• Max Bradford
Business Development

The current Business Development Programme

The current Business Development Programme is administered through a network of 21 regional Business Development Boards (BDBs) which are Crown entities. The programme was established in 1992, and has had a focus on administering grants to fund various activities aimed at assisting export-focused firms.

Last year the grants element of the programme was suspended, and following an investigation was ended this year. A report by the Controller and Auditor-General highlighted difficulties in the administration of the grants.

Review of the Business Development Programme

A review of the Business Development Programme was initiated by the Government last year. The review found that while the BDBs have made a valuable contribution to SMEs' development since they were established at the start of the decade, SMEs now face different needs.

Over time, the current Crown entity delivery structure has become increasingly administratively cumbersome, over prescriptive and costly. This has not only affected the Programme's ability to effectively meet SME needs, but is increasingly not representing the best value for our investment.

The review also found that only a small proportion of the total small business enterprise population had been using the grants scheme, and funding available has never been fully used - in fact only 60 per cent of money budgeted for grants over the past six years has been spent.

The new philosophy moves business assistance away from a concept of encouraging people to spend money through grant schemes, to think about what tangible external assistance would be most valuable for building skills in their business.

A focus on building business capabilities and delivery at practical and well-targeted level is more appropriate for the current environment than the concept of providing direct financial assistance by way of grants.

This is in no way a reflection on the considerable efforts of those involved with the BDBs, but a recognition that the old system must reflect different needs in a rapidly changing economic environment. The major barrier is management capability.

As a result of last years review of the Business Development Programme and several rounds of consultation with small business assistance agencies, interested parties and Business Development Boards it became apparent that those in the small business sector felt the needs of SMEs would be better served by an approach that focused on improving their management skills and capabilities.

The new Programme

The goal of the new business development programme is to improve the management capabilities of SMEs, and therefore improve their performance in an increasingly competitive businesses environment, and in so doing promote an understanding of the value of seeking relevant external assistance.

To achieve this we need:

- clear focus on raising the skill levels of SME managers;
- better depth and breadth of coverage of SMEs (including target groups);
- greater reach of the programme into all areas, and ease of access for all SME;
- innovative assistance initiatives and proactive delivery.

The Government has therefore decided that instead of it being the direct owner of business development programmes, it will move to the role of purchaser of business development services. This will be effective from 1 January 1999.

The new programme will be a more focused system of the Government contracting business assistance experts to design and provide services for their local region, and in some instances nationally (such as the Business In The Community Scheme), rather than the current network of 21 regional Business Development Boards (Crown Owned Entities). Boards will have the opportunity - and will be encouraged to - re-establish themselves under a new structure such as a company or trust and participate in what will be a tender process.

The focus will be on finding innovative ways to improve general management capabilities of small firms, rather than the previous focus on providing cash injections through grants.

The new approach will introduce more flexibility into the design and delivery of business development assistance. This will enable tailored responses to the changing and varying needs of SMEs in different areas, and between different groups. Where genuine needs are identified, practical solutions will be developed to meet those needs.

There will be a transparent, open tender process - beginning in the next few months so that successful tenders can begin early in the new year (1999). The contestable contract-for-services approach will be less administratively cumbersome, and more responsive in delivery, providing better value for money.

This flexibility will allow better targeting of initiatives to address the needs of target groups, particularly Maori, Pacific Islands people and women.

How the new programme will work

Potential providers - particularly including the existing boards - will be invited to tender for the design and delivery of assistance through an open and contestable process.

Successful tenderers, with the expertise and capacity to effectively deliver management training assistance to SMEs, will be awarded a contract for service from Government.

As appropriate these organisations will then contract themselves with specialist sources of professional, management or technical skills that the programme will provide.

It is expected that a wide range of organisations will be interested in submitting proposals. Some - including the existing boards - are already positioning themselves to take part in a contestable process.

A wide range of innovative tenders are expected, covering national, regional and specifically targeted assistance programmes.

Transition to new Programme

Over the next several months, the open tender process for the new programme will begin. At the same time the existing Business Development Board network will be in a transition phase.

Policy Framework

The following outlines where the new Business Development Programme fits within the Government's overall policy framework for business. It is these Government initiatives that will continue to provide the critical incentives for business to compete and grow.

Achieving Macroeconomic Policy Stability - this gives businesses the opportunity to plan with the confidence that external conditions impacting on their business decisions are not likely to change dramatically. This includes price stability, which reduces the risk of boom and bust cycles that can be particularly destructive for small businesses which tend to be less diversified and less able to withstand such cycles

Microeconomic Reform - directed at improving the competitive environment and reducing costs to business. Actions have included:

- reducing tariffs and the removal of import licensing;
- increasing the efficiency of the infrastructure;
- the recent electricity and ACC reforms;
- the Employment Contracts Act - enabling small businesses to tailor their employee-employer relationship to their individual circumstances.

Fiscal Prudence - generating budget surpluses and debt reduction, thereby reducing the risk of adverse shocks to the economy which small businesses are least able to afford.

A Broad Base Low-rate Tax Structure - ensures all enterprises pay their fair share of the tax burden, rather than disadvantaging small businesses that cannot afford complex tax planning.

An Open, Internationally Competitive Environment - provides the best opportunities for small businesses to trade and develop linkages with overseas markets, thereby enabling them to develop niche markets that the domestic market alone could not support

Enterprise Assistance - facilitating a more rapid and effective business response to the opportunities provide by open and competitive markets through initiatives such as the business development programme.

Other Assistance to Business

Reducing Compliance Costs

If small and medium sized enterprises (SMEs) are to take advantage of the opportunities an open economy brings, it is important that costs of complying with government regulations are minimised. The time needed to comply with regulations results in a loss of productivity, and the need to recover costs associated with compliance may reduce firms' ability to compete. In 1995 the Government implemented a programme aimed at reducing the costs to businesses of complying with central government regulations.

Further work is being conducted to assess the effectiveness of this programme, to monitor the cost effects on business of regulations. Government is currently looking at business costs associated with the RMA, the Building Act, Health Safety and Employment Act, the Privacy Act, the Meat Act and the Dairy Industry Act and related food legislation, to see what can be done to further reduce these costs.

Better Regulatory Practice

The Government is currently looking at package of measures to improve the quality of regulatory outcomes and reduce the cost of regulation. The themes which underpin this package include greater accountability, transparency, and incentives for regulatory responsibility. The package looks to build into the system of policy advice a capability to generate better information for decision-making and greater scrutiny and contestability in the provision of policy advice. The package includes the adoption of a Code of Good Regulatory Practice to spell out the principles which should under-pin regulation making, a Generic Policy Development process to ensure good practices, including in particular consultation, are undertaken, and the requirement to complete Regulatory Impact Statements with policy proposals. Another element of this package is a proposed Regulatory Responsibility Act to promote quality of government intervention. Decisions on this will be taken shortly. The purpose of such an Act would be to impose a legislative discipline on the regulation-making process by establishing a set of principles to guide regulation-making which is authoritative, accessible and durable.

Corporate Law Programme

Government has embarked on a three year law monitoring and policy development programme aimed at improving the current body of business law through incremental improvements and substantial reviews.

Raising the Skill Base

The success of SMEs in responding to the opportunities available to them in the more flexible open environment also depends crucially on the quality of the people that manage and work in these enterprises. That is one reason the Government has given particular emphasis to raising the skills base throughout the economy with particular emphasis on education, training and workforce participation. The goal is for New Zealand to become a highly skilled nation, with relevant skills and knowledge widely distributed. It is for this reason that the focus of the government's broader assistance programme for business is focused on skills development and lifting the technology capability (through Technology New Zealand) of the small and medium sized enterprise community.

Light Handed Assistance

The Government is committed to ensuring that the gains that have been made in the environment for small and medium sized businesses endure. Polices aimed at reducing risk and uncertainty in the economy and maintaining the momentum of regulatory reform are the key to providing an environment supportive of enterprise and innovation for SMEs. Entrepreneurs can then get on with the job of developing new products and markets, confident that the Government is doing its part to ensure they can make the most of available opportunities.