Executive Summary
In this paper we examine patterns of merchandise exporting at both the firm level (1996-2005) and the product level (1988-2005). The analysis focuses on the dynamics of market entry and exit and the extent of diversification among export products, destinations and firms. This focus is motivated by the concerns expressed by a range of commentators about New Zealand's export performance over recent decades – low levels and slow growth of aggregate export value relative to other small developed countries, ongoing concentration of export value in primary sector products, and the small number of firms engaged in exporting.
Changes in aggregate export value must come from three basic sources. Export value can increase with little change in the composition of either products exported, firms involved or trading partners through increasing the volume of exports or through changes in the unit price of existing export products. Alternatively, export growth can involve significant innovation – new firms beginning to export, new products being introduced, new markets being targeted. At the same time, the international environment changes rapidly, and exporting is a difficult business. Not all exporters survive, and those that do may find themselves changing the focus of efforts to different countries or products.
The data used for this paper was provided by Statistics New Zealand and is derived from Customs declarations provided by exporters to the New Zealand Customs Service. Due to data constraints all results refer solely to merchandise exports and the firm-level analysis is therefore restricted to industries with significant merchandise export potential – Agriculture, Forestry and Fishing, Wholesale Trade and Manufacturing. These industries accounted for over 85% of annual exports in each year between 1996 and 2005.
Key Results
Export value is highly concentrated among a small proportion of exporting firms, despite significant increases in both the absolute numbers and the proportion of firms exporting in any given year.
Between 1999 and 2004, the percentage of firms exporting increased by around 22% in Manufacturing, and 30% in Agriculture, Forestry and Fishing, and Wholesale Trade. However, export value remains highly concentrated, with the top quartile of exporters contributing over 98% of export value, and the top ten percent of firms accounting for around 94 percent. Top exporters tend to be larger (in terms of total sales) and have more diverse export portfolios, exporting a greater variety of products to a larger number of countries.
Differences in the proportions of exporting firms across industries are determined by market structure as well as the degree of trade in specific goods. For example, while goods produced by the Agriculture, Forestry and Fishing industries are highly traded, this trade is often handled either by intermediaries (whose main activity would commonly be listed as wholesale trade) or processing companies (which would be listed as manufacturers). Hence, while 10.9% of manufacturers and 13.4% of wholesale trade firms were exporting in 2004, only 0.3% of agricultural firms were directly involved in merchandise exports.
The vast majority of aggregate export growth comes from existing product-market relationships.
Decomposition of aggregate export growth into that coming from new, continuing and ending product-market relationships (where a relationship is defined as a specific narrowly defined product exported to a specific destination eg fresh apricots to Fiji ) suggests that most of the diversification of total export value has come from continuing relationships. Between 1996 and 2005 96.6% of export value and 97.0% of export growth can be attributed to products which were already being exported at the beginning of the period. 10.5% of value growth came from new products, balanced by a 7.8% loss from the exit of products which had been exported at the beginning of the period.
Similarly, within those product groups which were consistently exported throughout the period the majority of growth (86.7%) came from ongoing exports to the same countries, with the 17.5% growth from relationships with new countries being balanced by a 13.2% loss from exiting some relationships.
Many of the firms which engaged in exporting between 1996 and 2005 did not export for the entire period.
Of the 13,758 firms that exported at some point between 1996 and 2005, 30% exported in only one year, and a further 25% exported in less than 4 of these years. Spells of exporting, and particularly spells within specific firm-product-market relationships (a firm exporting a specific product to a specific destination) tend to be short, with over half of all firm level export relationships ending after a single year.
Firms that maintain an ongoing export presence often do so while switching between products and markets.
Alongside intermittency in overall firm exporting spells (defined as consecutive years in which a firm has some export activity), we also see substantial intermittency of market relationships within firms, as shown by the short duration of export relationship spells noted above. Among firms which maintain their exporting activity by switching between products and destinations, product switching is more frequent than market switching. The vast majority of new relationships occur when a firm sends a product they had not previously exported to a market they were already exporting to at the beginning of the period. A similar majority of ending relationships occur when firms continue to export part of their product range to a given country but completely cease exporting one particular product from that range.
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