The Impact of Firm Size on the Process and the Role of SME in Creating Innovation in New Zealand - Essay Example

The impact of firm size on the process and the role of SME in creating innovation in New Zealand Research and development in New Zealand Research and development is important for economic growth and sustaining a dynamic economy of New Zealand making it able to compete with others in the international scene. This also enables them to address the wide range of socio-economic issues which affect their country. New Zealand bases much of its support to research and development by awarding the sector the necessary support it deserves. This is evident in 2010 when the expenditure in R&D reached a whooping $2,444 million and $ 2,161million in 2008 most of which led to innovative findings. The research and expenditure represented 1.31% of the GDP representing an increase over the years (Statistics New Zealand, 2011). The total business expenditure on research and development in the year 2010 was estimated to be around $1,013 million an increase of 8% of the 2004 allocation. In the year 2010, the experimental research got most of the funding followed by applied research and basic research in that sequence with the latter getting the least funding (Statistics New Zealand, 2011). This is quite opposite in the last decade when basic applied research used to get more funding than other type of research. Most of these research funding come form the government and businesses with minor funding coming from universities, oversees and other funding sources. The government is very supportive in matters relating to research and development and this is evident in the year 2010 when it contributed about 46% of the money mean for research and development. This is higher compared to 28% of the government contribution in R&D in the year 2008. From all the sectors funded by research, the New Zealand business sector got 38% of the research funding in the year 2010 representing a decrease of 41%. Most of the research personnel in New Zealand had a bachelor’s degree or higher making most of their research to be of high quality and of international recognition. New Zealand environment, Economic and Culture The new Zealanders exhibit strong cultural ties that were weakened by the British Empire during colonial rule. Of late, the New Zealand culture has been broadened by globalization and immigration from various parts of the globe, the European and the Maori are the two main ethnic groups in occupying the region together with other tribes but in minority status (McAloon, 2005) New Zealand is a geographically isolated country with unique natural environment across its landscape making it a very beautiful country. The country experienced a long period without human habitation. Its richness in biodiversity boast over 80,000 species of native animals plants and fungi some of which have not been found anywhere in the world. The country’s population is just about four million people with a good population growth rate which offers good market for its innovative services. Most of the people in New Zealand live in urban areas most of which are within beautiful coastlines with beautiful beaches. The population density is low making it a sparsely populated country which consists of two main islands with several small islands in beautiful environment. Environment dominates almost every aspect of New Zealand life thus they take great efforts to conserve it in ways that protect economic wellbeing, social systems and cultural wealth (Statistics New Zealand, 2011). The SME sector employs about 31% of the country’s population making it very significant for the economy and to the government in matters of development. Most of these SMEs are largely managed and operated by their owners who are motivated by the view of making profits. Just like other SMEs in the world, the SME in New Zealand lack specialist staff at their managerial levels like big businesses and companies. The self employed in this are about 10.5% of the workforce with 5 or fewer employees accounting for about 12%. However, due to the economic downtown, the job creation has dropped significantly in the past few years a factor which also led to formation of several small SMEs. Most of the workforces comprise men between the ages of 35-59 years with women and children only forming a small number of workers. Most of the SMEs in New Zealand are found in urban areas like Auckland, Canterbury, Waikato and Wellington. Areas with low proportions of SME employment tend to be in large metropolis areas where larger businesses are more likely to be located due to the interrelationship of the businesses. New Zealand is argued to have the highest number of businesses most of which are SMEs compared to other countries in the globe. Most of these SMEs are less than six years old and very few being over 20years old showing that most of them have developed in the recent past. The larger enterprises are those which have enjoyed experience and have good profit making capabilities while the younger ones also showing aspects of bright future. Since 2001, New Zealand has seen a decline in overall the number of SMEs a situation caused by reduction in new business creation rather than business closures. The drop affected all enterprise groups in 2010 especially in the year 2009 which is quite in contrast to other years (Bain & Bascand, 2010). The smaller firms are likely to survive than the bigger firms a situation contributed by the simplicity of their enterprises. The SME industries with the highest survival rates are mining, health care and social assistance, agriculture, forestry and fishing together with financial services and insurance. The small and medium sized SMEs are more likely to remain in the same size over time than the larger firms most of which are likely to become larger over time. The people who are below 40 years tend to increase their income form SMEs as compared with those above 40years who tend to show a decrease in their income. This suggests that younger people are more likely to make significant profits form the SMEs than their older counterparts (Statistics New Zealand, 2011). The larger enterprises contributed to more job growth in New Zealand than SMEs but had a slightly lower rate of employment reduction. Large firms with over 500 plus employees employed the greatest number of people and showed the greatest growth of employment compared with small firms in the year 2009. In the year 2009, the SMEs reevaluated an average of 68,975 jobs per quarter, compared to larger firms which established about 69,428 jobs per quarter. This represented around 0.15 jobs per enterprise for SMEs and 5.35 jobs per firms for large firms. Firms with 500+ employees were the greatest contributors to job destruction compared to small firms who represented less figures in terms of job destruction. This is represented by 29,120 jobs per quarter job losses for large firms compare to 25,093 job disestablishments form large firms, showing that employees in large firms were greatly affected with the global crisis (Statistics New Zealand, 2011). The average real salaries from large firms are higher than those form small firms since large firms have a stable balance sheet than most SMEs. In the year 2009, the highest average salaries were paid by firms with 50-99 employees followed by big firms with over 500 employees and this has been stable for the past three years. The large firms account for almost half the total salaries and wages due to the high number of workers they employ coupled with their good balance sheet (Small Business Advisory Group, 2012). SME contribution to the economy of New Zealand The SMEs have the biggest contribution to employment to the citizens of New Zealand, a fact that is good for economic development. The small firms with less than five employees recorded the highest number of people employed in those enterprises as compared to big firms. SMEs accounted for about 46.6% of the total profits a figure representing almost a half of the profits realized by that country. The SMEs thus contributed a significant portion of the country’s GDP both in terns of employment and sales form their innovative services (Small Business Advisory Group, 2012). Small businesses are people who are responsible for day to day organizations and hence are at the fore front in getting new ideas and new markets for wealth generation activities. There are many risks involved in the process and failure rates are much higher but people don’t lose hope in running the small businesses. The operation systems and financial options are usually quite different than large established firms and thus intending businesses and small entrepreneurs need thorough preparation (Bessant & Tidd, 2012). Economics is better in addressing the issue of interface between entrepreneurship and innovation since they are closely correlated with one another. Entrepreneurship is good in wealth creation and job employment leading to a positive national identity of a country (Bessant & Tidd). New Zealand is synonymous with entrepreneurship due to large success form its entrepreneurial activities which has put it in good global economic ranking. The KIWI brand is a good example of a huge success which came form the entrepreneurial activities of the new Zealanders. Most of the economic activities in New Zealand are non agricultural in nature and employ a good number of the population. In the New Zealand context, the SMEs are viewed as the most critical source of innovation due to simple yet complex nature by which they carry their activities. The SMEs are significant in New Zealand to the extent that that are capable of competing with global firms successfully in terms of innovative services. The opportunities represented by the globalization and the advancement in technology are a major driving force to the SMEs who are fully utilizing such opportunities to make profits (Pirich, 2001). Technology innovation is a major aspect of entrepreneurship since it’s tied to actual new products and processes as opposed to activities such as discovery which characterize other enterprises. Economic geography is producing mixed findings regarding innovation in small firms and that regional environment is less important concerning innovation in SMEs. Presence or regional innovation networks and innovation centers are a major motive for SMEs location choices since they want to maximize on available opportunities. SMEs and large firms are complimentary regarding the innovative services they provide most of which happen at different stages of development. Environmental culture matters regarding innovation and entrepreneurship since it helps to shape the character and thinking of individuals in large context. The level of innovation of New Zealand firms is reflected in their present structure and mature economy which is highly dominated by the primary sectors. The main aim SMEs is to inject money into the economy by offering the avenues for the exchange of goods and services in as they aspire to make profits. When the govern supports the SMEs, this creates a strong and vibrant economy by boosting the amount of deposits held by SMEs. The increase in the amount of assets held by firms and SMEs increases spending which is healthy for a stable economic system. The more the number of SMEs, the better the country is in terms of lowering the rate of inflation since there are a lot of profitable economic activities taking place. Economists argue that this is a perfect method of expansion of the economy is to support the innovative activities of the SMEs which helps in controlling inflation. Since SMEs involves large sums of money, there needs to be ready assets to purchase for it to be successful in the short term. The injection of government money into SMEs is helpful in increasing and supporting innovative ideas. Bassant and Tidd are right when they asserted that innovation matters but don’t happen automatically since it requires a good environment necessary for that innovation process. The environment is known to shape the character and thinking of most people which can enable them to think critically leading to innovation which contributes to entrepreneurship (Bassant & Tidd, 2011). Support by the necessary agencies is also critical in ensuring that innovation and entrepreneurship takes place. When the government of New Zealand initiated R&D, it greatly contributed to innovation and entrepreneurship activities in their country. The breakthroughs in research activities are highly needed by the innovative ideas to supplement their knowledge leading to sustainable development in a country (Lewis et al, 2011). Conclusion The Bassant and Tidd innovation process would make innovation happen if applied to SMEs in New Zealand since they advocate for the culture of applying necessary support to SMEs to enable them thrive. The firm size matters a lot in SMEs and small firms should never be ignored since they have a wonderful contribution to the economy of a county in terms of employment and wealth creation. References Bain, M and Bascand, G. 2010. Research and Development in New Zealand. Statistics New Zealand. Retrieved from Bessant, J and Tidd, J. 2011, Innovation and Entrepreneurship. Second Edition. New Jersey: John Wiley & Sons. Lewis, K. Weber, P. Vollery, T and Schaper, M. 2011. Entrepreneurship and Small Businesses. 3rd Asia Pacific Edition. New Jersey: John Willey and Sons. McAloon, J. (2005). New Zealand on the Pacific Frontier: Environment, Economy and Culture. History Compass Issue. Volume 4, Issue 1. 36-42. Pirich, A. 2001. An Interface Between Enterepreneurship and Innovation- New Zealand SMEs perspective. , Denmark: Alborg University Small Business Advisory Group. (2012). Report of the Small and Medium Businesses in New Zealand. Retrieved from http://www.business.govt.nz/media/documents/FINAL_SMEs-ThrivingAndSurviving_2012.PDF Statistics New Zealand. (2011). Innovation in New Zealand: 2011. Wellington: Statistics New Zealand. Read More