Where are our world class companies?
-Ian Walsh Some of you may have read the NZ Productivity Commission’s report into frontier firms (the top 10% most productive firms in New Zealand) and compared our productivity to other Small Advanced Economies (SAEs) such as Belgium, Denmark, Finland, the Netherlands and Sweden. This is great research with various studies and benchmarks, and I highly recommend a read. The findings of the research were that our most productive firms have operated at around 53% of the best performing firms of those listed countries for over a decade, and there are no signs of this changing. The report identified several drivers behind this, including that we inefficiently utilise our allocations of labour, and that we don’t see benefits from technology diffusion (awareness and access to best technology that then diffuses through our markets). Contributing factors include our geography, lower levels of international trade, weak innovation system or low capital intensity to name a few. So what are the other countries doing that we are not? What can we learn from them? Firstly, they focus on internationally oriented companies, as they have a small domestic market, they are more focussed on growing and supporting organisations that are focussed on international trade. Secondly, they encourage and develop clusters of firms organised around areas of strength and capabilities. These clusters of related capabilities create scale, efficiency, and productivity gains, but more importantly they enable the innovation engine to develop. Consequently, this capability then attracts international engagement, which contributes to overcoming the technology diffusion issue. Thirdly, they invest in research and development. Most countries invest twice what we do each year as a percentage of Gross Domestic Product (GDP) into R&D. New Zealand is the third-lowest R&D investor of all SAEs, which correlates with us sitting in the bottom three for productivity. New Zealand […]