Take the high road

Despite generally disappointing economic data for the second half of 2010, New Zealand’s manufacturing sector managed to achieve its fourth consecutive month of growth in January, according to the latest BNZ-BusinessNZ Performance of Manufacturing Index (PMI), a monthly survey of manufacturing activity.

It is this sector that is increasingly being seen as New Zealand’s best hope of sustainably boosting national revenue and catching up with the likes of Australia.
 
Contrary to popular opinion, our manufacturing sector is increasingly high tech, high value, highly skilled and highly paid, and can achieve higher productivity than other sectors.

“It is enormously important that New Zealand continues to expand its efforts in high value manufacturing,” says Catherine Beard, BusinessNZ’s executive director, manufacturing. “With the kind of high productivity and high profit margins it makes possible, distance-from-market and currency problems are less of a problem.”

Competing in world markets on price leaves companies in a vulnerable position, while high value manufacturing based on new technology can achieve significant margins that buffer against the volatility of exchange rates, she says.

However Beard points out that because the majority of companies in New Zealand’s manufacturing sector are small- to medium-sized enterprises, there are significant barriers to moving up the value chain that must be ddressed.

“It is a question of scale. If you’re a small company you’ve got less of a balance sheet to invest in R&D. We have plenty of companies with fantastic ideas, but they struggle to take them into bigger markets.”

Fortunately, efforts by organisations such as IRL and others to boost New Zealand’s internationally low rate of private sector R&D spend via coinvestment schemes are a promising trend, she says. Beard cites IRL’s recent What’s Your Problem New Zealand programme, in which companies competed for a prize of up to $1m in R&D services, as well as upcoming initiatives to spread R&D for free to New Zealand businesses.

“As a result of IRL stepping up onto the front foot, and a number of initiatives coming out of government to get business and researchers better connected, the benefits of R&D are higher on the business person’s radar now,” she says.

Hans Frauenlob, New Zealand Trade and Enterprise’s director, specialised manufacturing, agrees that expanding New Zealand’s high value manufacturing sector is key to achieving concrete growth. “The backbone of our economy will always be commodity-based, but nurturing high value-add activities is vitally important.”

New Zealand has a unique blend of strong science and problem solving skills that lends itself towards this kind of endeavour, which is an increasing focus for NZTE, he says. Particularly promising are the marine and aviation sectors, as well as agri-tech. “Focus is really important – knowing our limitations and zeroing in on the things we can be truly excellent at.”
 
He says success for companies in the high value manufacturing sector comes down to being market-led,and customer focused and being able to focus their R&D around where they anticipate the market to be in two to three years. “The key to really successful RD in business is inventing for the next need.”

Frauenlob says that new funding schemes such as the Technology Transfer Voucher scheme, of which IRL is an accredited research organisation, help by derisking the innovation process, an important consideration for the small companies dominating this sector.

Research organisations such as IRL and other Crown Research Institutes have important roles to play in expanding this important sector, he says. “These include leveraging their international connections, by communicating back to New Zealand businesses what’s happening internationally in terms of the science, and also by seconding experts into businesses themselves.”

IRL Chief Executive Shaun Coffey agrees that a free flow of researchers from CRIs to industry should be encouraged, and says a number of initiatives are planned to increase industry’s access to IRL experts in this way.

“While New Zealand has low levels of private sector investment by international standards, IRL is pleased to note an upswing in work with firms in the high value manufacturing sector,” he says.