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17. The government's ongoing engagement with the sector will need to address the perception that the manufacturing sector is not a priority for government, and raise awareness of the wide range of government sponsored initiatives (direct and indirect) that help to support and grow this sector. These are acknowledged in the appendix to the Manufacturing Plus report.

18. This response includes;

• actions responding to the specific recommendations for government contained in the report. Many of the recommendations are being largely addressed through existing initiatives or initiatives already proposed; and
• a summary of other government initiatives that have the potential for a positive impact on manufacturing, but go beyond the specific recommendations to government.

Specific Recommendations and Responses

19. The report included sixteen specific recommendations to government. Because many of these recommendations are already being addressed by various government initiatives, three issues could be on the agenda for the planned "Manufacturing Action Group":

• The extent to which the sector is aware and is making best use of the support currently available from government;
• Whether government initiatives are configured to best meet the needs of the sector going forward, and
• Links to the ongoing work around sustainability issues.

Response to Recommendation 1: Investigate how the manufacturing sector can better connect with the CRIs (Crown Research Institutes) and university researchers to create value

20. Enabling better linkages between firms, CRIs and Tertiary Education Institutes (TEIs) is a key theme of the Economic Transformation Agenda [CAB Min 06(213) refers]. The manufacturing sector is likely to benefit from three actions focused on giving effect to this theme:

• The Ministry of Research, Science and Technology (MoRST), the Tertiary Education Commission (TEC) and MED are working on a range of measures (to be presented to Cabinet at the end of May 2007) such as:
  • new CRI and new TEI performance indicators to encourage researcher mobility;
  • increased TechLink² funding to provide greater assistance for industry groupings to identify industry-wide research questions and facilitate stronger links with research organisations;
  • workshops with existing industry networks, Economic Development Agencies and Industry Training Organisations (ITOs); and
  • changes to the research consortia programmes to enable more flexible eligibility thresholds and improved governance arrangements;
• The establishment of the "Capitalising on R&D Action Group" (CRAG) by the Minister of Research, Science and Technology. CRAG is a joint business and government action group tasked with providing advice to the Minister on the key actions resulting from the Capitalising on Research Summit³ (held late 2006) and perspectives on major science and technology issues that have an impact on business innovation and on workplace participation in R&D; and
• NZTE, TEC and the Foundation for Research, Science and Technology (FRST) are improving their ability to coordinate activities in areas of joint interest. To date all joint projects have been in the manufacturing area. For example, all three agencies are investigating opportunities to work together to support the plastics industry. I will also shortly be presenting a paper on work being undertaken by MED and other departments and agencies on alignment of activity across government around economic transformation priorities.

Response to Recommendation 2: Develop education and training tailored for Manufacturing Plus for everyone involved in manufacturing enterprise

21. Cabinet has made a number of decisions over the past year on reforming the tertiary education sector, and has set strategic priorities through the Tertiary Education Strategy and Statement of Tertiary Education Priorities. Under the reforms TEC has a greater ability to ensure that tertiary education provision reflects national and local stakeholder needs, including those of industry sectors. Budget 2007 includes significant funding to give effect to these changes. For instance, ITOs will receive an additional $15.8 million of operating funding to help them identify current and future industry skill and training needs, and to work alongside other Tertiary Education Organisations (TEOs) to help them respond to those needs.

22. One of the priority areas in the Tertiary Education Strategy 2007-12: Statement of Tertiary Education Priorities 2008-10 is "Increasing the achievement of advanced trade, technical and professional qualifications to meet regional and national industry needs". TEC's Investment Guidance signals that TEOs will be asked to identify and respond to those areas that have the greatest skill needs. Institutes of Technology, Polytechs and ITOs have particular responsibility for meeting industry needs.

23. In November 2006, eight ITOs launched the Competitive Manufacturing Initiative (CMI). This is a new training and qualifications initiative aimed at encouraging best practice manufacturing processes and improved productivity levels in the sector. The Department of Labour (DoL) and TEC will continue to work with the CMI Consortium to support the CMI.

Response to Recommendation 3: Facilitate the adoption of best practice manufacturing processes and process manufacturing management

24. A number of existing programmes can assist with improving manufacturing processes. The bulk of these programmes (such as Enterprise Training, the Regional Partnerships Programme,⁴ Better by Design and lean manufacturing undertaken under the Aichi programme) are administered by NZTE. TEC also plays an important role through its support of the manufacturing ITOs, and FRST programmes including its Global Technology Partnerships are relevant.

25. NZTE is also playing an active role in disseminating the application of the Manufacturing Plus Value Creation Model to manufacturing firms. This includes the creation of a series of tools for New Zealand firms to apply the model, and support for regional workshops to roll out the model.

26. The CMI has begun to promulgate best practice manufacturing processes, which includes addressing management capability.

Response to Recommendation 4: Write a Manufacturing Plus book/website and disseminate to New Zealand manufacturers

27. Websites or books alone are unlikely to be a very persuasive mechanism for diffusing ideas to the manufacturing sector. The recommended approach, outlined above, is for NZTE to work with the authors of the report to disseminate the key findings via a series of regional workshops with additional support mechanisms to follow the workshops. NZTE can do this within its existing funding baseline.

Response to Recommendation 5: Ensure the importance of manufacturing to New Zealand is widely understood

28. Government's response to the Manufacturing Plus report is a clear signal that manufacturing is important to New Zealand. The comments included in the Government's Key Messages reinforce this.

Response to Recommendation 6: NZTE to focus on enhancing connectivity

29. The Ministry of Foreign Affairs and Trade (MFAT) works to improve market access for manufacturers through NAMA (Non-Agricultural Market Access) negotiations at the WTO, various free trade agreements, and the Forestry Trade Access Group, as well as defending existing access to overseas markets. Sixty percent of NZTE's current operational budget is already spent in overseas markets.

30. Export Year 2007 has provided a co-ordinating focus for NZTE and private sector activities aimed at improving New Zealand firms' international connectedness. It includes a number of new initiatives, including a one-off funding boost for the Market Development Assistance Scheme (MDAS) of $33.75 million for the period 1 January 2007 to 31 March 2008.

31. Budget 2007 contains a range of measures to expand existing NZTE schemes that assist New Zealand firms to develop new markets, and deepen others. It includes:

• Increased ongoing annual MDAS funding (based on advice that this is more effective in supporting market development than a tax credit);
• An increase in the funding for Beachheads;
• A four year funding package to increase the profile of New Zealand food and beverage firms internationally through expanded in-market assistance;
• Extending NZTE's footprint in key Asian markets; and
• Supporting New Zealand's participation at the Shanghai Expo.

32. Given the annual ongoing funding increase to MDAS, I propose that firms benefiting from the one-off Export Year funding boost be eligible for the grant for up to five years based on existing criteria, rather than one year as currently implemented. This will ensure that firms that benefit from the funding boost are treated in the same way as firms that receive support from ongoing annual funding.

Response to Recommendation 7: Improve the attractiveness of manufacturing as a career for New Zealanders

33. MED advises that this issue is frequently raised by manufacturers. The sector identifies it as a significant constraint on their ability to innovate and expand their operations. Of particular concern is the shortage of engineers and machine operators.

34. This needs to be seen in the context of an historically low level of unemployment, creating unprecedented competition for highly skilled workers, within New Zealand and internationally. The government has implemented a number of initiatives that will help improve the attractiveness of manufacturing as a career. These include:

• The "Future in Tech" programme aimed at promoting careers in technology, engineering and science;
• The "Gateway" programme offering senior secondary school students structured workplace learning across more than 50 industries and hundreds of businesses around New Zealand;
• Support for the "Skills New Zealand" tripartite forum (Government, Business New Zealand and the New Zealand Council of Trade Unions (CTU)) aimed at promoting workplace learning;
• An Export Year initiative focused on the teaching of global trade-related concepts in the social sciences curriculum. It aims to develop students' awareness of the place of New Zealand in the global economy and the importance of this for our successful economic performance;
• The "Modern Apprenticeship Scheme" established in 2000 to improve participation of young New Zealanders in trades training. More than 3000 Modern Apprentices have completed the scheme to date and the government has supported a target of 14,000 participants by December 2008; and
• Officials are preparing a report to Cabinet Policy Committee for June 2007, that will report on "means for education, immigration and other approaches to support the top talent that firms need".

35. In addition, two immigration programmes are aimed at mitigating immediate skill shortages; the "Talent Visa" and the "Immigration Skills Shortage List".⁵

Response to Recommendation 8: Ensure that the capabilities of New Zealand manufacturers are widely understood and what is needed to create scale

36. The Industry Capability Network (ICN) programme promotes New Zealand and Australian industry by assisting firms to participate in local and international supply chains. It provides project owners, managers and purchasers of major projects in New Zealand and Australia with a free service to identify New Zealand and Australian manufacturers capable of supplying products and services that might otherwise be imported.

37. NZTE is also facilitating the establishment of a national project office to develop improved processes to encourage and enable engineering firms to collaborate on offshore project opportunities.

Response to Recommendation 9: Develop/review incentives to invest in innovation, technology and productivity [exchange rates, depreciation, R&D, fiscal], and Recommendation 12: Develop a different mix of policy initiatives to achieve greater exchange rate stability, while also reducing compliance costs

38. Innovation and continuous improvement is required if New Zealand manufacturers are to move to the high value end of the market. The government is committed to supporting this through a number of initiatives.

39. It is important to acknowledge that this also requires significant investment from industry.

40. I am aware that the exporting sector, including a large proportion of manufacturing firms, is under significant pressure from the high exchange rate, and is asking the government to look at alternative ways of reducing inflationary pressures. The Treasury and the Reserve Bank have been working for some time on alternatives or "supplementary stabilisation instruments", but to date there are no simple answers. The Finance and Expenditure Select Committee is holding an inquiry into the Monetary Policy.

41. The recently announced Budget package will help to improve competitiveness, encourage investment and increase productivity. Two initiatives that will assist manufacturers are the reduction in the base rate of company tax and the introduction of an R&D tax credit. Support for R&D (in particular business R&D) tends to disproportionately favour the manufacturing sector, because traditionally R&D is an integral part of that sector.

42. The issue of compliance costs is being progressed through the Quality Regulation Review. Good progress has been made to date, with a final report due by 31 July, 2007.

Response to Recommendation 10: Establish a Research Centre for Manufacturing Enterprise so that issues related to value creation through manufacturing in New Zealand are well researched and disseminated on an ongoing basis

43. Officials understand that the Manufacturing Plus Vision Group intended the proposed Research Centre for Manufacturing Enterprise to cover both research and development and strategic research on business issues.

44. The value of a pan-manufacturing sector centre for research and development will depend on the demand from industry. This level of demand and the strength of the case for such investment should be tested through applications to competitive funds through FRST, and through the proposals from TEOs responding to the needs of industry under the Investing in a Plan approach.

45. The Centre for Plastics Innovation and Technology, based at the University of Auckland, is an example of a centre that allows the research and development needs of a manufacturing sub-sector to be considered. The government has committed $5 million to this centre through "Partnerships for Excellence", and industry partners have committed to providing $6.5 million in matching funds.

46. The manufacturing sector is very diverse, so centres focused on specific industries may provide the most meaningful information and strategic advice. FRST funding supports light alloys and composite materials research at Auckland University and CAMTECH at the Auckland University of Technology.

Response to Recommendation 11: All manufacturing sectors should develop a sector strategy

47. The Manufacturing Plus report is intended to be used as an overarching framework for manufacturing sub-sectors to build their own strategies going forward. NZTE will facilitate this process as part of its ongoing engagement with the manufacturing sector. It is currently assisting the Marine Industry Association, Plastics New Zealand, and The Aviation Industry Association to implement their strategic plans.

Response to Recommendation 13: Government to appoint a Cabinet Minister of Manufacturing so that the perspectives of the manufacturing sector are well represented [takes guidance from manufacturers], and Response to Recommendation 14: Support Manufacturing Plus as an ongoing forum to ensure a collaborative approach to addressing future issues affecting the manufacturing sector

48. As the Minister for Industry and Regional Development, I am responsible for ensuring the perspectives of the manufacturing sector are represented at Cabinet. The key issue is to ensure that there is a mechanism for ongoing engagement with the sector.

49. I have asked the MED to work with NZTE, Business New Zealand and the CTU to establish a "Manufacturing Action Group" to support the implementation of the Manufacturing Plus report and provide advice to me on manufacturing. This will be a joint business and government action group. The agenda may include;

• coordinating the implementation of the Manufacturing Plus report across industry and government;
• providing advice on major issues that influence the manufacturing sector;
• providing linkages with and informing the government's policy development process from a manufacturing perspective;
• the extent to which the sector is aware of and making best use of the support currently available from government, and whether government initiatives are configured to best meet the needs of the sector going forward;
• how the manufacturing sector can adopt sustainable business practises to improve overall sustainability in the economy and capture significant commercial opportunities; and
• how to promote greater awareness of the successes and potential of the New Zealand manufacturing sector.

50. It is proposed that the "Manufacturing Action Group" meet on a quarterly basis and include members from Business New Zealand, Unions, manufacturing firms and key government agencies (such as MED, NZTE, FRST and TEC). Ideally the group would have a maximum of ten members.

51. MED, working with other agencies, will develop a detailed terms of reference, key tasks, deliverables, membership and reporting requirements for the "Manufacturing Action Group" by the end of June 2007.

Response to Recommendation 15: Collaboratively celebrate manufacturing success – politicians, press, trade associations, unions etc [patriotism not protectionism]

52. The Export Year 2007 media campaign is providing opportunities to celebrate manufacturing success. The planned Buy Kiwi Made media campaign (to be launched mid July 2007) will do likewise. It is also something the proposed "Manufacturing Action Group" may wish to consider.

Response to Recommendation 16: Support for Manufacturing Plus ongoing programme of work

53. Support for the ongoing implementation of the report will come from NZTE and the proposed "Manufacturing Action Group". NZTE is already making good progress – to date it has developed a series of tools for firms to apply the concepts of Manufacturing Plus to their business and conducted a pilot workshop for manufacturers in Hamilton.

54. NZTE is planning the following additional actions for the remainder of 2007:

• A series of Manufacturing Plus workshops in regions with a strong manufacturing presence, in partnership with Business New Zealand and its affiliate organisations. Two workshops will be run each month, commencing in July 2007; and
• The establishment of a dedicated NZTE team, with significant manufacturing knowledge, to assist firms to map their business models against the Value Creation Model and identify areas for improvement. This team will also be able to link firms with the range of NZTE support programmes available.

Other Government Initiatives

55. The response to the Manufacturing Plus report also includes a summary of other government initiatives that have the potential for a positive impact on manufacturing, but go beyond the specific recommendations for government.

Sustainability

56. The report acknowledged an increased awareness of the need to protect the environment and adopt sustainable business practices. New Zealand manufacturers can make a big contribution to improving our overall sustainability performance and have the potential to capture significant commercial opportunities. The government will support the sector in this endeavour through the three business-related sustainability themes of "Business Partnerships", "Eco-Verification" and "Government Procurement".

Research, Science and Technology (RS&T)

57. MoRST has identified opportunities to strengthen the RS&T investment in "high-tech platforms". These are enabling platforms (of advanced knowledge) focused around a technology, like that which underpins technology companies including Fisher and Paykel Healthcare, and others such as Navman, Rakon and Right Hemisphere. These platforms are applicable to a wide range of sectors, and will be key to moving more New Zealand firms towards high value manufacturing.

Infrastructure Investment

58. The report noted that market channels are becoming more internationalised, and that transport and energy costs are increasing because of supply constraints.

59. The government is addressing infrastructure constraints by increasing investment in roads, rail and the energy sector. Currently over $2.1 billion worth of highway projects are under construction or being completed in New Zealand. On 11 December 2006, the government released Powering Our Future: Towards a Sustainable Low Emissions Energy System - Draft New Zealand Energy Strategy to 2050, as the basis for stakeholder and public engagement on the medium and long-term decisions that will shape New Zealand's energy future. The final version of the New Zealand Energy Strategy is due to be presented to the Cabinet Policy Committee by 30 June 2007.

Trade Agreements

60. The report raised a concern about the impact of trade agreements and technical regulations being used as non-tariff barriers to trade. The government's trade negotiating agenda includes the current multilateral round of trade talks in the World Trade Organisation (WTO), as well as free trade agreement negotiations with China, ASEAN and Malaysia. In all of these negotiations, the government is seeking to advance manufacturers' interests, both through reducing tariffs and non-tariff barriers, and by efforts to open up new opportunities for the expansion of New Zealand firms' global supply chains (e.g. through investment, services and intellectual property provisions in FTAs). In trade negotiations, the government has always sought suitable transitions to allow manufacturing companies to adjust to competition. For example, the New Zealand/Thailand Closer Economic Partnership retains protection on whiteware goods being imported into New Zealand until 2010. This is a longer timeframe than Australia negotiated with Thailand for its domestic whiteware industry.

61. Government agencies, including MFAT and NZTE, also stand ready to pursue any legitimate complaints about non-tariff barriers that are impeding New Zealand exporters' access to markets. To prevent imports of products that compete unfairly with and injure our own manufacturing industry, MED operates a trade remedies regime based on World Trade Organisation (WTO) rules.

Food and Beverage Taskforce: The Government Response

62. On 30 April 2007, Cabinet agreed to the government response to the Food and Beverage Taskforce [CAB Min 0714/3 refers]. These initiatives will have significant benefit to the manufacturing sector, because the food and beverage sector employs 25% of manufacturing employees, and accounts for 33% of manufacturing output (Statistics New Zealand). Of particular importance is the Food and Beverage Product Development Infrastructure Project to identify possible gaps in food and beverage innovation and commercialisation infrastructure and identify if there is a case for government investment.

63. The Skills Action Plan will also help the food and beverage sector attract and develop its workforce by promoting better labour market information about the sector, more strategic investment in training and attractive careers.

Investment New Zealand: Amended Policy and Implementation Frameworks

64. Inward and outward investment policies and programmes are internationally recognised as important economic development tools. The recently concluded Expenditure Review of Business Assistance and the Evaluation Review of Investment New Zealand have both suggested the need for more strategically oriented inward and outward investment policies and programmes. These should focus on higher quality investments that improve the productivity of New Zealand firms and sectors, including facilitating access to international supply chains, markets, skills, technologies and research and development capabilities. Recommendations for a government response are expected to be with Ministers by the end of June 2007.