Growth Services
10. For 2003/2004, the "growth services" range will represent 36% ($61 million, GST inclusive where applicable) of the combined agencies' funding. This consists of $51 million (GST inclusive) for services and $10 million (GST not applicable) for grants for services. Services in this range provide customised business and international market development assistance, targeted at firms (and groups of firms) with significant growth potential in order to accelerate their development and enhance their contribution to New Zealand's overall economic growth.
Policy Rationale
11. There are a number of New Zealand firms that, without assistance, are likely to lack the knowledge and/or capability to achieve their growth potential. This may be for a number of reasons, including:
- Owners often lack the management expertise (e.g. knowledge of foreign markets and the range of international market opportunities) required to grow their business significantly. Independent advice from experienced business advisors can help to identify opportunities and lift firms to the next stage of development while reducing the risk of failure;
- The pressures of day-to-day management and tight resource constraints can crowd-out a focus on long-term strategic issues. External advice and expertise can create "space" for this strategic thinking to occur; and
- Owners are often reluctant to cede control of their businesses, or may lack the confidence to take the necessary risks, in order to grow their businesses. Advice may help these people to objectively weigh up the risks and rewards.
12. While these considerations suggest that there are potentially significant benefits to firms from seeking external business assistance, they do not in themselves justify government intervention. That is because, in general, the benefits of business advisory services will principally accrue to the firms receiving the services. However, there are reasons why firms may under-invest in these services relative to what would be optimal from a "New Zealand Inc." perspective:
- Firms may not realise the benefits of external business advice - many firms lack the management expertise and knowledge necessary to grow their business and a self-help culture appears to be a barrier to seeking outside assistance. For example, businesses may wrongly perceive that they are too small to export or, alternatively, that they can easily go it alone.
- Some of the benefits of external business advice are external to the firm - for example, some firm owners do not develop their staff's managerial capabilities because they expect that the benefits will accrue to others when staff leave to work for other firms or set up their own businesses.
- For a nation of SMEs, government involvement may be the best way of gaining economies of scale for securing overseas contacts. The costs and time required to establish an offshore network may be prohibitive for smaller firms, or may not be justified for short term or limited engagement with particular markets.
13. There is a role for government to provide these services and accelerate business growth, while at the same time encouraging the development and delivery of economic development services by the private sector.
Contribution to Economic Development
14. The growth services range will enhance enterprise development through:
- Facilitating access to new business opportunities. The growth services range will enhance access to emerging markets and market development opportunities, as well as access to international contacts, networks and alliances.
- Enabling access to skills and expertise. A wide range of skills and capabilities are critical to firms' ability to pursue innovative and entrepreneurial opportunities. The growth services range will assist firms to develop management capability, access expertise and address specialist skill needs.
- Supporting innovation and enhancing access to new technologies. The growth services range will foster the capacity to create, absorb and commercialise new ideas generated in New Zealand or overseas. The design and delivery of these services will complement and be strongly aligned with the research, science and technology programmes funded by FRST and targeted at growth companies.
- Enabling access to finance. The growth services range will focus on demand-side issues that affect firms' access to finance, e.g. management capability, business planning, attitudes to external equity, and unrealistic expectations about business growth.
15. The growth services range will offer a much more integrated approach to assisting New Zealand businesses to be internationally competitive, allowing a number of issues to be addressed either individually or in concert. The range will also focus on the need to be responsive to specific firm needs at particular phases - or "transition" points - of a firm's development.
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