High-value niche companies need carrot to stay local

YOKE HAR LEE searches for solutions to quandaries facing manufacturers crucial to our exporting future.

New Zealand's manufactured exports have the potential to lift the country out of economic mediocrity, but there is no coherent plan to achieve this goal.

As things stand, the country has pockets of innovative companies achieving impressive results. But Kiwi ingenuity has not been enough. Despite exports growing, our share of the markets we compete in has fallen consistently over the last 20 years, said Barry Brill, president of the Employers and Manufacturers Federation (Northern).

Manufacturers attending a one-day export conference on Wednesday, jointly hosted by the New Zealand Manufacturers Federation and the Business Herald, went away with this message: New Zealand must find the most efficient way to use its limited resources to get the export performance it needs.

Our best chance to raise living standards means making world-class products that the overseas buyers want, and working out a way to build critical mass so local companies are big enough to tackle foreign markets.

The most value can be found in producing high-value, niche products, but how New Zealand can build a critical mass of world-class companies that want to remain here remains a tricky question.

Innovative local companies are often snapped up by international companies searching for new technologies.

Keeping industries in New Zealand is but one facet of the problem. Finding the kind of industries the nation should support is the other.

Should the primary sectors or the new wave high-tech industries receive the biggest chunk of public funding?

John Whitehead, deputy secretary to the Treasury, reaffirmed the Government's preference not to pick winners.

"Conducting preferential policies towards some industries requires Government to pick winners. For a small country, pushing scarce resources into an industry that is not a winner can be very costly and the damage can take years to unravel," he said.

David Moloney, president of the Manufacturers Federation, was frustrated by two things. First, the politicians' inability to share with the public the fact that only value-added export growth can secure a first-world future.

Second: "we know, for example, we are no longer Britain's farm, but there is no vision, no statement of what business we are, or should be, in."

What seems to be clear is that value-added exporting is the way to go. But value-added makes no distinction between primary production or the new wave sectors such as telecommunications or information technology.

How we choose to allocate public resources or taxpayers' money in supporting these industries, will make or break New Zealand's chance to transform.

Also murky is what type of niche industries New Zealand should pursue. Fran Wilde, chief executive of the Trade Development Board, zeroed in on a this philosophical quandary: New Zealand has the potential to be a world leader in supplying high-value, genetically-modified foods as well as being a super-organic farm.

"Can they both be made compatible? That is one of the significant issues which we have to sort out in the debate concerning our future growth," she said.

Manufacturers also zoomed in on the fact that there is a stark gap in cooperation on industry matters among three key stakeholders - the public sector, research/learning institutions and the corporate sector.

The Government's non-interference upsets many businesses, which want it to play a pro-active, facilitative role.

Further, policy measures are seen as inadequate to help move New Zealand's manufacturing sector ahead.

The private sector, for its part, must show greater commitment by putting its money where it matters. With the exception of a few, New Zealand companies have made negligible investments in research.

A key reason is the lack of tax incentives for R&D, compared with Australia, which can offer potential investors research incentives as well as its bigger market.

It is no contest for an innovative, research-oriented New Zealand company when faced with having to chose between staying at home for patriotic reasons or moving next door for pragmatic ones.

Noel Robinson, founder of metal fabricating company Robinson Industries, called for a 150 per cent tax relief on R&D spending, and for changes to depreciation rules so technology investment was depreciated more rapidly than at present.

Mr Moloney said piecemeal tax policies would not work.

"There won't be any net benefit to the productive sector if direct taxes are cut but user prices are increased correspondingly by the Crown as the sole service supplier.

"The value of any future cuts in direct taxes needs to be seen as a package that includes currently signalled increases to a range of taxes or levies, including transport, fuel, and accident compensation charges," Mr Maloney said.

Changes were also needed in the tax regime to redirect capital resources which are now skewed towards bricks and mortar, said Dr Gareth Morgan, chief executive at consulting company Infometrics.

All agreed that New Zealand's current education system would be inadequate to support the kind of high-tech future that many want the to embrace.

Jim Donovan, managing director of Deltec, which makes antenna systems, noted that having a city of 350,000 people with five learning institutions and not one with an engineering focus reflected a major flaw in the education funding. "The last thing you would need is another law school at Waikato or another art gallery in Wellington," Mr Donovan said.

Andrew Reding, managing director of Fletcher Wood Panels, said education programmes needed to be coordinated with industry development. Education tailored for industry clusters was an example.

Policy and regulatory environment should be aimed at rewarding and facilitating businesses rather than frustrating them. So far, the reverse is true.

Last, but most important, is generating public support for the concept of having to be a competitive economy.

There is too much of an egalitarian mentality in the New Zealand psyche, said Kerry McDonald, managing director for Comalco NZ Ltd.

"We are swamped by a culture and environment that accepts average performance. The average New Zealander doesn't understand performance outside the television room [dominated by sports performance culture]," he said.