Export Firms Reveal Success
Export company growth and innovation have as much to do with attitude and relationships as they do with technology, R&D and capital, according to a recent Ministry of Economic Development (MED) report. The survey showed that innovation is about taking risks, embracing success and valuing difference. NZ exporters who are innovative are increasing their export sales by developing sophisticated distribution strategies, acquiring top management skills, focusing on niche products, and making a greater commitment to R&D.
The current study is the sixth in a series since 1991 that tracked a group of successful manufacturing export companies. Thirty companies were interviewed over the first quarter of 2002 – 16 for the fifth or sixth time, and 27 for at least the second time. Three firms were interviewed for the first time. The study showed that 24 of the 30 firms studied experienced export growth over the past two years. The value of exports from these firms increased by $424 million between 1998 and 2001.
The main areas of firm-level change observed in the companies include:
- strong growth in export earnings for most companies, with all but two more than doubling their earnings since 1995;
- either management and/or ownership has changed in 80% of the firms;
- steady development and sophistication of distribution systems;
- a clear trend toward outsourcing manufacturing operations;
- greater commitment to R&D; and
- more companies stepping beyond Australia.
The experiences of these firms may provide some useful information as to how NZ can encourage export growth.
Steps in Business Expansion
There are a number of significant steps involved in expanding a business. One of the biggest is developing export sales. All the firms in this study have negotiated this first hurdle. Other significant growth steps include: changes in ownership, establishing effective distribution systems, ensuring production or supplies are sufficient to meet demand in foreign markets, developing and deploying new products and technology, and planning, negotiating, and managing acquisitions.
Scale and Remoteness
An important focus of this study was to look closely at the nature of firm growth and what bearing scale and location may have on it.
NZ has few world scale businesses, and arguably none in the manufacturing sector. The small size of the local market is the most obvious constraint to building world-scale businesses in NZ. Scale is regarded as important mainly because it helps drive costs down and credibility up.
Most firms interviewed for this study did not regard scale as a particularly important constraint to their growth. They were generally highly cost competitive and had established market credibility by concentrating on market niches. In practice firms appear to have formulated their business strategy to ensure scale is not an important constraint to their growth.
This study throws up no compelling evidence that the location of the business is a major barrier to their growth. The fact that a number of companies (including a number of foreign-owned firms) are continuing to expand their NZ operations suggests location is a relatively minor issue in terms of overall company growth.
Firms are pursuing a number of strategies that minimise the potential constraints to growth that may exist from operating out of such a small and remote economy:
- some companies have developed sophisticated logistics/distribution systems to achieve world class delivery performance, allaying any concerns amongst customers about dealing with such a distant company;
- others have changed their business strategy to concentrate on specific activities such as product development/R&D that are less location or transport sensitive; while
- others have established strong relationships with large businesses within their key markets to give them a local presence and credibility.
Getting Distribution Right
One key finding was that companies are increasing sales through developing smarter distribution strategies. The report shows that strategies designed to maximise efficiencies in logistics and transport have enabled some firms to out-perform their competitors in delivery, despite being located much further away from their markets.
Distribution isn’t an area that exporters can afford to take lightly. Establishing or changing distribution systems is an expensive, time consuming and potentially risky exercise, and mistakes are extremely costly. The characteristics of the product and the nature of the customer base, as well as the stage of export development, have a big bearing on the appropriate distribution strategy for companies.
From this and earlier studies there appear to be at least five general distribution strategies:
- deal directly with customers (suits one-off product exporters);
- owned distribution (in order to achieve tight control over the selling process and receive good market feedback);
- use foreign owner's distribution channel; invest in retail outlets; and
- use an independent distribution agent (either very strong relationship with powerful distributor or small scale agents).
R&D
The study points to firms becoming more and more disciplined in developing and putting in place their business strategy. Furthermore, firms are becoming increasingly committed to technology and research and development (R&D). For example, several companies in the study have become specialist R&D centres for foreign parents.
Foreign Ownership
Twelve of the 30 firms interviewed are foreign-owned and there has been a steady shift to foreign ownership over the past three years. Of the 18 companies that have experienced some change in their ownership since 1998, seven have involved a change from NZ to foreign ownership. Of the 12 firms where ownership has remained stable over the past three years, 10 are privately, NZ-owned companies.
The majority of NZ-owned companies are not contemplating moving offshore or seeking foreign ownership to extend or accelerate their growth. In some cases, the strong opposition to such ideas could potentially compromise their growth.
The Manufacturing Export Study was jointly funded by TradeNZ, Treasury and the Ministry of Economic Development, and is accessible through the Ministry of Economic Development Website, at www.med.govt.nz/irdev/ind_dev/manufacturing/index.html |
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