PMSEIC Concept 10/2

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PMSEIC Concept 10/2 PRIME MINISTER’S SCIENCE, ENGINEERING AND INNOVATION COUNCIL n FINAL REPORT m MARCH 2005 WORKING GROUP: GROWING TECHNOLOGY-BASED SMEs n FINAL REPORT m Part A — Phase 2: pages 1–62 m Part B — Phase 1: pages 63–103 ISBN - 0 642 72390 7 This paper was prepared by an independent working group for PMSEIC. Its views are those of the group, not necessarily of the Australian Government. k P ART A PHASE 2 REPORT: GROWING EXPORT CAPABILITY – MARCH 2005 CONTENTS 1 Executive Summary and Recommendations 3 2 Introduction 5 3 Exports are key drivers of economic growth 6 4 Backing technology-based SMEs to export 7 4.1 Tech Team 7 a. Export competent teams who can open markets and assist companies to close deals 8 b. Foster relationships between SMEs, larger firms and Multinational Enterprises 8 c. One, coordinated strategy 9 4.2 Improve the reach and focus of Austrade’s national and international representation 10 4.3 Government and industry leadership to remove constraints on L expansion stage businesses 10 a. Back Australian products in the domestic market 10 b. Maximise the impact of Government support programs 11 c. Modify EMDG to better support technology-based SMEs 11 5 Further evidence affirming Phase 1 Recommendations 11 Appendices A Terms of Reference 12 B Working group members 13 C List of submissions and contacts 14 D Growing Export Capability: SME Case Studies 15 E Growing Export Capability: MNE Case Studies 36 F Export Market Development Grants program – suggested approaches 60 G Glossary of terms 61 H Index of References 62 k 2 PHASE 2 REPORT: GROWING EXPORT CAPABILITY — MARCH 2005 1 EXECUTIVE SUMMARY 1.5 The PMSEIC Growing Technology-based SMEs Working Group’s recommendations 6 focus on 1.1 It is imperative that we back our technology-based promoting sustainable and expanding export Small to Medium Enterprises (SMEs) and grow them capability for Australia’s technology-based companies into sustainable businesses linked to global markets so which comprise around 13 per cent of Australia’s that they contribute to an increase in Australia’s GDP SMEs.7 The recommendations will assist the per capita and wealth creation potential in the Government to achieve a higher return on its knowledge economy. considerable investment in R&D and early stage commercialisation. 1.2 The Government makes a substantial investment in early stage businesses, through financial and other 1.6 The Working Group proposes changes that will: assistance for innovation, early commercialisation of m back technology-based SMEs to develop the products and export promotion and should capitalise agility and sustainability to deliver high-value on its investment by backing the transition of these exports; businesses through the expansion stage 1 and m beyond. There is no critical mass of sustainable SME maximise the benefits of all export-related effort exporters 2 and too few SMEs become Multinational whether government or commercially-led to Enterprises (MNEs). enable growth in the number, sustainability and value-add of SMEs and to their transition to larger 1.3 Australian SMEs, aided by various Government firms or MNEs; and programs produce leading–edge innovation. The m resource the pipeline of skill attainment required working group acknowledges that in a globalised by individuals and their businesses to drive the environment the high levels of investment required to business capability to deliver high value-adding, commercialise some technologies, for example, bio- sustainable SME technology-based exports. pharmaceuticals, means that a proportion of SMEs must trade a whole or part of their IP to gain access 1.7 RECOMMENDATION 1 to capital. Yet it is industry’s view that many SMEs Implement a Tech Team concept for technology-based fail to capitalise their innovation and that too often SMEs through cooperation between key representatives their idea is lost to well-resourced off-shore from the States, Territories and Federal government, companies, resulting in loss of income, jobs and relevant industry representative and commercial sectors, economic growth. to establish: 1.4 Technology-based SMEs3 produce high-value, m a network comprising all levels of government and innovative products and services which, owing to the private sector partners; small size of Australia’s domestic market, must be m a shared vision for growing technology-based SMEs exported. Exporters add value to the domestic through strengthening the links between exporting economy — they pay better wages and provide and innovation; more training for their employees and drive the development of high-value, high-skill products which m initiatives that align policies and programs to enable return export income for Australia.4 Exports are the delivery of the vision; and critical to growing SMEs into successful, medium to m the skills needed now and into the future to drive the large enterprises and MNEs; and technology-based achievement of the vision. exports have a high potential to accelerate company growth.5 1 Expansion-stage refers to product in the market and significant revenue growth - Venture Capital 2003-04,Cat.No. 5678.0, Australian Bureau of Statistics (ABS) 2 Sensis data indicates that overall, 16 per cent of SMEs reported that they had exported in the past year, with 4.4 per cent of all SMEs being high/medium high technology exporters -Technology-based SMEs, Special Report for the Department of Industry, Tourism and Resources. Sensis Business Index, May 2004 3 A technology-based company is defined as one which acquires or creates new technology that it integrates to develop new products, processes and services as the basis of its business competitiveness – see Glossary of Terms at Appendix G 4 Based on data in Australian Bureau of Statistics (ABS), Longitudinal Survey 1997/98. ABS Cat No. 8154.0 5 This is evidenced by the growth trajectories of a number of SMEs and MNEs based on technology export contracts. See case studies (Appendices D and E) 6 List of members and Terms of Reference are at Appendices A and B 7 Technology-based SMEs, Special Report for the Department of Industry, Tourism and Resources. Sensis Business Index, May 2004 PHASE 2 REPORT: GROWING EXPORT CAPABILITY — MARCH 2005 3 k Tech Team will develop: 1.9 RECOMMENDATION 3 i) export competent teams who can open markets and Government and industry leadership to support later — progress opportunities to the point where companies and expansion-stage business by: can close deals; m backing Australian product in the domestic market: ii) foster partnerships between SMEs, larger firms and Government to maximise its investment in Australian MNEs to pursue international opportunities; and innovation by ensuring that Australia’s technology- based SMEs have adequate opportunity to participate iii) one, coordinated strategy focussed on the needs of in Government business; technology-based SMEs involving: m maximising the impact of Government support m enhanced trade and industry hubs; programs: allowing those companies that have m a web-based national entry point providing access to already met eligibility criteria for COMET and all business growth and development-related Commercial Ready,11 to apply for the Export Market programs; and Development Grant Program (EMDG)12 without the m a Government-sponsored portal to enable companies need to retest their eligibility for the same criteria, in to seek partners for new export ventures. particular, those relating to the demonstration of business skills; and harmonising the turnover limit for 1.8 RECOMMENDATION 2 access to EMDG ($30 million) with the turnover limit Improve the reach and focus of Austrade’s 8 national and for access to Commercial Ready ($50 million); and international representation for technology-based SMEs m modifying EMDG to better support technology-based by adjusting the Austrade adviser skill profile and SMEs in the areas of: employment arrangements to include: - Timeliness and quantum of support, m a COMET 9-style, success-based 10 remuneration scheme; - Intellectual property management, m a requirement for demonstrable ability, in progressing - Building relationships with other companies, opportunities to the point where companies can close - Engagement of advisers/mentors, deals in relevant technology-based industries; skills -Greater interaction with other Government market development and sales; and capacity to spot programs, potential buyers; and -Technology showcasing. m all front-line Austrade advisers to undertake technology industry secondments on a regular basis to ensure the currency of their skills and commercial acumen. 8 Austrade – Australian Trade Commission 9 COMET is a grants program administered by AusIndustry which focuses on early stage commercialisation. See www.ausindustry.gov.au for more information 10 A business owner has a ‘success fee agreement’ with a COMET adviser to assist with commercialisation, including raising capital. Under the extended COMET program (in effect since October 2004), the success fee is payable at a flat two per cent and capped at $100,000, and applies to capital raised by either equity or borrowing 11 Commercial Ready is a grants program administered by AusIndustry which focuses on R&D, proof of concept activities and/or early stage commercialisation. See www.ausindustry.gov.au 12 The Export Market Development Program is an entitlement-based grants program administered by Austrade which provides business with export assistance. See www.austrade.gov.au k 4 PHASE 2 REPORT: GROWING EXPORT CAPABILITY — MARCH 2005 2INTRODUCTION 2.1 The challenge addressed by this working group is to sustain and grow Australia’s promising technology- based SMEs, and to see them develop into larger, successful Australian exporting businesses. By their nature technology-based businesses must link with global markets to be competitive. The advantages for Australia multiply when these companies grow through exports rather than move offshore and ‘seed other economies’. 2.2 From 2005, the liberalisation of trade through the Australia United States Free Trade Agreement (AUSFTA), bilateral free-trade agreements with Thailand and Singapore and multilateral agreements will boost opportunities for Australian companies to access overseas markets.
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