Funding Access to Specialist Services and Support
25. In addition to providing business appraisal, facilitation and basic advice, client managers will refer clients to specialist services and support. This support will address one or more enablers of firm growth as required. These services and support will be funded and delivered through one or more of the following:
- part-funded services provided by the new entity itself
- part-funded services provided by an external provider contracted to NZTE
- grant assistance (with co-payment requirement) for the purchase of specialist services and support.
26. We note that there are both historical and other reasons why either funded services or grants have been used in the past, and each type of delivery may be appropriate in a given context.
27. The Business Growth Fund and other Industry NZ funding programmes are currently offered on the basis of a maximum of 50 percent of the costs of a qualifying project. The tailored market information and development services provided by Trade NZ incorporate part charges at varied rates.
28. As discussed in Paper 1 - Overview, the following principles should apply to all financial assistance within the growth services range:
- the funding (direct of indirect) should, where practicable, reflect the mix of public and private benefits, balancing this with the need for administrative simplicity
- the funding (direct of indirect) should be as transparent as possible, allowing efficient "make" or "buy" decisions to be made on a periodic basis
- the level of assistance should be consistent across similar growth services. Consistency ensures competitive neutrality between those services provided in-house and those accessed externally via the grant mechanism - thus supporting the strategic goal of encouraging the development and delivery of economic services by the private and non-government sector
- charges and grants should be simple and clear for clients to understand and for the organisation to administer.
Growth Services Fund
29. It is proposed that Industry NZ's Business Growth Fund be replaced with a more flexible Growth Services Fund to offer support for high growth potential firms to purchase external advice and expertise and market intelligence and development services. It is proposed that funding would be available to both firms and groups of firms, to facilitate access to the following enablers of business growth:
- new business opportunities
- skills and expertise
- innovation and new technologies
- finance.
30. The following discussion provides high-level direction for the design of the Fund. We recommend that NZTE report back to the Ministers of Finance, Industry and Regional Development, Trade Negotiations and Associate Foreign Affairs and Trade by 30 June 2003 on the detailed operation of the Fund, including criteria, funding caps for eligible activities and levels of delegation, approval processes, management of demand, and identifying how potential overlaps with FRST's Technology NZ programmes will be managed. These guidelines should be developed in consultation with the Ministry of Economic Development (MED), Ministry of Foreign Affairs and Trade (MFAT), the Treasury, Te Puni KÅkiri, Ministry of Pacific Island Affairs, Ministry of Women's Affairs , Ministry of Research, Science and Technology, FRST and the Tertiary Education Commission, and should be consistent with the direction set out below.
Funding Levels
31. It is proposed that the Growth Services Fund be highly flexible in terms of the level of funding provided. It is proposed that grants be for up to a maximum of 50% of the costs of the qualifying projects. Grants could be in the range of $50,000 to $500,000 although further work needs to be undertaken on funding limits and levels of delegation for approval. $10.125 million (GST not applicable) would be allocated to the Fund in 2003/2004.
32. While the new fund is intended to provide a high degree of flexibility to address business growth issues, it is prudent to cap funding for certain types of activity - for example, for the travel cost component of a qualifying project. We propose that a funding schedule be developed by NZTE in close consultation with MED/MFAT.
33. NZTE will adopt higher levels of accountability and sign-off for projects of higher value.
Eligibility
34. To be eligible for funding, it is proposed that applicants will:
- be operating in a commercial environment, resident in New Zealand and registered for GST purposes
- be financially viable and have a management team with a sound track record
- have clear growth potential and a demonstrated commitment to growth
- show why they need this funding rather than any alternative funding
- demonstrate how the funding will add value to existing activities
- demonstrate a commitment to retain the value of the proposal in New Zealand
- have proposals and business concepts that are consistent with laws and regulations
- indicatively, have less than or equal to 100 full time equivalent employees and/or annual turnover of less than $NZ50 million.
Funding Access to Market Information/Intelligence
35. It is proposed that NZTE support the provision of market intelligence and development services by external providers by allowing these services to be part funded via the Growth Services Fund. It is acknowledged that this will involve a measure of contestability with the subsidised market development services delivered by NZTE, but it is consistent with the organisation's core function of encouraging the development and delivery of economic development services by the private and non-government sector. This will require full unit-pricing if it is to be consistent with the principles outlined earlier (namely transparency around the rate of subsidy). As indicated in companion Paper 5 - Transition Costs1, it is recommended that an output pricing review be considered for the full range of NZTE's services to gauge the level of funding support for and pricing of these services.
Excluded Costs
36. No funding will be provided for normal business expenses. This is to ensure that grants add value to the recipient businesses (i.e. funding must be used for activity additional to that which would otherwise have occurred). Nor will funding be provided for activities that are provided by other government programmes (such as R&D and technology development currently supported by Technology NZ). The focus on building capability, rather than underwriting usual business expenses, aims to ensure that grants will contribute to substantive and sustainable business performance.
Treatment of Travel Costs
37. Travel, particularly overseas travel, is an area where significant costs can be incurred with little direct value and where past experience has shown that firms can take advantage of funding. Notwithstanding this, there are instances where support for travel will lead to significant economic development opportunities and public benefits. For this reason we propose a measured approach to travel funding and a higher level of approval will be required.
Enterprise Development Grants Scheme
38. Growth service clients will have access to both the Growth Service Fund and the proposed Enterprise Development Grants scheme (as discussed in Paper 3 - Foundation Services). NZTE's client managers will determine which funding mechanism, if any, is appropriate for these clients, depending on the appraisal of business needs and growth potential. Clients will not, however, be able to access both funds at the same time.
Specialist Growth Services Delivered by New Entity
39. Both Trade NZ and Industry NZ deliver specialist services to firms and this will continue with integration. These services currently involve the provision of market information, development and facilitation assistance.
Tailored Market Development Services
40. As New Zealand businesses internationalise, they are faced with various challenges: they need to handle exchange rate variability, cultural and language problems, deal with remote customers, work out pricing in new markets, link up with large and sophisticated customers abroad, and compete in a far more challenging market environment. Adapting to these challenges creates an additional discipline on firms and contributes to productivity improvements. To support this process, the new organisation will continue to deliver a range of information, advisory and facilitation services aimed at addressing barriers to market development. These services include:
- market evaluation and selection
- buyer/partner identification and selection
- identifying and qualifying international market opportunities
- market visits and in-market assistance
- market monitoring.
41. These services will be delivered through client managers and market development specialists both onshore and offshore. A portion of the cost of providing these services will be recovered through a charging regime. Third-party service providers will be utilised where appropriate.
Issues
42. Although Trade NZ currently utilises part-charging arrangements for these services, the precise level of subsidisation for each of these services is currently uncertain. To ensure transparency, NZTE will need to determine the value of these services, and the proportion of support attached to different services. NZTE will ensure that the proportion of support attached to specialist services that have the potential for contestability, e.g. market research reports, is consistent with the proportion of funding attached to grant monies that are paid out for similar purposes. In addition, MFAT will work closely NZTE to ensure that services continue to be consistent with international obligations.
Investment Ready Scheme - Deal-Brokering and Training
43. The growth services range will also incorporate the deal brokering component and a customised capability development element of the Investment Ready Scheme (currently funded at $0.866 million (GST inclusive) per annum). This scheme seeks to improve entrepreneurs' prospects of securing equity financing by providing a neutral deal brokering service to assess the commercial potential of ideas and for capital raisings under $5m. An externally contracted provider currently delivers this service, and it is envisaged that this type of arrangement will continue. This scheme has just been reviewed by MED and it is proposed that the following minor adjustments be adopted by NZ Trade and Enterprise:
- the contract for services should be re-tendered every three years to ensure a measure of contestability;
- the broad and more generic training component of the scheme should be separated from the brokering service. As discussed in Paper 3 - Foundation Services, broader investment ready and capital raising training will be delivered as part of BIZ Training.
Linkages with Other Government Programmes
44. In assisting firms to address a spectrum of business growth issues, the question arises of how NZTE's growth services and Fund interface with other Government programmes. Of particular note here is the crossover with FRST's Technology NZ programmes in supporting innovation and access to new technologies. Cabinet is due to consider these wider issues in September 2003. However, in the short term, there is a need to ensure that there is a high degree of operational alignment and co-ordination with Technology NZ programmes. FRST will need to be fully involved in the detailed design of the Growth Services Fund to eliminate any overlaps, particularly with the Technology for Business Growth programme.
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