Global market demands big vision

With many investors in Western Australia’s fledgling technology sector having been burned by lossmaking companies such as Chemeq, Clinical Cell Culture and ERG, it has been difficult for new companies emerging in their wake to attract support.

Combined with rising costs and skills shortages due to the resources boom and long distances to international markets, the odds seem to be stacked against technology companies.

Despite all that, entrepreneurs such as Sensear chief executive Justin Miller believe WA has a successful niche in the technology sector.

“We’re good at creating things, and they can grow somewhere else, and we should be accepting of that,” Mr Miller told a WA Business News boardroom forum.

“Selling out’ is not a dirty word for this state, and it shouldn’t be.” This view was supported by Orbital Corporation managing director Rod Houston, whose company has become a niche supplier of engine technology to global customers.

“I think we do have to be cognisant of where we are and what we can do,” Dr Houston said.

“We have the ability to generate ideas, and should be happy to take it outside to find suppliers and markets.” Drawing on the experience of failed pharmaceutical company Chemeq, Advanced Nanotechnology chairman David Griffiths summed up the reality facing technology companies aspiring to build a manufacturing base.

“Perth is probably the worst place in the world for major manufacturing with the distances, [lack of] skilled labour and depth of the market,” Mr Griffiths said.

“If you’re supplying a serious company like Johnson and Johnson, they just don’t want a supply chain that goes halfway across the globe to a small company in Perth.

You will have to move production to a place where they are comfortable,” he said.

Dr Houston said venture capital alone did not remove many of the barriers to commercialisation, including finding suppliers and a ready market.

“In WA, you’re certainly in the right place for mining, but not necessarily in the right place for engine technology or clean emissions technology.

So there are some other barriers right along that commercialisation process, and money itself doesn’t solve some of those,” Dr Houston said.

With operations based in Perth, he said the engine design and development company generated revenue mainly from markets in China, India and the US.

Mr Miller, whose company is developing hearing protection technology for the global market, believes WA should feel very proud that its ideas are going global.

“I think we’ve got to become prouder of the fact that we grow up somewhere else,” he said.

“We have a good entrepreneurial spirit here, we can make things happen, but the world suggests that we have to move away to grow up.” Mr Miller said Sensear’s distributors were based offshore, while its manufacturing base was in China.

“We’re setting ourselves up as a global business, and continuing that from Perth will become more difficult for us.” He emphasised that the company’s core would remain in WA.

“Our core is developing electronics design and the software that runs it.

That core will remain here whether or nor our headquarters is somewhere else.” Mr Miller also acknowledged that Sensear was finding it more difficult to attract the right staff.

“That is in part because of the resources boom.

People are paid a lot better to be focused on grams per ounce than bytes and gadgets,” he said.

And Perth is not alone with its particular challenges, according to venture capitalist and Titan Bioventures managing director Harry Karelis.

He suggested Western Australians should not get paranoid about the socalled “brain drain”, as it was also happening in countries such as Israel and India.

“It’s not just a Perth thing…it’s happening all over the world.

Are we going to be upset when BHP Billiton moves its headquarters to Perth in a few years? No, because it makes sense,” Mr Karelis said.

“I think that most Western Australians get a little bit down on themselves too much.

We do as well or as badly as pretty much any other place on the planet.” But the question remains, could we do more? Mr Griffiths said there was no silver bullet to improving the situation, but the path to success could be reduced to a simple equation of “management, markets and money”.

“None of these is more important than the other, but if you get one of them wrong you’re in trouble,” he said.

But finding the last piece of the equation remains increasingly difficult in mining-obsessed WA.

Mr Karelis said he had noticed the appetite for high-risk investments, such as new bio-technology companies, was very low in WA over the past two years, as investors were chasing massive returns akin to the state’s bull run of resources.

“Whilst deep down people know they need to diversify, there might be risk capital, but its risk capital looking for a return,” Mr Karelis told the forum.

Brian Beresford, a director of GEM Consulting and PricewaterhouseCoopers, said the rush of WA mining companies listing on the Australian Securities Exchange, together with the pool of eager investors, had created an environment of high liquidity and short-term mentalities.

“People are getting spectacular returns in the listed environment and they’ve got the liquidity to get out quite quickly, as opposed to pumping money into early-stage unlisted investments, where they’re not quite clear they’ll see a return in 20 years,” Mr Beresford said.

The other issue causing headaches for the innovation sector, according to those at the forum, is crossreferencing; that is, determining whether an idea or invention is entirely new or, indeed, world breaking.

Greg Riebe, chief executive of Entrepreneurs in Residence, said cross-referencing was a big issue.

“In the early stages, there’s really no information by which we can actually compare whether this is a good opportunity,” he said.

“Determining exactly what the market wants is very hard and to communicate why this is a good product.” Mr Griffiths said a lot of work was required to place an idea or invention into context.

“Someone walks in with an invention and you have no idea whether this is ground breaking or if there’s 10 of them that exist in the US, so you have to do a lot of work,” he said.

“With mining, everyone knows.

You can ring up five people on the terrace and they’ll tell you, but if someone comes in with a one-off in the bio-medical field…try crossreferencing that.” Technology & Industry Advisory council chairman Michael Henderson believes the government can help in that regard by building links between the inventors, venture capitalists and managers.

“What we seem to be lacking is an innovation centre that brings disparate teams of people together so that we can get that cross-over, and sharing of ideas, and we generate a smarter outcome for some of the research projects,” he said.

Mr Reibe said one of the challenges was marrying inventors and researchers with good ideas with managers who have the commercial knowledge.

“What can be done is a bit of education to help people understand how to commercialise their idea, and to realise whether or not there is actually a market demand out there, and if there isn’t, just stop.” Mr Griffiths maintains that new ventures must be driven by people wanting to make money.

“What the government can do is put in infrastructure, but what it can’t do is institutionalise [innovation] and try to pick winners too much,” he said.

“I think the government should provide a framework of contacts to help, but in the end it’s got to be you knocking on doors and believing in the product.” Mr Karelis cites Singapore as a good example of how billions of dollars of government investment in bio-medical innovation, could not make a city immune from market forces.

“In the last few months, all the hot-shot researchers that they’ve attracted are leaving,” Mr Karelis said.

“So government can throw money at it and have the will there, but unless you have the entrepreneurs, the culture of capitalism and a natural reason for it to be there, it’s hard to make it work.’’