Australia’s investment in research and development must be more aggressive if we are to be part of the new global economy

It is interesting that as Australia goes into a phase of R&D-intensive spending on renewables, critical minerals, defence, quantum computing, biotech etc, that we are not discussing the role of R&D and its influence on productivity and national wealth.

The research says that as firms increase R&D investment, they achieve higher growth and employment than their peers, and that the national economy also grows.

Any private business can turn its focus to innovation and reap the benefits.

So What Is Holding Us Back?

Australia’s spending on R&D was 1.7% of GDP when last measured by the OECD in 2019. It compares poorly with the OECD average of 2.7% of GDP and is not in the same league as the world’s best, Israel (5.5%) and Korea (4.9%). In terms of our trading partners, we fall short of Japan (3.2%), United States (3.4%) and Taiwan (3.7%) and the many Northern European countries that have R&D spending over 3% of GDP, such as Germany, Belgium, Switzerland, Sweden and Austria.

We are on a similar level to Hungary, Estonia and Spain. Not exactly a failure, but for a nation that keeps saying it is the Smart Country and we have exported all these inventions to the world, we do not do a good job of discussing how knowledge-investment drives economic prosperity.

At Harrison Manufacturing, we are trying to change that. We have set a target of 5% of gross revenue reinvested into R&D, and we will achieve that rate before 2030. We are currently at a similar level to Australia’s national R&D spending.

Reasons for setting this goal certainly entail R&D spending driving productivity and financial performance. However, we are also looking at being a part of Australia’s decarbonisation effort, and we need to de-risk our operations as we negotiate globalised supply chains in lubricants and additives. 

In simple terms, we see a limited future for mid-sized companies in mid-sized countries, unless they have niche and proprietary solutions and to have this capacity they must invest in R&D. And yet, even with such investment, how does a small manufacturer in Australia grow market share when competing against multinational companies with huge scale? 

Investing In People

We think that while we lack the advantages of scale, we do have a workforce of smart, open-minded and practical innovators. And if we have the will to invest in the ideas, relatively small innovations can leverage large improvements in productivity and efficiency, and they also create products that our customers want and need.

Here is an example. Many mining companies and their contractors are attempting to reduce their carbon emissions and one of the areas they are looking at is their high grease usage. Typical industrial grease products are petroleum-based, but the problem for high-usage industries such as mining is that the bio-grease alternatives are around five-times the price of the conventional products.

At Harrison Manufacturing, we have committed to an R&D project to assess the feasibility of producing  bio-based grease from a range of environmentally and technologically sustainable raw materials.  We have been working on this  for almost two years and it turns out we are at the forefront of world research.

One of the things we are learning about R&D is that we do not have to invent an entire industry or product. As nations transition to net-zero economies, there are many vexing problems requiring niche solutions. One of those problems is how to get better yields out of the refining of lithium from spodumene ore. Currently, the refining process is around 85% efficient which leaves 15% of the lithium, and other valuable minerals, in the tailings. The ‘Lithium Frother’ technology, from our sibling company SPARC, aims to improve the extraction efficiency to as high as 95%, giving a material improvement to productivity.

Harrison SPARC

We decided to formalise our R&D efforts by launching a dedicated company we call SPARC (Strategic Projects and Advanced Research Centre) in 2021. We have focused on the areas of water, energy, agriculture, construction, health and sustainability, and to demonstrate how an Australian innovator does not have to invent an entire industry overnight, we are currently working on process-improvements and other potential opportunities in the synthetic biology industry. 

We are asked by other companies how we sustain growing reinvestment in R&D, and the answer is we focus on developing the technologies of the future, today, as a business mission and culture. Meeting the emerging needs of business and society is where the real value lies. 

Getting there requires employees to be creative and solutions-oriented, and for SPARC projects we also incentivise them with a share of the revenues from IP royalties if their ideas are developed. We also partner with scientific talent and research teams, and luckily Australia has an abundance of these people to work with.

The problem with R&D investment is its inherent risk, and that is why successive governments have supported the R&D Tax Incentive, which is a tax offset for allowable R&D spending.

And why would you spend on R&D, with no guarantee of where it goes? We like to think we are contributing to a better world, but on top of that why not do it for the increased productivity and growing profits?