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Executive Summary
- The current study is the sixth in a series since 1991 that have tracked a group of successful manufacturing export companies. Thirty companies were interviewed over the first quarter of 2002 - 16 for the fifth or sixth time, and 27 for at least the second time. Three firms were interviewed for the first time.
- The value of exports from the 30 firms increased by $424m between 1998 and 2001, accounting for roughly a third of the increase in the value of manufactured exports (as defined in Table 3.1). The firms interviewed accounted for almost half (46%) of the increase in export receipts from the twelve manufacturing export sectors represented by one or more firms.
- Although the total value of manufactured export receipts rose by around 40% over the two years to September 2001, the volume of exports rose by just 6.5% over the two years. The fall in the currency largely explains the difference between value and volume growth. Six companies in this study experienced a decline in export volumes over the past two years. For all but one, the reason for the fall in export volumes reflected a change in business strategy - in three cases driven by a change in ownership.
- The main areas of firm-level change observed in the group of companies followed over the past decade include: strong growth in export earnings for most companies with all but two more than doubling their earnings since 1995; either management and/or ownership has changed in 80% of the firms; steady development and sophistication of distribution systems; a clear trend toward outsourcing manufacturing operations; greater commitment to R&D and more companies stepping beyond Australia (see section 3.3).
- There are a number of significant steps involved in expanding a business. One of the biggest is developing export sales. All the firms in this study have negotiated this first hurdle. Other significant growth steps include: changes in ownership, establishing effective distribution systems, ensuring production or supplies are sufficient to meet demand in foreign markets, developing and deploying new products and technology, and planning, negotiating, and managing acquisitions (see section 4.2).
- An important focus of this study was to probe the question of firm growth and what bearing scale, location and ownership may have on it. Given the limited number of firms interviewed and the biases inherent in choosing only those firms already exporting the value from this work relates primarily to the observations of actual firm-level behaviour and responses to the issues of scale, location and ownership with respect to their growth.
- New Zealand has few world scale businesses, and arguably none in the manufacturing sector. The small size of the local market is the most obvious constraint to building world-scale businesses in New Zealand. Scale is regarded as important primarily because it helps drive costs down and credibility up.
- Most firms interviewed for this study did not regard scale as a particularly important constraint to their growth. They were generally highly cost competitive and had established market credibility by concentrating on market niches. In practice firms appear to have formulated their business strategy to ensure scale is not an important constraint to their growth.
- This study throws up no compelling evidence that the location of the business is a major impediment to their growth. The fact that a number of companies (including a number of foreign-owned firms) are continuing to expand their New Zealand operations suggests location is a relatively minor issue in terms of overall company growth.
- Firms are pursuing a number of strategies that minimise the potential constraints to growth that may exist from operating out of such a small and remote economy. Some companies have developed sophisticated logistics/distribution systems to achieve world class delivery performance, allaying any concerns amongst customers about dealing with such a distant company. Others have changed their business strategy to concentrate on specific activities such as product development/ R&D that are less location or transport sensitive, while others have established strong relationships with large businesses within their key markets to give them a local presence and credibility.
- Twelve of the 30 firms interviewed are foreign owned and there has been a steady shift to foreign ownership over the past three years. Of the 18 companies that have experienced some change in their ownership since 1998 seven have involved a change from New Zealand to foreign ownership. Of the 12 firms where ownership has remained stable over the past three years, 10 are privately, New Zealand-owned companies.
- The majority of New Zealand-owned companies are not contemplating moving offshore or seeking foreign ownership to extend or accelerate their growth. In some cases the strong opposition to such ideas could potentially compromise their growth.
- Distribution is one of the most critical steps exporters take. The characteristics of the product and the nature of the customer base, as well as the stage of export development have a big bearing on the appropriate distribution strategy for companies. From this and earlier studies there appear to be at least five general distribution strategies: deal directly with customers (suits one-off product exporters); owned distribution (in order to achieve tight control over the selling process and receive good market feed-back); use foreign owners distribution channel; invest in retail outlets; use an independent distribution agent (either very strong relationship with powerful distributor or small scale agents).
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