Exporters lead the way in investment

Exporters lead the way in investment and innovation

Auckland, 24 May 2006 – The latest Export Barometer by DHL, the world’s leading express and logistics company, finds that New Zealand exporters are innovative and forward looking.

The fifth DHL Export Barometer has revealed that almost two in three exporters have introduced a new product in the past twelve months, while two in five exporters have invested in the development of new technologies or acquired technologies for their business. Many of those (41 per cent) have also introduced a new product in the same period.

DHL Express General Manager, Derek Anderson, said that it is pleasing to see that business investment is increasing, as New Zealand firms have traditionally lagged in its expenditure on research and product development.

“New Zealand is among the OECD countries with the lowest levels of R&D business expenditure, alongside those countries with the lowest social-economic backgrounds ,” he said. “In the past, this lack of investment has hampered our international competitiveness. To compete effectively with overseas competitors, New Zealand companies need to introduce profit–making innovations into their product lines.”

“It’s encouraging that our research shows a greater willingness by exporters to invest in the future of their businesses,” he added.

The survey shows that the commitment to invest in the future is widespread and ongoing, with more than one-third of respondents planning to spend on key areas in the next 12 months, in order to support and develop their businesses. Such areas include technology (42 per cent), plant and equipment (40 per cent), additional staff (39 per cent), research and development (39 per cent) and market research (35 per cent) in the next year.

This is a significant improvement on the May 2005 Barometer results, when exchange rate pressures forced 42 per cent of exporters to cut back on future investment plans and 21 per cent to reduce staff numbers.

New Zealand Trade and Enterprise Chief Executive, Tim Gibson, noted that this commitment to continually add value and break new ground is good news for the export sector.

“It is heartening to see that exporters are realising the economic value of innovation and enterprise,” he said.
“Evidence suggests exporters can make productivity gains in terms of scale and specialisation. By working smarter, investing in technology and establishing a physical presence offshore, New Zealand businesses are simultaneously fulfilling that maxim and helping to transform our economy.

“This is good news for New Zealand, putting us in a strong competitive position vis-à-vis our international competitors and providing an excellent blueprint for the future of exporting in this country.”

Developed by DHL Express in consultation with New Zealand Trade and Enterprise (NZTE), the DHL Export Barometer remains the only large-scale evaluation of export confidence within this country. The results gauge the opinions of experienced New Zealand exporters, with 73 per cent of those surveyed exporting for more than ten years.

The results show that companies in the manufacturing (76 per cent) and services (71 per cent) industries are significantly more likely than the other industries to have introduced a new product in this time. Businesses in the tourism industry are most likely to make technology investments, with 48 per cent responding positively.

Tait Electronics, the leading radio communications provider, is planning to spend more than ever on R&D in the next 12 months. "Our sales performance and profit growth in the past 12 months creates the funds to invest, but of course that financial result has been driven by past
research and development effort. It's a virtuous circle in a volatile world," said Gareth Richards, Group Communications Manager.

"While our commitment to product innovation is nothing new, we are also planning to invest more in marketing intelligence. Staying close to the customer and anticipating their needs will be crucial if we are to compete in our relatively mature market; especially as cheaper radios from cut-price manufacturers have the potential to squeeze margins," he said.

Agriculture lagging
The survey revealed that although agriculture remains the most significant export sector for New Zealand, it lags behind others in the level of innovation and new product development.

This reinforces the findings of the December 2005 New Zealand Institute discussion paper which states that New Zealand is still highly dependent on land-based exports, and that this is not reducing significantly over time. This contrasts with the trend in other economies where the primary export share is declining and being replaced by manufactured products.

“If we are to maintain our dependency on agriculture we need to migrate to a different business model that will enable us to produce higher value, more sophisticated products and services,” said Mr Anderson.

Overseas direct investment growing
The DHL Export Barometer shows that New Zealand exporters are exploring new strategies in the development of markets overseas.

In terms of overseas direct investment, one in four exporters has formed a partnership overseas, beyond standard direct sales arrangements. Joint ventures are the most common type of arrangement (51 per cent), while 21 per cent have licensee/franchise agreements and 13 per cent are involved in contract manufacturing.

The most common market in which exporters have a physical presence overseas is Australia (53 per cent), followed by the United States (19 per cent), China (12 per cent) and the United Kingdom (11 per cent).

However, two thirds of exporters appear content with existing export sales strategies, choosing not to take the step beyond direct exporting.

Export outlook upbeat
The survey finds that exporters are upbeat about their overseas sales prospects, with 66 per cent expecting their own businesses to have increased export orders over the next 12 months. The results were similarly positive for the profitability of their companies with 67 per cent anticipating greater profitability in the same period. The agriculture/food and beverage industry is the most optimistic with 61 per cent anticipating increased export orders.

These results reflect the improvements in business sentiment which have been reported in the May 2006 Bank of New Zealand (BNZ) Confidence Survey, which saw pessimism drop to a net 23 per cent from 73 per cent in December 2005.

Tourism went from the most optimistic sector in the previous DHL Export Barometer survey to the least optimistic in this latest issue, related to a decline in tourism numbers due to the high value of the New Zealand dollar. 73 per cent of companies in the tourism sector anticipated increased foreign earnings in the previous survey, while only 24 per cent were confident for the next three months and 56 per cent were confident for the next 12 months.

Negative factors affecting overseas sales
It is not surprising that one of the top three factors that exporters believe negatively impact on sales is the rising fuel prices. Included in this group are also exchange rates and increasing international competition. A significant proportion of exporters felt that these three factors have had a greater impact in the last 12 months than in previous years, pointing to greater pressure on exporters in both the domestic and international markets.

Agriculture/food and beverage exporters appear to be hardest hit by unfavourable exchange rates, while rising fuel prices are being felt most strongly by those in the tourism industry.

Since the last DHL Export Barometer in November 2005, there has been a dramatic increase (from 49 per cent to 74 per cent) in the number of exporters who expect the New Zealand dollar to weaken against the US dollar in the next year.

ENDS

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