New Zealand companies do not seem to have understood the importance of international trade, despite the huge potential in export markets, a Massey University Research has found.
Professor David Deakins, Director of the University’s Centre for Small & Medium Enterprise Research, said that less than 20% of the earnings of New Zealand companies came from overseas.
Removing barriers
The Research, stated to be the largest systematic study aimed to identify factors that promoted the export sector.
“The Government’s aim is to increase the contribution of exports to the economy from 30% to 40% of GDP. It is interested in removing the barriers to exporting and what it takes for a company to break through that threshold for their first internationalisation activity,” he said.
A number of large, medium and small companies in the manufacturing and services sectors were involved in the Study, which posed two important questions to the respondents: ‘Why do some companies go ahead, while others decide not to internationalise?’ ‘Are there areas where business support might make a difference?’
The Report, titled, ‘Understanding Internationalisation Behaviour’ was jointly commissioned by the Business, Innovation and Employment Ministry, Foreign Affairs & Trade Ministry and the New Zealand Treasury.
It was designed as a follow-up investigation to the 2011 ‘Statistics New Zealand Business Operations Survey.’
Professor Deakins found that while export activity by New Zealand firms was diverse, there were some common factors among successful companies.
Sustained activity
He advised private sector organisations to be committed and sustain exports.
“You have to take a long-term view and commit enough time and resources into the overseas market. You also need trusted contacts and strong networks to allow you to research the market well, or have someone with good overseas experience within the firm,” he said.
While unfavourable exchange rates were one of the most frequently reported barriers in Statistics New Zealand’s 2011 Business Operations Survey, the more in-depth interviews in this Study revealed that exchange rates were not a major trigger for disengaging from export activity.
The Study found that companies learned to live with fluctuating exchange rates and adjusted their strategies accordingly.
Evolutionary approach
Professor Deakins said that while technology and knowledge-based companies tend to follow an early internationalisation model, a majority of New Zealand firms take a more gradual and staged approach to exporting.
“I call it an evolutionary approach. They go to a region of Australia first, and then slowly move into other Australian regions. Then, step-by-step, they might branch out into other countries.
“New Zealand companies do not just have to deal with physical distance; they also have to overcome psychological distance. That is why most companies look to Australia first, our nearest neighbour in a physical sense, but it is our nearest neighbour psychologically as well because of its similar language, culture and regulations,” he said.
Support Gap
The Study also discovered that many companies had modest exporting ambitions, usually limited to activity within Australia. It identified a ‘Support Gap’ for small New Zealand businesses that may occasionally export to overseas markets.
“This Support Gap applies to small New Zealand-owned businesses that do not meet the criteria set by New Zealand Trade & Enterprise. In addition, there seems to be a perception issue with smaller firms on the value of such support. We suggest that advice and additional support for these firms be available from Regional Development Agencies and their networks,” Professor Deakins said.
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Professor David Deakins
