3. The Studies - A Review
3.1 The Coverage
In 1991 Treasury commissioned Infometrics to undertake a study of at least 30 significant manufacturing export companies across six broad sectors:
- Clothing and footwear
- Iron and steel products
- Other metal products
- Fabricated metal products
- Electrical/electronic products
- Vehicle components
Some sectors, such as forest products and food processing, have been explicitly excluded on the grounds they are more closely linked to forestry and agricultural exports than manufacturing.
Every two years since 1991 Infometrics has revisited many of the original 34 firms. Nineteen of the firms interviewed this time were first interviewed in either 1991 or 1993. The sector mix has become less precise as some firms have closed down or withdrawn from exporting and new firms added.
The two main criteria for incorporating new firms have been:
- Their contribution to export growth
- Emerging export sectors or firms - five boat-building and related firms were brought into the study in 1997
This series of studies is focused on successful manufacturing export businesses - a very specific sample of New Zealand businesses.
3.2 The Changing Objectives
The first study, conducted in 1991, involved in-depth interviews with 34 companies across eight sectors. The sectors and firms were selected on the basis of the contribution they had made to raising manufactured export receipts over the preceding two years. The study focused on establishing basic details for each company - strategy, export performance, staff and labour issues, marketing, financial and production information and expected export earnings.
In the 1993 study the same basic data was gathered. But given the strong growth in manufactured exports (over 10%pa in real terms) and emerging capacity constraints, particularly with respect to labour, the emphasis was on labour issues. The focus was on firms' commitment to training and raising the quality and supply of appropriate people.
In light of the continued strong growth in manufacturing exports between 1993 and 1995, the emphasis of the 1995 study was on management and investment issues. Thirty firms were interviewed, 26 of which had been visited at least once before, ensuring continuity of information and the establishment of a useful longitudinal information base on manufacturing export companies.
In 1996, we undertook a short postal questionnaire. All firms from the 1995 study were questioned to gauge changes in performance and strategy in light of the steady appreciation in the exchange rate.
The 1997 study built on the information base assembled in the preceding three studies. The in-depth part of this study related to the investment process - how investment decisions were made and monitored and how they linked in with company strategy and the broader determinants of export growth.
There was a conscious move to identify and interview second-wave manufacturing export firms. To this end we interviewed ten companies for the first time in 1997 - five from the boat building industry and several new businesses in the electronics sector. In all, the 1997 study covered 40 firms, 20 of which were being contacted for the fourth time. Ten firms were asked simply to complete a postal questionnaire to maintain continuity of the basic information. The remaining 30 were interviewed face-to-face.
The 1999 study covered 31 firms half of whom were being interviewed for the fourth or fifth time. Besides extending the longitudinal base of the preceding studies the 1999 research programme focused on two primary objectives:
- Innovation and how it contributes to successful export performance
- Ownership/ and or management changes - why they occurred, and their consequences for the firm and its export strategy
Six new firms were added to the 1999 study mainly on the basis that they had started exporting relatively recently. The total value of exports from the six new companies in 1990 was $7m and by 2000 export earnings from these same firms had reached $87m. The details of the current study were outlined in Chapter 1.
3.3 The Main Firm-Level Changes
3.3.1 Exports
The combined value of exports in 1999 from the 31 companies interviewed was equivalent to around a quarter of total manufactured exports (Harmonised System (HS) categories 30-96 excluding wood and wood products, casein, wool, hides and skins, gold and aluminium). More significantly the growth in these companies' exports between 1996 and 1999 accounted for just under half (44%) of the increase in the value of total manufactured goods over the same period. In this sense the companies can be regarded as being a significant cross section of the firms that are at the leading edge of export growth within the manufacturing sector.
In the current study the exports from the firms interviewed represented around 27% of total exports from HS categories set out in Table 3.1. Between 1998 and 2001 (calendar years) exports from a defined group of manufacturing export sectors (the same as for the 1999 study discussed above, see Table 3.1) have increased by just over $1300m, or around 35%. Over the same period exports from the 30 firms in this study have increased by $424m accounting for around a third of the increase in total exports across all the sectors covered in Table 3.1 (compared to 44% in the 1999 study). If the sectors are restricted to those represented by firms interviewed then the growth in exports from the firms accounts for 46% of the increase in total exports from the relevant sectors.
Table 3.1: Contribution to Change in Manufactured Exports5
| | Change $ Million | Share of Total6 | Contributions to Change |
|---|
| HS Two Digit Sector | No. | 1991
-2001 | 1998
-2001 | Average
1996-2001 | 1991
-2001 | 1998
-2001 |
|---|
| Machinery | 84 | 709.9 | 220.1 | 22.3% | 25.1% | 16.8% |
| Electrical | 85 | 596.5 | 225.6 | 17.2% | 21.1% | 17.2% |
| Plastics | 39 | 260.7 | 120.9 | 7.9% | 9.2% | 9.2% |
| Vehicles | 87 | 159.8 | 122.3 | 3.4% | 5.6% | 9.3% |
| Ships and boats | 89 | 152.8 | 118.0 | 2.8% | 5.4% | 9.0% |
| Optical | 90 | 150.2 | 99.2 | 4.1% | 5.3% | 7.6% |
| Precious metals | 71 | 144.1 | 79.5 | 5.8% | 5.1% | 6.1% |
| Pharmaceuticals | 30 | 101.9 | 73.4 | 2.7% | 3.6% | 5.6% |
| Furniture | 94 | 86.0 | 56.5 | 2.8% | 3.0% | 4.3% |
| Apparel | 61-63 | 84.5 | 24.7 | 4.3% | 3.0% | 1.9% |
| Iron / steel products | 72-73 | 75.9 | 40.5 | 11.4% | 2.7% | 3.1% |
| Tools / implements | 82 | 50.8 | 5.4 | 1.7% | 1.8% | 0.4% |
| Rubber | 40 | 36.9 | 0.5 | 2.2% | 1.3% | 0.0% |
| Books | 49 | 33.2 | 18.7 | 1.1% | 1.2% | 1.4% |
| Carpets | 57 | 31.8 | 3.6 | 2.3% | 1.1% | 0.3% |
| Glass | 70 | 30.9 | 33.1 | 0.8% | 1.1% | 2.5% |
| Metal misc | 83 | 23.0 | 27.0 | 1.1% | 0.8% | 2.1% |
| Footwear | 64 | 20.1 | 8.0 | 1.1% | 0.7% | 0.6% |
| Copper and products | 74 | 19.0 | -3.1 | 2.3% | 0.7% | -0.2% |
| Aircraft | 88 | 18.1 | 15.3 | 0.4% | 0.6% | 1.2% |
| Toys / games / sports | 95 | 14.9 | 6.7 | 0.7% | 0.5% | 0.5% |
| Fabrics / textiles | 58-60 | 10.0 | 3.5 | 0.8% | 0.4% | 0.3% |
| Stone | 68 | 7.3 | 4.9 | 0.3% | 0.3% | 0.4% |
| Headgear | 65 | 6.3 | 4.8 | 0.2% | 0.2% | 0.4% |
| Ceramics | 69 | 2.8 | 1.6 | 0.1% | 0.1% | 0.1% |
| Misc manufactures | 96 | 2.1 | 2.0 | 0.2% | 0.1% | 0.2% |
| Total | 2829 | 1313 | | | |
| Total from firms interviewed | 776 | 424 | | | |
| As a % of total | 27% | 32% | | | |
| Total selected sectors | 2063 | 924 | | | |
| Total from firms interviewed | 776 | 424 | | | |
| As a % of selected | 38% | 46% | | | |
Source: Statistics New Zealand HS categories. Highlighted sectors are covered by firms in this study.
3.3.2 Company Ownership and Management Changes
It would be surprising not to have observed significant management and ownership changes in a group of fast growing firms over a period of ten years. In the current study only around five companies have experienced generally stable management and ownership over the past decade, and the majority of these are privately owned and operated.
Dynamic and fast growing businesses are more likely to experience management and ownership changes over time than are slow growing and conservative firms. This is an appealing generalisation, but not borne out by the evidence coming from the limited sample of companies tracked in these studies.
Of the nine or so companies in this study that tend to fit the "fast growing/dynamic" label, six have been driven by managers who have headed the company for the past ten years and who retain a significant shareholding in the business. In some cases ownership has been diluted as additional capital has been brought into the firm, but these fast-growing companies, generally, have had stable management and ownership.
At the other extreme, in the case of six companies that have experienced little if any growth in export sales since 1995, either management or ownership changes have occurred and in two cases both ownership and management have changed within the last three years.
3.3.3 Enhancing Distribution
There has been a steady increase in the degree of ownership or control of distribution over the past decade or more. Whereas in 1991 only a handful of firms owned foreign distribution or retail businesses, today few companies would not have some investment in their own distribution system abroad.
Not only are firms investing more time and resources in distribution, they are also developing a wider range of distribution solutions, looking to better utilise their distribution capacity and making full use of advanced IT systems.
In Chapter 8 we look at the question of distribution in more detail.
3.3.4 Strategy
The most note-worthy changes in strategy have been:
- Contracting out manufacturing - led by, but not restricted to, apparel companies
- An increasing focus on the service components of business - distribution and design being the two obvious areas
- A growing emphasis on building brands
- A greater commitment to R&D - several companies have become specialist R&D centres for foreign parents
- Moving beyond Australia, with the United States gaining the most attention. This is backed up by aggregate data (see section 2.1.2)
3.3.5 Business Practice
There has been a marked lift in the quality and sophistication of key areas of business practice in the companies covered in these studies over the past decade. The areas where most change appears to have occurred include:
- The degree of discipline devoted to developing and pursuing strategy
- Recognition of and commitment to technology and R&D
- Management and development of staff with some companies now having a strong commitment to building and sustaining a clear people-oriented culture
- Familiarity and use of information technology, ranging from basic use of e-mail and the internet, through to comprehensive systems involving all aspects of the business (eg web based point of sale data integrated with stock and ordering systems)
- Financial management and the ability to raise capital - improved access to capital reflects, at least partly, better managed businesses
- Increasingly sophisticated distribution arrangements
- The ability to attract high quality international business partners and to negotiate valuable licence and partnering agreements with much larger foreign businesses
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