KEY POINTS:
Fisher & Paykel Appliances was quite explicit about "the straw that broke the camel's back", causing it to move washing-machine production to Thailand. This, chief executive John Bongard said, was the loss of a 5 per cent duty preference under the Closer Economic Relations trade agreement, the result
of an Australian competitor shifting its own manufacturing overseas. You would not, however, have guessed that from the subsequent furore. Time and time again, it was suggested the local business environment had driven the company out of the country. It would have been more relevant to ponder just why Fisher & Paykel had continued to make washing machines in South Auckland for so long, given Asia's production advantages.
Mr Bongard clouded the issue by referring to a "crippling" environment at home. He pointed, in particular, to escalating exchange and interest rates. Yet Fisher & Paykel had been working on shifting production for five or so months. The start of that analysis would not have been sparked by concern about an overheated dollar. This has become far more problematic since that date. It would have been a response to the vast majority of its competitors shifting their manufacturing to low-cost Asian countries and the competitive advantage being garnered from this. According to Fisher & Paykel, the minimum benefit to it will be pre-tax savings of $10 million to $15 million annually, derived mostly from the lower cost of labour.
Of course, the upshot locally is the loss of 350 jobs. That, understandably, has prompted discussion on how such occurrences can be prevented in the future and appeals for cross-party talks. But the reality is that cheap Asian labour finally proved irresistible even to a company that prides itself on being a great New Zealand brand and values its role as a leading local manufacturer and employer. Other great New Zealand names have preceded it and others will surely follow, if not to Asia then to Eastern Europe, Africa or anywhere else offering cut-price labour.
The Revenue Minister, Peter Dunne, said Fisher & Paykel should have waited for the May 17 Budget before making its decision. That will probably see the 33 per cent company tax rate clipped to 30 per cent and the likes of tax credits for research and development. But that would not have changed Fisher & Paykel's mind and is unlikely to stop other companies treading the same path. New Zealand is competing not just against far cheaper labour but, in the case of Thailand, generous tax incentives and assorted other enticements.
Quite simply, New Zealand will never compete with Asia on the basis of cost. But it is instructive that Fisher & Paykel is keeping its research work here. This adds substance to all the talk about New Zealand becoming a knowledge economy. It also points the way towards this country becoming less of a commodities producer and more an exporter of high-value products that sell on brand recognition, not price alone. A dependence on commodities and a floating exchange rate are the prescriptions for big cyclical swings and periods of discomfort for exporters. There will be no transformation, however, until New Zealand becomes far more efficient in its use of capital and labour, not least in terms of productivity.
It is symptomatic of this country's situation and globalisation trends that almost half of Fisher & Paykel's 4000-strong global workforce is already based overseas. The moving of washing machine production accelerates that process. It removes a point of competitive disadvantage. It should also help drive New Zealand manufacturing into those areas where it has an advantage.