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NZ Manufacturers challenged by globalisation

13 February, 2006

Media Release

Manufacturers in New Zealand face increasing challenges from globalisation.

KPMG International commissioned the Economist Intelligence Unit (EIU) to survey 232 senior industry executives to gauge their strategies for competing in the global manufacturing marketplace. Their survey results published last month show that, with the exception of the Scandinavians, Western European countries are investing too little in R&D—as a percentage of overall GDP—to compete on the basis of innovation and technology and to protect themselves from low-cost manufacturing powerhouses offshore.

By comparison New Zealand is making some progress, but not enough in relation to its rivals. 2004 figures from the NZ Statistics Department show an increase in total R&D expenditure of 13% between 2002 and 2004, with total R&D in private, government and university sectors of $NZD 1.6 billion.

Total R&D expenditure grew to 1.17 % of New Zealand’s GDP in 2004.

While this is a big increase from the result in 2002, in business and overall spend, many of New Zealand’s competitors invest relatively far more in R&D.

Country / Business R&D as % GDP * / TOTAL R&D as % GDP **
New Zealand / 0.47 (04) / 1.17 (04)
Australia / 0.89 (03-04) / 1.62 (02-03)
Canada / 1.03 (03-04) / 1.91 (02-03)
UK / 1.24 (03-04) / 1.88 (02-03)
USA / 1.79 (03-04) / 2.67 (02-03)
Japan / 2.36 (03-04) / 3.12 (03)

Country / Business R&D as % GDP* / TOTAL R&D as % GDP**
Finland / 2.46 (03-04) / 3.46 (02-03)
Sweden / 2.95 (03-04) / 4.27 (02-03)
OECD (average) / 1.54 (02) / 2.30 (03)

*ABS report 8104.0 03-04 and OECD
Main Science and Technology Indicators 2005

** ABS Yearbook Australia 2005 and OECD Main Science and Technology Indicators 2005

A low level of R&D investment leaves local industries vulnerable to commoditisation and substitution from low-cost manufacturers.

The EIU research indicates that most manufacturers need to take long-term investment decisions and position their operations in areas which capitalise on expertise and innovation tightly responsive to customer demand.

The findings in the Global Manufacturing Survey highlighted:

Globalisation is about market access, not just low costs. As China and other countries in the Asia-Pacific region grow wealthier and do more manufacturing, their relative importance as markets and production centres is likely to increase. Developing nations become developing markets for innovative manufacturers. While low-cost labour has a role to play, many manufacturers are going global to access a range of opportunities and resources available in different international markets.

Other issues are risk management and skills. As businesses expand into new, emerging markets, there is a growing fear that appropriate risk management processes are not yet embedded into the business model. Many manufacturers have tended to take an instinctive approach to risk management, often relying on the experience of the CEO or CFO to lead the response to emerging threats. Few manufacturers have a dedicated head of risk at Board level, with less than three percent of the survey’s respondents saying that they had a chief risk officer. As companies move into new markets where their experience is limited, the need for a more focused approach to risk management will become acute.

When asked by the EIU to rank the biggest challenges facing their companies, 45 percent of respondents cited the difficulties of acquiring employees with the right skills, making this the second most pressing challenge – behind controlling costs. The survey highlighted that if companies are to improve their R&D output, recruiting and retaining key personnel will be an important factor.

Paul Kiesanowski, KPMG Industrial Markets Partner in New Zealand, said “Whilst the survey did not include New Zealand many of the conclusions have direct relevance to us, we are lagging well behind many of our global competitors in R&D. In addition many businesses in New Zealand are facing real and pressing issues in relation to recruiting skilled resources. We are competing in a truly global market for skills.


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