The Government's Key Messages
10. I recommend that the government endorse the vision for the future of New Manufacturing in paragraph six, and the Value Creation Model in paragraph nine. They complement government objectives in the context of the economic transformation agenda, in particular improving the productivity and competitiveness of all firms in New Zealand and supporting those firms that are, or have the potential to be, directly involved in internationalising their business [CBC Min (06) 213 refers].
11. I am aware of the challenges facing many manufacturers in a world of rapid change and intense global competition, particularly those exporting at a time when the exchange rate is historically high. These challenges, however, are not unique to New Zealand. Manufacturers around the developed world are feeling the effects of increased global competition. Responses include the shift of production to lower wage countries (such as China, East Asia, India and the Eastern bloc) and increasing imperatives for production to be closer to key global supply chains. Singapore is the only developed country that experienced an increase in the share of manufacturing in nominal GDP over the two decades from 1978, while the importance of manufacturing increased in eight of eighteen developing countries.1
12. It is clear that New Zealand will not be able to compete in all areas of manufacturing – nor should we try. Modern manufacturing is changing rapidly and can no longer be considered solely as the making of products. The modern manufacturing product cycle now includes functions such as market research, design, branding, service activities and end-of-life disposal. New Zealand manufacturers now have the option to compete across the entire manufacturing value chain or parts of that value chain depending on where they believe they can create value and increase returns. A key challenge for the sector is to continue to develop its responses to evolving global competition, while at the same time, evaluating which manufacturing processes are best anchored in New Zealand.
13. Withheld under section 9 (2) b (ii) of the Official Information Act.
14. Complicating the debate about the real state of New Zealand manufacturing is a lack of clarity and consistency about the measures used to report on the sector's performance. Manufacturing statistics are often reported as a percentage of GDP and an initial examination of manufacturing income as a share of GDP gives the impression of a decline; for example, manufacturing contributed over 17.2% of GDP in 1996, while by the June quarter of 2006 it only contributed 14.6%.
15. What this actually shows is a decline relative to other sectors, such as the services sector. A better reflection of the current state of manufacturing in New Zealand is outlined below:
- The sector as a whole appears to be healthy with some sub-industries (in particular the food and beverage industry) experiencing good growth. Manufacturing's contribution to GDP still grew by 12% between 2000 and 2006 while GDP as a whole grew by 22% (Statistics New Zealand GDP data series);
- The number of manufacturing firms has increased 7% from 2000 to 2006 (Statistics New Zealand Business Demography Statistics); and
- Employment in the manufacturing sector has remained remarkably steady over the last ten years. In December 1996, 286,000 people were employed in the sector, with 274,000 employed in December 2006. The total number of people in employment has grown steadily over this period from around 1,768,000 to 2,135,000, so manufacturing's share of employment has declined only in relative terms (Statistics New Zealand Household Survey).
16. I am confident there is a strong future for New Zealand manufacturers who take advantage of rapid advances in technology and access to world markets. New Zealand's manufacturing future is in the high skilled, high value end of the market where we can compete more on quality and less on price, and where we can play to our strengths. I am also confident that the government's economic transformation agenda and supporting initiatives (outlined in the next section) will help manufacturers in a world of rapid change and intense global competition.
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