New Zealanders have reacted predictably to the proposed acquisition of the Crafar Farms by Chinese interests. It is easy to understand the concerns about losing control over strategic assets such as large pieces of highly productive land, but it's also a symptom of a destructive mentality that is common among less developed countries with overgrown long-term aspirations.

No less dramatic has been the recent reaction to the semi-privatisation of our state-owned enterprises. Four of our energy companies are among the first to be offered up for public consumption by the John Key Government, and whilst the resultant angst stems from a complicated historic overview of local ownership, its basis is flawed and its ongoing influence unhelpful as New Zealand tries to stretch its economic fingers further and further from its shores.

Overseas investment shouldn't be viewed as a bad thing. It is, in fact, exactly what New Zealand needs in terms of productivity, labour skills - both technical and managerial - innovation and international mind-sets, knowledge and networks.

A short-term perspective may suggest that the loss of some levels of ownership is not a good exchange for these influxes of skills and knowledge. But this can be proven to be myopic. The ascendancy of many of the world's smallest economies has been a result of exactly the kind of investment we are slowly experiencing ... so why should we resist it? Why not, instead, embrace it.


The injection of overseas investment into New Zealand is likely to create competition, which is healthy for industry and the nation. Competition can be bad news for players enjoying significant profit margins, but is also known to make them stronger as they survive the "watering down" of their market shares.

Globally, injection of foreign ownership or the introduction of competition has been known to be very instrumental for SOEs. For countries like New Zealand with very few multi-nationals, the starting point for spearheading forays overseas is nearly always offering out shares of SOEs, and letting their partial ownership go offshore when they in return receive the benefits of skills and knowledge from abroad.

Good examples are Singapore and China. Singapore has allowed overseas investments into state assets and other companies to allow the injection of technologies, foreign knowledge and perhaps better technical and managerial skills that are conducive to higher productivity and potential foreign expansion.

Likewise, China has been encouraging foreign investment forays since the 1990s and has been running a model where foreign investors are required to form partnerships with local players. This model allows the local players to learn from their foreign partners and, in the process, enhance their chances of success when expanding abroad.

Contrary to popular belief, the acquisition of a New Zealand company by a foreign entity (or an alliance between the two) will also provide similar types of benefits in terms of productivity.

The case of China speaks volumes for what the New Zealand Government is about to do. Even for stand-alone investment by foreign entities, there are always benefits for us. As that foreign entity on New Zealand soil interacts with Kiwi companies across the various parts of the value chain within a particular industry, it affects everything it encounters - arguably nearly always positively.

Very often, we see supplier and customer sharing technological platforms and systems in a business-to-business exchange. We can also see an influx of new products generating new demands for the market. These are all good reasons for encouraging overseas investment into New Zealand, but are often overlooked in the battle to retain what opponents see as a loss of strategic assets.

On the other side of the coin, it is common knowledge that many New Zealand companies seek to expand abroad. It's clear that not many are successful in their overseas expansion, and we can attribute this to a lack of understanding of overseas markets.

But this can also be said of organisations in other nations, and yet we have seen well-performing companies expanding abroad. It is arguable that New Zealand's domestic market is not competitive enough to allow our companies to sharpen their skills to be ready for expansion abroad.

And that's a big problem. Our non-competitiveness does not automatically give New Zealand firms the competitive mind-set necessary to compete globally with larger and more innovative businesses. An innovative product may survive overseas for a little while but, with the advance of technical skills of organisations from other developed countries (and increasingly so from less developed countries), this advantage does not last.

It's clear that New Zealand government agencies and companies must learn to leverage the presence of foreign entities in the domestic market, not just to gain knowledge and skills from these players to compete locally, but also to harness the knowledge, skills and networks to move into foreign markets.

The caveat is to have mechanisms in place to ensure these are not merely transactions, but long-term strategic engagements to help the nation and Kiwi companies move forward.

Siah Hwee Ang is Professor of Strategy at The University of Auckland Business School's Department of Management and International Business.