One of the internet’s most powerful features is that it has rapidly advanced the pace of global interconnectedness. The commercial ramifications have been tremendous. Companies are now able to connect with billions of potential customers around the globe cheaply, quickly, simply, and from almost anywhere. For Australia, where distance from big markets has always been a barrier for businesses, this effect may be even more pronounced than elsewhere.

It’s worth considering ways to maximise this effect, both by helping Australian companies reach big overseas markets, and by attracting some of the increasingly international pool of tech R&D spending.

DIGITAL EXPORTS

Few businesses are export-ready as quickly and enthusiastically as ‘born global’ startups, yet many startups are unaware of export support programs or find them difficult to access. Australia’s digital exports already account for $43 billion, with that figure likely to grow to $192 billion by 2030 according to the Export Council of Australia. Startups are likely to play a significant role in that growth.

These signs are encouraging, but international expansion is difficult. StartupAUS research conducted with a range of Australia’s most successful scale-ups suggests that even mature digital companies often still struggle to internationalise. Fewer than half of the scale-ups in the study had more than 20% of revenue coming from international customers.

 

EXPORT SUPPORT - EMDG

Australian exporters have traditionally enjoyed strong support from governments. One of the central pillars of that support from the federal government is the Export Market Development Grant (EMDG). The program isn’t limited to traditional exporters: startups expanding overseas also benefit from the EMDG, but it has limitations which make it less well-adapted to startups.

EMDG reimburses companies for up to 50% of eligible costs incurred, in a split payment system where at the start of the next financial year, 100% of eligible funds are paid (up to a payment ceiling), and a second tranche of payments is made later from the residual funds. Rates of reimbursement for second tranche payments are calculated based on the number of applicants and the amount of funding remaining in the pool after the first tranche of payments. Because of changes to the payment ceiling for tranche one payments and the changing rate at which tranche two payments are made, it is impossible for businesses to be confident of their EMDG returns at the time of submitting a claim.

This complexity also means there are a substantial number of moving parts in assessing claims under EMDG. Even companies that receive their full grant entitlement regularly wait 12-18 months after incurring costs before claims are paid in full. Cash is critical for startups, and waiting more than a year to be reimbursed for eligible costs often radically diminishes the benefit provided by EMDG.

In many cases, it may be strongly preferable for startups to elect to claim a smaller capped rebate that is paid immediately and can be reliably built into the business bottom line. An EMDG stream that allowed young businesses to make this choice would reduce the overall cost of the scheme while increasing its utility for startups. More detail is available on this policy proposal at startupaus.org/policy/EMDG

ATTRACTING GLOBAL R&D

Large tech companies are actively scouring the world seeking to establish R&D centres, with product- or sector-specific labs springing up on a regular basis. Where these facilities are established, existing local talent pools often flourish and expand. This can have strong positive flow-on effects for burgeoning tech sectors. Success often begets scale, too: countries or cities with strong global brands tend to attract the lion’s share of new projects. Research and development conducted by large multinational tech firms has been a substantial driver for many of the world’s most successful technology ecosystems, including Israel and Singapore.

In many ways Australia is an attractive market for global technology companies; most enjoy a significant commercial presence here. Yet we largely lack substantial R&D investment from these firms: Australian offices typically focus on sales and marketing.

To be well positioned to attract these sorts of projects, Australia will need:

  • Strong fundamentals in areas that are important to global tech firms
  • An attractive message delivered by skilled advocates
  • The right package of incentives to encourage multinationals to choose to invest here

FUNDAMENTALS

While every project has different specific needs, some factors are broadly applicable across almost all R&D. To be attractive to decision-makers in global tech firms, local ecosystems need at least some of the following:

  • World-class local talent: companies find it difficult to invest in places where there isn’t an established talent pool that they will be able to draw from
    High quality visas, giving companies the ability to import talent in a frictionless way to get projects staffed effectively
  • World-class research institutions
  • A track record of similar high quality work
  • Clear strengths in particular areas, preferably with a proven track record
  • High quality business infrastructure

On many of these fundamentals, Australia already performs well, although access to visas remains a substantial challenge for global firms seeking to staff local projects.

MESSAGE

Alongside strong fundamentals, Australia needs a cohesive narrative about why it should be on the radar for tech executives looking to set up new R&D labs. Developing that message involves highlighting our existing and emerging strengths to the right audiences. Austrade does much of this work already, and could be given more resources focused specifically on R&D attraction. To be effective, however, this effort should be combined with dedicated and coordinated advocacy targeting global tech firms. The appointment of a well-resourced innovation ambassador, with a mandate to attract high value R&D projects to Australia, would help. The position would need to be empowered and incentivised to source high quality deals offshore, and given license to generate or negotiate favourable local conditions to attract promising businesses.

More detail on this policy proposal can be found at startupaus.org/policy/ambassador

INCENTIVES TO INVEST

The key tools that governments at all levels would need to be prepared to use to begin to attract these projects at scale include:

  • Facilitating access to favourable visa arrangements
  • Providing access to state of the art R&D facilities or other physical space on attractive terms
  • Providing ready access to world-class infrastructure, including ultra-fast internet
  • Allocating dedicated case managers empowered to proactively resolve regulatory or administrative challenges associated with establishing each project
  • Establishing regulatory ‘sandboxes’ for particular kinds of projects to facilitate testing and development
  • Approving tax concessions and other one-off financial incentives

With strong and improving fundamentals, a focus on increasing Australia’s visibility and position in the market, and the right toolkit of incentives, Australia can position itself as a genuine contender for high-value R&D projects. Success in doing so could have far-reaching consequences.