The Case of Innovation and R&D in New Zealand’s Small and Medium-Sized Enterprises : Too Many Small Firms?

New Zealand provides a special case for a developed country where innovation and R&D levels are comparatively low in SMEs, yet, paradoxically, it is also a nation of high rates of entrepreneurial activity. In attempting to explain these low rates of innovation activity, a number of conjectures have been put forward. These include that the number of small firms is too high, perversely that the level of entrepreneurial activity (new start businesses) is too high and that the distance from major markets and isolated situation means that innovative SMEs are forced to locate abroad. Despite these issues, there is lack of empirical evidence on innovation levels in SMEs in New Zealand and there remain few studies that have investigated the significance of these issues to test hypotheses about the low levels of innovative activity. This research gap and lack of empirical evidence is addressed by this paper from an analysis of panel data set of 1500 New Zealand SMEs on their innovative activities, the motivations for innovation and barriers. We test research propositions and associated hypotheses based on existing theory and literature and discuss our findings. We argue that barriers remain an issue which should be a focus for government support, rather than seeking to reduce entrepreneurial activity or selecting growth firms for support