What are the ‘right’ signals for export growth?

Canterbury Manufacturers’ Association

13 March 2007

What are the ‘right’ signals for export growth?

The Canterbury Manufacturers’ Association says that the message to New Zealand companies to relocate their production capabilities offshore as a solution to logistical and infrastructure issues is short sighted and will not provide for the long term development of a strong tradable sector based on value adding activities in this country.

“New Zealand companies have always been confronted with transport and logistical problems and these are issues which need to be addressed but the message that the ‘NZ Inc.’ model offers the solution for all is short sighted”, says Chief Executive John Walley.

“The mindset we adopt influences the policies we apply and, as our policy settings force more of our top tier manufacturing exporting companies to adopt the ‘NZ Inc.’ model, our innovation system is threatened”.

Mr. Walley says that complex value added products depend on sophisticated supply chains operating at both international and domestic levels and this is lost in the ‘NZ Inc.’ model. The view that all exporting companies must have production in low cost countries or be producing in their markets has a place but it is not the complete picture. Mr. Walley says that while this model may work for some, such as the clothing industry or those operating in large scale consumer markets, it is much less applicable in niche high tech sectors.

“Integrated and sophisticated supply chain management is not simple and there are a range of factors involved”, says Mr. Walley. “Elaborately transformed companies rely heavily on each others complementary skills over and above contractual supply relationships. There are different layers within those chains, so once you start peeling away the larger companies at the top that could possibly absorb the costs of relocation, you break down the layers beneath, and smaller, more specialised firms start to fail. The loss of capability offshore impacts on the creative and new product development process, and with it goes our ability to respond to future opportunities”.

“The key to a successful supply chain is the ability to respond to opportunities and challenges. For many companies, knowledge generated in the production process influences the decisions taken in the design and development process and visa versa and, at a practical level, much is lost when they are separated”.

“Our low cost partners will eventually become our low cost competitors as they start to innovate, brand and ultimately challenge our companies. Once this happens, our economy becomes dependent on how low our own cost base can go, and perhaps how New Zealand might find a way to offshore its grass”.

ENDS

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