New export opportunities opening up

The manufacturing sector overall is looking increasingly resilient, having coped with a high NZ dollar through improved productivity.
– Catherine Beard, Executive Director, MaufacturingNZ

As we near the end of 2015, it’s encouraging to note that New Zealand’s manufacturing sector is continuing its expansionary path and new export opportunities are opening up.

At the time of writing this, the latest BNZ – BusinessNZ Performance of Manufacturing Index (PMI) results were from October 2015, and the seasonally adjusted PMI was 53.3 (above 50.0 indicates that manufacturing is generally expanding).

Although this was 1.7 points lower than September, the level of expansion was still healthy. The sector has now been in continued expansion since October 2012.

While a lot of the expansion can be attributed to the Christchurch rebuild and a catch-up of building and construction investment in the Auckland region, the manufacturing sector overall is looking increasingly resilient, having coped with a high NZ dollar through improved productivity.

We have also seen consistent expansion from other sectors such as food and beverage. The high New Zealand dollar has allowed many manufacturers to invest in new plant and equipment and has encouraged manufacturers to move away from competing on price and to invest in innovation and quality to stand out from the competition.

The monthly PMI survey has been a great way of keeping track of the industry trend, with comment and input direct from Kiwi manufacturers themselves. We are grateful for the BNZ’s ongoing support of this important exercise and to all the manufacturers around New Zealand who fill in the 5 minute survey every month.

Another survey that helps us keep a good handle on New Zealand’s manufacturing performance is the annual ExportNZ survey, in the field in August-September. The majority of respondents (49%) identified themselves as manufacturers.

The main findings showed that the business outlook is positive, with 70% of respondents expecting business profitability to improve in the next 12 months, 22% stay the same and 6.8% to deteriorate. Most (54.6%) expected their business to employ more people with 38.5% employing the same and only a small number reducing staff (6.8%). The majority (68.8%) are able to access enough skilled staff to grow their business, however it is concerning that 31% said this is a constraint.

Australia, China and Europe were the top three export markets. The EU is New Zealand’s third largest export market with $7.7 billion in goods and services last year. There are exciting prospects as the EU Commission has announced it is seeking to negotiate an FTA with us as part of its trade strategy for the next four years.

The other positive trade news is that the successful conclusion of the Trans Pacific Partnership has the potential to boost the competitiveness of manufacturing exports with savings of $10 million per annum that are currently lost to tariffs. In addition to this New Zealand singing up to the WTO Government Procurement Agreement means New Zealand manufacturers now have access to tender for Government purchasing in huge markets like the US and EU on an equal footing to local suppliers. This has been welcome news for manufacturing exporters that have otherwise had to do costly work-arounds to access these opportunities.

For our more tech based manufacturers, there is some great growth happening. The 2015 TIN100 report is evidence of this. It shows that from 2014 to 2015, high-tech manufacturing revenue growth was up by 4.5% ($256m), ICT up 13.1% ($324m) and Biotech 8% ($30m). It’s interesting to note that the majority (74%) of this year’s TIN Rising Stars are operating in ICT – reflecting the recent growth of this sector.

It’s not surprising to see ICT company Xero being ranked third in the top ten companies to watch (named No. 1 on the Forbes World’s Most Innovative Growth Companies List), along with Fisher & Paykel Appliances in the number one spot and Datacom second.

The CEOs were asked for their key success factors for growth. A focus on an ongoing innovative culture was cited, along with maximising cloud-based technologies and pushing into the US market.

In today’s competitive world innovation is becoming a strong focus. If we want to make an impact and compete globally, we need to be more innovative and know the right tools to turn ideas into new products, services and new ways of working. Manufacturers need access to staff with the relevant skills and training for this.

It is fantastic that the University of Auckland Business School has developed a Master of Commercialisation and Entrepreneurship (MCE) in response to calls from many sectors to increase the commercialisation of New Zealand’s investment in science and innovation.

Innovation was identified in the TIN2015 report as a driver of success: “Companies require continual innovation and creativity to stay ahead. To do this, investment in research and development (R&D) as well as sales and marketing is key. TIN Rising Stars spend twice the amount on R&D than the rest of the TIN200.”
This is food for thought for Kiwi manufacturers considering their growth plan for 2016 and beyond.

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