Catalysing innovation in Australia

22nd March 2016 · Yuan Chou

What’s the problem?

According to the World Economic Forum Global Competitiveness Index 2014-15, Australia was ranked only 23rd for innovation. In the World Knowledge Competitiveness Index for regions compiled several years ago, Victoria was ranked only 99th and New South Wales 104th, compared with 1st for Silicon Valley, 6th for Stockholm and 27th for Singapore.

Australia ranks 20th in the OECD in terms of patents per capita, accounting for less than 0.8 per cent of the world’s patents. Just 1.5 per cent of Australian companies developed new-to-the-world innovations in 2011, compared with between 10 to 40 per cent in other OECD countries. Only 6 per cent of Australian businesses engage in international innovation, compared with the OECD average of 18 per cent. While Australia’s research ranks highly in the OECD on indicators of quality, Australia ranks last for industry-research collaboration.

What’s behind the problem?

Major contributing factors to Australia’s woeful innovation performance are our small talent base due to our small population, the low proportion of our young people studying Science, Technology, Engineering and Mathematics (STEM) courses, and our risk-averse culture.

While the US can draw on the finest talent from a domestic population pool of 320 million and China from a population pool of 1.4 billion, we are severely handicapped by a population pool of just 24 million. Only 16 per cent of our university students in a Bachelor’s course are studying STEM, compared with 21 per cent for Japan, 29 per cent for the UK, 33 per cent for Korea and 35 per cent for Germany.

According to Sandy Plunkett, an Australian-born former venture capitalist who returned to Australia 3 years ago after 15 years in San Francisco and Los Angeles and who consults on entrepreneurship and global innovation systems, “compared to other innovation cultures, we are risk averse and seek authority and approval too much. Innovators, by nature, don't ask for permission." The new chair of Innovation Australia, Bill Ferris, who founded Australia's first venture capital firm in the 1970s, calls it "fear of failure". A 2013 survey of more than 2,000 managers by the University of Melbourne and the Australian Institute of Management confirmed that a risk-averse company culture was one of the biggest obstacles to innovation in Australian organisations.

The Government’s new plan

The Australian Government’s comprehensive new National Innovation and Science Agenda (marketed under the catchphrase “The Ideas Boom”) comprises a myriad of initiatives that can be categorised under 7 key strategies:

  • Encouraging risk taking by entrepreneurs, businesses and investors (through insolvency laws reform, tax incentives for early-stage investors, and more favourable arrangements for venture capital partnerships)
  • Supporting start-ups and commercialisation of research (through a Biomedical Transition Fund, a CSIRO Innovation Fund, an Incubator Support Programme, more favourable rules for crowd-sourced equity funding, reforms to employee share schemes and more favourable rules for depreciating intangible assets)
  • Enhancing collaboration between research and business (through financial support for industry-led collaborations between researchers and small businesses, faster research-industry collaborative project grants, revised university and research funding arrangements, and establishing ‘landing pads’ in Silicon Valley, Tel Aviv and 3 other locations to support entrepreneurial Australians)
  • Enhancing R&D and new technology capabilities (through funding for collaborative research infrastructure, the Australian Synchrotron and Square Kilometre Array, financial support for the development of silicon quantum computing technology, the establishment of a Cyber Security Growth Centre, and investment in CSIRO’s new research unit Data 61)
  • Expanding the talent and skills base (through Entrepreneur Visas, initiatives to help students create and use digital technologies, expanding the Prime Minister’s Prize for Science, and expanding STEM opportunities for women)
  • Government leading by example (through a grants competition to solve national policy and service delivery challenges, release of non-sensitive public data to encourage data sharing for innovation, the establishment of Innovation and Science Australia to provide strategic advice to government on all science, research and innovation matters, and the establishment of an online directory of digital and technological services for government agencies to procure ICT solutions from smaller businesses).

What else is needed?

ACIL Allen considers that several other policies and initiatives would complement the National Innovation and Science Agenda. Firstly, the Commonwealth and state governments could help to build an entrepreneurial and risk-taking culture, starting with the youngest Australians. Support for inventors clubs in all schools and funding entrepreneurship centres in each university (where every student is encouraged to enrol in a short course on entrepreneurship) would raise the profile of innovation and provide incentives to promote interest. The Government could also award large innovation prizes to incentivise Australian researchers and businesses to develop nationally and globally significant inventions.

Secondly, the Commonwealth Government could further enlarge the talent pool through a large-scale STEM postgraduate scholarship scheme (involving several thousand Masters and PhD scholarships each year) that is open to applicants from Australia and around the world, with permanent residence offered upon successful course completion.

In addition, as part of a pro-active individual talent attraction program, the Commonwealth Government could establish a program that focuses on attracting exceptionally talented and high-achieving foreign researchers and professionals. The program would consult with Australian businesses, research organisations and industry to identify and nominate specific individuals whom they would like to recruit. The Government through its existing overseas networks would engage with these individuals, who would be invited to take an all-expenses-paid trip to Australia to meet with prospective employers. Their visa applications would be expedited and the process made as smooth as practicable should they decide to move to Australia.

Opportunity for Melbourne/Sydney – becoming San Francisco’s tech hub sibling

In the past few years San Francisco has become the epicentre of technology start-ups, displacing Silicon Valley to its immediate south. San Francisco is the headquarters of Airbnb, Pinterest, Yelp and Uber. Firms like Twitter have relocated to San Francisco because it offers a more attractive lifestyle and culture to talented young employees than the suburbia of Silicon Valley. Big technology companies in the Valley such as Google and Facebook have established offices in San Francisco and/or operate employee shuttles to and from San Francisco.

According to the regional managing director of real estate firm Colliers International in an interview with CNN, “If you're in your 20s (or) 30s, you want to live in a vibrant environment where you're surrounded by like-minded people. Where there's a lot of interesting cultural stuff to do. And with the great respect to the suburbs where Apple was born, there's a lot more cultural diversity and a lot more to do in San Francisco than there is there.”

According to USA Today, “Foreign-based tech start-ups that have recently established operations in the U.S. will consider only San Francisco, because of its European flavor, the allure of living in a major city, its proximity to so much talent and investors, and its proximity to Silicon Valley.”

However, there are considerable constraints in the availability of commercial and residential property spaces in a city with an anti-growth attitude that spans just 7 by 7 square miles, with spiralling rents now 3 times that of Melbourne. Technology companies have established outposts in other lower-cost U.S. cities which also offer a desirable lifestyle such as Seattle (Washington), Portland (Oregon) and Austin (Texas). They also have international R&D facilities in cities such as Dublin and Berlin.

Melbourne and Sydney, amongst the Australian major cities, are well suited to becoming an “overflow” location for San Francisco’s technology industry. They have good air links to California and have a lifestyle and cultural offering (including diversity) more similar to San Francisco’s than do other American or international cities. Residential and commercial rents, while high by Australian standards, are much lower than rents in San Francisco.

Success in wooing technology companies to Melbourne and Sydney hinges on ensuring a ready inflow of talent and skills from around the world through an appropriate immigration policy, to augment the existing pool of domestic talent. The inflow of foreign talent would enable Australia’s talent base to reach critical mass and energise the start-up scene in the two cities, thereby drawing interest and investment from Australian and overseas venture capitalists and angel investors.