Constraint For NZ Businesses

Thin Order Books Now Bigger Constraint For NZ Businesses Than Skills Or Red Tape

Shortage of orders or reduced demand has rocketed up the scale as the main constraint that New Zealand’s privately-owned businesses see against their ability to expand, according to the latest International Business Report survey by accounting and business advisory firm Grant Thornton.

The order book situation has replaced traditional concerns such as red tape and the availability of skilled workers as the chief worry. But surprisingly to some, these two topics continue to outrank the cost of finance and the shortage of working capital or long-term finance as barriers.

Internationally, New Zealand is in the top 10 when it comes to shortage of orders being identified as a constraint against expansion of business.

“This result sets a gloomy start to a very challenging year and unfortunately looks like being the precursor to more redundancies and business closures,” said Grant Thornton New Zealand spokesman Peter Sherwin.

He said the Government should have been bolder and followed the lead of Australia with a more extensive support package for small businesses.

“Infrastructure projects are one thing, but it would have been good to see actions that involve manufacturers and retailers who employ many women.”

The Grant Thornton international survey shows that 53% of New Zealand businesses questioned rated shortage of orders or reduced demand at four or five on a scale of one to five as a constraint on their expansion. Top of the table in this respect were Japan (78%) and Italy (70%) and the global average was 49%.

New Zealand and Australia were out of step with each other in the survey, however - Australia’s top rating constraint was still seen to be availability of a skilled workforce rather than shortage of orders.

Among New Zealand businesses, red tape and regulations still came in as a serious constraint, with 41% putting it at the top end of the scale (against a global average of 30% and Australia’s figure of just 20%). Concern over availability of skilled workers slipped to third as a constraint in New Zealand, but still had 38% of businesses rating it a serious barrier (compared with a global average of 27% and Australia’s much higher ranking 47%).

“The rise in recognition of shortage of orders as a serious constraint has been extremely rapid in New Zealand,” said Grant Thornton New Zealand spokesman Peter Sherwin. “In the space of a year, the proportion of companies rating it a significant barrier has gone up by 35 percentage points. At the same time, the number of those who have serious concerns about lack of skilled workers is down by 23 percentage points and red tape by six percentage points.

Mr Sherwin said it was a worry, however, that skills and red tape still rated as highly as they did as constraints in New Zealand.

“At least, we are among the majority internationally when it comes to the thin order books being a constraint – in 25 of the 36 economies surveyed by Grant Thornton, orders or reduced demand was rated as the top barrier to expansion.

“But we are still well above the average when it comes to red tape and skilled workers being constraints and these issues must not be lost sight of in these tight economic times.

“The Government’s recently announced support package does help to reduce red tape. However, this will be scant help if the shortage of orders results in more redundancies and business closures.”

Mr Sherwin added that one reason that finance matters had probably not figured as highly for New Zealand businesses as constraints was that earlier survey results had shown that they felt they had the support of their lenders, even though they were significantly less confident about those lenders actually providing finance.

“It sounds like a bit of a contradiction, but more likely it simply reflects good informal relationships between companies and their bankers,” he said. “That may be an important factor in how these businesses get through 2009 and will be closely tested when a business requests additional funding.”

ENDS

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