Christopher Adams

Christopher Adams is the Markets and Banking reporter for the New Zealand Herald

NZ's engine room in need of a rev up

Photo / Brett Phibbs
Photo / Brett Phibbs

Just last week Mayor Len Brown referred to Auckland as "New Zealand's economic powerhouse" in a council press release put out before he jumped on a plane to lead a regional trade delegation to China.

Dairy farmers might be inclined to disagree with his claim, but the fact remains that a third of this country's firms are in its biggest city.

In many ways the Super City is, or at least should be, this country's economic engine room.

However, research suggests Auckland companies aren't contributing as much to the overall economy as they could, despite their advantages of scale, population and connections to international markets.

Only 34 per cent of Auckland small and medium-sized enterprises saw sales growth over the past year, according to the latest MYOB Business Monitor, a national survey of 1000 SMEs by Colmar Brunton.

That's a better result than Wellington, where just 31 per cent of the firms surveyed increased revenue during the same period.

But businesses in earthquake-hit Christchurch were outperforming those in Auckland in terms of sales growth, with 40 per cent reporting a lift in revenue over the past year.

And Auckland companies have fallen behind those in the capital and Christchurch when it comes to revenue growth expectations for the year ahead.

Only 41 per cent of Auckland businesses expect to be better off over the next 12 months, the survey says, compared with 46 per cent in Wellington and 52 per cent in Christchurch.

Julian Smith, New Zealand general manager of accounting software provider MYOB, says the research doesn't imply that Auckland businesses are failing.

"But for New Zealand to do well Auckland needs to fire and Auckland isn't firing," Smith says.

"For Auckland to do really well it needs to leverage its scale and become much better at business development and actually selling and marketing the products and services it has available."

He says a particularly worrying finding of the survey is that Auckland business owners' main focus area in the year ahead is "customer retention".

"That is a maintenance strategy - not a growth strategy," Smith says.

"For Auckland to really fire more businesses need to attract new customers because if we're just in that retention [mode] we're just moving market share around all the different businesses in Auckland."

BusinessNZ chief executive Phil O'Reilly says the MYOB survey results are not surprising and firms in the biggest city shouldn't be blamed for having less revenue growth than those in other regions.

"I don't think we should say, 'Gosh, you nasty Aucklanders - you should get off your backside and do something'," says Wellington-based O'Reilly.

He says Auckland's small and medium-sized firms don't have the same kind of exposure to the farming sector as those in other regions - especially Canterbury and Otago - and haven't been gaining as much benefit from strong agricultural exports.

"Our exports, particularly of dairy and lamb, have been going particularly well recently," O'Reilly says. "So businesses that are exposed to those sectors will be going well."

Auckland, he says, does a lot of business "with itself".

"A lot of those Auckland SMEs would tend to be domestically focused and the domestic economy hasn't been going that well over the last 12 months or so. Wage increases have been subdued, building permits are at historic lows and retail spending is getting better but is still not flash," O'Reilly says.

He says it's taking a long time for the economic benefit of strong agricultural exports to filter through the domestic economy into Auckland.

"One of the prime reasons we think that's occurring is that farmers and others in the export markets are vigorously paying down debt."

Auckland Chamber of Commerce chief executive Michael Barnett says despite the patchy performance of the city's businesses shown in the survey, a positive aspect is the high proportion of small firms expecting revenue gains in the year ahead.

The survey says 63 per cent of small Auckland companies (5-19 staff) are expecting sales growth over the next 12 months.

To compare, only 40 per cent of Auckland sole traders, 39 per cent of micro employers (1-4 staff) and 31 per cent of medium firms (20-199 staff) expect to see a lift in revenue over the same period.

Barnett says small Auckland companies are showing a sense of optimism and energy that is lacking in older, established businesses.

But while the performance of some Auckland firms might be slipping behind those in other centres, the MYOB research highlights promising growth in the city's manufacturing sector.

The survey says 54 per cent of Auckland manufacturers and wholesalers reported increased revenue over the past year.

"This is actually the best performance of any sector across the country," MYOB says.

And Auckland manufacturers are bullish about the year ahead, with 56 per cent expecting revenue gains.

ManufacturingNZ executive director Catherine Beard says survey results for the city's manufacturing sector are encouraging. "Manufacturing is the biggest employer in Auckland, so it's a big part of the local economy and obviously because of [the sector's] size it's important to the country's economic wellbeing as well," Beard says.

The survey also says 45 per cent of Auckland-based exporters achieved revenue growth over the past year, despite the dollar's hitting a post-float record against the greenback last August.

The city's construction firms are also seeing growth, according to the survey, with 42 per cent of businesses in that sector expecting increased sales this year.

Additionally, 45 per cent of Auckland's retail and hospitality firms and 42 per cent of agricultural companies based in the city anticipated a sales lift in the coming 12 months.

Barnett says: "We need to lift our sights to exploit our size as a scale market for investment-led, export-focused growth."

Lifestyle focus could be at expense of growth

The "BMW, bach and boat syndrome" is often cited as a reason New Zealand firms sometimes fail to reach their full potential.

As the theory goes, Kiwis too often build their companies to a size in which the profits enable a few material luxuries, such as a fancy car and holiday home, and then focus on their lifestyle rather than driving further growth in their businesses.

According to the MYOB Business Monitor Survey, Aucklanders are the most lifestyle-focused small and medium-sized business owners in the country.

It says 47 per cent of company owners in New Zealand's biggest city classify themselves as "lifestyle seekers", while 36 per cent consider themselves "business builders".

In comparison, 45 per cent of Wellington owners are lifestyle- focused and 35 per cent are business builders.

Further south, 46 per cent of Christchurch businesspeople classify themselves as lifestyle seekers and 40 per cent as business builders.

More than 40 per cent of the Auckland company owners surveyed - who considered themselves business builders - reported increased revenue over the past year, while only 27 per cent of lifestyle seekers reported a lift in sales over the same period.

NZIER principal economist Shamubeel Eaqub says that, statistically, there is little difference in the priorities of the business owners surveyed in the three main centres.

But from an "NZ Inc" perspective the number of lifestyle seekers across the country is far too high, he says.

BusinessNZ's Phil O'Reilly says having a high proportion of lifestyle- focused businesspeople is inevitable in a country like New Zealand.

"That's no bad thing - so long as we have enough of those entrepreneurs that do want to take on the world and do want to become the next Apple or whatever," he says.

O'Reilly believes this country does have a sufficient number of highly focused entrepreneurs.

"What's important is that every time a company desperately wants to succeed we support them to the max to get there."

BUSINESS REVENUE FORECASTS (Second quarter 2012 - April to June)

Auckland
* Percentage of firms expecting more revenue: 33%
* Percentage of firms expecting less revenue: 20%

Wellington
* Percentage of firms expecting more revenue: 23%
* Percentage of firms expecting less revenue: 27%

Christchurch
* Percentage of firms expecting more revenue: 43%
* Percentage of firms expecting less revenue: 26%

Sydney
* Percentage of firms expecting more revenue: 35%
* Percentage of firms expecting less revenue: 32%

AUCKLAND'S BEST REVENUE PERFORMERS 2011

Employers with 5-19 full-time staff
* Percentage of firms achieving more revenue: 58%
* Percentage of firms achieving less revenue: 15%

Manufacturers
* Percentage of firms achieving more revenue: 54%
* Percentage of firms achieving less revenue: 28%

Exporters
* Percentage of firms achieving more revenue: 45%
* Percentage of firms achieving less revenue: 25%

Businesses with a website
* Percentage of firms achieving more revenue: 44%
* Percentage of firms achieving less revenue: 28%

Rural businesses
* Percentage of firms achieving more revenue: 41%
* Percentage of firms achieving less revenue: 35%

Business owners aged over 60 years
* Percentage of firms achieving more revenue: 38%
* Percentage of firms achieving less revenue: 25%

Businessmen
* Percentage of firms achieving more revenue: 37%
* Percentage of firms achieving less revenue: 26%

AUCKLAND'S WORST REVENUE PERFORMERS 2011

Business owners aged 30-44 years
* Percentage of firms achieving more revenue: 31%
* Percentage of firms achieving less revenue: 29%

Suburban businesses
* Percentage of firms achieving more revenue: 31%
* Percentage of firms achieving less revenue: 24%

Professional services
* Percentage of firms achieving more revenue: 31%
* Percentage of firms achieving less revenue: 27%

Businesswomen
* Percentage of firms achieving more revenue: 28%
* Percentage of firms achieving less revenue: 28%

Businesses without a website
* Percentage of firms achieving more revenue: 27%
* Percentage of firms achieving less revenue: 26%

TOP 5 PRESSURES FOR AUCKLAND BUSINESSES IN COMING YEAR
1. Fuel costs
2. Cash flow
3. Competitive activity
4. Profitability / margins
5. Customer acquisition

TOP 5 FOCUS AREAS FOR AUCKLAND BUSINESSES
1. Customer retention
2. Increasing number of variety of products or services
3. Customer acquisition strategies
4. Sale of products and services online
5. Increasing prices and margins on products and service

- NZ Herald

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