Analysis

Factories no longer the sure route to prosperity.

Countries once grew rich through manufacturing – but today there is more than one way to effect structural transformation. Think about countries growing out of poverty and you probably picture something like this: underemployed workers leaving inefficient farms for factories that make textiles and clothing for domestic and export markets. Over time, this shift raises productivity and wages across the economy, while countries’ production and export baskets diversify into more sophisticated goods and services. For the past several decades, this image would have been broadly on the mark. South Korea is a prime example: through the 1950s, a large share of its population still worked in the agricultural sector. Its manufactured exports a decade later were mostly textiles, clothing, footwear and wigs. Two generations on, in 2017, Korea was the world’s fifth-largest merchandise exporter and its ninth-largest importer. Even if your mobile phone and household electronics weren’t made by a Korean company, they almost certainly contain integrated circuits that were. In varied ways, and to differing extents, countries from Bangladesh to Colombia to China have trodden this path. Since the dawn of the Industrial Revolution in late 18th century England, ‘structural transformation’– a term economists use for the process of shifting people and resources out of subsistence work into more productive activities – has begun with labour-intensive manufacturing. And starting in the 1950s, trade has been a key accelerator of structural transformation in developing countries, enabling much faster growth and poverty reduction than would otherwise be possible. Good enough to compete Trade matters in this story because in most developing countries, internationally tradable sectors are typically much more productive than the rest of the economy. Pulling more people and capital out of non-tradable activities and into firms dealing in tradable goods and services therefore makes for better jobs and a […]

Finding the right direction in times of great change

-Dieter Adam, The Manufacturers Network Returning from Europe recently, I found myself on an airplane watching Butch Cassidy and the Sundance Kid. If you don’t know the story it is loosely based on two Wild West outlaws Butch Cassidy played by Paul Newman, and his partner the “Sundance Kid” played by Robert Redford. The pair are on the run from a crack US posse after a string of train robberies and forced to flee to Bolivia in search of a more successful criminal career. I had seen the film before, but this time I watched it from a manufacturing perspective. These two ‘experts’ run a small, highly specialised and profitable business. They could be considered leading operators in their field and they have impressive brand recognition. As the regulatory environment changes, they ultimately realise that their business model is unsustainable, but instead of changing the model, they opt to take their current operations to a different market. That is initially unsuccessful, mainly because of a lack of understanding of local conditions, including language, and a lack of ability and willingness to acquire the necessary knowledge, in spite of the best efforts of their ‘consultant’, the Sundance Kid’s girlfriend, played by Katherine Ross. When they eventually realise they need to adjust their business model, they do so half-heartedly and use their first failure as an excuse to revert to the ‘tried and true’ method, only to ultimately fail spectacularly in the face of overwhelming regulatory action. This movie could act as a great ‘how not to’ guide for manufacturers in times of uncertainty and change. A living example of this in the real world is in the German car industry, which has largely been accused of napping at the wheel’ when it comes to switching from internal combustion engines (ICE) to […]

5G is about to change the world in ways we can’t even imagine yet

Blue sky thinking: We don’t yet know what wave of change 5G will create. 5G networks were rolled out in 2019 and will expand rapidly in 2020. 5G will connect everything and everyone. 5G will underpin remote surgery, self-driving cars – and movies you can download in seconds. We live in a time when words meant to represent significant or unique ideas are so overused, they have been trivialised. “Revolutionary” is such a word, a victim of hyperbolic marketing that has rendered meaningless a term meant to evoke profound change to our world. When everything is “revolutionary,” nothing is. Yet here I am, unable to find an alternative as comprehensively descriptive of 5G and the infinite number of ways the newest generation of wireless technology will change our world. In fact, the revolution has already begun. The global deployment of 5G networks got a running start in 2019 and is set to rapidly expand beyond anything we expected a year ago. But the public understanding of 5G hasn’t caught up. While 3G put the mobile Internet in your hand and 4G gave us mobile broadband – redefining how we interact with our world – 5G will connect everything and everyone. The technologies within 5G were and continue to be designed to vastly expand network capacity so cars, utility grids, appliances, medical devices, industrial machinery, homes, cities, farms and more can all be connected. And 5G will reduce delays and improve reliability, thereby enabling mission-critical tasks such as remote surgery, self-driving cars and enhanced public safety, to make possible secure connections so lightning-fast that an entire movie can be downloaded in seconds. The faster smartphones and always-connected personal computers that consumers are already using on the initial 5G networks are just a hint of the transformations to come. While 3G and 4G technology were designed to […]

Clean, high-tech: this is the factory of the future

Factories have long held a place in the popular imagination, not just as sources of employment and community prosperity, but also as hectic, noisy, grimy and polluting facilities, where thousands of people are employed in largely low-skilled line positions. Today’s factories are changing. Breathtaking advances in technology, automation and globalisation are transforming how and where manufacturers plan, construct, operate and integrate their factory networks. They are also ushering in significant operational, political and societal changes. From America’s Rust Belt to rural India and China, a chorus of voices is struggling to understand: how are technologies changing how we produce and distribute products? Are automation and free trade taking away valuable factory jobs? What type of skills will be required? How can communities prosper in the face of new production technologies? How and when should manufacturers upgrade their legacy equipment to embrace new technologies to boost yields and efficiency for advantage or simply to remain competitive? Businesses, governments and society alike must understand the technological dynamics at play and collaborate together to ensure tomorrow’s factory towns prosper. What will the factory of the future look like? The key answers will come from the factory floor where new technologies like 3D printing, advanced robotics, the Internet of Things, artificial intelligence, wearable devices, and virtual and augmented reality are converging to create new value, enabling the hyper-efficient and flexible factory of the future. The value created is real: large global producers have increased efficiency and reduced costs by up to 30% across all operations, driven by improvements in overall operating efficiency, lower inventory, energy and water costs, and reduction in incidents involving safety. While the pace of change and how these changes will propagate across networks will differ by industry and country, the factory of the future is a more digital, virtual and […]

Infrastructure spending good news for SMEs

Today’s major infrastructure spending announcement is good news for members in the EMA’s upper North Island region. EMA Head of Advocacy and Strategy, Alan McDonald, says an additional infrastructure spend of $12 billion over four years is a welcome boost, especially with $6.8 billion of it going into the transport sector. “We’ve already seen an additional $400 million allocated to school infrastructure, and the $300m announced for new spend on hospitals is also going into an area that needs the additional funding attention,” he says. For EMA members the most welcome news is the new transport spend, as its region from Taupo North continues grow rapidly without having the necessary connectivity and ease of movement to support that growth. The new funding will be in addition to what has already been allocated in the National Land Transport Plan (NLTP). “Our understanding is that in some cases the funding may speed up projects in the NLTP or supplant already allocated funds. Where that happens the funding that is freed up from the NLTP will then be reallocated for other NLTP projects to further accelerate that pipeline,” says Mr McDonald. “While details about which projects will receive the new funding are being held back – they are likely to be announced in the New Year – there are a number of public transport, rail and road projects across the upper North Island that are virtually ready to go and if brought forward will bring considerable benefits to businesses in the region,” he says. The new National Infrastructure Commission will rightly prioritise the projects, but the EMA’s wish-list of shovel-ready projects would include: The third rail main, rail electrification between Papatoetoe and Pukekohe, the airport to Puhinui link, the north western busway and Mill Road in Auckland; the route south from Whangarei to […]

A year in focus for HERA

In 2019, HERA imbedded its new focus on automation and Industry 4.0 within its new strategy. In support of this, it was announced that we’ll build a new Innovation Centre. This will address the strategic need for the physical facility to facilitate technology transfer, prototyping, research and training to prepare our member companies for the Industry 4.0 transformation. This will also propel our NZ Welding Centre into the only Welding 4.0 facility in New Zealand – and support its rebrand to the Centre for Innovative Fabrication. Supporting the creation of the Innovation Centre was the appointment of our new Innovation Centre Manager, Greg Buckley. He will work closely with Holger Heinzel, our Industry 4.0 Engineer and will see him oversee construction of our Innovation Centre which will commence in early 2020, as well as enhance industry engagement in Industry 4.0, and create a community of practise around this thinking. Recognising the other underlying issues within the sector, we also created Kotahitanga, a HR Innovation Cluster (to address the skills crisis); Matauranga, the Digital Innovation Cluster; (to address industry communications) and Whakamarumaru, the Defence Innovation Cluster (to explore future pipeline opportunities within the Australian Defence program). We also launched “Stirring the Pot”, our new industry-focused podcast. Episodes include: “Ensuring you’re a ‘factory of the future’ in New Zealand”; “The future of manufacturing in New Zealand”; “Addressing the skills gap through diversity”; “The new breed of smart industry- advanced manufacturing”; and “Avoid death by a thousand cuts and automate!”. Improving productivity and capability Last year, we also initiated welding productivity and automation capability assessments for our members. This identifies improvement opportunities and benchmarks performance relative to the rest of the industry. Supporting this focus on improving productivity, we hosted world renowned international expert on the Theory of Constraints (bottlenecks), Arrie van Niekerk. […]

Canterbury Employers' Chamber of Commerce - Chief Executive Leeann Watson

Twelve months of steady evolution

-Leeann Watson, Chief Executive Canterbury Employers’ Chamber of Commerce The last year has been– not quite the transformational 2019 that many expected – but as we head into 2020 and the general election, I think that will likely change. There was the release of a Government Budget focused on wellbeing, as well as the announcement of a $7.5 billion surplus, which may well be called upon – at least in part – as the political parties start to ramp up activity before the voting booths open. There was also the reversal on the tabling of a capital gains tax. There were various changes to employment legislation, with Fair Pay Agreements one of the more highly publicised issues through the year. Immigration too was in the spotlight with changes to employer-assisted temporary work visa settings to help address skills shortages, which are particularly prevalent in the regions. There were also the local body elections in October, with some level of movement across most electorates. Hopefully this will result in a fresh burst of energy for Councillors to really gain traction on key local issues to help enable our business communities. In the vocational education sector, the big news was the launch of the Reform of Vocational Education (RoVE) – one of the most significant changes in education for some time, which will redefine roles for industry bodies and education providers and establish a unified vocational education funding system. It was also good to see the Government’s support of literacy and numeracy training in the workplace through a new funding commitment of $14.5 million over four years – meaning the Government will contribute nearly $45 million to the employer-led workplace literacy and numeracy fund between 2019 and 2022. I am optimistic that this sector shake-up will encourage collaboration between the business community […]

Exporting New Zealand agri-technology to Ireland

When Hamilton manufacturer Innovative Dairy Systems (IDS) won a Euro 4.5 million contract to deliver a cheese making machine to a large food manufacturing company in Ireland it encountered a significant challenge. The challenge wasn’t a technical one, even though the buyer wanted a machine with the capacity to produce up to eight tonnes of cheese per hour – that’s the equivalent of four hundred 20kg blocks of cheddar, gouda or mozzarella! IDS had already provided a similar cheese making machine to this buyer, who was now building a new site to become one of Europe’s largest diversified cheese manufacturers. Instead the challenge related to funding this large project, over several months and involving key sub-contractors. For example, IDS sub-contracts the stainless-steel fabrication, and the manufacture of conveyor belts and valves to local Hamilton-based companies, who all require advance payments. IDS negotiated a 30% (Euro 1.4 million) advance payment from its Irish buyer to assist with its working capital. In return, the buyer required IDS’ bank to provide an advance payment bond that matched this amount. An advance payment bond is an on-demand financial guarantee which allows a buyer to have its deposit fully indemnified in the event its supplier fails to properly perform its contractual obligations. “An advance payment bond is a reasonably common requirement where a higher deposit is sought on a project, “explains Phil Quinn, NZEC Senior Business Originator. “Because it’s on-demand, a bank will require tangible security from their customer. This can be a challenge for many small to medium enterprises, particularly for larger contracts.” When IDS encountered difficulty providing its Bank with security for 100% of the value of the advance payment, they both approached NZEC for its General Contract Bond Guarantee support. “New Zealand Export Credit performed due diligence on our company and financials, […]

Sustainability in 2019: The year in review

Barbara Nebel, CEO, thinkstep-anz This year has seen a significant rise in consumer concern around environmental and social issues, and a corresponding demand for better information about products and business practices. Colmar Brunton’s Better Futures report[1] in February found that New Zealanders had the highest levels of concern about climate change in a decade, but also that how companies talk about their social and environmental commitments is confusing. The In Good Company report[2] in November – commissioned by the Sustainable Business Council, Porter Novelli and Perceptive – found that New Zealanders wanted more transparent communication on sustainability from all industries and considered sustainability in their purchase decisions. It is more important than ever for manufacturers to be able to tell the story of product sustainability. We look back at how government and businesses alike have stepped up to this challenge. Government changes Single-use plastic bags were banned from July this year, signalling a watershed moment for plastics use. The Government has recently announced[3] the next steps to tackle plastic waste, starting with moving from single-use packaging and containers made of hard-to-recycle PVC and polystyrene, towards high-value alternatives like HDPE and polypropylene. In November, New Zealand made headlines overseas as the Climate Change Response Amendment Bill passed with cross-party support, committing the country to reduce carbon emissions to zero by 2050. The passage of this bill gives businesses certainty of the long-term framework for reducing emissions and will make it easier for them to plan their own transition. The Ministry for the Environment, accredited product stewardship managers and the Sustainable Business Network have collaborated on Fuji Xerox’s roadmap[4] to develop a product stewardship scheme. Companies and other organisations participating in accredited product stewardship schemes have diverted more than 1/3 million tonnes of waste from landfill to date. How are companies responding? […]

The year in focus for manufacturing

-By EMA senior policy analyst Michael Burgess Despite the economic predictions, manufacturers have concerns with finding skilled workers, the bewildering speed of technological change, and how to make investment decisions in light of low business confidence. Internationally and domestically, a number of factors have put the brakes on the New Zealand economy in 2019. Domestically, the feeling is downbeat, with low levels of business confidence appearing relatively deep-seated. A number of key indexes that the EMA monitors continues to highlight that slowdown, with GDP also slowing to just over 2.1 per cent year-on-year. The Performance of Manufacturing Index is at levels not seen since the Global Financial Crisis, with forward orders also at their lowest levels since 2019. The October PMI result raises the prospect of the manufacturing sector’s recent negative results coming to an end in the final quarter of the year. However, most international economic agencies have downgraded their growth forecasts. The latest J P Morgan Global Manufacturing Survey is also in negative territory, with optimism dropping to its lowest level since first tracked in 2012. Despite the economic predictions, manufacturers have concerns with finding skilled workers, the bewildering speed of technological change, and how to make investment decisions in light of low business confidence. The Employment Relations Amendment Act introduced new duties on employers. Employers with more than 19 staff can no longer use the 90-day trial provisions and must now use probationary periods. The Employment Relations (Triangular Employment Act 2019 will take effect in June 2020. This affects triangular relationships where an employee is employed by an employer, but performs their work for another organization which controls the employer’s day-to-day work. The Holidays Act review is ongoing, any substantive overhaul has been delayed because the government taskforce needs more time to run tests. It is […]

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