely into the fourth unique circumstance.
4. Our diaspora want to come home
We are told that around one million New Zealanders live offshore. In the year to March 2020, 42,800 of them returned home to live. And now we are told that a legion of Kiwis plans to come home in the next few years.
KEA recently surveyed 15,000 Kiwi expats living abroad. The extraordinary results show there’s a rich seam of gold to be mined, with half of respondents planning to return over the next four years.
The average age of these expats who plan to return is 35–55. 40% of them hold senior positions in high-value sectors, with around 12% in technology and science. Of these, around 30% want to invest in or start their own business.
Could we really see half a million Kiwis come home by 2025? I seriously doubt it, especially once safe and effective vaccines are released, but even a fraction of this number could make a profound difference to our country. Certainly, the thought of tens of thousands of technology and science professionals returning home, with 30% investing in or starting up a business is quite exciting.
As a side note it’s worth talking about the Israeli experience. The fast-growing Israeli tech scene really kicked off when Russia allowed a wave of more than 700,000 Russian scientists and mathematicians to emigrate to Israel from 1989. My technologist friends in Israel tell me that was perhaps the major catalyst for explosive growth in their tech sector. Our tens of thousands of returning techies look quite insignificant by comparison!
As a nation, we need to welcome these returnees, and enlist them to help us to build our economy, to create new opportunities for the long-term growth of New Zealand. It’s perhaps our greatest ever natural resource.
So, to recap - we have fundamental change occurring, new ways of doing things, a highly desirable country and a returning, sophisticated diaspora.
How do we harness this unique set of circumstances to New Zealand’s benefit?
Leveraging our assets and taking advantage of these circumstances won’t happen by itself. There are 6 foundations that need to be in place for tech to flourish in this country:
1. A mission
2. A champion
3. Talent
4. Infrastructure
5. Capital
6. Tax
Let’s examine these.
1. The Mission
A world-class tech industry in New Zealand won’t happen by itself. We need an audacious goal, and we need to galvanise everyone around it. Personally, I like the idea of trebling the size of the industry within a decade, while creating hundreds of thousands of new, well-paid jobs.
This is a long, long way from where we find ourselves today. It may be a cliched expression, but hope is not a strategy!
We need to start with some deep thought, analysis and debate in order to build a credible plan. One or two inputs won’t build this industry – we need the six foundations I spoke of above to be considered, and addressed.
Above all, this discussion needs to transcend any single political party if it is to become a sustainable strategy for the country.
2. A Champion
Technology needs political champions in this country. Our political and business leaders need to embrace the exponential growth and transformational opportunity that tech offers
Whether it’s a Tech Czar for New Zealand, a dynamic Government Minister in charge, a public-private sector team, or a well-funded temporary commission that’s free from interference and is mandated to make this happen, there needs to be leadership. It’s going to require charisma and a force of personality to lead the charge.
Conversely, without a plan and a leader, our economy will fall further behind, it will be less diversified and more at risk than it is today.
3. Talent
We will need talent, and lots of it, to succeed in this quest.
There is massive competition for talent in the tech world and we need to train people in New Zealand to do the work, or attract them here. Or both.
Significant resources are being put into education in this country. We need to ask though: are we focusing enough on STEM to grow the economy?
Education doesn’t just mean university degrees in technology and computer science, but advanced trades like coding. Specialties like Machine Learning are going to be in demand globally for years, and there is no reason why New Zealand cannot lead the field in training people to code. Teaching young people how to code, with a focus on Machine Learning, is something we are working on in Otago (from very humble beginnings!) at present.
Attracting smart techies will require us to offer technology visas that encourage the best and the brightest to come here. That means, when the pandemic is over, we will need favourable immigration settings.
4. Infrastructure
This is a major issue in some places. Where I live in Queenstown we suffer from power outages and cannot get fibre to the door. Here’s a direct example: in the pandemic, companies are holding virtual AGMs. Recently I had to chair a significant period of an AGM for a sizeable company immediately after an unscheduled power outage – on an iPhone 11 on Vodafone’s 3G network. That was quite some reality check!
How do we build a world class tech ecosystem when we lose power frequently, or cannot get fast broadband?
An urgent audit of basic infrastructure is needed as part of a national technology plan. If we cannot guarantee minimum standards in all regions, we should promote those regions where minimum standards can be met.
5. Capital
We need a vibrant capital market to build a successful tech sector. However, the sector is chronically underfunded in this country. There is a dire shortage of seed and venture capital, and funding for the institutions that bring technology to market.
If any of you have ever tried to fund a start-up, or obtain options for expansion capital, or even raise capital through the NZX, you will know how hard it is.
The Government can play an important role in helping to form pools of capital that deepen our capital markets, making it more attractive for companies to stay here rather than simply list on ASX. There is Government-backed capital available, but there’s not enough of it, and the system could be more effective. My strong view is there is a role for State funding, managed by the private sector, and/or incentives to invest in high growth tech companies, provided all the other foundations I’ve set out above are in place.
We do need to discuss the thorny issue of the stock market. While we have a capital shortage in this country, Australia is awash with capital, and it has a Stock Exchange that is very successfully executing its strategy, which is to target tech companies from Israel, Singapore, Ireland and New Zealand, and to list them on ASX.
If we do ramp up our support to Kiwi tech companies significantly, I wouldn’t hesitate to create barriers to departure. By that, I mean those companies that benefit from a national support framework may of course opt to list on a foreign exchange but only after paying tax or an appropriate return on the investment that NZ Inc. has made in them. That might just see a slight reversal of the tide.
6. Tax
Like it or not, we need favourable tax settings if we want to build this sector into a world-beater. Whether it’s tax deductions for investing in tech, or to get companies to invest in R&D, more thought is needed. In the capital markets environment in which I grew up, this sort of ideology was akin to heresy. Not anymore – if other countries like Singapore are doing it successfully, we need to compete.
Look only to our mates in Australia, who offer a much better deal – frankly, it is easier to relocate a software company to Australia to take advantage of a deeper labour pool there, better R&D rebates and a deeper pool of capital, than it is to build from here.
Tax is a hot topic that needs to be addressed.
Pulling all of this together
I see 6-12 months' planning work to pull all of this together. A national, long term tech strategy isn’t something you plan over a weekend; we need a carefully thought-through strategy to create a technology hotspot here in Aotearoa.
Risks
It’s worth noting that building a vibrant tech sector isn’t all beer and skittles. For every superhero like Xero, there are dozens if not hundreds of also-rans.
Failure is quite normal, and we need to get over our negative Antipodean attitude to people who have a go and who aren’t successful. Show me a successful person, and I’ll show you a few failures along the road to success.
More of our leaders need to evangelise the fact that it’s praiseworthy to have a go, it’s OK to fail, and it’s awesome to succeed. I have had a go multiple times in my career and understand the highs of success and the lows of failure only too well. It is hard to pick yourself up off the floor and try again when you fail - but try again you must. We need to understand as a nation that tech is risky, and that not everything is going to work.
On that note, while America may have its issues at present, there’s still much to admire in the American mindset. Particularly the mindset that says failure is but a step along the road to success.
IN SUMMARY
A national technology strategy for New Zealand can make a fundamental, positive impact on our economy. Tech can accelerate the economy, weaning us off trading partners we’re too dependent on.
It is within our grasp to double or treble the size of the sector over a decade, creating billions of dollars of exports and thousands of new high-paid jobs, all with a relatively low carbon impact.
It’s all about clarity of thinking, and how we execute.
I’m convinced that this is New Zealand’s technology moment. We must capitalise on it at a time of profound change.
Execution will require vision and commitment from our political leaders, on all sides of the debate. It’s all possible but we need a vision, and it has to be a big vision.