New Zealand may experience a renaissance in local manufacturing because of the weaker dollar and global supply chain pressures, says Tim Deane, ASB executive general manager business banking.
He says lot of manufacturing has moved offshore, particularly to China and other Asian countries, but with increased importing costs he believes the tables may be turning.
"I do wonder whether we are going to see globalisation move to localisation.
"With sluggish supply chains and difficulty in getting goods from the other side of the world, we may well see a renaissance in New Zealand manufacturing provided you've got enough raw materials.
"If you are manufacturing here, you can compete very well with imports because you can get product to customers more quickly if you've got a domestic market," Deane says.
"With a weaker dollar, you are seeing a much better ability to compete with imports – with the low dollar making imports more expensive."
The New Zealand dollar has fallen to a record low of around U56c against the American greenback, having traded at US70.24c at the end of March this year and a peak of US73.4c in March last year.
Deane says one business exporting their Kiwi-made product told him the 10c drop in the dollar increased the cost of their imported raw materials while their overall cost base had increased 3-4 per cent.
But, he says, the costs for an importer bringing in a comparative finished product have tripled this figure, rising around 15 per cent as a result of the lower value of the dollar.
"This is an interesting and emerging trend," says Deane. "I think it might bode well for those who have maintained production and manufacturing in New Zealand."
Digital transformation has been another emerging trend since the Covid pandemic struck.
"We are seeing a very strong acceleration of people moving to automate or digitise parts of their business – that might be at the back end with digital tools to help them with accounting, payroll and other administration processes.
"We've also seen business working hard to develop their digital channels to reach customers rather than through traditional means. We've seen them do really well."
Deane cited one business that has moved from virtually no online activity pre-Covid to online sales making up a third of their revenue. "They have got the right tech, they've worked hard at it and online sales are definitely paying dividends."
He says sluggish supply chains and cost increases have meant businesses are holding a lot more inventory of both raw materials and finished goods – and in many cases they have to pass these additional costs onto customers. If they don't, then it becomes difficult to maintain a reasonable margin.
ASB's July Small-Medium Enterprise survey revealed 42 per cent of respondents intended to increase their prices and a further 21 per cent were yet to make a call on price increases.
The top three drivers for businesses looking to raise prices, the survey found, is the rise in operating expenses (69 per cent of respondents), increased costs of goods (65 per cent) and added supplier costs (62 per cent).
In New Zealand there are about 500,000 small and medium-sized businesses employing 20 or less people and contributing more than 25 per cent of New Zealand's gross domestic product.
Many of them are weighed down by labour shortages. "Pretty well every business I talk to is dealing with labour challenges – whether it's existing staff unable to come to work because of sickness, or whether there are vacancies where it's very hard to find people regardless of what you pay them," says Deane.
He says there's a big shortage of skilled workers, especially in technology companies and those looking to improve their digital capability.
Service industries, particularly hospitality, retail and some allied-health businesses like physiotherapy, have real issues not only having staff off sick and unable to work but also attracting talent.
"A café owner I spoke to could not get anyone to work even though he was offering $28 an hour. He told me 'I could pay $35 and I still wouldn't get anyone because there just isn't anybody around at the moment'," Deane says.
"This is why you are seeing cafes and restaurants closing early during the week or with reduced hours simply because they don't have the right number or mix of staff."
Deane says more work needs to be done around immigration settings. "There is a massive skills shortage. It's not about giving the jobs to Kiwis – we just don't have enough people to do the work that needs to be done."
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