Chapter 3
In the introduction to our report, we list several examples we have uncovered of government-designed tools that help small business owners. The unfortunate fact is that many business people do not know about these very useful initiatives. Most of our recommendations in this section are designed to improve that situation.
Improving Communications with SMEs
It seems to us that many government initiatives for business are launched with nominal budgets for promotion, and that there is limited on-going publicity as it is assumed that everybody will remember them for ever more. However, this does not take into account the large number of new start-ups and other business ownership changes that occur each year.14
Similarly, government agencies' efforts to communicate are often written in language that is not suited for the average business owner and can consequently be confusing – not least because several agencies release different messages at similar times.
There is also a lack of consistency in the format and style in which agencies present the material they have for business and SMEs. This makes it hard to find quickly the information that is wanted. This is well illustrated when moving between websites using the government business portal, business.govt.nz.
Each government agency thinks there is some distinctiveness about its brand. Viewed from the small business perspective, they are all just "the government".
In large corporations, control is maintained over customer communication by co-ordinating releases to customer groups. It appears to us that government agencies tend to rely (if they consider this matter at all) on informal co-ordination amongst independent communications teams. We believe the government should require agencies to develop a co-ordinated communication strategy. This would ensure that releases to businesses are managed well. Perhaps a single cross-government newsletter containing relevant information and updates could be developed that is published and marketed well to SMEs. The MED, IRD, ACC, DoL, MfE and Statistics New Zealand have the most frequent communication with businesses, especially small and medium-sized enterprises. An effort at co-ordinated communications could start with these agencies.
Mäori, Asian and Pacific Island Business Development
Ma-ori, Pacific and Asian peoples will be a significant percentage of the working/entrepreneurial age population by 2021 and a majority of that population by 2051. Each of these communities has a high entrepreneurial propensity, yet they are under-represented amongst participants in NZTE or similar business support programmes.
While comparable statistics are not available for Pacific or Asian entrepreneurs,15 one in three Ma-ori will start a business, and of these, 67 per cent will fail or disappear (compared to 33 per cent of non-Ma-ori businesses) within 42 months of establishment despite having informal investment of $ 2.6 billion per annum (second only to Norway globally). Moreover, these entrepreneurs are primarily in the trades, health, social and education sectors – sectors with little export potential, except those with links to tourism.
There is an urgent need for government-funded business support agencies to engage with these entrepreneurial communities in order to improve their success rates. They appear to use government-provided and government-assisted business advisory services less than other businesses. It is not clear why this is the case. However, we believe that a key factor is that the business advisors are not sufficiently aware of the specific cultural needs of these potential clients.
Gaining this awareness will be achieved only by structured cultural sensitivity training, not an ad hoc approach such as half-day marae, community or church visits. Contractual arrangements should require all government-funded and government-assisted business advisory agencies to demonstrate real and on-going engagement with these communities; having an iwi, Asian or Pacific board member is not sufficient on its own.
SBAG recommends:
That all business advisors and staff in government-funded and government-assisted economic agencies receive on-going training in sensitivity to cultural difference and in culturally appropriate behaviours, and that they use this training and closer relationships with the relevant communities to measurably improve Ma-ori, Asian and Pacific business peoples' access to, and benefit from, business support programmes.
Improving Business Processes
Many small businesses would benefit from the development of a comprehensive web-based business centre that is able to be a business information sorting and delivery channel and to deliver all the tools essential for the management and running of a small business.
Our vision is of a website where commercial business systems software can be accessed and where there can be a seamless interface with the government agencies that require information from businesses. Thus the site would be a one-stop shop for all web-based transactions with government. Users would have to pay to use the commercially developed parts of the site, but the interface with government would, of course, be free.
The website would, as well as giving SMEs access to commercial software, provide a central secure database that is capable of holding data (such as addresses) that would be entered once by an SME (using any software) and shared between all relevant government agencies. This would mean that government forms could be pre-populated with these data before they are sent electronically to the businesses.16 This service would be free.
Such a business centre would have additional benefits for new businesses and for businesses that want to improve their systems because the use of the state-of-the-art software should encourage the adoption of good business practices. It should improve also the quality and timeliness of government communication and engagement with businesses, and reduce compliance costs.
SBAG recommends:
That the government develop a web-based business centre that provides:
- access to commercial business systems software for the better management and running of a small business
- a seamless interface with the government agencies that require information from businesses, making communications and information collection easier between government and small business.
Business Brokering
Many current business owners are part of the "Baby Boomer" era and are reaching retirement age. Many of them will be relying on the successful sale or other forms of succession of their business to fund their retirement. But to achieve the best result from sale or business succession, the business owner will require professional advice.17
We have concerns about the limited number of skilled and qualified business brokers. In the main centres, business brokers operate as stand-alone businesses, often with ghost real estate licensees. (To operate as a stand-alone business broker requires a full real estate licence and three years' experience in the industry, though none of the experience is specifically required to be in business broking.) In almost all provincial centres, business sales are handled by real estate agents who, in order to operate, are required to have passed only a one-week real estate salespersons' course that has no business sales content. Professional business brokering qualifications can be obtained extramurally by passing 18 papers. Regrettably, for the last two years, the block courses for this qualification have been cancelled due to lack of interest.
Businesses deserve better treatment. Sales should be handled by brokers who have undertaken specific training in mentoring and sales.
SBAG recommends:
That persons offering services as business brokers be required to have specific training and qualification/licensing.
Going International – World-Class Businesses
Going international is a big step for New Zealand SMEs, given the distance to international markets and the often limited financial and managerial capacity of small businesses. It can take a number of years of investigation and preparation before market entry is achieved. This places a high financial and managerial strain on the operation of the business.
Government support should be available to businesses with the potential to go international as well as those who are ready to enter international markets. NZTE has a number of programmes that cover
those enterprises that are aspiring to be exporters as well as those that are ready for their first exporting
experience or wanting to take their existing exporting efforts to new levels or new markets. However,
NZTE needs to increase the transparency around the focus of, and application process for, its support programmes. SMEs currently find it hard to establish which programmes may apply to them.
Also, other government agencies need to be more engaged as facilitators and enablers, rather than simply as regulators and gate-keepers, for firms going international. For example, MAF and NZFSA should be able to provide advice on what SMEs need to comply with when exporting foodstuffs into overseas markets.
In our business dealings, we have also come into contact with trade promotion agencies from other countries like the UK, Ireland, Australia and Israel. These agencies have ideas and programmes from which New Zealand could learn. It would be worthwhile for NZTE to review overseas trade promotion programmes, like the UK's efforts to attract exporters to base in the UK, to see if they could be beneficially adopted by NZTE.
In the spirit of chasing potential opportunities, the government should also instruct NZTE to go back over the files of the businesses they have engaged with and supported (for example, under the Enterprise Development Grant scheme or through incubators) to find out:
if there are any firms that have not yet reached their full potential and could be greatly improved or progressed by renewed or additional support and guidance from NZTE
the most common needs of the businesses seeking support in terms of gaps in their business capabilities.
This would also help identify how programmes could be more effectively delivered.
SBAG recommends:
That the financial and non-financial support offered to SMEs by other economic development agencies in a representative selection of overseas market places be compared with the support offered by NZTE and consideration be given to where the NZTE services can be improved in order to maintain New Zealand's competitiveness.
Increased Support for International SMEs
SMEs thinking about entering foreign markets may be concerned that their small size will make them very vulnerable. This may cause them to choose not to expand or grow through international participation.18 However, many New Zealand SMEs are very active in international markets and are doing so very successfully. Nevertheless, we believe that government should play a greater role in ensuring that more SME internationalisation ventures are undertaken and are sustainable and successful.19
In particular, the government could develop an online resource that gives SMEs both a reality check and good advice. The core of the site would be a series of case studies of SMEs that have embarked on international linkages (including export, value chain participation, joint ventures and outsourcing). These would include success stories, stories of failure and stories of victory snatched from defeat. Other useful links to assistance and support programmes, checklists and other guidance would be available online also.
Additionally, there has been a noticeable tightening in the terms of international supply contracts in recent years. It is not unusual for some overseas clients to require not only bonds for contract performance but also some documented assurance (for example, letters of credit, securities) that, in the event a New Zealand firm goes into receivership (for example), any monies paid for work uncompleted will be able to be recovered (with interest).
If a SME is able to obtain the required cover (a more difficult task if their product is intellectual rather than physical), payment for it has a very significant impact on the cashflow, and thus the viability, of the firm. The government has recognised elements of this problem in relation to certain markets (such as the USA) and, through the Export Credit Office (NZECO), has some schemes in place to assist New Zealand firms. However, there is a need for the NZECO to broaden its scope of support.
Securities are needed in a wider range of markets than NZECO currently has on offer, and new products, such as insurance against sub-standard performance of sub-contractors and working capital support, are urgently required as there is little or no private sector provision of them in New Zealand. Like the current range of NZECO products, the new offering should be charged at commercial rates to the firms. Applicants would need to fulfil credit-risk criteria before being offered support.
SBAG recommends:
That easy-to-use online checklists/guides/case studies be developed that alert New Zealand businesses to the risks of internationalisation and ways to mitigate those risks.
That the government consider broadening the range of products and services offered by the New Zealand Export Credit Office in order to achieve more sustainable international market participation by SMEs.
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