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• Section 7: Discussion

• Regulatory Policy

• Compliance Costs

• BCC Perceptions Survey

• BCC Survey Summary
• Perceptions of NZ Firms
• Media Statements

• Results from This Study
  • Findings and the Project's Objectives
  • Constraints on Exporting
  • Constraints on Productivity and Growth
  • Costs versus Benefits
• Indirect Effects

In this section the data collected in this project are considered in the context of the increasing interest in barriers to growth that is occurring world-wide. A review of the international literature (which is included Appendix D) on compliance provided the context for this section.

Results from This Study

The 2001 OECD study concluded that the indirect costs of compliance affect the ability of firms to innovate, operate efficiently and adjust to changes over time. Specifically, these costs affect the ability of firms to innovate (to develop and exploit new products, services and operating procedures); to maximise operating efficiency (to minimise the coats of producing goods and services of a particular quality, and the maximum flexibility); and to make structural adjustments over time (to respond effectively to major changes in the competitive environment).²⁰ In the OECD survey it was clear that SMEs believed that compliance with employment regulations was particularly problematic. They felt that regulations increased non-wage costs; regulations created difficulties in making staff reductions; and regulations created difficulties in hiring new staff. This survey provided a basis for the current study. In particular, it provided its primary objective: To provide information on the impact of compliance on the firm's performance (i.e. the indirect costs of compliance) and its ability to innovate (relative to other factors).

Findings and the Project's Objectives

As already noted, the focus of the present project was to assist the Ministry of Economic Development in understanding more about the way in which New Zealand firms (particularly those that are small and medium in size) are currently facing their compliance commitments. The intention was to undertake (and report upon) a piece of research while at the same time developing and testing a method for measuring the perceptions of New Zealand business people about compliance. In keeping with this dual focus, two main objectives were identified:

Objective 1: To Gain an Understanding of 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 ²¹.

Objective 2: To 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.

The objectives were modified slightly after Treasury became involved with the project. Their interest in firms that are exporting (or which have the potential to do so) meant that the researchers identified exporters (and potential exporters) as a specific sub-sample, to be addressed in the data gathering that was undertaken for Objective 1.

Objectives 1.1 and 1.2 were primarily addressed through the telephone survey (some material from the focus groups was also of value here). As already noted, objective 1.3 was not addressed as preliminary exploration with different business people suggested to the researchers that respondents found it difficult to discuss the strategies that they put in place to "manage" their compliance commitments. It appeared that this was because of the different way in which they conceptualised "compliance" and "strategy". It was clear from the respondents with whom the researchers undertook preliminary testing that they saw strategy as voluntary and compliance as mandatory. As a consequence they found it difficult to describe the relationship between their compliance commitments and the actions (strategies) they chose to take. Subsequent discussions with the MED meant that this objective was omitted from the final study.

A discussion of the findings in the context of these objectives follows.

Constraints on Exporting

Respondents to the survey were first asked to respond to an open-ended question on the factor that was most significant in terms of constraining their export growth. While the purpose of this question was to stimulate the respondents' thinking before exposing them to a list of statements, (and because of this no results have been presented in this report), it was clear that relatively few respondents identified issues that could be described as compliance issues. Instead, they raised issues that are more properly described as being concerned with firm strategy.

Figure 30: Most significant 3 factors by sample group

In response to a set of factors that was read to the respondents, "the conditions and regulations imposed by overseas governments" was the most frequently identified as a constraint. Next was "the cost and time needed to represent the firm overseas", followed by "the effort and distraction of complying with regulations in New Zealand". Within these groups it was possible to look in more detail at the various groups that were more or less likely to identify particular factors. This showed that on the whole the groups responded in ways that related to their particular experiences. For example, those who are not currently exporting were less likely to identify the regulations of overseas governments as an issue, while those who are exporting were more likely to do so.

Figure 30 summarises these different responses, with a + symbol indicating those groups that were over-represented in identifying the different factors, a - indicating that the group was under-represented and an = showing that the groups was not significantly under or over-represented.

Constraints on Productivity and Growth

Next we asked respondents to comment on a set of common business events (e.g. the employment of a new person) and asked them whether they could readily deal with it and largely put it out of mind or whether it continues to divert and distract them. Respondents most commonly identified "releasing a person who no longer fits the business" as the most significant factor in terms of diverting and distracting them. This was followed by ACC, health and safety, the "provision of statistics to government agencies" and the "arrangements needed for hiring a new person". When the rankings were adjusted to exclude those who answered not applicable, the list (ranked by most diverting) was releasing an employee, labelling controls and standards, getting consent to use land, water and air and ACC. Again, looking at the various groups (Figure 31) revealed significant variation in the way they reacted to these events.

Figure 31: Most "Diverting" 3 Factors by Sample Groups

Costs versus Benefits

In the third section of the survey the respondents' perceptions of the factors that were used in the previous section were also the basis for the questions on the costs versus the benefits of compliance.

Again looking at the responses by the groups revealed differences in the way in which they react to the three factors where costs were mostly likely to be seen as outweighing benefits (Figure 32).

Figure 32: Factors Where Costs Outweigh the Benefits

Indirect Effects

In terms of the indirect effects of compliance, it was clear that the key issue was the extent to which compliance "distracts and diverts senior staff time". This was followed by three factors that elicited similar levels of response:

Respondents were then asked whether any particular government act or regulation creates one or more of nine effects for the firm. As noted above, the researchers selected these factors (listed in Figure 27) after reviewing the international literature and the previous studies undertaken in New Zealand.

Of those who answered yes, Factor A (especially distracts senior management time) was identified most often (by 58% of all respondents). Some 36 % of respondents identified factors G (obliges you to engage outside consultants), H (leaves a sense of unfairness with the firm) and E (dampens manager's enthusiasm for innovating). When asked to identify the particular piece of legislation that was of concern to them, more than 26 % identified employment legislation as the piece of legislation that generated the effect.

²⁰OECD. (2001). Businesses' Views on Red Tape: Administrative and Regulatory Burdens on Small and Medium-Sized Enterprises. Paris: OECD. p32.

²¹After some discussion between the researchers and MED about the difficulty of collecting valid data on this topic (see Section 7: for further discussion of this point), it was decided not to attempt to address this topic in the project.