This country's lack of scale is a big issue facing exporters and a serious debate needs to take place over what its optimal population should be.
That's according to a new report, Lifting Export Performance, conducted by the New Zealand Institute of Economic Research (NZIER) on behalf of lobby group ExportNZ.
Catherine Beard, the group's executive director, said the report was a sobering reality check on the nation's export performance, addressing the big issues in New Zealand - its small size and isolation.
"One of the obvious ways to overcome these problems is to make New Zealand a bigger country with bigger companies," Beard said. "We need a national debate on population policy and how big we should be by 2060."
Beard said scale could not be faked. "We need to grow the population through immigration and build companies of scale," she said. "Once grown, the challenge is then keeping these companies in New Zealand so the country benefits from them. The alternative is selling out to other countries and losing talent overseas for better jobs and better pay."
NZIER said a population of 15 million by 2060 would be a good start for New Zealand.
Boosting exports required "first-rate" policy settings, said NZIER deputy chief executive John Ballingall.
"We need to ensure existing capability-enhancing policies are delivering value for money. Our immigration, tax, welfare and foreign investment policies need to enhance rather than restrict the ability of New Zealand firms to gain scale."
There needed to be more examples of firms working together in strategic alliances to build presence offshore, Ballingall added.
The report said part of the reason for New Zealand's strong dollar was the fact that growth in government social spending tended to favour domestic consumption over savings and investment.
"On-going efforts to cut less vital spending like Working for Families and interest-free student loans will ease the pressure on the kiwi dollar," the report said. "Public spending has acted like a tax on the export sector."
The report also suggests there is merit in investigating policies that would reward high-performing firms that retain capability in New Zealand, rather than moving offshore.
New sources of scale could come from the minerals sector and Maori-owned businesses, the report said.
Employers and Manufacturers Association chief executive Kim Campbell welcomed the report, which he said asked some difficult questions. But he said the report was silent on the gains that could be achieved through investing in manufacturing.
"Every job created in manufacturing delivers five more in the wider economy," Campbell said. "The lack of extrapolation of this through to the export sector and job creation is somewhat surprising given the report is authored by the NZIER think-tank."