[In]Sights for Competitive Regions: Innovation - October 2015 1

[In]Sights for Competitive Regions: Innovation

[In]Sight: Australia’s regional competitiveness index is the lens regions need to make the most of their advantages.

This report provides an analysis of Innovation in [In]Sight: Australia’s regional competitiveness index.

Other analysis reports, a detailed user guide and the online interactive map including 624 regional competitiveness profiles are available at www.regionalaustralia.org.au/insight

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Making the Most of Our Regional Innovative Capacity

Innovative areas are generally more likely to be at a competitive advantage, because they are at the forefront of new products and processes. The Innovation theme measures the capacity of regions to react to increased competition and changing market conditions through innovation. It measures entrepreneurship through business start-ups, entirely new products through patents, and the presence of organisations and people with research and development capabilities. [In]Sight suggests that regional New South Wales and Victoria are, in general, not yet putting themselves forward as genuine leaders of innovation. In order for regional areas to capture a strong share of the potential return of business, skills and investment back to the eastern states after the mining boom, this must change. This is our greatest competitive challenge in innovation. Overall, the Innovation theme scores by regional type place regional areas at about two thirds the innovative strength of metropolitan areas on average, with Regional Cities performing at about three quarters the strength of their metropolitan counterparts. Plenty of research and leadership occurs in regional areas, particularly in resource related industries and the entreprenuerial communities of Regional Cities. In each regional type, approximately one sixth of areas perform especially well, with a long tail of areas in each regional type that perform moderately well. The regional types perform relatively similarly, but some unique patterns can be identified across each type. Regional Cities and the Heartland Regions have been most able to translate their capacity for innovation into patents and business start-ups, while Connected Lifestyle Regions and Industry and Service Hubs show good innovative capacity.

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Introduction This report examines the key trends within the Innovation theme in [In]Sight: Australia’s regional competitiveness index. [In]Sight measures two aspects of innovation; the potential capacity for innovation and the extent to which this capacity is translated into products and processes. Capacity is measured through the number of research organisations, research and development managers and human resources in science and technology. The number of patents granted and business start-ups in each area serve as indicators of actual innovation, though everyday innovation within businesses is difficult to measure without extensive surveys. Some aspects of innovation are difficult to influence. Human resources in science and technology, and research and development managers are examples. Despite this, all regions can foster entrepreneurship and encourage investment in research and development. The Innovation theme identifies the foundations available for this local effort. Each local government area (LGA) in Australia is grouped into a regional type. The types are Regional Cities, Connected Lifestyle Regions, Industry and Service Hubs and the Heartland Regions (see Figure 2). Trends across the regional areas in each state and the Northern Territory are also reviewed.i This report is one of a series of ten examining the trends in each of the themes of [In]Sight.

Measuring Innovation in [In]Sight Innovation is measured using five indicators:

• Human resources in science and technology (sourced from ABS Census data): This indicator measures the percentage of the adult population with a tertiary qualification in science and technology. A higher percentage of qualifications results in a higher ranking.

• Research and development managers (sourced from ABS Census data): This indicator measures the percentage of adults employed as research and development managers. A higher percentage of managers results in a higher ranking.

• Presence of research organisations (sourced from GIS calculations): This indicator measures the percentage of all businesses that are research organisations. A higher percentage of research organisations results in a higher ranking.

• Number of patents (sourced from IP Australia): This indicator measures the number of patents certified and granted between 2009 and 2014 per 1000 businesses. A higher percentage results in a higher ranking.

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• Business start-ups (sourced from ABS data): This indicator measures the number of new businesses from 2009 to 2014 as a percentage of all businesses. A higher percentage results in a higher ranking.

Further information on this theme and construction of the index can be accessed in the [In]Sight 2014 User Guide.

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Innovation and Competitiveness in Regional Australia Figure 1 shows that resource dominated areas in Western Australia and Queensland, as well as some large regional towns such as Orange in New South Wales and Devonport in Tasmania excel in the Innovation theme. However, regional cities such as Newcastle in New South Wales and Geelong Victoria are ranked below 150, despite their size and significance in leading industries of innovation such as shipping and manufacturing.

Figure 1: LGA competitiveness for Innovation, Australia Source: [In]Sight: Australia’s regional competitiveness index LGAs from regional Australia made up three of the top 10 rankings for the Innovation theme. Metropolitan areas are generally more competitive in all indicators except human resources in science and technology.

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Regional Australia is competitive in the human resources and the science and technology indicators. The adult population in an average regional LGA has a 25.9 per cent rate of qualifications in science or technology. The 50 most competitive areas in this indicator are all located in regional Australia. This result must be taken in context as it is heavily skewed by Fly In Fly Out (FIFO) resources that are required for the mining industry, including smaller communities such as Laverton in Western Australia and Roxby Downs in South Australia. These LGAs have rates of education in some science or technology of over 60 per cent due to the technical qualifications required for many positions in mining. Regional Australia can use this opportuntity to utilise and retain these human capital resources after the mining boom comes to an end. Regional LGAs also make up the entirety of the top 10 ranking areas for research organisations. Huon Valley in Tasmania, Western Downs in Queensland and Buloke in Victoria were ranked as the top three. 27 LGAs in regional Australia contain a research organisation. Regional Australia was overall less competitive on the patent indicator which reflects the number of unique new products and ideas being developed in the region. Bruce Rock in Western Australia gained 20.4 patents per 1000 businesses. The average regional LGA gained 0.9 patents per 1000 businesses. 326 areas in total gained a patent. Patents are not an indicator of everyday improvements in products or improvements in processes, which are also important but difficult to measure without extensive surveys. Of all regional areas, Palerang in New South Wales has the highest proportion of research and development managers at 0.4 per cent of all workers. Most areas have no research and development managers. These skills are concentrated in particular areas. In an average regional area, 10.8 per cent of businesses started-up between 2009 and 2014. Some areas had a very high proportion of business start-ups, particularly remote indigenous communities, a result of the difficulty of businesses enduring there. Some areas had no new businesses at all, indicating a lack of entrepenuerialism. The economic, social and environmental situation for our regions will undoubtedly evolve. Exactly how this will transpire is uncertain. Regions will need flexibility, freedom and the innovative capacity to take action for their own particular circumstances. Innovative capacity is currently concentrated in particular areas. This will allow those areas more readily to adapt to change and give them a competitive advantage.

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Innovation in Different Types of Regions Overall trends are important but it is also important to consider different groups of regions with similar foundations in regional Australia. The Regional Australia Institute (RAI) identifies four distinct and important groups of regions that have different development pathways (Figure 2).

Figure 2: Four types of regional communities Source: RAI Talking Point: The Foundations of Regional Australia In each regional type approximately one sixth of areas perform especially well, with a few areas performing at almost twice the average across the theme. There is a long tail of areas in each regional type and each state that perform moderately well. All of the region types scored highly on at least one indicator and lowest on at least one indicator (Table 1). Their performance relative to each other was not consistent even on seemingly connected indicators, such as the human resources in science and technology indicator and the research and development managers indicator.

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Table 1: Relative innovative competitiveness amongst the regional types

Regional Cities Connected Lifestyle Regions

Industry & Service Hubs Heartland Regions

Human resources in science and technology

Competitive 27%

Competitive 27%

Most competitive 29%

Least competitive 25%

Research and development

managers

Most competitive 0.07%

Highly competitive 0.06%

Competitive 0.04%

Least competitive 0.02%

Presence of research

organisations

Most competitive 9 per 100,000

businesses

Competitive 6 per 100,000

businesses

Competitive 4 per 100,000

businesses

Least competitive 2 per 100,000

businesses

Number of patents

Competitive 1.2 per 1,000

businesses

Most competitive 1.8 per 1,000

businesses

Less competitive 0.9 per 1,000

businesses

Least competitive 0.8 per 1,000

businesses

Business start-ups

Most competitive 12.7%

Less competitive 10.9%

Competitive 11.4%

Least competitive 10.4%

Industry and Service Hubs were the most competitive regional type for human resources in science and technology and show good innovative capacity. However they are not competitive in converting this capacity into patents and start-ups. The Heartland Regions were most competitive for both the number of patents as a proportion of all businesses, despite the low proportion of research and development managers or organisations in these areas. This reflects the tradition of rural innovation and entrepreneurialism in these areas as well as the innovative force of the resources industry in the Heartland Regions. Regional Cities have good innovative capacity in their workforces and also ranked most competitive for businesses start-ups, with an average of 13.3 per cent of businesses starting up in the last five years. They have the highest average proportion of research organisations as well as research and development managers and they obtained a relatively good amount of patents. The combination of workforce capacity and innovative output suggests that the commercial organisations of regional cities are pushing ahead in private research and development. There are strong signs of entrepreneurialism in their business communities. Connected Lifestyle Regions were not the most competitive in any indicator but they did perform well in the presence of research organisations and research and development managers indicators. They did however achieve the lowest scores on human resources in science and technology. Given the proximity of Connected Lifestyle Regions to cities, their performance in the Innovation theme is more than acceptable.

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Innovation in Regional Australia: A State Perspective The regional economies of New South Wales, Victoria and South Australia, on average, are not particularly competitive in innovative capacity. Newcastle in New South Wales and Geelong in Victoria attained mediocre ranks overall despite being some of Australia’s largest regional cities. If they are to have good prospects of capturing investment, new business opportunities and skilled workers after the resources boom in Western Australia and Queensland subsides, they must improve their innovative capacity now. Table 2: Summary of innovation and competitiveness in the regional areas of each state and the Northern Territory

NSW Victoria QLD WA SA Tasmania Northern Territory

Human resources in science and technology

Less competitive

23.8%

Less competitive

23.3%

Competitive 25.1%

Most competitive

30.0%

Competitive 25.7%

Competitive 26.6%

Least competitive

21.7%

Research and development

managers

Competitive 0.04%

Competitive 0.04%

Less competitive

0.02%

Least competitive

0.02%

Less competitive

0.02%

Most competitive

0.05%

Competitive 0.04%

Presence of research

organisations

Less competitive

3.5 per 100,000 businesses

Competitive 6.5 per 100,000 businesses

Less competitive

2.4 per 100,000 businesses

Less competitive

2 per 100,000 businesses

Least competitive

1.8 per 100,000 businesses

Most competitive

9.2 per 100,000 businesses

Competitive 5.9 per 100,000 businesses

Number of patents

Highly competitive 10.4 per

1,000 businesses

Most competitive 10.6 per

1,000 businesses

Competitive 9.9 per 1,000

businesses

Competitive 8.9 per 1,000

businesses

Competitive 7.8 per 1,000

businesses

Less competitive

6.6 per 1,000 businesses

Competitive 1.3 per 1,000

businesses

Business start-ups

Less competitive

9.9%

Competitive 10.0%

Highly competitive

12.3%

Competitive 10.3%

Least competitive

9.9%

Competitive 10.1%

Most competitiveii

19.9%

The Hunter RDA, which is one of New South Wales’ best performing regions in this theme, recently created an ‘innovation scorecard’iii project that would be beneficial to extend to other regions that wish to increase their innovative potential. Projects such as the Geelong Region Innovation and Investment Fund targeted at regional areas with high technical capacity would be a positive initiative that state governments should consider.iv

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Regional Western Australia is currently competitive in three of the five indicators. This innovative capacity will prove vital for Western Australia as its economy enters a period of transition following the resources boom. Capitalising on innovative potential through product development and entrepreneurialism now, will provide a means of diversifying the state economy in preparation for the eventual slowing of resource production. This is one of the key findings of a separate report from the Regional Australia Institute: Cities Beyond Perth: Best bets for growth in a new economic environment.v Regional Queensland and the Northern Territory, along with regional Western Australia, ranked highly on business start-ups. The typical attributes of the entrepreneurs who start these businesses are important for any regional area. Willingness to take risks, try new approaches and respond to changes in the environment are vital to the future success of regions. In an ever changing world, the ability to adapt and positively respond to change will be an important contributor to regional success. Tasmania has the capacity to be an innovative hub, peforming quite well across the theme. It is most competitive in both research and development managers and research organisations. This is probably due to the prominence of the University of Tasmania in the region, along with research organisations such as the Tasmanian Institute of Agriculture and the state’s position as a launch site for research in the Antarctic region and the Southern Ocean. Each state has a unique profile of innovative capacity and output. The location of large and innovative industries in regional Australia attract investment and talent. States must ensure that they capture the benefit of this innovation, which can be driven by national or multinational companies.

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Making the Most of Regional Australia’s Innovative Advantage Innovation is a key source of competitive advantage in ever changing economic conditions. Regional Australia currently has good innovative capacity, but this is focused in particular areas. In general, areas with strong links to the resources industry or large cities tend to have the best innovative capacity and have been translating this capacity into patents and business start-ups. However, these links could be utilised better for more areas of regional Australia. Results from [In]Sight suggests that regional New South Wales and Victoria are, in general, not effectively building on the resources of their respective metropolitan areas. In order for regional areas to capture a strong share of the potential return of business, skills and investment back to the eastern states after the mining boom, this must change. These states need to develop their innovative capacity further if they wish to capture a strong share of new business and skilled workers after the resources boom subsides. Everyday innovation and improvements to processes are difficult to measure without extensive business surveys, but these are also important and directly impact the level of economic activity in an LGA. Such improvements allow firms to be increase productivity despite limited resources. The Innovation theme measures the capacity of regions to react to increased competition and changing market conditions through innovation. It measures entrepreneurship through business start-ups, entirely new products through patents, and the presence of organisations and people with research and development capabilities.

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Making the Most of [In]Sight The innovative areas of Western Australia need to capitalise on this capacity now in order to strengthen and diversify their economies in preparation for a new phase after the resources boom. The Cities Beyond Perth: Best bets for growth in a new economic environment vi report that the Regional Australia Insitute released in January 2015 focuses on this issue. To learn more about how people in regional Australia support our nations competitiveness please also see the other papers in the [In]Sights for Competitive Regions series:

• Human Capital: find out if regional Australia is ‘work-ready’ and how we can ensure that the next generation will be able to grow Australia in the future.

• Labour Market Efficiency: find out how are we engaging the potential workforce in different parts of regional Australia and where are the best opportunities to maximise people’s contribution.

• Demography: find out more about how a region’s population size and dynamics provide sources of competitive advantage.

• Economic Fundementals: discover how regional economies are successfully translating its assets into commercial activity, investment and income.

• Technological Readiness: find out the extent to which regions have the infrastructure and resources it needs to develop in the digital age.

These publications and the 624 [In]Sight competitiveness profiles are available for review at www.regionalaustralia.org.au/insight Regional comparisons, data downloads and expert advice from the RAI are also available for anyone interested in putting [In]Sight to work.

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Appendix: Innovation Theme Rankings, LGAs in Regional Australia Top Performing Regional Cities LGAs

LGA Rank State Palmerston 27 NT Litchfield 33 NT Orange 34 NSW Darwin 56 NT Hobart 80 TAS

Newcastle 95 NSW Gladstone 107 QLD

Capel 118 WA Townsville 134 QLD

Mackay 136 QLD

Top Performing Connected Lifestyle Regions LGAs

LGA Rank State Huon Valley 4 TAS Yass Valley 10 NSW

Palerang 12 NSW Indigo 40 VIC

Queanbeyan 66 NSW Mid Murray 91 SA

Macedon Ranges 124 VIC Kingborough 147 TAS

Serpentine-Jarrahdale 154 WA Sorell 155 TAS

Industry and Service Hubs LGAs

LGA Rank State Armidale Dumaresq 9 NSW

Karratha 23 WA Mount Gambier 55 SA

Singleton 77 NSW Mount Isa 108 QLD Whyalla 119 SA

Central Coast 122 TAS Port Hedland 157 WA

Central Highlands 160 QLD Alice Springs 191 NT

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The Heartland Region LGAs

LGA Rank State Western Downs 13 QLD

Merredin 17 WA Ararat 19 VIC

Carnarvon 20 WA Bruce Rock 25 WA

Cook 28 QLD Roxby Downs 36 SA

Coolamon 38 NSW McKinlay 39 QLD Murchison 44 WA

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About Us Independent and informed by both research and ongoing dialogue with the community, the Regional Australia Institute (RAI) develops policy and advocates for change to build a stronger economy and better quality of life in regional Australia - for the benefit of all Australians. To find out more about the RAI contact us at info@regionalaustralia.org.au or visit www.regionalaustralia.org.au

Disclaimer and Copyright This research report translates and analyses findings of research to enable an informed public discussion of regional issues in Australia. It is intended to assist people to think about their perspectives, assumptions and understanding of regional issues. No responsibility is accepted by the RAI, its Board or its funders for the quality of advice or decisions made by others based on the information presented in this publication. Unless otherwise specified, the contents of this report remain the property of the RAI. Reproduction for non-commercial purposes with attribution of authorship is permitted.

Contacts and Further Information To discuss [In]Sights for Competitive Regions: Innovation further please contact: Jack Archer Chief Executive Officer Jack.Archer@regionalaustralia.org.au (02) 6260 3733

End Notes

i All trends are explored based on the averages of the regional LGAs within the given area. This is to explore the trends within the given area rather than the overall result. ii The Regional Australia Institute acknowledges that this result is due to the unliklihood of businesses surviving beyond five years in very remote areas with low populations. iii http://rdahunter.org.au/initiatives/2014-hunter-innovation-scorecard iv http://www.business.gov.au/grants-and-assistance/regional-innovation/GRIIF/Pages/default.aspx v http://www.regionalaustralia.org.au/wp-content/uploads/2015/01/Cities-Beyond-Perth_PROFILES-REPORT.pdf vi http://www.regionalaustralia.org.au/wp-content/uploads/2015/01/Cities-Beyond-Perth_PROFILES-REPORT.pdf