New Zealand Small Businesses Lag Asia-Pacific Peers But 2022 Looks Brighter

• Only 1/3rd of NZ small businesses grew in 2021, the second lowest of 11 Asia-Pacific markets.
• NZ businesses behind in use of social media, online sales and new payment technologies.
• Expectations are better for 2022, following a pick-up in investment in technology.

More of New Zealand’s small businesses shrank than grew in 2021, CPA Australia’s annual survey of 11 Asia-Pacific economies has revealed. Only 33.2 per cent grew, the second lowest result in the survey, compared to 41.9 per cent that shrank. However, 56.1 per cent expect to grow in 2022, which is an improvement on last year, although still lags the survey average of 61.9 per cent.

“The results are somewhat surprising given New Zealand’s success in limiting the impact of Covid-19 last year,” says Gavan Ord, CPA Australia’s Senior Manager Business Policy. “Only Australia reported lower rate of growth, at 32.2 per cent.”

Ord says improved expectations for 2022 reflect a more confident economic outlook, along with a higher percentage of small businesses intending to invest in innovation and exporting. However, Ord notes the economic environment has become more challenging for NZ small businesses recently, with inflation and interest rates rising, oil price shocks from Russia’s invasion of Ukraine, and the effects of Omicron still reverberating throughout the economy.

“New Zealand businesses are probably not that well-equipped to respond to the current set of circumstances. They’re not digitally savvy compared to their Asia-Pacific peers, and many are not seeking advice about how to manage this environment.”

The survey showed that NZ small businesses continue to be significantly less likely to earn revenue from online sales. More than 35 per cent do not earn any revenue online, compared to just 1.3 per cent of businesses in Mainland China.

NZ small businesses were also the third least likely to begin or increase their focus on online sales as a reaction to Covid-19. In addition, nearly one-third (30 per cent) made no investment in technology in 2021, compared to just 5.2 per cent of surveyed businesses in Vietnam.

More than 35 per cent of NZ small businesses have not adopted new payment technologies such as Apple Pay, Paypal or buy now pay later, compared to 0.1 per cent of Mainland Chinese businesses. 36.8 per cent did not use social media for business purposes, compared to the survey average of 17.2 per cent.

Ord says a possible explanation for the lower levels of technology investment by NZ small businesses is the poorer short-term returns they deliver. Of those businesses that did invest, only 32.3 per cent said the investment improved their profitability, compared to the survey average of 53.6 per cent.

“This demonstrates the need to improve the digital skills of our small businesses and for them to seek advice to ensure they adopt the right technology solutions for their business,” Ord says.

Another possible reason for a relative lack of investment in digital capability is the demographics of New Zealand’s small business sector. New Zealand was the second most likely of the 11 markets surveyed to have respondents aged 50 or over. Only 24.8 per cent of respondents were aged under 40, against a survey average of 45.2 per cent.

Ord says the survey’s results show the use of business technologies falls for respondents aged 50 or over, and declines sharply for those aged 60 or over, regardless of the market.

New Zealand small businesses do, however, take the threat of cyberattack seriously. While 30.3 per cent thought an attack was likely in the next 12 months (survey average 44.3 per cent), 42.6 per cent reviewed their cyber defences in the last six months, comparable to the survey average of 46.7 per cent.

Responses to questions regarding external funding and business growth appeared in part to reflect the different government policy responses last year to the Covid-19 pandemic.

Some 45 per cent of NZ small businesses required funds from an external source in 2021 (survey average 60 per cent). Of those, only 24.8 per cent sought funds for business growth (survey average 48.2 per cent), while 40.4 per cent said they sought funds for business survival (survey average 49 per cent).

New Zealand was the only market in which “government grant or funds” was the most cited source of funds (28.4 per cent). Only 24.1 per cent said a bank was their main source of external finance, compared to the survey average of 34.2 per cent.

While only 28.1 per cent of NZ small businesses expect to increase employee numbers in 2022 (survey average 39.9 per cent), this is a sharp improvement on 2021, when only 11.3 per cent of businesses expected to increase their staffing levels. “This result reflects stronger growth expectations for 2022, but achieving it may prove difficult for many businesses due to labour shortages”, says Ord.

Ord says that, while New Zealand continues to lag in digital capability, the penny may be dropping, albeit slowly. “While the 32.3 per cent who said technology investment in 2021 made their business more profitable was low by comparison to the Asia-Pacific, that number was a great improvement on the 17.7 per cent recorded in 2020.”

“Year after year, the survey results show a clear connection between increased investment in technology and digital capability, and business growth. That helps explain why many New Zealand small businesses are confident they will grow faster in 2022 than they did in 2021.”

Read CPA Australia’s Asia-Pacific Small Business Survey 2021-2022

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