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AUSTRALIAN business – large and small, strong and struggling – has been waiting for the Federal Government to announce its framework for industry, innovation and start-up support. It happened last week and is – sensibly, for a business sector craving movement as much as stability – more evolution than revolution.

The Industry Innovation and Competitiveness Agenda strives to provide certainty on issues that have plagued Australian business – such as business migration rules, a draconian approach to employee shares that have stifled start-up technology ventures, lack of early-stage business funding, over-regulation and education and training regimes that lag their real markets – and introduce a more collaborative approach to help drive new ventures.

The reason is that new and early-stage ventures are both where Australia may be able to play to its advantage – and it is where most job growth occurs.

Prime Minister Tony Abbott and Industry Minister Ian Macfarlane jointly released the Industry Innovation and Competitiveness Agenda on October 14. The plan takes a holistic approach to reform, embracing taxation, investment, skilled migration, collaboration, regulation and training in the mix.

For government it is all about trying to drive competitiveness and ‘productivity’. For business it is more about providing a stable and less restrictive environment that will favour innovation and encourage collaboration between researchers and industry – an area in which Australia consistently fails.

And it aims to speed up business growth by unshackling it from unnecessary regulation. An early announcement has been the move to accept international standards and risk assessments for certain product approvals, rather than impose Australia’s own regime.

An example of where this has brought Australia unstuck has been in the biotechnology sector where Australian companies have opted to seek approvals through the US Food and Drug Administration (FDA) rather than navigate the punitive small-market Australian Therapeutic Goods Administration (TGA) process. An FDA approval to a giant market has often been easier than TGA’s stamp to a very small market.

“Building on our deregulation agenda, the government will adopt a new principle that Australian regulators should not impose additional requirements beyond those already applied under trusted international regulation, unless it can be demonstrated there is good reason to do so,” Prime Minister Abbott said. “The government will review existing regulation against this principle.”

Ironically, the loss of car manufacturing in Australia has helped to speed up this process of untying red tape in the automotive and manufacturing sectors. 

SHARE ADVANTAGE

Of the government’s six initiatives to boost Australian competitiveness, to be implemented over the next 18 months, the first tick from business was the change to taxation legislation to encourage employee share ownership.

Most successful start-ups in the US use employee share plans to drive development where cash for salaries and services is short – but this has not been an option in Australia due to previous governments’ ‘tax first’ approach and the punitive share options rules introduced in 2009.

Many Australian early stage technology companies ended up developing overseas as a result of the taxation approach in which discounts to share value were taxed and capital gains tax applied. The problem for early stage companies is the difficulty in assessing real share value – and the high risk of failure is not well accounted for.

“The government will change the taxation treatment of employee share schemes to encourage start-ups to attract and retain employees and commercialise good ideas in Australia,” Mr Macfarlane said. “The government will also reverse for all companies the changes made in 2009 to the taxing point for options.”

Also well received in the Industry Innovation and Competitiveness Agenda has been theannouncement of Industry Growth Centres, which are morphing out of the former government’s Industry Innovation Hub approach.

Prime Minister Abbott said the Federal Government would provide $188.5 million to fund Industry Growth Centres in five key sectors: food and agribusiness; mining equipment, technology and services; oil, gas and energy resources; medical technologies and pharmaceuticals; and advanced manufacturing.

“These industry-led centres will foster better use by industry of Australia’s world class researchers so that the community sees stronger commercial returns from the $9.2 billion annual Commonwealth investment in research,” Mr Abbott said.

Mr Abbott said the Agenda was “an important step along the path of economic reform”.

“Its guiding principle is to focus on Australia’s strengths and not prop up poor performers,” he said.

“The Agenda sets out four ambitions that Australia must pursue to ensure job creation and higher living standards: one, a lower cost, business friendly environment with less regulation, lower taxes and more competitive markets; two, a more skilled labour force; three, better economic infrastructure; and four, industry policy that fosters innovation and entrepreneurship.”

EDUCATION AND VET CHALLENGE

There are also reforms coming to Australia’s Vocational Education and Training (VET) system. From July 1, 2015, the Federal Government will invest $200 million each year to establish the new Australian Apprenticeship Support Network to lift apprenticeship completion rates “and provide employers with the skilled and productive employees they need to grow their business”.

Of great interest to regional business is the planned government investment of $38 million to provide 7,500 scholarships in specific regional areas where youth unemployment is high, through the Training for Employment Scholarships.

The new Youth Employment Pathway will also support community programmes for 3000 disengaged 15-18 year olds in regional areas.

The Federal Government and other Council of Australian Governments (COAG) members have also highlighted a number of priority actions to achieve a modern and responsive national regulatory system for the VET sector, Mr Macfarlane said.

One issue being address is the promotion of science, technology, engineering and mathematics (STEM) skills in schools One program being developed is a ‘mathematics by inquiry’ program for primary and secondary schools and providing seed funding for an innovation-focused ‘P-TECH’ pilot program, based on the successful US Pathways in Technology Early Career High college system.

INTERNATIONAL COMPETITIVENESS

Enhancing the 457 and investor visa programs are a key ingredient to boosting international competitiveness, according to the government. For technology businesses and start-ups, it may help to change the landscape in terms of developing global businesses in Australia.

The Federal Government wants to improve the Significant Investor Visa program by involving Austrade in the process of determining eligible complying investments, aligning qualifying investments with Australia’s five investment priorities and introducing a premium stream for people investing more than $15 million.

The Federal Government will reform the 457 visa program for skilled migrants, while “improving program integrity to ensure that sponsored workers on 457 visas are a supplement to, and not a substitute for, the local workforce”. That may help allay the political fears about the scheme, but it is also a sensible economic approach.

“Consistent with the recommendations of an Independent Integrity Review, the government will reform sponsorship requirements; streamline arrangements for existing approved sponsors; reform English language requirements and move to a risk-based approach for compliance and monitoring,” Mr Macfarlane said.

“Safeguards will remain in place to ensure that the 457 visa programme is not rorted. It will continue to be a requirement that a foreign worker receives the same market rates and conditions that are paid to an Australian doing the same job in the same workplace.”

Mr Macfarlane said the new agenda is part of the evolution necessary for the Australian economy to meet its many challenges.

“We’ve already scrapped the carbon and mining taxes; cut over 10,000 pieces of unnecessary legislation and regulations; commenced the largest infrastructure construction program in Australian history and signed free trade agreements with Japan and Korea,” he said. “Job creation, growth and competitiveness need constant attention.

“The competitiveness challenge is an ongoing one, and further reforms to promote the Agenda’s ambitions will be developed over the longer term.”

Mr Macfarlane said the Federal Government would host a series of roundtables around Australia over coming months to consult the business community, industry associations and peak bodies, as well as academia, on the policy directions outlined in the Competitiveness Agenda.

Sessions are to be chaired by ministers and co-chaired by business leaders, including the heads of the Business Council of Australia, ACCI and Infrastructure Partnerships Australia, he said.

www.industry.gov.au/growthcentres

ends

DESPITE 84 percent of Australian family businesses being optimistic about sales growth over the next five years, research by PwC has discovered they ranked below global averages in several areas critical to their future success.

PwC’s global Family Business Survey found 53 percent of the Australian family businesses covered reported sales growth in the last 12 months, well behind their global counterparts on 65 percent. 

About 71 percent recognised the need for digital innovation, but only 30 percent regarded attracting talent for digital conversion as important.

A vital statistic from the survey was that 38 percent of Australian family businesses surveyed planned to sell or float their businesses, compared with one in four who would aim to pass management to the next generation.

Business commentators who liken Australia’s potential family business future to that of Germany’s mittelstadt family-led sector will not be heartened to see business focus so contrary to the successful German approach.

David Smorgon, PwC’s senior advisor on Family, Business and Wealth, said the results provide “smoking gun evidence that Australia’s family businesses are at risk of eroding the value or even derailing the business they’ve worked so hard to achieve”.

 “They’re not doing enough to innovate and build blue sky potential in their business or apply simple measures to prevent minor niggles turning into full blown family conflict,” Mr Smorgon said.

Almost 2,400 family businesses globally were interviewed for the survey with 90 representing Australia including The Winning Group CEO John Winning and Coopers Brewery managing director Tim Cooper. Both of these businesses directly buck the Australian trends.

INNOVATION STRUGGLE

Like their global counterparts, Australian family businesses perceive the need to continually innovate as their biggest challenge over the next five years.

The PwC survey found while the majority (71 percent) recognised why they should adapt to an increasingly digitised world, only 57 percent understood the benefits of digital processes and less than a third (30 percent) think attracting talent to make the digital conversion is important – compared with 43 percent globally.

According to Sue Prestney, partner in PwC’s Private Clients team, there are myriad reasons why businesses acknowledge the need to innovate but struggle to act.

“Accessing surplus funds is always a challenge but there are other issues that plague family business,” Ms Prestney said.

“Many owners hold onto their business too long and have lost the passion or risk appetite to take on something new prior to retirement. And then there are those handcuffed by their desire to stick with what’s worked in the past.

“Whether they are private or public, here in Australia or overseas, businesses are chasing the same dollar. Those that fail to respond to global trends will find it difficult to compete and grow.”

SELL THE FAMILY SHOP

The PwC survey found that 38 percent of Australian respondents planned to sell or float their businesses, compared with just one in five globally. Only 24 percent have plans to pass on management to the next generation – a reversal of the 2012 survey where more Australian family businesses wanted to pass on than sell.

Of those planning to sell or float their businesses, 68 percent anticipate selling to another company, 32 percent to private equity investors, 26 percent to a management team and just 8 percent aim to IPO.

“Many owners have been holding on, waiting for more favourable market conditions to cash in and retire. Others who haven’t kept pace with innovation may be struggling to compete and see sale as their only option,” Ms Prestney said.

“Buyers look for businesses that have growth potential:  the more opportunity, the greater the bargaining power of the seller. Owners who fail to plan their exit risk leaving wealth on the table when it comes time to sell.”

Less than half (47 percent) of Australian businesses have next generation family members working in the business including 26 percent who are senior executives. This is well behind the global average of 43 percent.

“The next generation is not only critical to the continuation of the business, but is often the source of necessary transformation through new ideas, new experiences and new energy,” Ms Prestney said.

Succession planning continues to elude family businesses with only 8 percent of Australian respondents saying they have a robust succession plan in place, compared with the global average of 16 percent.

MANAGING CONFLICT

PwC’s global Family Business Survey found that Australian family businesses performed worse than their global counterparts in the majority of mechanisms typically adopted to deal with conflict including family council, entry and exit provisions and family constitution.

“At a minimum, all family businesses should have a family constitution,” Ms Prestney said.

“Conflict can easily impact business and family harmony so it’s a good idea to lay the ground rules early,” she said.

Mr Smorgon put it succinctly.

“A healthy family business needs a healthy family,” he said.

“Owners need to spend as much time working on the family as they do the business to enable it to flourish.”

The PwC Family Business Survey is carried out every two years and explores the family business market with a turnover of more than $5 million in over 40 countries. About 2,400 interviews were conducted globally in the latest survey, including 90 in Australia between May 9 and July 31 this year.

The PwC network of firms range across 157 countries with close to 184,000 people employed in delivering primarily assurance, taxation and business advisory services.

www.pwc.com.au

ends

AUSTRALIAN business – large and small, strong and struggling – has been waiting for the Federal Government to announce its framework for industry, innovation and start-up support. It happened last week and is – sensibly, for a business sector craving movement as much as stability – more evolution than revolution.

The Industry Innovation and Competitiveness Agenda  strives to provide certainty on issues that have plagued Australian business – such as business migration rules, a draconian approach to employee shares that have stifled start-up technology ventures, lack of early-stage business funding, over-regulation and education and training regimes that lag their real markets – and introduce a more collaborative approach to help drive new ventures.  

The reason is that new and early-stage ventures are where Australia may be able to play to its advantage – and it is where most job growth occurs.

Prime Minister Tony Abbott and Industry Minister Ian Macfarlane jointly released the Industry Innovation and Competitiveness Agenda on October 14. The plan takes a holistic approach to reform, embracing taxation, investment, skilled migration, collaboration, regulation and training in the mix.

For government it is all about trying to drive competitiveness and ‘productivity’. For business it is more about providing a stable and less restrictive environment that will favour innovation and encourage collaboration between researchers and industry – an area in which Australia consistently fails.

And it aims to speed up business growth by unshackling it from unnecessary regulation. An early announcement has been the move to accept international standards and risk assessments for certain product approvals, rather than impose Australia’s own regime.

An example of where this has brought Australia unstuck has been in the biotechnology sector where Australian companies have opted to seek approvals through the US Food and Drug Administration (FDA) rather than navigate the punitive small-market Australian Therapeutic Goods Administration (TGA) process. An FDA approval to a giant market has often been easier than TGA’s stamp to a very small market.

“Building on our deregulation agenda, the government will adopt a new principle that Australian regulators should not impose additional requirements beyond those already applied under trusted international regulation, unless it can be demonstrated there is good reason to do so,” Prime Minister Abbott said. “The government will review existing regulation against this principle.”

Ironically, the loss of car manufacturing in Australia has helped to speed up this process of untying red tape in the automotive and manufacturing sectors.

SHARE ADVANTAGE

Of the government’s six initiatives to boost Australian competitiveness, to be implemented over the next 18 months, the first tick from business was the change to taxation legislation to encourage employee share ownership.

Most successful start-ups in the US use employee share plans to drive development where cash for salaries and services is short – but this has not been an option in Australia due to previous governments’ ‘tax first’ approach and the punitive share options rules introduced in 2009.

Many Australian early stage technology companies ended up developing overseas as a result of the taxation approach in which discounts to share value were taxed and capital gains tax applied. The problem for early stage companies is the difficulty in assessing real share value – and the high risk of failure is not well accounted for.

“The government will change the taxation treatment of employee share schemes to encourage start-ups to attract and retain employees and commercialise good ideas in Australia,” Mr Macfarlane said. “The government will also reverse for all companies the changes made in 2009 to the taxing point for options.”

Also well received in the Industry Innovation and Competitiveness Agenda has been theannouncement of Industry Growth Centres, which are morphing out of the former government’s Industry Innovation Hub approach.

Prime Minister Abbott said the Federal Government would provide $188.5 million to fund Industry Growth Centres in five key sectors: food and agribusiness; mining equipment, technology and services; oil, gas and energy resources; medical technologies and pharmaceuticals; and advanced manufacturing.

“These industry-led centres will foster better use by industry of Australia’s world class researchers so that the community sees stronger commercial returns from the $9.2 billion annual Commonwealth investment in research,” Mr Abbott said.

Mr Abbott said the Agenda was “an important step along the path of economic reform”.

“Its guiding principle is to focus on Australia’s strengths and not prop up poor performers,” he said.

“The Agenda sets out four ambitions that Australia must pursue to ensure job creation and higher living standards: one, a lower cost, business friendly environment with less regulation, lower taxes and more competitive markets; two, a more skilled labour force; three, better economic infrastructure; and four, industry policy that fosters innovation and entrepreneurship.”

EDUCATION AND VET CHALLENGE

There are also reforms coming to Australia’s Vocational Education and Training (VET) system. From July 1, 2015, the Federal Government will invest $200 million each year to establish the new Australian Apprenticeship Support Network to lift apprenticeship completion rates “and provide employers with the skilled and productive employees they need to grow their business”.

Of great interest to regional business is the planned government investment of $38 million to provide 7,500 scholarships in specific regional areas where youth unemployment is high, through the Training for Employment Scholarships.

The new Youth Employment Pathway will also support community programmes for 3000 disengaged 15-18 year olds in regional areas.

The Federal Government and other Council of Australian Governments (COAG) members have also highlighted a number of priority actions to achieve a modern and responsive national regulatory system for the VET sector, Mr Macfarlane said.

One issue being address is the promotion of science, technology, engineering and mathematics (STEM) skills in schools One program being developed is a ‘mathematics by inquiry’ program for primary and secondary schools and providing seed funding for an innovation-focused ‘P-TECH’ pilot program, based on the successful US Pathways in Technology Early Career High college system.

INTERNATIONAL COMPETITIVENESS

Enhancing the 457 and investor visa programs are a key ingredient to boosting international competitiveness, according to the government. For technology businesses and start-ups, it may help to change the landscape in terms of developing global businesses in Australia.

The Federal Government wants to improve the Significant Investor Visa program by involving Austrade in the process of determining eligible complying investments, aligning qualifying investments with Australia’s five investment priorities and introducing a premium stream for people investing more than $15 million.

The Federal Government will reform the 457 visa program for skilled migrants, while “improving program integrity to ensure that sponsored workers on 457 visas are a supplement to, and not a substitute for, the local workforce”. That may help allay the political fears about the scheme, but it is also a sensible economic approach.

“Consistent with the recommendations of an Independent Integrity Review, the government will reform sponsorship requirements; streamline arrangements for existing approved sponsors; reform English language requirements and move to a risk-based approach for compliance and monitoring,” Mr Macfarlane said. 

“Safeguards will remain in place to ensure that the 457 visa programme is not rorted. It will continue to be a requirement that a foreign worker receives the same market rates and conditions that are paid to an Australian doing the same job in the same workplace.”

Mr Macfarlane said the new agenda is part of the evolution necessary for the Australian economy to meet its many challenges.

“We’ve already scrapped the carbon and mining taxes; cut over 10,000 pieces of unnecessary legislation and regulations; commenced the largest infrastructure construction program in Australian history and signed free trade agreements with Japan and Korea,” he said. “Job creation, growth and competitiveness need constant attention.

“The competitiveness challenge is an ongoing one, and further reforms to promote the Agenda’s ambitions will be developed over the longer term.”

Mr Macfarlane said the Federal Government would host a series of roundtables around Australia over coming months to consult the business community, industry associations and peak bodies, as well as academia, on the policy directions outlined in the Competitiveness Agenda.

Sessions are to be chaired by ministers and co-chaired by business leaders, including the heads of the Business Council of Australia, ACCI and Infrastructure Partnerships Australia, he said.

www.industry.gov.au/growthcentres

ends