Distance from rivals could be big plus for locals battling imports

Many factors conspire to deter manufacturers from competing against importers, but NZ's geographic location is an advantage.

By Rod Oram

New Zealander manufacturers worry a lot about how far they are away from the world's big markets. But few exploit the converse: how far they are away from the world's big manufacturers.

Distance is a natural defence against imports. The time and effort involved in getting goods here costs money.

Take the fashion industry, for example. If a retailer buys clothes from, say, a Chinese manufacturer, it could take at least eight weeks to get the order made and shipped here. Meanwhile, the retailer has to hold larger stocks and is vulnerable to missing a fad.

If, however, the retailer can buy from a local manufacturer for delivery within, say, four weeks, it could afford to pay a bit more, reflecting lower inventory costs and greater responsiveness to the market.

The Warehouse is one retailer that employs this principle, says chief executive Stephen Tindall. Eight years ago, its turnover was $100 million a year, of which 90 per cent came from sales of imported goods. Today only 55 per cent of its $900 million annual turnover comes from imports, including the imported components in New Zealand-made goods.

The company has actively sought out local manufacturers, but has found relatively few of them who have the management and manufacturing skills to produce with appropriate speed and quality.

Other people in the garment trade say a failure by some to adapt to the greater demands and disciplines of a post-protectionist environment is probably one factor. That then begs the question whether enough assistance is available to those companies to help them upgrade their skills.

A second factor appears to be a diminishing infrastructure in the industry. The near end of tariffs has driven so many manufacturers out of business that their suppliers, such as importers of materials, have been badly hurt too.

The shrinkage of the industry has also hit training schemes and career prospects, says John Heskett of J & E Heskett, a Hamilton maker of women's clothes.

"We're losing skills in this industry because the base is getting too small to support training."

Across all industries, many factors can conspire to deter New Zealand manufacture and to encourage imports. The key one is the volatility of the exchange rate, which can destroy a manufacturer's competitiveness overnight.

What would happen if a Warehouse supplier was hit by a high dollar which destroyed its competitiveness against imports?

"We'd have to discuss that with them," says Mr Tindall. One solution might be to concentrate more volume of fewer items, with the manufacturer to improve its efficiency.

But more insidious factors are at work. Government regulations on product testing, for example, can cost local manufacturers dearly. Yet on imports a simple declaration that goods meet NZ standards can suffice.

Just how high the odds can be stacked against local manufacturers is shown in Tim Hazledine's book Taking New Zealand Seriously. He explores why no LPG gas bottles for barbecues are made here, as far as he can tell, because of a barrage of bureaucratic impediments.

Yet, the Government's own Industrial Supplies Office, which seeks Kiwi goods for the Government to buy, reckons that for every $1 million in imports replaced by locally made products, 18.7 jobs are created here.