Wednesday, 12 June, 2019

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Innovation is becoming increasingly imperative for the Hunter's future prosperity.

The Hunter Research Foundation (HRF) Centre recently released its 2018 data on local business innovation. Every year since 2009, the HRF has asked 300 businesses whether they introduced new or significantly improved goods and services in the year prior. In 2018, 45 per cent of Hunter businesses said that they innovated, a figure on par with the national rate for 2016-17.

The centre's time series shows a growing relationship between innovation and improved business performance. In 2009, there was virtually no difference between innovators and non-innovators in the share of firms reporting improved profitability. In 2018, however, firms who said that they were innovating were more likely than non-innovating firms to report that their profitability was increasing 'moderately or substantially'. Innovating firms were also more likely report they were hiring, exporting and experiencing improved trading performance.

This trend is confirmed at the national level, with innovation-active firms more likely to report increases in sales, profitability, productivity and firm size, according to Australian Bureau of Statistics (ABS) data. Innovation is attributed with creating as much as 50 per cent of long-term economic growth of OECD member countries, and this contribution is expected to grow.

Innovation sectors offer a competitive advantage internationally, such as a unique product or service that cannot easily be reproduced or outsourced. Improving the number and performance of exporters is critical to improving overall regional productivity, the UK Centre for Cities says. In 2018, while almost 60 per cent of Hunter businesses sell outside the region, only 15 per cent sell outside Australia. This proportion has remained more or less unchanged for a decade and a half. Hunter firms must enhance such global connections.

The OECD identifies health and education, high and medium manufacturing, finance and insurance, telecommunication and business services as knowledge-intensive sectors. While employment in health and education grew strongly in the Hunter, there was minimal change in several key knowledge-intensive sectors from 2011 to 2016, Census of Population and Housing data shows. These low- or no- growth areas include professional, technical and scientific services, information, media and telecommunications, and finance and insurance services. These latter industries experienced stronger growth in Sydney and Melbourne.

But recent ABS business counts show 'green shoots' in such segments. From 2015 to 2018, there was strong growth in information, telecommunications and media businesses and in businesses within professional, scientific and technical services in Newcastle (28 per cent) and Lake Macquarie (22 per cent) local government areas. These rates are well above the national growth rate of 9 per cent. ABS Labour Force Survey data also show a welcome resurgence of employment in manufacturing in the past year.

Guest speaker at the Hunter Economic Breakfast, Sander van Amelsvoort, provided an international case study in the development of a vibrant innovation ecosystem in his home town of Eindhoven in the Netherlands. Over two decades, it transformed, from a base of business failures and high unemployment to be recognised as one of Europe's most innovative regions. With only 4 per cent of the Netherlands population, Greater Eindhoven - now known as the 'Brainport' region - generates 44 per cent of the country's patents and 19 per cent of its private investment. 'Smart + Together = Strong' summarises the winning formula for Eindhoven, van Amelsvoort said.

Collaboration within an innovation ecosystem yields payback for individual firms, including: spill-over of technology, knowledge, suppliers, markets and talent from other firms and industries.

Eindhoven drove transformation thanks to combined efforts of three key regional organisations - a 'triple helix' of university, business chamber and city council. To optimise the triple helix model, a region such as the Hunter needs to focus its knowledge institutions, assets and resources.

Research on regions that support innovation indicates that the Hunter should develop its innovation ecosystem to support entrepreneurs, start-ups and scale ups as well as to increase access to markets, talent and financial capital. A supportive, risk-taking culture and a favourable business climate are essential. Also required are anchor institutions like universities and medical centres, suitable digital and transport infrastructure, and built form that supports urban consolidation and mixed-use.

Greater Newcastle already ticks the boxes with smart city elements, growth of the innovation network, and plans to expand port and airport capabilities, the university and health precincts. To attract corporate investment and the local talent that it requires, we must add strong, collaborative leadership to implement a common vision.

Dr Anthea Bill, Lead Economist, HRF Centre

This opinion piece was published in the Newcastle Herald on 12 June, 2019.

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