Hon Trevor Mallard
Minister for Economic Development

2 November 2006 Speech Notes

Embargoed until:9am

Collaboration can help exporters go global

Speech to New Zealand Metals Industry Conference, Kingsgate Hotel, Hamilton

Thank you for the invitation to speak at your conference today.

The manufacturing and engineering sector epitomises New Zealand’s innovative spirit. There are probably a million garages in New Zealand and many would contain something that has been made to solve a particular problem.

New Zealanders are innovative; think jet boats, bungy jumps, motor bikes, or splitting the atom. Historically, this innovation has been driven by our relative isolation and the need to make things happen, or keep things going.

New Zealanders are practical. Engineers, in particular, do things and make things. In fact they may be reluctant to pay others to do things they think they can do themselves.

Many of the great inventions of our time are characterised by their sheer simplicity. New Zealand innovators shouldn’t be put off because they think other people have done it before them.

Innovation is also cumulative. It is deeper and more continuous if it draws on our past knowledge and experiences.

If our international competitiveness is based on accumulated knowledge, it isn’t that easy for rivals to copy the company. Constant innovation means that mimicry is not enough.

If New Zealand is to transform its economy, we need to alter some of our thinking in this regard. So as well as doing the same things better and working smarter, we also need to do different things.

The government’s focus on economic transformation reflects our commitment in this area. It recognises that while we can all celebrate a period of sustained, strong economic growth, there are still significant challenges in the New Zealand economy.

We are committed to working with industry sectors and regions to build on our successes to date - and to work to further transform New Zealand into an economy that is export-led, innovative and high wage.

It is widely accepted that one of the key challenges for New Zealand is our sluggish productivity rates relative to comparative countries.

There is no simple reason for our productivity performance, and remedying it requires a co-ordinated and deliberate approach across government.

One thing is sure - we don’t want to increase our productivity simply by working longer hours. We need to lift the game by working smarter, by adding value through innovation.

We may well be a nation of bright ideas, and our science community may well be great at discovery.

Yet increasingly though, the economic development literature is saying that discovering new things - new explanations, new products, or new processes – is necessary, but it is only the start of the journey.

The new buzzword that is emerging in that literature is "mastery". Mastering how to convert a new discovery into a commercially sustainable offering is not necessarily harder, but it takes a lot more time, burns a lot more money, and needs a lot more linkages between the discoverer and the market if it is to be effective.

When people talk about the process of commercialising an idea successfully, you may often hear phrases such as "the valley of death" or the hardest bit of this process being "the last ten percent" - the time when you need to try and get investors convinced and backing the idea and thus carrying it through to selling it in the marketplace.

This is not a case of science push versus market pull. It is not new ideas versus problem solving. It means that the effective commercialisation of R&D has to be seen as an integrated system in which markets ultimately prove the worth of a new discovery, in which the merits of the science are fundamental in establishing that worth, but ultimately in which the strength of the innovation system is determined by its weakest link.

The challenge is to work out a way of getting the connections right so that we can sustain a good idea through the valley of death.

It just so happens that when we are launching from a small and distant economy, the valley of death is longer and hotter and drier.

Our economy is trade-oriented and trade-dependent – it has to be, given New Zealand is highly integrated into global trade structures but thousands of kilometres from our nearest and largest markets.

Exporting is part of a network of international links that encourage the flow of new knowledge, technology and ideas. This will be critical for New Zealand’s long-term economic performance.

We are traditionally a nation of exporters; more than 12,000 companies export from New Zealand. However, fewer than 5000 of these export more than $50,000 per year.

We have to emphasise that exporting generates wealth.

It integrates us into global value chains which complement this business activity at home. Increasing our export activity helps to build prosperity for everyone.

Many exporters face considerable risk and it is difficult to commit to exporting long term. Many stop exporting when the domestic market improves.

Often New Zealand companies are not committed to exporting sufficient volumes to gain the experience needed to build long-term markets.

Long term commitment and long term growth is needed to reduce the risks associated with exporting and to maximise returns.

As a country, we need more New Zealand exporters to lift their game and become dominant in niche markets. Producing innovative high value, low volume products, diversified over several markets, is a strategy that will help us grow our economy.

We are succeeding in diversifying our exports beyond primary products and into those higher-performing sectors which are about adding value.

This means processing raw materials instead of exporting them as commodities, and exporting more manufactured goods and services.

This is a challenge facing all sectors, and it’s exciting to see industry bodies like the Heavy Engineering Research Association (HERA) championing the importance of exporting – with the theme for this conference: ‘Going Global’.

Companies that start exporting products find they develop new skills and a greater understanding of their market that can be applied in the domestic market.

We need to ensure that we are constantly looking at new opportunities for exporting our products – and not simply using markets that have historically worked.

The global economy is rapidly changing, and all of our sectors need to respond to this by being flexible in their approach to exporting.

How do New Zealand engineering companies succeed overseas? One success factor is working in numbers, in a collaborative approach.

Working with other exporters tends to reduce the costs, can speed up market entry through the use of other contacts, distributors or agents, and market intelligence. You have better access to networks and information. You can offer total solutions if the other engineering companies that you partner with offer compatible products.

Services run through New Zealand Trade and Enterprise also assist in promoting collaboration.

NZTE provides an on-line pre-tender project intelligence service in Australia and the Pacific called ProjectLink. It operates in the engineering, building, construction and marine sectors.

ProjectLink identifies projects at the inception stage and tracks them through to completion. This service has helped companies generate more than $150m in new business during the past few years. I would urge you to contact NZTE about subscribing to this service.

The Industry Capability Network assists New Zealand and Australian suppliers and manufacturers to win contracts that would otherwise go to multinational interests. The network links engineering and construction companies into such opportunities.

It helps New Zealand companies build their global capability and connections, while ensuring these companies understand that in a competitive tendering market they must benchmark themselves to global standards.

As well as helping various industries in the manufacturing sector to come up with strategies to support their future growth, the government has a number of initiatives to help companies build their international connections.

A good example of collaborative companies can be found right here in Waikato.

Later today I will be visiting a number of aviation companies in the Waikato region.

Aviation Waikato, owned by Waikato's lead economic development agency, ‘The Katolyst Group’, received funding from the government to establish an Aviation Park at Hamilton International Airport.

Companies in the aviation park manufacture light aircraft and train pilots for the global market. This initiative aims to increase aviation exports and help secure future training, research and investment in New Zealand's burgeoning aviation industry.

The accompanying Aviation Centre develops and manages a cluster of companies that sell replacement parts for fleets of light aircraft around the world.

Collaborating to compete is an example of the type of thinking New Zealand needs to adopt to engage more successfully in the international marketplace.

The strategy sessions you are attending today will arm you with the knowledge to realise these outcomes, gearing your businesses up for entry into the global marketplace.

I wish you every success in helping to achieve your visions.

Thank you.

ENDS

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