Podcast transcript
Velvet-Belle Templeman
Welcome to Grant Thornton’s Navigating the New Normal podcast series. My name’s Velvet-Belle Templeman and I’m here talking to Sandie Boswell and Sukvinder Heyer, Partners and Innovation and Incentive specialists at Grant Thornton, with over 40 years’ experience between them. Thanks so much for joining us Sandie and Sukvinder.
Sandie Boswell
Thank you, Velvet-Belle.
Sukvinder Heyer
Thanks VB.
Velvet-Belle Templeman
Now a lot of people have this perception that innovation involves people mixing chemicals, creating cures or designing robots and AI. It’s more than that, though, isn’t it?
Sandie Boswell
Thanks VB, that’s a great question and I’ve heard that statement so many times and it’s a common misconception. We work with companies who innovate from start-ups to multinationals and across many, many sectors within Australia such as agriculture and even aquaculture, building supplies, ICT, manufacturing and fintech, and Australia leads the way in many of these areas.
Sukvinder Heyer
Yes, look, I’m constantly amazed to see how much the results of innovation touch our lives in big ways and small, using for example, the food we eat. In my career here in R&D, I’ve seen R&D in the sea trials and in the products that keep those plants healthy and growing fast. And then the processing of those plants into new products and the packaging of those products that they come in. So when we’re talking to companies about R&D innovation we often start with the question, “What is the problem that you’re facing and how are you going about finding an answer?”
Velvet-Belle Templeman
Sukvinder, from a business perspective, why is innovation important?
Sukvinder Heyer
Innovation is about survival, now for some companies, innovation is at the heart of what they do and they have to innovate to stay relevant. To give an example of something we’re all quite familiar with, our smartphones. Now to get us to be interested in the latest version of a smartphone we’re expecting to see innovation.
Now, for some other companies, innovation will look very different. Survival may mean reducing costs, so for example, can low value, repeatable processes be automated? Can the cost of manufacture of our product be changed without changing its quality and price? For others still, disruption to the supply chain may mean having to make products using inputs that they might not otherwise have considered.
Now, some of these solutions may be straightforward, but for many others, it will involve the business taking a risk.
Sandie Boswell
And another example of that, Sukvinder, is in the manufacturing and process change area. So at the moment we’re seeing this happen right now in Australia because of the impact of COVID and how corporates are innovating to meet local demand and PPE. So we recently reached out to about a cohort of 60 companies who have adapted and innovated to make ventilators, PPE and hand sanitisers. And these are companies that were gin distillers, making different manufacturing processes and products and have really just quickly pivoted to deal with the demand that COVID has created in our economy.
Velvet-Belle Templeman
And Australian innovation, with the federal budget in October and the Prime Minister calling for more entrepreneurial and innovative market, is there change on the horizon for innovation incentives?
Sukvinder Heyer
Look the bedrock of innovation support in Australia is the R&D tax incentive. Now, the policy driver for the R&D tax incentive is to support business in taking on activities which involve risk. Now the government introduced some changes back in December 2019 which will effectively reduce the level of support. Now these changes were the subject of a senate committee and the review from that committee was due to be handed down last week, but now it’s going to report on the 24th of August.
Now, Sandie was actually the sole advisor who presented at the Hearing that was held at the end of June. Sandie, what was the mood?
Sandie Boswell
Good question, so I presented to the Senate Hearing along with some corporates in the manufacturing sector and a key message from them to the government was now is not the time to change and cut back support for innovation in Australia by cutting back the R&D tax incentive. When you have regimes like the UK pumping 22 billion pounds into their R&D incentive, Singapore increasing theirs, and New Zealand having a rate that is 25% higher than ours, now is not the time to be cutting back our support of our manufacturing sector here, for example, via the R&D tax incentive. So that was a key message that the government was told during those hearings, not just by myself, but also by corporates that access the program to undertake and innovate here in Australia.
Velvet-Belle Templeman
So there is a huge amount of potential for companies to innovate and there’s a lot more to this than just accessing incentives. Can we talk a little bit about what companies can or should be doing with all this IP that they’re creating?
Sandie Boswell
Thanks, VB. Yes, we could. I think what we’re seeing is we work with companies beyond compliance. So compliance is our base service. We’ve developed what we call an IP-centric model where we work with companies from creation to commercialisation. We’ve seen the need to go beyond that compliance focus and really look at the IP strategy that a company is developing and innovating to achieve an increase in their market share. We really see this as critical to business post-COVID, so that growth can be achieved in the economy by really leveraging off IP development here in Australia.
We recently spoke to a company that’s in a building supplier’s space. So they’ve developed a new product, and not only did we talk to them about the R&D tax incentive, but we also talked to them about their IP strategy, how to patent the idea, discussing a trade secret framework, looking at how we can incentivise employees through employee share schemes and then we moved around and looked at how do we defend the patent, or protect it, and then the further exploitation of the commercialisation. So even things like having a strategy workshop on how do we embed innovation in the culture of the company so that you can have innovation awards, for example.
Or you track your innovation and you use knowledge management tools to share that information around the company. So for us, it’s not just about the R&D tax incentive, it’s much broader than that and it’s having that whole lifecycle of innovation discussion with the client every time we speak with them around what they’re doing in terms of R&D in Australia.
Velvet-Belle Templeman
Flowing on from this, we know innovation is a global game. Countries set up beneficial frameworks to attract and keep innovation hubs within their borders. How are we set up, and how does that work in a world where many borders have come down?
Sukvinder Heyer
I was actually speaking to an overseas company last week and doing R&D in Australia was not even on their radar. But then they looked to see the impact of COVID in their home country in terms of patients and hospital capacity and they identified that they may not be able to complete the trials there in a short period of time. So the control of COVID as well as the R&D tax incentive has them thinking seriously about coming to Australia. But we’re not without competition in this global innovation game, and Sandie, perhaps you can talk to that?
Sandie Boswell
Thanks, Sukvinder. The global game on innovation is an ongoing threat here but it’s also a great opportunity for us. As you’d know Sukvinder, we get two to three calls a week from companies wanting to move and put R&D projects into Australia and they’re looking at well, what is the best regime of support, to undertake that R&D, or to innovate here. And they then comparatively look around the world and see well, where can they actually get that best support. It’s not the only decision, or the only driver to make that decision, but it’s certainly quite a compelling one for them. The global innovation dollar is fluid, it moves quickly so projects are set up and moves within regions on a regular basis, so companies will look for the best parking spot.
So if you think about just the examples that I gave before, when we compare ourselves against New Zealand and Australia, we now know that New Zealand has a really competitive R&D tax credit program. So that’s a threat to Australia but I think if we pivot our model and we continue to support it here, we’ve got a great opportunity to continue to have jobs and new product and process developments that come out of Australia.
Velvet-Belle Templeman
Sandie, you mentioned opportunity. Does this present an overarching challenge or opportunity for Australia?
Sandie Boswell
We’re seeing great things here in our manufacturing sector, for example, VB, where as I said earlier, companies are pivoting their R&D programs to deal with the supply shortages that we have as a result of COVID, but also the challenges and opportunities of developing new products. So that’s some great things, so that, I think will be a permanent pivot. What we say to companies is, you know, play to your strengths. I think it’s really important to think about where do you want to be and using innovation as the kick starter to get there. We really have a strong view here at Grant Thornton that innovation is going to be the key for us to get out of this COVID-led recession and we’re seeing a lot of companies already innovating quite strongly to do that. There’s some, I think, exciting times ahead for us as an economy as we develop new products and processes and new ways of getting to the market because of the challenges of the current global economic climate that’s been created by COVIC.
Sukvinder Heyer
Yeah, look, I’m going to go with the current situation does present an opportunity. What we are going through is hopefully once in a multigenerational event, but as Sandie says, it gives us an opportunity to forge a path built on our strengths. We’re a stable nation, we have many many clever Australians as I’ve seen over the journey of my R&D career and we currently have a very simple mechanism to support risky innovation.
All the core elements are there to help us grow out of the economic situation that we’re in.
Velvet-Belle Templeman
Sandie and Sukvinder, thank you for your time.
Sukvinder Heyer
Thank you so much, Velvet-Belle.
Sandie Boswell
Thanks VB.
