Australia first step to global success

More and more New Zealand companies are winning across the Ditch, says SCOTT PERKINS.*

Winning in Australia is a key challenge for New Zealand companies. Its size, proximity and similar market dynamics make it the natural first step for expanding New Zealand companies - whether exporters or investors.

If we don't win in Australia, it is hard to see us winning in more distant and culturally challenging markets.

A company's Australian market entry strategy will be different depending on its own circumstances. For some an organic export strategy that builds up over time will work optimally. For others, an acquisition will add to an export or in-market beachhead or build scale immediately.

There is widespread scepticism about the success rate of New Zealand companies in Australia. This is no longer the case - and we need to get over this perception.

Australian companies are making the most of available New Zealand opportunities. As the data show, there has been a steadily increasing wave of Australian investment in New Zealand in four of the last five years - with the dollar value and number of acquisitions rising substantially. (Although the value of transactions fell off last year in line with the global downturn in mergers and acquisitions.)

The good news is that more and more New Zealand companies are winning in Australia. While the memories of Ansett still linger, the recent successes of Carter Holt Harvey, Fletcher Building, Meridian Energy, Sky City and Fonterra prove the sceptics wrong.

The data do sound a warning note, however. Over the last few years, New Zealand companies seem to have slowed the relative pace of investment in Australia - while Australian companies have picked up their investment here. From 1998 through to 2000, there was a steady increase in both the dollar value and number of transactions. In the period 2000-2002, investment by New Zealand companies into Australia has slowed while Australian investment into New Zealand has continued to grow.

The sector breakdown indicates that investment from Australia has been weighted in favour of commercial property and consumer companies, whereas New Zealand investment has been weighted towards the industrial markets.

While it is difficult to predict where investment flows will land - given the size and home market maturity of the Australian property industry - we can expect to continue to see high levels of Australian investment in the New Zealand property class.

Neither should we worry too much about the quality of these foreign investment flows - whether we are standing in Auckland or Sydney. New Zealand and Australian companies are arguably better placed than others to recognise the competitive advantage of each others' markets and investment environment.

Being next door to such a vibrant economy is very fortuitous - it keeps policy makers and companies on their toes. It reminds us of the need for New Zealand to out compete in order to keep at the leading edge of the investment and export curve with Australia. We need to overcome the understandable small-market concerns and win companies' internal investment decision making debates - whether they are based in Melbourne or New York.

This means relentless progress on compliance costs, removal of tax inefficiencies, lower relative corporate tax rates (New Zealand's is higher than Australia's), a deep talent pool driven by both tertiary excellence and targeted immigration, and a vibrant corporate and public sector research and development environment.

Either way, New Zealand and Australia continue to converge. It does raise bigger questions of currency, legal systems, foreign policy and our constitution - questions that deserve wider debate outside the investment arena.

* Scott Perkins is managing director and co-head, Global Corporate Finance (Australia and New Zealand), Deutsche Bank.

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