Growing more small and mighty businesses

New Zealand’s 250,000 small to medium-sized enterprises (SMEs) hold the key to this country’s growth and wealth. But the biggest challenge will be getting more SMEs to lift their sights and expand, believes Westpac’s General Manager of Business Banking Bruce McLachlan.

New Zealand could easily be dubbed a nation of shopkeepers, though perhaps a nation of small businesses is a better title. This country boasts one of the highest concentrations of small to medium-sized enterprises (SMEs) in the world, with companies with 50 or fewer employees accounting for 99 percent of all businesses in New Zealand. There are more than a quarter of a million SMEs throughout New Zealand.

Is it a problem that too many of our SMEs stay small? Are New Zealand companies lacking the inclination or the knowledge to grow into large enterprises? While many small businesses choose to remain small for lifestyle and market niche reasons, the 2002 Global Entrepreneurship Monitor (GEM) report believes it is a problem. It maintains that local businesses are held back by external and self-imposed limitations. The typical Kiwi entrepreneur was considered inward-looking and content with the comfortable lifestyle rather than growing the business, according to the report. It said successful businesspeople came up against the tall poppy syndrome and a general suspicion of entrepreneurial activity.

Supporting data from the Ministry of Economic Development (MED) shows that only half the companies with five or less employees lasted beyond the first two years (and only a third making it to their fifth birthday). MED research suggests those that do break through the five-employee barrier tend to take-off and grow. It is these specialised medium and larger sized firms which can be the most flexible, adaptable and innovative. Being able to respond quickly is a competitive advantage in a fast changing world.

A commitment to business improvement does result in better financial performance and productivity, according to the MED. The challenge for the 250,000 or so SMEs is to see expansion as a more serious option. We need more businesses to grow and become export-oriented, so they can take advantage of economies of scale to compete globally.

One way businesses can lift their game is by investing in research and development to commercialise and protect their good ideas. Findings from the Innovation in New Zealand report confirm that local businesses have a higher level of innovation than all European Union countries. Being bigger also may mean being more inventive, with the report finding that the proportion of firms that introduced an innovation increased with business size.

Clustering of similar businesses and the formation of strategic alliances will also boost growth. Let’s not be afraid to set ambitious goals for our industries, like the Information and Communication Technology Taskforce’s aim to get 100 companies up to $100 m turnover by 2012.

In recent years there has been a greater willingness for businesses to work together, to share knowledge and resources, and also improve their financial literacy through programmes such as Westpac’s Beyond Survival and seminars offered by the Chamber of Commerce. Successful businesses are calling in the skills of business advisors and working with accountants, lawyers and bankers to grow their businesses.

Another way of improving business performance is through benchmarking - assessing your performance by comparing against others. The Innovation in New Zealand report found benchmarking against a competitor was the most important source of information and ideas for innovative firms, though less than half the companies surveyed were doing it. The report noted that leading firms were using benchmarking to go beyond competitor analysis to find better practices, innovative ideas and effective operating procedures, comparing their performance with a wide range of firms, within their industry and within New Zealand.

Westpac regional business awards also provide an opportunity for companies to benchmark, not only against other businesses in their industry, but across industries and sectors. Business awards provide independent assessment, mentoring, networking and promotional opportunities. Regional business awards recognise and reward innovative and entrepreneurial activity, provide role models and inspiration, and also encourage and cross-pollinate best practice and excellence.

Celebrating the achievements of people in business, endorsed by their peers and the wider community, goes some way towards developing a new culture of enterprise in New Zealand. Raising the bar among SMEs will nurture and encourage creativity, innovation and enterprise. With strong businesses come strong regions, and a higher standard of living for all New Zealanders.

Bruce McLachlan is Westpac’s General Manager of Business Banking

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