Timing Is Right For A Kiwi Business Invasion Of US
Michael Barnett* previews a Gateway to America conference he will chair at Auckland’s Sky City Convention Centre on August 12.
The United States is now firmly positioned as New Zealand’s second largest trading partner, with evidence emerging of a virtual unlimited opportunity to create an inventory of advanced finished products suitable for American tastes.
Even though New Zealand, unlike with Australia, has no formalised bilateral trade agreement with the United States, value-added Kiwi exports are starting to make big inroads into America, and are growing at a faster rate than into neighbour Australia.
Last year trade between the two countries’s totalled $8.3 billion, made up of $4.4 billion exports from New Zealand and $3.9 billion imports from the United States.
Reinforced by the trans-Tasman closer economic relationships agreement, Australia is of course our leading trading partner. Two-way trade last year topped $14.2 billion, made of $6.4 billion of exports and $7.8 billion of imports.
Japan, consistently ranked along with Australia and the United States as one of the top three individual country trading partners, came third last year with $7.3 billion, made up of $3.4 billion of exports and $3.9 billion in imports (of which $1.6 billion were motor vehicles, but that’s another story).
But these global statistics are far from telling the full story of the opportunity that Kiwi businesses are increasingly taking advantage of in the United States, and the potential for much more growth yet.
On a 10-year profile, the value of New Zealand’s exports to America have doubled, while to Australia they have increased by just 47% and to Japan by only 21%.
The United States is also taking an increased proportion of our total exports compared with 10 years ago.
In 1995, exports to America comprised just 14% of the total value of New Zealand exports that year, but last year they had risen to just under 20% (19.6%) of the total. In contrast, in 1995, exports to Australia comprised 20% of the total value, and last year they had reduced marginally to just under 20% (19.9%) of the total value of New Zealand $29.5 billion export trade.
Our performance in the three largest markets is still dominated by agricultural products. But analysis of the top 20 items exported to each last year shows some interesting trends emerging.
Last year, about 87% of the top 20 exports by value to the United States were made up of basic commodity products, mainly agriculture but also aluminium and steel. Similarly unprocessed commodity products dominated the value of exports to both Australia and Japan, at 73% and 96% respectively of the top 20 items.
After 20 years of CER with Australia, by last year just 7 of the top 20 export items or 28% by value comprised value added products. Topping the list was $193 million of whiteware goods (refrigerators, freezers and washing machines), followed by $142 million of processed foods (sauces, bread, pastry, cakes etc), $90 million of plastic articles and $78 million of wine. This represented a 5% increase in the value of processed products since 2002.
Despite the knowledge wave policy push for more added value exporting, trade to Japan remains overwhelmingly dominated by unprocessed commodities, with only two processed items or 4% of the value – $97 million of food preparations and sauces – making the top-20 group.
In contrast, without any bilateral trading arrangement between New Zealand and the United States, last year 6 advanced products made the top 20 group, making up 13% or $406 million of the value, topped by $137 million of processed foods, $65 million of medical and veterinary instruments, $58 million worth of dish washing machines, $51 million worth of yachts and other vessels, and $94 million of wine – some $20 million more than to Australia.
The United States is of course a far larger market than Australia – 296 million compared with 20 million and the world’s largest economy.
Clearly, I suggest, our growing success in the United States with both agricultural commodities and value-added items suggests a market of unlimited opportunity for growth potential.
Providence and our advances in the late nineteen century with refrigeration technology enabling meat and diary products to be exported to Britain may have intended New Zealand to become for much of the 20th century a ‘isolated rich country’ where we came to accept without much question that our standard of living was based on exporting unprocessed agricultural products.
The last 30 years has seen Kiwis earning a reputation for living by our wits with the evidence seen in our success in the worlds largest market piling up in areas as diverse as washing machines, yachts, wine, medical and health products, electric fences, bread and pies and numerous other value-added processed products and services from software, to fashion clothing and engineering consultancy and design.
But export markets like America don’t open up by themselves. A successful marketing strategy to place goods and back up services close to consumers involves a minefield of regulations and import roadblocks requiring skilful handling and negotiation with the US administration – be they obtaining access for new products or maintaining or expanding access for traditional items.
Exporting contributes 31% of our GDP, and its health is essential to our economy. The government has set the challenge for New Zealand – to see our export profile move up the value chain.
I have long believed that New Zealand’s future lies in building up a tier of outward-looking, export oriented businesses, whose purpose is motivated by being positioned at the top of the market.
The Gateway to America conference, see www.gatewaytoamerica.co.nz for details, will bring together the proof and the experience confirming the big opportunities for small, smart, nimble and creative Kiwi businesses to successfully penetrate the United States market.
The programme includes workshops where successful exporters to America will share their experience of what it takes to make an impact in the greatest market of all - to establish a beachhead, build the brand, consolidate the growth, and decide between strategic options such as seeking a license or supply chain partner versus using your own Kiwi people.
But of course the gateway to America is not a one-way street. We are a relatively small market for US business interests, ranking around 40th on their list of trading partners.
Considering the difference in size between the two countries, that’s pretty good. From the US perspective, New Zealand is seen as predominately an open, innovative market. It gives Kiwi businesses an opportunity to work with Americans in expanding trade in third country markets and establishing joint ventures in sophisticated products – computers, software, plastics, electrical equipment and even aviation.
Some specialist American speakers will provide up-to-the minute intelligence about doing business with the United States, including Kenneth Dam, the 8th Deputy Secretary of State and former Deputy Secretary of the US Treasury.
Chairing a Gateway to America trade summit as an election campaign gets underway could create an impression that our relationship with America might come under scrutiny. It will, but not as an election issue – it’s strictly a business issue; how to break into US distribution channels and do the business.
Last year, a Kiwi inventory of around $1 billion worth of advanced processed products was successfully sold in the United States. For business people wanting to look at the world beyond Australia, the United States is clearly a country of great opportunity.