-Adam Sharman, Senior Partner, Dsifer
For many New Zealand organisations, 2023 has been a year of navigating multiple headwinds, including increased cost of materials driven by exchange rate pressure and high levels of inflation, weakening demand from China as their domestic economy slows, and weakening consumer demand in some sectors.
All of which has seen the NZ manufacturing sector contract across 2023. These challenges appear to have been particularly acute across the food processing sectors.
Staffing continues to be a challenge for New Zealand manufacturers, particularly in the operational workforce. However, we are starting to see an easing in the market and, as the number of jobs being advertised drops and the number of applicants per job advert increase organisations are finding it easier to attract talent.
There is a paradox to this however, as our clients frequently report that staff absenteeism is one of their biggest challenges and has a major impact on their ability to achieve potential performance.
It is not all doom and gloom, however, and 2023 has been another standout year for New Zealand organisations in terms of innovation, creativity, and growth. In particular, developments in aerospace, agritech and health tech have seen Kiwi companies make significant impacts on the world stage as New Zealand continues to be recognised for its innovation in these areas.
Increasingly, we are working with organisations who have recognised that security is a strategic asset for New Zealand and our organisation, and we have seen multiple examples of New Zealand based organisations winning work away from Asia, due to their ability to provide products that are trusted as secure.
This is particularly true in the electrical component manufacturing sector, as for example, European car producers are willing to pay a premium for data security in the manufacture of their components.
New Zealand manufacturers are well placed to capitalise on this reputation as a strategic point of difference that is less reliant on competitive pricing.
2023 marked an inflection point in the focus on sustainability and mitigation of environmental impact, driven largely through customer and consumer purchasing power.
For example, Nestle’s demands of their suppliers lead to Fonterra announcing its biggest carbon reduction initiative to date. Whilst this inflection may be focused on the big carbon emitters now, it is inevitable that customers will require all businesses to be able to demonstrate their environment impact in the future and New Zealand business should focus on these efforts as a priority.
With New Zealand’s reputation as a clean, green, environmentally friendly country being challenged on the world stage, individual organisations and industries will have to double-down on the demonstration of their sustainability credentials if this is to remain a competitive advantage.
Environmental sustainability is not the only area in which New Zealand risks falling behind. Investment in manufacturing, particularly advanced/digital manufacturing and R&D is lagging behind the rest of the world.
For example, the UK recently announced a £4.5bn investment in its manufacturing industry, including initiatives to support investment in technology that allows organisations to write off investment in tech against profits in the first year.
By comparison (and even adjusting for scale), New Zealand is lagging behind. Many organisations we work with struggle to make investment in technology that could accelerate their businesses as the initial investment is seen as too high for the associated pay-pack period.
With a pause notice on the Industry Transformation Plan in place, the manufacturing industry is waiting to see what support it will receive from the new administration before committing to further investment.
Whilst this uncertainty is causing a degree of hesitation in the industry, we have seen a significant shift in the approach and attitudes of New Zealand’s manufacturers when it comes to understanding and articulating how technology and data fit in to their strategy.
Whilst AI has been the hot topic for 2023, manufacturers are increasingly approaching digital transformation as a holistic strategy including, technology, automation, data analytics, machine learning and AI.
It is by bringing these elements together and thinking about them in an ecosystem that will accelerate true transformation.
This is an encouraging shift, and we look forward to continuing to see the industry capitalise on these advances as the economic pressures appear to be easing in to 2024.
In the meantime, we encourage everyone to take some well-earned downtime of the Christmas/New Year period if you can after what has been a busy year and come back refreshed and ready to go in 2024.