Rising exports have long driven this country's returns from offshore markets, but ODI offers further potential benefits for New Zealand's businesses and economy.
Diversifying earnings into expansion opportunities offshore can deliver a further lift to economic growth.
For exporters familiar with overseas markets, ODI is a way to shorten supply chains, get closer to customers, and increase returns. It can also open up access to valuable new sources of liquidity and capital.
New Zealand produces some world-class intellectual property, and investment in growing overseas markets can help our businesses to reap benefits from their knowledge and skills on a much larger scale.
All of which has led some to ask why so relatively few New Zealand companies appear to be pursuing these rewards.
Given that many firms now have low debt levels and high liquidity, amid reasonably benign interest rates and a strong dollar, New Zealand's low rate of ODI is perhaps surprising.
Certainly, investing directly in overseas markets can be challenging and is a major leap for many firms. It demands considerable care and due diligence to ensure you are investing wisely in businesses and assets that will provide a good return.
Establishing a meaningful foothold in larger markets can also require significant capital and resources, often beyond the capacity of New Zealand's many small businesses. And though there have been some notable successes, there have also been disappointments.
Historically, New Zealand's returns on overseas investments have tended to be lower than what foreign investors achieve in New Zealand.
ANZ economists assess that if offshore returns to New Zealand companies matched the rates achieved in this country by overseas firms it could add $2 billion to $3 billion a year to our economy.
Those who succeed with ODI enjoy significant potential to grow and diversify their business. One good example is Fletcher Building, which has, for over a decade, had a deliberate strategy of geographic diversification.
This has enabled it to pursue new growth opportunities across a number of overseas markets and mitigate the risk of downturns in the New Zealand building cycle.
Today, more than half of its revenues come from beyond New Zealand.
Fletcher Building has spoken of the importance of preparation and patience; putting in the time and effort for thorough due diligence on their investments.
They say the investments that work best for them are ones where they have bought the right business for the right price, typically acquiring companies that are number one or two in the market, and where market structures have allowed them to generate a reasonable return from the outset.
They have typically sought to buy like businesses, so they know the market and the business processes and understand the potential synergies.
New Zealand firms Infratil, Meridian Energy and Trustpower have all demonstrated the value of investing in Australia by applying industry-leading renewable energy expertise, while also timing the market well to exit investments during periods of strong liquidity.
Meridian realised a profit of around $600 million in 2005 from the sale of its investment in Australian hydro generator Southern Hydro, and Infratil sold Australian electricity retailer Lumo Energy in 2014 for a profit of about $350 million.
TrustPower and Meridian Energy continue to execute a successful strategy of developing major wind farm projects across Australia, on time and under budget, leveraging the resources of their renewable development teams.
Like Fletcher Building, these companies have established a number of growth options and then waited for conditions, such as turbine pricing and foreign exchange rates, to meet their targets before hitting the green light on a project with good returns.
Finalising a deal or acquisition is just the beginning; succeeding with overseas investment is a long-term undertaking demanding realistic growth expectations. And, like any investment, it is essential to have a clear strategy.
Successful investors also have a strong integration plan, including having the right people in place, and a clear view of how they will run the business, and will ensure they have the resources, focus and commitment to follow through with the plan.
For those contemplating investment in new markets, taking the time to understand local conditions is crucial.
It can be tempting to assume they are similar to New Zealand, when in fact they are very different. Even in Australia there are significant differences in the way business is done.
Language and cultural barriers and regulatory differences also need to be negotiated in many markets, and in larger countries there can be numerous regional sub-markets to get to grips with.
But, for firms that master these challenges, the rewards can be considerable.
A new ANZ research report, Asean: The Next Horizon, points to the substantial opportunities a resurgent Southeast Asia will offer for New Zealand firms to diversify beyond Australia and China, as that region emerges as Asia's third engine of growth after China and India.
The report tips New Zealand-Asean trade and investment to potentially double, from US$13 billion last year to up to US$27 billion by 2025.
Whatever their chosen market, firms can maximise their chances of success by calling on the resources and networks available to help businesses compete overseas.
New Zealand Trade and Enterprise can help in researching markets and have "beachheads advisers" in key regions - successful private sector executives ready to share their knowledge and experience.
Another useful resource is Kea, a global network connecting New Zealand businesses and individuals with the more than one million Kiwis living and working overseas, and fostering the sharing of knowledge, insights and opportunities.
As a bank with first-hand knowledge of the issues and a presence in key markets across Asia-Pacific and beyond, ANZ is also playing its part, including regularly taking businesses on delegations to identify opportunities and establish connections.
By lifting investment in productive assets and companies overseas, our businesses can add a new dimension to this country's trade and investment success and boost prosperity by taking more of New Zealand to the world.
Trade and investment flows - 31 Dec 2014
Total merchandise exports (fob, actual values): $50,506m
Export of services: $17,673m
Total exports: $68,179m
Stock of New Zealand's direct investment abroad: $34,909m
Stock of foreign direct investment in New Zealand: $109,137m
Source: Statistics New Zealand
• David Green is ANZ's Managing Director Institutional, based in Auckland.
