Section 1: Introduction
During recent decades there has been an increasing focus on the importance of firm growth and innovation in many countries. Owners and managers of enterprises (particularly those that are categorised as small or medium in size) are encouraged to pursue innovative products, processes and solutions in order to maximise their potential, and improve their performance. In New Zealand this is evidenced by a number of government initiatives, including the Innovation Framework and the various reports from the Science and Innovation Advisory Committee. Policy statements such as these have provided the underpinning for programmes that encourage firms to become more effective, and business people to become more enterprising.
In parallel with the focus on "capability building" and developing a "culture of enterprise" (as exemplified by programmes such as BIZ and the Enterprise Culture and Skills Activities Fund respectively), recent governments have emphasised the need to decrease the barriers that prevent innovation and enterprising behaviour from occurring. One area of particular focus is the cost of complying with the various regulations and the pieces of legislation that exist to guide the operation of business. As part of the government's commitment to the goal of decreasing the cost of compliance, a Ministerial Panel on Business Compliance Costs was established. This panel consulted widely with business, seeking the views of individual business people and industry groups.5 In its final report6 162 recommendations were made. In the government's response to the report7 it was noted more than 80% of the recommendations had already been implemented or were agreed with totally, in part or in principle.
The key message from this response is that while the government is aware of the need for laws and regulations that guide the actions of firms, it has recognised that there is a burden for them. This concern with the implications for individual firms that is evident in New Zealand is in contrast to much of the international discourse on the impact of compliance costs, which has focused at a macro or industry level, rather than attempting to understand the issues at a firm level.
Another characteristic of these international studies is that certain facets of compliance (such as specific legislative areas) have drawn more attention than others have. For example, a large number of studies address the environment in general terms or assess specific approaches to environmental management such as resource management legislation. Another area that has been dealt with extensively is taxation. To an extent, the same situation exists in New Zealand, where specific pieces of legislation have attracted considerably more attention than others. As well as taxation, significant work has been carried out on the costs and benefits for business of compliance with the Health and Safety in Employment Act.8
In addition to the reports from the compliance cost panel (as described in the next section), this broader work has provided the context for the study presented here.
Project Objectives
The Ministerial Panel on Business Compliance Costs was established in December 2000 to provide advice to the government on ways to reduce unnecessary or over-burdensome compliance costs to business arising from central and local government regulation.
This process identified a number of concerns that are held by New Zealand firms, and the various reports that were produced as a result of the Panel's work provided the platform for further work by the Regulatory and Competition Policy Branch of the Ministry of Economic Development (MED). One of the priorities of this work programme was to undertake a pilot study into the way in which the managers of New Zealand firms perceive regulations and legislation as having an impact on their performance and on their ability to be innovative.
The purpose of the project was to provide MED with a snapshot of the way in which New Zealand firms are dealing with compliance, while also providing it with a way of measuring changes over time. In keeping with this dual focus, two main objectives were planned:
Objective 1: Undertake Research into the Perceptions of New Zealand Managers on the Consequences of Compliance
In terms of this objective the researchers were asked to provide MED with a report which:
1.1 Identifies and describes the perceptions held by the managers of New Zealand firms in respect of their compliance commitments (with a particular focus on the way this commitment affects the firm's performance and its ability to innovate).
1.2 Provides information on the impact of the compliance commitment (and its associated costs) on the firm's performance and its ability to innovate (relative to other factors).
1.3 Provides information on the types of strategies that firms put in place to manage their compliance commitment and ameliorate any associated costs.9
Objective 2: Develop an Appropriate Methodology for Assessing Compliance Perceptions
In terms of this objective the researchers were asked to develop a methodology that will make it possible for MED to measure the three items listed above, and which has been tested within the context of this project. This methodology will enable MED to:
2.1 Identify changes over time in the perceptions held by the managers of New Zealand firms in respect of their compliance commitment.
2.2 Understand how the compliance commitment affects the firm's performance and its ability to innovate (relative to other factors).
2.3 Build up a picture of the strategies that firms put in place to manage their compliance commitment and ameliorate any associated costs.
2.4 Assess whether the actions taken by government agencies are having the desired effect.
Project Method
Given the intention to repeat the study, the researchers were asked to develop a methodology that was cost effective and which would focus on MED's primary interest (in the perceptions of business people about their compliance commitments). The approach included a review of the literature, a set of focus groups (these were not part of the initial proposal but were added in response to the particular information needs of the Treasury) and a telephone survey of 490 firms (more detailed information on the method is contained in Appendix A). It is envisaged that the telephone survey component would be the component of the study that would be repeated.
Literature Review
To provide a context for the study (and as one of the project's specified outputs), the researchers undertook a comprehensive study of the international literature on business compliance. While much of this literature addresses compliance solely in relation to taxation (and focuses on providing detailed calculations of the actual costs involved in complying with this particular legislation), there have been several important contributions that have been useful in this study:
- The first area is in defining the different types of "compliance cost". This has been comprehensively covered, and the existing literature provides researchers with a terminology for dealing with a complex area, and addresses fundamental issues such as how to define compliance, how to research it and how to identify "best practice" in terms of developing legislation with low compliance costs.
- There are a number of studies (such as the OECD study) that estimate direct compliance costs.
- A number of studies canvassed the general impressions of business people about compliance. The reports from the New Zealand Ministerial panel on Business Compliance Costs are an example of this type of work, which is important because it records the general concerns of business people and their particular concerns with specific pieces of legislation.
- The last type of studies are those that focus on the indirect "cost" of compliance, and particularly the way in which compliance has the potential to divert and distract the attention of senior management, thus making them less likely to consider growth strategies such as exporting.
A summary of the completed literature review is included in Appendix D of this report.
Focus Group Interviews
Four focus groups were conducted to gather views from business people in small and medium enterprises (SMEs) on the factors that they perceive as constraining their ability to export. There was also an attempt to gain an understanding of the relative burden of New Zealand based considerations and compliance issues. This contributed to addressing objectives 1 and 2, and was used to help construct the questions on firm dynamics that are written up in Section 6 of this report. This component of the study was reported upon separately.10
Telephone Survey
In consultation with the MED and a number of other government agencies, a survey was designed and administered to 490 respondents. The sampling frame ensured that the focus was on SMEs (for the purpose of this survey, the focus was on small and micro enterprises). A number of other dimensions (firm stage, export involvement, industry sector and the firm's growth intentions) were also used to enable the researchers to gain a better understanding of the relationship between these factors and the respondents' views of compliance in New Zealand.
The purpose of the survey was to gather perceptions from the managers of New Zealand firms in relation to:
- The factors that restrict export growth (Section A of the questionnaire).
- The factors that have the potential to "divert and distract" the firm's managers away from focusing on improving productivity and/or growth (Section B of the questionnaire).
- The costs of compliance (for the firm as well as for the industry) compared to the benefits (Section C of the questionnaire).
- The time and effort that respondents put into compliance (Section D of the questionnaire).
- The extent the firms' compliance commitments have impacted on a range of internal firm dynamics (Section D of the questionnaire).
Project Team
The project team consisted of researchers from the New Zealand Centre for SME Research at Massey University and the National Research Bureau Ltd. The team consulted with staff from the Ministry of Economic Development, Treasury, the Department of Labour and the Inland Revenue Department.
Report Structure
This report presents the results of the project in 8 sections. Section 2 presents the demographics of those surveyed; Section 3 summarises the results from Section A of the questionnaire; Section 4 summarises the results from Section B of the questionnaire; Section 5 summarises the results from Section C of the questionnaire; and Section 6 summarises the results from Section D of the questionnaire. The results are discussed in Section 7, and Section 8 contains the report's conclusions. As already noted, the results of the focus groups have been reported upon separately.
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