Making stuff makes a comeback

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Manufacturing is on the rebound, says the latest report card on New Zealand’s technology sector.

Whatever the attractions of the virtual economy, manufacturing is the star in New Zealand's high-tech sector this year.

The annual Technology Investment Network TIN100 report was launched on Wednesday, and TIN managing director Greg Shanahan says one of the strongest trends has been the resurgence of the manufacturing sector, with strong growth seen this year as well as a number of manufacturers making it into the two Top 10 lists.

In perhaps the most positive year seen since the TIN100 report began in 2005, manufacturing, ICT and biotech are all on the rise.

The success of manufacturing is a strong indicator that the tech sector in general is recovering from the effects of the global financial crisis, as manufacturing has been an area of concern over the past few years, with the sale or closure of companies such as Navman, Provenco and VTL resulting in significant job losses, and major companies including Fisher & Paykel Appliances moving manufacturing overseas.

This year, however, manufacturing is the success story of the three sectors with revenue of $5.1 billion, helped by larger companies including Fisher & Paykel Healthcare with revenue growth of 12 per cent, BCS Group (revenue up 68 per cent) and NDA Group (32 per cent). The smaller TIN100+ manufacturing companies have also been helping boost this trend, with growth of 7 per cent overall, and companies such as Metalform, RML Engineering and Escea all feature in the Hot Emerging Companies list.

"Many of TIN100's largest manufacturers are on fire as markets recover beyond Australasia," Shanahan says. "These high tech manufacturers are lean, sophisticated, focused and fast. Generally following narrow niches, the companies develop deep [intellectual property] from small development teams; keeping manufacturing and development close by, but also using remote manufacturing options where cost differentials are critical."

Shanahan says many of these efficiencies were driven by ICT products and developments, an area where companies are continuing to spend in an effort to employ more efficient solutions.

The ICT sector has slowed slightly this year, says Shanahan, although software developers continue to grow. Although the GFC proved an extremely difficult time for most businesses, it also provided an opportunity for the ICT sector to grow, through creating innovative solutions to help businesses become more competitive and cost effective. The development of the cloud helped boost this, by allowing easy export channels for technology. Companies throughout this time continued to invest in software development and IT, keeping the ICT sector strong.

Science and Innovation Minister Steven Joyce, who attended the launch, said the report had become a barometer of New Zealand's tech sector, and congratulated the companies in the report on the positive results this year.

"This year's TIN100 report shows further excellent growth in New Zealand's technology sector. Our ICT and high-tech manufacturing sectors in particular are becoming a real success story," Joyce said.

"I am particularly impressed that exports make up 74 per cent of the turnover of the TIN100 companies, and that those exports have continued to grow in New Zealand dollar terms despite an unusually high exchange rate and the continuing challenges of a fragile world economy."

The launch of the latest TIN100 report marked its 10th year of production.

Shanahan, who founded TIN in 1999, says the additional 10-year analysis section included in this year's report highlights a number of major trends in the tech sector, as well as illustrating the success it has seen over the decade, not least total revenue growth of 62 per cent to a record $8.3 billion (including the smaller TIN100+ companies).

"With 10 years of data it's clear that the New Zealand tech sector is heading in the right direction. In 2013 to 2014 we've seen TIN100 and 100+ companies grow their combined annual revenues to $8.3 billion, with $6.1 billion in exports, cementing technology as New Zealand's third largest export sector behind dairy [$14.9 billion] and international tourism [$10.3 billion]," Shanahan says.

"Although it was the 17 companies with revenues over $100 million that delivered the bulk of the increase, in 2014 we've had a record $52 million or 8 per cent growth for the smaller tech (TIN100+) companies. ICT continues to perform well, but manufacturing is back in growth mode."

Another trend coming through is the growth in the sector's confidence, he says, led by the likes of the optimistic Rod Drury, chief executive of Xero. One of the most significant changes over the decade, says Shanahan, has been the rapid expansion of New Zealand companies into global markets such as the US and Australia. Ten years ago New Zealand had very little presence in the US, with only a handful of companies working or exporting to the country. Today, there is a growing stable of companies with major markets in the US, and often with offices based there as well. Shanahan says this shows the confidence Kiwi companies have about pushing into new markets and being successful there.

"New Zealand technology companies are pursuing global domination in a way we would never have imagined or talked about when we produced the first TIN100 Report in 2005," Shanahan says. "Companies such as Orion Health, Xero, Fisher & Paykel Healthcare, Weta Digital, and Vista Entertainment Solutions are all good examples of this."

While the Top 10 list for this year, and the Top 10 To Watch list, feature some very familiar faces - Datacom, Orion and Fisher & Paykel Appliances, topped by Fisher & Paykel Healthcare - the hot emerging companies list includes some new names, with a significant number of those in the manufacturing sector.

Shanahan says he expects the manufacturing trend to continue, boosted by the healthcare sector's need to cope with an ageing baby boomer population and increased demand for healthcare products.

Overall, and with continued interest from overseas investors, Shanahan says New Zealand companies continue to be successful in overcoming the challenges of distance. Joyce congratulated Shanahan on this year's report, endorsing its status as a key document in assessing the success of New Zealand's tech sector. "The TIN 100 has become a strong barometer of the health and growth of New Zealand's innovative high-tech companies," Joyce said. "It's a real milestone to achieve 10 years of the TIN 100."