Catherine Beard: Manufacturing's future has a new face

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Job losses belie bigger success story as Kiwi firms change to make high-tech products with competitive edge.

New Zealand's top technology export companies stay competitive through innovation, Datacom reporting revenues up around the $1 billion mark. Photo / Natalie Slade
New Zealand's top technology export companies stay competitive through innovation, Datacom reporting revenues up around the $1 billion mark. Photo / Natalie Slade

There is no denying that making products in New Zealand is vital to having a healthy economy. By the simple rules of trade and economics, as a small island nation we can't just buy everything in from overseas; we need to make products to sell in return. And in order to sell, they need to be internationally competitive.

Since the recession and the Global Financial Crisis hit, New Zealand manufacturing has been challenging. However, talk of manufacturing being in "crisis" is misguided. While there is a decline in some types of manufacturing (as there is worldwide), there is growth in others. The face of our manufacturing sector is changing - and this is the key to its future.

It's a simple assumption to look at job losses and jump to the conclusion that the days of Kiwi manufacturing are numbered. It's also easy to blame the high New Zealand dollar for weakening demand from export markets in some areas.

However, there are several other factors to take into account to get a true picture of what changes are afoot.

Firstly, with the quickening pace of developments in technology the way things are made, and what is made, are changing. This in turn creates changes in skills needed, and it's vital the Government and private tertiary education providers ensure there is relevant training available for New Zealanders. It's important young people are not scared off studying manufacturing-friendly subjects, but rather are attracted to the exciting future benefits of a relatively high-wage industry.

As modern manufacturing moves away from low-value, low-tech products (wool and logs), towards more high-value, high-tech products (such as eHealth and IT management products), New Zealand has the chance to really capitalise on what Kiwis are good at - innovation.

Despite the relatively "high" dollar and most of the developed world still being in recession, our top technology companies are growing. The recent annual TIN100 report shows its 200 top technology export companies are staying competitive through innovation.

For example, Datacom is well on its way to growing into a $1 billion business - currently at $788 million. Orion Health and Christchurch appliance manufacturer Skope Industries both grew past the $100 million revenue milestone. A record 34 of the TIN100 companies reported revenue over $50 million, including a record 18 over $100 million.

The fact that Australia - which barely learned the meaning of the word recession - remains our number one trading nation is another plus. It is our highest growth market and accounted for 30 per cent of TIN100 revenue.

The recent report ExportNZ commissioned from the NZIER, Lifting Export Performance, highlighted the need for New Zealand to overcome the two biggest things holding it back - its size and isolation. High-tech manufacturing, combined with the worldwide web and e-commerce, provides a powerful vehicle for making these issues history.

The application of technology to New Zealand's more traditional farm products to create more added-value exports is also paying off. With the shifting of world economic power to Asia, the fact that most of our processed food products - which make up over a third of New Zealand's manufacturing output - go to Asia bodes well for the future.

The second big consideration in the changing landscape of Kiwi manufacturing is the construction industry. As construction is linked to manufacturing - due to the demand for components needed for building - the $30 billion rebuild of Christchurch over the next few years should help revive domestic manufacturing, as Reserve Bank Governor Graeme Wheeler predicts.

Mr Wheeler also recently commented on the other big issue used in the blame game for manufacturing job losses - New Zealand's strong currency. As he pointed out, New Zealand manufacturers have been affected by a strong Kiwi dollar for three years now but exports have still managed to grow.

A strong dollar is not necessarily bad news; there are two sides to the coin. For some exporting manufacturers, the high dollar will affect their competitiveness and/or eat into their margins.

However, for manufacturers producing niche, high-demand products, even if the value of the New Zealand dollar goes up, buyers offshore are more likely to continue to buy their products if they are sufficiently specialised.

In addition, for manufacturers importing raw materials a rising New Zealand dollar means they get more for their money - which eases the pain at the other end of the equation when it comes to exporting finished goods.

The key is for manufacturers to focus on what they're good at. Rather than trying to get the Government to influence currency markets (with doubtful results), they should focus on how to stand out from the competition with a better-value proposition.

Even in the somewhat depressed markets of Britain and Europe there are opportunities. Government agencies and others are looking for new, more productive ways of doing things - like providing the same health services on tighter budgets, or getting greater productivity out of farming systems. Solutions to these sorts of problems are in high demand.

Manufacturing does have a vital part to play, it just has a different face to yesteryear. By leveraging our innovation, being nimble and keeping up with the tide of change in both market demand for high-value, high-tech niche products, and the global economic power shifts, New Zealand could be in a relatively strong position to prosper and grow.

Catherine Beard is executive director of manufacturing at BusinessNZ.

- NZ Herald

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