KEY POINTS:
There is, as Economic Development Minister Trevor Mallard concedes, a political risk in the Government's plan to help companies establish foreign operations, rather than just assist them to export their products. The use of taxpayer money to create jobs overseas offers ready ammunition at a time when companies
such as Fisher & Paykel are laying off workers here and moving production overseas. Any criticism, however, ignores the realities of this country's situation and the path of globalisation. Against that canvas, it makes sense for the Government to be offering help for companies to set up overseas.
One of those realities is that the level of foreign direct investment here ($90 billion) is five times larger than the equivalent investment overseas by local companies. The outward flow is less than half the OECD average. Another reality is that New Zealand will never compete with the likes of Asia or eastern Europe on the basis of cost. A third is that the domestic market limits the growth of New Zealand firms. To expand, they must look overseas.
Often, that has led to local companies being sold to a foreign firm that has access to overseas markets and possesses the scale to ensure ultimate gain is derived from a product. Ownership, profits and other benefits are lost to this country. The Government wants New Zealand firms to be able to expand overseas while retaining local ownership. Its way of making this happen, while still being formulated, is based on providing information that allows companies to invest overseas or form strategic partnerships.
Mr Mallard paints this against a backdrop of a change to higher-wage jobs in New Zealand. That is logical. But some of the conditions imposed by the scheme risk being too rigid to help that process. Those who receive Government help will have to introduce new technology or research and development into the local economy, establish linkages that could benefit other local firms, and improve access for other local firms to overseas supply chains and distribution networks. The first is designed, reasonably enough, to deliver high-wage research jobs to this country. But the others make light of the competitive instinct, and also ignore the benefits of individual success to the economy.
Certain other aspects of the new focus are also puzzling. Mr Mallard says the level of foreign direct investment is about right, but he wants it to be focused more on new areas and on bringing in new technologies. At the moment, the investment is often used more to buy existing companies. In the Government's eyes, this introduced a fatal flaw to Investment New Zealand programme grants that are designed to attract inward investment. As a result, some have been scrapped.
It would be a mistake, however, to insinuate that the disappointing results from those grants means company acquisitions by overseas firms are of limited value to the economy. Any emphasis on greenfield development would play down benefits such as the global contacts that a foreign owner may bring to a local firm, and the introduction of a higher level of expertise, leading to expansion, new jobs and better services to consumers.
The Government has identified a necessity if New Zealand-owned exporters are to grow faster, become more competitive, and operate on a grander scale. Rightly, it intends to supply advice and support, rather than grants predicated on a picking-winners format. The obvious model is in companies like Nestle and Nokia, which, while expanding overseas, have maintained their roots in their diminutive countries of origin. Small-mindedness, either by the Government or critics of this scheme, must not impede the emergence of replicas here.