NZ lacks capital to make firms global

New Zealand is relying too much on agricultural commodity exports, according to a report. Photo / Hawkes Bay Today

New Zealand has invested too much in being inventive, and not enough in taking inventive ideas to global markets, says the New Zealand Institute in a new report urging a national focus on overcoming the barriers to creating high value global businesses.

"Performance at the internationalisation stage by New Zealand firms has been weak," says the report, entitled "A Goal Is Not A Strategy", a reference to the government's goal for New Zealand to catch up to Australian living standards by 2025.

"There is a shortage of entrepreneurs, experienced directors and well-trained managers, of capital, and of connections.

Efforts to lift innovation effectiveness have focused mainly on inventiveness, not internationalisation.

"The importance of the internationalisation obstacle has been under-estimated and the market failure in overcoming it has not been recognised."

The Institute says one of the major issues has been under-resourcing, with programmes that had potential being wound up because they were spread too thinly to succeed.

Instead, the Institute proposes a "material reallocation"
of billions of dollars of government funds and effort should be thrown at high value manufacturing and internationalisation efforts over a number of years.

If government debt were allowed to rise to 20 per cent of Gross Domestic Product specifically to overcome the internationalisation barrier, "that would be a material reallocation of resources," the report says.

The Institute also suggests that economic liberalisation has created a mindset that relies too heavily on market forces to provide answers, and "a reluctance to intervene or 'tilt the playing field'," as other more successful exporting countries have done.

Fundamental to the problem is New Zealand's continuing over-reliance on agricultural commodity exports and inbound tourism, two sectors that suffer from long term low labour productivity performance, the Institute argues.

"Much more effort is required by New Zealand to establish the basis for success of wealthy small countries: that is, having large exports of differentiated products and services."

While some such products may exist in the agricultural sector, far greater opportunity is available in high value manufacturing and information technology, but the efforts to foster an inventive society have yet to be matched by a focus on training inventive people to be successful entrepreneurs.

"New Zealand does not have a single world class university degree focused on training entrepreneurs to internationalise businesses; instead, our entrepreneurs learn on the job.

"New Zealand's major agency for supporting internationalisation puts most of its effort into making introductions," the report says.

"The results reflect the lack of effort. Competing countries do much more."