NZIER productivity findings in New Zealand

ASB commissioned the New Zealand Institute of Economic Research (NZIER) to identify business key productivity issues and solutions. Find out about the NZ Productivity Challenge and what you can do to improve your businesses productivity. 

On the face of it, it seems New Zealand is doing ok compared to similar countries if you compare our GDPs (size, culture and technology) such as Austria, Belgium, Denmark, Singapore (there are 13, called 'small advanced economies' or SAEs). But our GDP has grown from a low base by adding a migrant workforce, plus working harder. This isn't the best yardstick to measure how well we're doing.

If we don't improve the productive output of our labour force, New Zealand will continue to slide down the rankings. There are two main reasons for this. First, just investing in digital technology doesn't mean organisations will develop internal capability to use the applications. Second, especially relevant for smaller businesses, is it often takes time to see any tangible changes and there's an actual drop in productivity as you figure out new systems and train staff. Consequently, business owners decide not to wait a year or two to see the benefits. Instead, they keep doing what they've always done. 

What we need to do

There are two drivers of productivity growth: the spread of technology, ideas, and practices into New Zealand businesses, and then the ability to share these resources between firms.

To achieve this we need:

• Greater concentration of frontier firms (those operating globally or close to global partners).
• Focused promotion of technology, ideas and practices across the economy. 
• Higher proportion of large firms competing internationally.
• Clusters of organisations with existing strengths and capabilities to create new markets abroad. 
• A dedicated focus to innovation. 
• Solid foundations and investment in infrastructure.

Only by working together can we solve these constraints, whether it's collective individual action, partnering or access to capital. 

Become or work with ‘frontier firms'

The most productive firms in the world operate globally (apart from those in large markets such as the US, China, India, the EU who have access to scale internally) and are called ‘frontier firms', who are a catalyst for the diffusion of technology, ideas, and practices across the economy to improve productivity.

Typically, New Zealand has a low number of larger firms that are internationally engaged at scale, who are more likely to invest, spend on R&D, innovate, pay higher wages, and, as a result, be more productive. 

We need:

• More frontier firms like Xero, Fonterra, Fisher and Pykel Healthcare, Trimble, etc. 
• Or smaller businesses who can work with and supply these larger businesses.
• Or high-net-worth individuals who are willing to contribute actively to the ecosystem as mentors, investors, role models, serial founders, and community builders. 

Trevelyan is a great example, who are the largest single-site kiwifruit and avocado post-harvest facility in Te Puke. The business sits on over thirty hectares, with four export packhouses, a local market packhouse, and 43 state-of-the-art cool stores.

It provides its growers with quality growing, picking, packing, cool-storage and technical support for the kiwifruit and avocado industries, helping smaller growers improve their fruit-growing capabilities. This forms an integral pillar of the export-oriented innovation ecosystem with strong links between growers, packers, exporters, and the research sector. 

Trevelyan's has invested in its business by developing innovative systems and building an experienced and talented team. Operating and implementing LEAN methodology and its five workplace principles efficiently, it continues to innovate to grow its business and empower growers to thrive financially while preserving their land for generations.

Develop clusters

Bring like-minded owners and business types into one area to partner, share resources, and build efficiencies as a local ‘cluster'. We need to be cross-pollinating our business customers with complementary firms to encourage and speed up what tends to happen naturally (at present it just takes too long). 

Solve the tyranny of distance

The fact we are so far away from international markets has often been cited as an issue in increasing exports and international competitiveness. This is a given, but investment in digital technology could overcome this, as technology-based exports are often weightless (think Xero selling more subscriptions in the US). 

Develop larger, technology businesses 

New Zealand is an economy of small or micro businesses by international standards. Only 0.5% of businesses employ more than 200 people (the international definition of a large business). New Zealand's small businesses are not very efficient or productive and the large number of micro-businesses (sole traders, lifestyle businesses with zero employees) has hampered efforts to drive innovation, as they don't want to get any bigger.

Of the top twenty companies in the 2023 Deloitte Top 200, only seven are exporters or have international operations: Fonterra, EBOS Group, Air NZ, Mainfreight, Zespri, Silver Fern Farms and Alliance Group. Four of these businesses are linked with the agriculture sector, selling predominantly partly processed products.

The situation is different for New Zealand's top technology firms. In 2023, New Zealand's top 200 Tech Export firms earned 76% of their $17.1 billion in revenue offshore and employed 63,874 people globally ('TIN Report Technology Industry Analysis' ), suggesting a strong international orientation.

Change the role of capital

New Zealand start-ups and innovators tend to look to overseas investors or buyers when they are ready to scale their product. This could be because the domestic ecosystem does not support access to expansion capital or management experience, for example, to scale. Foreign investment rules may be a factor in limiting the movement of capital and expertise to New Zealand.

• Established businesses have different financial needs from start-ups.
• Banks have a role in supporting existing businesses to innovate and scale their innovation by helping businesses secure capital in mainstream and innovative financing solutions. 
• Banks should share their insights across the ecosystem, to encourage business leaders to change their risk appetite for innovation and lending.

The more pressing issue for New Zealand businesses is to build their understanding and appetite for innovation and investment as an engine for growth and sustainability.

To develop more global frontier firms, we should be encouraging businesses to fund expansion, product development and purchase of ICT (all productivity enablers) rather than working capital and vehicles.

Next steps

• Leverage relationships to collaborate with customers or suppliers. Meet similar business owners, to network and raise the topic of business clusters as a mechanism to innovate.
• Invest in R&D productivity assets, technology or knowledge.
• Work with smaller firms to learn, share and bring them forward.
• Find out where your local incubators are located, attend their meetings, ask other business owners how they improved their productivity.