By Tom Thomson, Managing Director, EPL.
Sitting here in Christchurch in my Portacom office planning a new factory to replace the one I lost recently, IÕve been following all the instant experts from the economist section pontificate on the relevance or otherwise of the manufacturing sector.
I found one NZIER ‘expert’ attributed with the following statement – “People glorify manufacturing as something special and different from other parts of the economy but that’s not necessarily the case’
Having spent over 40 years in the plastics manufacturing sector I found this statement hit a raw nerve.
I began to wonder what ‘special’ would look like for our wise think-tank economist. I wondered how often he has faced the flames of international business with his money and his family jewels on the line.
The government in its latest progress report on export markets clearly sees a need for a strong niche-manufacturing sector in resource-based and high-tech areas.
Perhaps that does not make it special but it does make it a desirable goal for any modern economy. The big problem that I see is the time, money and effort required to start these export focussed manufacturers from scratch.
* The time it takes to reinvest capital earned from business growth into innovative technology that will allow our non-special manufacturer to strut his or her stuff on the world stage.
* The time it takes to get critical mass that will absorb the hits as we embark on export market development.
* The time taken to get international sales efforts bedded down and become effective is a large investment for a modern business.
* The time it takes to develop a technologically trained staff with high standards of quality is not something that can be underestimated or achieved over night.
Our non-special business will have to dig deep in the family coffers to ensure the latest techniques; materials and machinery are engaged to supply an increasingly sophisticated market with the best in class offering.
The money will need to be squeezed out of the fledgling business as it uses retained earnings to expand because the high cost of capital from most other sources will create an overhead structure the world will not pay for. Ideas of accelerated depreciated rates or any other form of support will be frowned upon by my economist mate as advantaging one sector of the community over another but I’m sure he won’t be keeping his computer and cell phone for much longer than a couple of years so he can stay current and relevant.
So our future bloated capitalist manufacturing magnate has beavered away in the factory for many years, struggled through the boom and bust of income wrought by the wildly fluctuating New Zealand dollar and has finally started to make a meaningful export contribution to the New Zealand economy.
He has now developed a robust business case and has broken into the top 100 NZ companies that can truly call themselves exporting manufacturers. But all things change and finally one morning our hero wakes up to find that the passage of time, the time zones crossed and the years of stress have not been kind and it’s time to move on, hand the reins over to the next generation to allow them to continue what has been started with blood, sweat and tears.
But wait! Who’s got the access to capital to allow our manufacturer to take a well-earned break and try and get back those lost family times through the grandchildren?
The established finance sector will help (why do I see Tui’s ad’s flashing before my eyes).
The staff – could they buy him out?
Most would dearly love to get involved but the entry hurdle is now too high and unless some white knight comes along that will be hard to accomplish.
I know! – Let’s get an overseas multinational involved, they’ll have the ready money.
Money changes hands, our entrepreneur moves on, but alas, the new owners find that the remaining staffs just don’t get it. They do not understand that the new shareholders requirements for funds vastly exceed that of the dearly departed founder and the wheels start to fall off.
Note to staff – “Redundancies, cut backs, endless reports etc will continue until morale improves”.
Another good NZ company dies, as focus on growth is lost to internal restructuring.
There are only 220 firms in New Zealand which export $25 million or more. We cannot afford to lose these companies.
So, yes, perhaps manufacturing is not the way forward, it’s not special. Probably safer to sit in my office and write about why it’s never going to be worth supporting.
Much safer there eh! Hell who cares if the dollar gets a lot stronger and a few more manufacturers fail to adapt and fail. At least my petrol bill won’t go up so fast. I’m not sure who’s going to pay for the petrol bill in the long run but we’ll be right watching our latest colour TV until they figure that one out.
I wonder why there are not many big exporters in New Zealand – might be worth a look at that one day.