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• What Our Competitors Are Doing?
• Australia
• Finland
• Ireland
• Canada
• Singapore
• United States
• How Does New Zealand Compare?

Many countries around the globe are racing to prepare themselves for electronic commerce and the emerging knowledge economy. Similar issues confront all: how best to reap the political, social, and economic benefits and how to avoid their risks. Nations respond to this new environment in different ways, as a consequence of their different cultures, national priorities, economic status, size, geography and population. No one model is perfectly transferable to New Zealand yet themes and patterns emerge.

All developed nations are our competitors

One of the defining characteristics of the knowledge economy is that it is truly global. Markets are no longer defined by, or limited to, national boundaries. In the past we have tended to construe our competition in straightforward terms: Ireland competes with us in terms of butter sales or Australia in lamb. The global nature of the knowledge economy changes the dynamics of competition. In the education market, for instance, New Zealand's competitors are found around the world. In consequence, here the term "competitor" is used broadly, to include all developed nations with knowledge economy strategies.

What Our Competitors Are Doing?

Governments play a key role in creating vision and strategy

As we examined the policies of countries that are embracing the knowledge economy, we paid special attention to the role governments play in stimulating knowledge-intensive economies. They have all invested in implementing information societies and on-line economies. Most have created, and invested in implementing, vision statements that describe a future based upon changing economic and social development and the use of new technologies to achieve those goals. But there are also differences. The United States, Canada, and Australia have articulated broad principles. The European Union has concentrated on pilot projects to support industry and to promote social cohesion. Many countries in East Asia have set target dates and investment projections. The UK, like New Zealand, has focused on infrastructural competition; the US has emphasised more competition in services; while Singapore has not emphasised competition at all. The US has used the new economic reality to stimulate wealth creation while the EU has emphasised regional development. Japan's approach is to try to reverse its economic downturn by using information technologies.

In Table 1, at the end of this section, we summarise the various strategic approaches that have been adopted by our competitors around the world. First we explore some examples in more depth.

Australia

In 1998 Australia was one of the world's fastest-growing economies, with GDP growth of 4.9 per cent. Part of this success has to do with government and private initiatives that positioned Australia at the leading edge of technology, content development and innovative use of the Internet. These efforts are being co-ordinated by the National Office for the Information Economy to lift the awareness of the benefits of the on-line economy in the general community and the business sector.

Australia is well positioned to maximise the on-line economy

The number of Australian firms on-line recently doubled in less than 12 months. By January 1999, over 48,000 businesses had their own domain names hosted at Internet Service Providers (ISPs), with an additional 50,000 Web sites hosted in-house or at an on-line shopping directory or mall. There are now over 640 ISPs operating in Australia (Nua Internet Surveys, 1999).

Revenue from Australia's information industries in 1995-96 was A$47 billion. Australia represents only 1.2 per cent of global GDP but generates about 2.3 per cent of global activity in information industries. Seven thousand companies were created in the computing and telecommunications sectors during the last five years. Australia's per capita consumption of recent innovations is rated second only to the US, as is the sophistication of Australia's information industries. Information technology export receipts totalled A$4 billion per annum (National Office for the Information Economy, 1999).

Australia wants our IT workers

In employment, growth in information technology jobs rose by 46 per cent in the last ten years in Australia (compared with 16 per cent for all occupations). In late 1998 the unemployment rate for people with IT skills was only 2.7 per cent. Demand for IT workers is growing at 12 per cent per annum. Indeed, Australians are grappling with a shortage of IT workers. There are an estimated 30,000 unfilled positions in Australia and many warn that it will get worse. But the Australian IT industry has begun a national awareness programme and is developing "centres of excellence" to deal with the growing high-tech skills shortage.

Federal and state leadership

Nowhere in Australia are these developments more visible than in the State of Victoria (Braim, 1998; Thomas, 1998; Riley, 1999). In 1996 the Victorian Government adopted an information technology and multimedia strategy, Victoria 21, to position the state to attract inward investment and create jobs in the sector. Initially seed-funded with A$200 million to support projects and policies, the goals of Multimedia Victoria are to make structural adjustments to the economy and to develop the information industries. Multimedia Victoria sought to show government as a model user, promote R&D and exports, generate jobs, and achieve "brand recognition" of Victoria, Australia as a centre of excellence in the global digital economy. Lately it has worked with businesses to help them adopt electronic commerce. The intention is to have all government services available on-line by the end of 2001. A massive Internet training programme called Skills.net has brought more than 10,000 Victorians on-line in less than 18 months.

The results since 1996 have been the creation of 10,000 new jobs and some A$2 billion in inward investment (Multimedia Victoria, 1998). Victoria has attracted major industry players, established on-line delivery of government services, and developed a broad policy agenda, for example in data protection and electronic commerce.

While the Victorian example stands out, the Australian government as a whole has become pro-active in its attempt to accelerate these developments. It offers grants aimed at accelerating the adoption of e-commerce by small and medium enterprises, offers a tax incentive on private R&D investment, has capitalised the Innovation Investment Fund to expand the availability of venture capital (AusIndustry, 1999), and is committed to delivering all appropriate Commonwealth services on the Internet by 2001.

Finland

Finland is very like NZ and has transformed into a knowledge-driven economy

Finland is similar to New Zealand in many ways. A country of lakes and forest, with a low population density like New Zealand, Finland is distant from the rest of Europe. Once forestry played the same role in Finland's development that pastoral farming has played in ours. Now, despite experiencing output growth, forestry is less than 3 per cent of GDP (Ministry of Finance, 1998).

In the past fifty years Finland's agricultural population has declined from 70 per cent to 6 per cent. It has successfully changed gear and cut its reliance on producing primary commodities. High-tech industry as a percentage of the Finnish GNP has jumped fivefold in ten years. The result: Finland's GNP per capita has skyrocketed.

The Finns recognised that they had to begin playing by new rules. Structural dislocations and mass unemployment have been brought under control. Many of its agricultural firms have converted to the new knowledge industries. Nokia has come to symbolise Finland's high technology shift. Once a huge pulp and paper company, Nokia changed its business focus only in the late 1980s, but has become one of the world's leading electronics companies. The company now accounts for more than 15 per cent of the country's exports (Buwalda, 1998).

Government led with a clear strategy

How did the Finns do it? In the early 1990s an OECD study revealed that Finland had astonishingly high levels of information technology penetration and expertise yet lacked a clear strategy in these areas. In 1994, the Government, prompted partly by Finland having lost markets in the former Soviet Union, unveiled its national strategy, Finland's Way to the Information Society (Ministry of Finance, 1996), and backed it up by deregulating the telecommunications sector and launching programmes to stimulate the economy.

Private sector embraced new technologies and R&D

Finland's economy has diversified to embrace new technologies. To processing technology, manufacturing technology, energy, chemical technology, construction technology, and market knowledge, Finns are now adding ICT, environmental technology and biotechnology. These related technologies are becoming increasingly competitive in their own right and are largely immune to fluctuations in commodity prices for forest products (Buwalda, 1998).

Finland's innovative firms do not wait for handouts from their Government. While the world's top 300 companies spent an average of 4.6 per cent of sales on R&D, Finnish companies spent more than double the OECD average, at 10.4 per cent (The Economist, 1999a). One Finnish company alone, Nokia, spends more on R&D than New Zealand (Buwalda, 1998).

A "learning economy"

All of this is coupled with a "learning economy" approach. Finland has a generally high standard of education. Students are exposed to ICT at an early age and computer literacy is a part of the national curriculum. Every school and college has fast Web access via ISDN. Reacting to the demand for trained professionals, universities and technical schools have dramatically expanded their computer and IT-related programs over the past few years. Finland produces five times as many science and technology graduates as law graduates.

Finns have embraced information technology to a remarkable degree (Tapper, 1999). Finland now boasts the highest per capita Internet and mobile phone use in the world.

Ireland

In one decade the Celtic Tiger has transformed itself from an ailing, virtually bankrupt economy into one of the fastest growing, dynamic economies in the developed world. Like New Zealand, Ireland has been a model of fiscal restraint, tax reform, income moderation, and labour market flexibility (Information Society Commission, 1999). But between 1990-1997 Ireland's economy grew at an annual average rate of just under 7 per cent, compared with annual growth of less than 2 per cent in the EU overall.

Ireland maximised advantages of location by…

Ireland accomplished a great deal by:

• investing heavily in education, especially technical education
• correcting major imbalances in the government finances and putting fiscal and monetary policies in order
• controlling excessive costs and keeping wage increases moderate
• opening up the economy and privatising many state-owned enterprises
• positioning Ireland as the "hub" between Europe and the global marketplace (Ireland trades 153 per cent of its GNP)
• enacting strong legislation designed to open up previously sheltered activities to competition in the interests of consumers
• creating incentives and stimulating the economy through lower taxation.

Investing heavily in education and having a clear strategy

It has to be acknowledged that the Structural Funds provided by the European Union to disadvantaged regions have played an important (but by no means exclusive) role in accelerating Irish growth. As a result of the jump-start, Ireland now has a thriving information technology industry, with electronics and software exports now amounting to 40 per cent of total exports. Ireland's growth can be attributed to its openness to economic globalisation, the presence of foreign (predominantly US) companies due to tax advantages they enjoy, and the Irish government's efforts to foster the development of national resources and organisations (O'Riain, 1997)

Now citizens stay and emigrants return

By converting itself to a knowledge-intensive economy, Ireland finds its young minds are staying rather than emigrating. Former emigrants have returned and women's participation in the labour force has begun to rise rapidly. The large investment in upgrading education and training is now paying dividends.

Canada

Somewhat overshadowed by the US, Canada is nonetheless an interesting model for New Zealand to study. All surveys point to its having a sound infrastructure, strong content, as well as serious government investment and support. With just over 30 million people, Canada has about 7 million established Internet users. Canada presents a solid consumer base for an electronic economy (Burke, 1999).

In September 1995 the Information Highway Advisory Council (IHAC), presented its strategy detailing recommendations for an Information Super Highway strategy for Canada. More recently, its paper Preparing Canada for a Digital World has accelerated this strategy. Five principles have shaped IHAC's approach:

• an interconnected and interoperable network of networks
• collaborative public and private sector development
• privacy protection and network security
• competition in facilities, products and services
• lifelong learning (Industry Canada: Information Highway Advisory Council, 1997).

The Government networked schools and communities to information highway

Canada's strategy recognises the central importance of education and the need for its young people to form the core of the technologically literate, versatile work force in the knowledge economy of the future. In 1999, the government announced a budgetary investment of US$1.2 billion in IT projects, incorporating a US$134 million investment in the education system and in community access programmes. The initial objective of "SchoolNet" was to provide 16,000 schools and 3,400 public libraries with Internet access by the end of March 1999. Canada ranks high or very high among our major trading partners in:

• spending on information and communications technology
• the competitiveness of its information and communications sector
• the degree of competition and liberalisation in its communications policy and regulatory environment
• the modernisation of its communications system
• the pricing of communications services
• the overall penetration of new technologies
• high educational attainments (Melnyk, 1997).

But low investment in R&D causing problems

Yet Canada's strategists have realised that closer examination of these key indicators shows some of its competitors are moving ahead of Canada in performance. Canada's overall expenditures on R&D - an indicator of the innovation so vital to a knowledge economy - represents a smaller portion of gross domestic product (GDP) than in many industrialised countries. Canada ranks only in the middle of the pack with respect to per capita capital investment in information and communications technology. It is estimated that about 300,000 Canadians have moved to the Silicon Valley area and another 600,000 are located in and around Los Angeles (Avery, 1999).

Singapore

Small with no natural resources

Singapore, a tiny island (600 km²) with no natural resources, has prospered by being useful to others, by adding value to goods, and exploited its location by providing hub services such as banking and finance, transport and logistics. If IT does nothing more than magnify the abilities and talents of people, then Singapore has amply demonstrated this principle.

Government strategy to become an "intelligent island"

Singapore was one of the first countries to take the route toward a knowledge-driven economy. In 1981 Singapore launched a programme to computerise its civil service. In 1986, the National IT Plan was formulated. In 1992, IT2000 was launched, which spelled out the vision of turning Singapore into an "Intelligent Island" (Hardy, 1998).

Singapore's decision to convert itself into a knowledge economy has borne fruit. Today, nearly half its homes have a personal computer and one person in five uses the Internet. In 1997 its IT industry was worth US$7.3 billion (sales of hardware, software and IT services to end users, excluding manufacturing output and sales to distributors). Out of every 100 Singapore homes, 98 now have access to Singapore ONE, the world's only nation-wide broadband network. The plan is to put all key government services in Singapore on-line by 2001 and 50 per cent of businesses into electronic commerce by 2003 (Tan, 1999).

IT culture promoted with 98% of homes "connected"

Programmes are available to bring people up to speed with the technology. There are formal educational initiatives in schools, as well as mass training programs for the working population. ICT culture promotion programs are designed to put IT facilities into public libraries and community centres. The aim is to reach out to people of all ages, from all sectors of the population, to ensure that no one is left out. The latest prediction by International Data Corporation is that in the next three years Singapore will surpass Finland and become the world's second leading information economy (Chellum, 1999).

United States

Turned around decline of industrial economy

In the early 1980s, throughout industrial America, factories were closing. Massive layoffs put hundreds of thousands of people from the smokestack industries onto the dole. By the mid 1990s these dislocations had been overcome, their losses replaced. The US unemployment rate is now below 5 per cent, and in the high-tech sectors much lower than that. Information and services make up half of the new jobs.

Many newly created jobs are in higher paying industries

All the right indices are up: GDP, capital spending, incomes, the stock market, employment, exports, and consumer and business confidence. Unemployment, inflation, and interest rates are down. In a literal application of Schumpeter's notion of creative destruction, the United States lost some 44 million jobs in the process of adjusting its economy but simultaneously created 73 million private-sector jobs, a net gain of over 29 million jobs since 1980. A stunning 55 per cent of the total work force today is in a new job, some two-thirds of them in industries that pay more than the average wage (Zuckerman, 1999).

Companies invest heavily in IT and R&D

The United States is poised to dominate the knowledge industries of the future. In fact, the twenty-first century may be another American century (Joffe, 1997; Nye and Owens, 1996; Zuckerman, 1999). How does America do it?

• US companies were the first to realise the importance of computers and information technologies and have invested massively in them, accounting for over 40 per cent of the world's investment in computing. There are five times as many computers per worker in the United States as there are in Europe and Japan. US companies invest heavily in new technologies and the necessary training. US computing capacity is growing by more than 35 per cent per year.
• US manufacturers have made the transition from the smokestack era to the information age. They have replaced mass-produced consumer goods with sophisticated products that contain a huge proportion of intellectual capital. America's exports consist primarily of value-added goods that incorporate technology and intellectual capacity and do not have to compete on price alone.
• Generally Americans in aggregate spend vastly more on research and development than their competitors and the gap between the United States and the rest of the world is growing. America dominates the Internet: 90 per cent of Web sites are American.

Culture of enterprise and innovation

The cultural element is also not to be underestimated. American culture cherishes individualism, entrepreneurism, pragmatism, and novelty. It nourishes its mavericks, prizes its young, welcomes newcomers, and dramatically opens to energy and talent rising from the bottom up. Bankruptcy is not stigmatised.

Although the Internet's antecedent, the ARPANET, was the creation of government-funded research, the Internet has now been turned over to the commercial sector by the US government. The parameters for the US policy approach were set in July 1997 when President Clinton released A Framework for Global Electronic Commerce (United States Interagency Working Group on Electronic Commerce, 1997).

50-60 million people on-line

The United States is the world's most advanced information society. It is the first country in which the Internet is reaching mass proportions. One-fifth of households (around 20 million) are on-line. Another 30 million Americans can access the Internet from networks at schools, universities, and workplaces. In total, there are 50-60 million Americans on-line, while about 10 per cent use the Internet regularly to purchase goods and services.

Table 1: Key Ingredients of National Knowledge Economy Strategies

Sources: CIRCIT at RMIT and Program on Information and Resources Policy, 1998 cited in (Northfield 1999); and Commonwealth of Australia, Department of Foreign Affairs and Trade

How Does New Zealand Compare?

Economic fundamentals right

In many ways, New Zealand is doing quite well. The reforms of the last 15 years have ensured that we have many of the economic fundamentals right. In some respects countries such as Ireland, Finland, and Australia are still working towards that position. But in other ways we have a long way still to go.

We're strong in infrastructure and use of technology

We can see our strengths and weaknesses when we compare ourselves against the top 15 countries rated in the Information Society Index (Gifford, 1999), using important cross-national indices (see Table 2). In many of the measures New Zealand rates well. In terms of ownership of personal computers, enrolments in tertiary education, and the cost of international telephone calls, we rate quite satisfactorily against our competitors. We distinguish ourselves particularly in terms of the number of Internet hosts per capita and in public expenditure on education.

Weak in hi-tech exports and technical graduates

But we are at the bottom of the ranking in two key indicators for the knowledge economy: the percentage of exports that are high technology, and the number of technical graduates (computer science, maths and engineering) per 1000 population. In addition, we have the lowest number of scientists and engineers in R&D per 1M population: and are second lowest in the number of science graduates per 100,000 population in the labour force.

Table 2: How New Zealand Stacks Up

How does New Zealand compare with other countries in terms of the development of its knowledge economy? Figures 1 & 2 reveal the shape of the knowledge economy on an imaginary radar screen, based on 13 indicators measuring infrastructure, experience, skills, and knowledge. The circle represents an arbitrary baseline against which data from the various countries have been normalised. Viewing the shape of different knowledge economies on the radar screen makes it easy to compare New Zealand's development on key indicators against some of our competitors. The figures are based on the INEXSK methodology developed by Mansell and Wehn (1998). The 13 selected indicators are listed in Table 3. The "Ideal" indicator is a combined index of knowledge society development (International Data Corporation Information Society Index).

As Figure 1 shows, New Zealand has a similar shape of development to countries such as the US, Finland and Australia, although it lacks an articulated strategy for creating a knowledge economy. As the radar screen shows, we are best described as being a "junior" version of the US, heading in the right direction, but lagging behind in critical areas.

Note that the United States exports more high-technology goods and has a higher proportion of technical graduates, whereas Finland produces far more technical graduates and has more Internet hosts. Australia has more tertiary enrolments and produces more technical graduates. To compete with the mature pattern exemplified by the United States (closely followed by Finland and Australia), New Zealand must increase its number of technical graduates, electronics production, and high-technology exports.

We face competition from a range of countries

Countries such as Singapore, Malaysia, and South Korea, shown in Figure 2, are serious competitors, as they excel in electronics production, with South Korea also having a high proportion of technical graduates. However, they lag behind New Zealand in having fewer Internet hosts and a lower rate of PC ownership.

Figure 1

Figure 2

Table 3: Indicators of Knowledge Economy Development

Countries such as Hungary and Brazil are often mentioned as potential competitors to New Zealand, yet the data show that they are currently behind us, while Mexico leads us in high-technology exports, electronics production, and technical graduates (Mansell and Wehn 1998).

We've got the nucleus of a knowledge economy

Nonetheless, New Zealand's private sector has brought into existence the nucleus of a knowledge economy that has tremendous potential. New Zealand's technology sector already provides a significant contribution to gross domestic product. At NZ$10.4 billion, New Zealand is the world's leader in per capita expenditure on information and communications technology, and has achieved this distinction for five of the past six years (World Information Technology and Services Alliance and International Data Corporation, 1998).

Supported by high Internet use

The number of New Zealand homes with computers is growing at 14 per cent per annum, and reached about 40 per cent in 1999 (March, 1999). The number of Internet users in New Zealand also continues to grow rapidly. The number of users in the education sector will continue to predominate but their share of the total New Zealand Internet-user population is projected to drop from about 35 per cent in 1999 to about 28 per cent in 2002. There will be a corresponding increase in the proportion of home users, rising from 24 per cent to 28 per cent by 2002, and in small business users, rising from 11 per cent to 13 per cent in 2002. By 2002, 55 per cent of the users will log in from multiple locations (International Data Corporation, 1998).

One measure, Internet hosts per capita, identifies New Zealand as among the world's most networked countries, as shown in Figure 3 below (March, 1999a).

Figure 3: Connections to the Internet

Used as a testing ground for new technologies

New Zealand is being used as a testing ground for innovations in technology. Here are some examples:

• Ericsson New Zealand (http://www.ericsson.co.nz) is trialling its "deskless office" concept and its Third Generation Internet technologies in New Zealand.
• BankDirect (http://www.bankdirect.co.nz) is testing the security and user friendliness of its on-line banking system in New Zealand before introducing it elsewhere.
• IBM's Integrated Customer Management System (http://www.ibm.co.nz) was developed in New Zealand and is now in use in 30 countries.
• International Data Corporation (http://www.idcresearch.co.nz) predicts that New Zealand will have one of the highest growth rates in electronic commerce. By 2002 a third of all New Zealanders will be buying on-line (International Data Corporation, 1998).

The world doesn't know it, but New Zealand already produces the successor to C++ (the world's most popular programming language) under the name JADE. Gil Simpson of JADE says: "I constantly confront people who tremble and shake and go red in the face at the audacity of this little company in Christchurch daring to even think we could create something that Microsoft hasn't created" (Brett, 1999).

Exciting developments in software

No one should underestimate the Kiwi software industry.

• JADE is about to make the leap to global sales, particularly for its electronic commerce products (http://www.jade.co.nz). ASB Bank used JADE to develop its on-line banking service - the first Internet banking service to go live in the Southern Hemisphere (http://www.asbbank.co.nz).
• Fisher & Paykel have developed a new software field - dishwasher computing - in which householders literally put their dirty dishes into a computer (http://www.fp.co.nz).
• Norton Ghost PC-Cloning software was developed in New Zealand (http://www.ghost.co.nz).
• Terranova Pacific won a contract with London hospitals to deliver patient software (http://www.terranova.co.nz).
• Two Kiwi companies, Luc Encryption Technologies Ltd and RPK, have won world-wide market share with their encryption software (http://www.luc.co.nz),
  (http://www.rpk.co.nz).

And in media content industries

New Zealand is renowned for its new media content industries. The Hollywood film industry has long known about New Zealand, not only because of its famous actors and film productions but also because of its renowned advanced imaging industries.

• Weta Digital Effects is shooting Tolkien's Lord of the Rings for New Line Cinema (http://www.wetafx.co.nz).
• Animation Research Labs delivers 3-D aerial-view golf graphics to ESPN and the US PGA (http://www.arl.co.nz).
• Terabyte Interactive is marketing its "Virtual Spectator" to American Express so that its customers can experience the America's Cup live on the Internet with 3-D graphics (http://www.terabyte.co.nz).
• Galaxy Kids (http://www.galaxykids.co.nz) delivers a total learning environment and a library for children between 3 and 7 years old in all English language variations.

New Zealand is definitely on the map as a culture producer. New Zealand can easily profile itself as a creative powerhouse, from its Oscar nominees and winners to its world-renowned Web designers and award winning advertisements. New Zealand can draw on tremendous resources in this sector: leading-edge developments at the new Museum of New Zealand Te Papa Tongarewa (http://www.tepapa.govt.nz), award-winning film and television productions for international markets, inspiring educational products for multicultural global markets, museums, conferences, international summits, historical sites, product launches, tourist attractions, theme parks and leisure centres.