Local hi-tech expertise is creating global investment opportunities across many industries.

New Zealand has potential to be a new 'Silicon Valley' to the world, a leading investment expert believes.

Shane Solly, portfolio manager at Harbour Asset Management, says Kiwi hi-tech companies – enabled by rapid technological change which is breaking down age-old geographical barriers – are as good if not better at what they do than comparable tech-creators around the world.

He says a number of virtually unknown Kiwi companies are having a significant impact on technological advances across industry sectors on the global stage and believes more will follow.

Can we be a Silicon Valley? "Yes, that's right, there is a little bit (of truth) in that," he says. "We have a good base of tech thinkers in New Zealand; technology means we can get easier access to markets and our agility, smallness and the fact everybody knows everybody means we can ramp up or down quickly.

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"Of course, we are not the only place where this is happening but technology removes geographical barriers and allows a company based in Wellington, for example, to have a global footprint."

International opinion bears out Solly's view and helps explain the potential for New Zealand. According to research conducted in the UK by leading investment company Rathbone Brothers, disruptive technology globally is most often developed by outsiders, smaller entrepreneurial companies while larger businesses tend to stay close to their customers and develop existing technologies rather than capitalise on emerging systems.
Solly says the pace of disruption - the most rapid in human history and being driven by converging technologies like artificial intelligence (AI), robotics, big data, biotech and 5G capability - is creating investment opportunities not foreseen even just a few years ago.
"Technological disruption is everywhere," he says. "It is both an opportunity and a threat for companies and while we think some will use it to grow, others may slowly shrink because they fail to adapt.

"Simply put, technology is making the best firms better and the worst worse; a key catalyst is that technology advances are available to everyone and its cost is falling rapidly."

Shane Solly, Portfolio Manager
Shane Solly, Portfolio Manager

Solly says Harbour prefers to invest in diversified portfolios across companies that both create the technology and those who get significant benefit from applying it (the battery supply chain for electric vehicles is, for example, one industry the company believes will disrupt global transportation earlier than expected).

But he believes technology will ultimately play an even bigger part in the economy: "In the past our small market has meant it has been hard for a lot of global companies to have a presence here, so we have tended to be under-serviced.

"What this has done is create a gap and opportunities for New Zealand companies to come up with solutions; a lot of them are not involved in glamorous industries and if you asked people in the street most would probably not even have heard of them."
Among the examples are:

• Serko – an Auckland-based company which has developed an online travel booking tool now available in 25 countries (it handles 60 per cent of Australia's corporate travel spend every year).

• Gentrack – another Auckland company which has developed revenue, operations and customer engagement software for over 200 water, energy and airport companies in 20 countries.

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• Scott Technologies – a company founded in 1913 in Dunedin it has evolved as a designer and manufacturer of automated production systems, robotics (including robotic meat processing systems) and process machinery with clients in over 75 countries.
Solly says new technology is allowing businesses to do more with the same, or less, input meaning profit margins are boosted.

"Disruption is improving inventory management, reducing development timelines and improving connection with customers and so ultimately businesses that can use technology well have the potential to grow faster and for longer than others," he says.

"One of the problems globally is that companies tend to want to take time to assess their options, but if they wait too long they'll wake up and find someone has stolen their business or idea; people just have to make investments now but allow time for them to be reflected in profitability."

Solly says Harbour targets stocks where growth is under-appreciated and where its research shows companies are likely to do better over time.

"Research shows that growth stocks ride through most cycles so technology companies – and those that can benefit from applying technology change – may continue to grow faster than the broader economy.

"If economic growth is moving to a slower phase, we expect to see companies continue to focus on productivity enhancing technology in an effort to outperform competitors."

# This article does not constitute advice to any person (www.harbourasset.co.nz/disclaimer) For more information go to: https://www.harbourasset.co.nz/ Harbour owns shares in companies mentioned in this report on behalf of its clients.