Supply chains from a global perspective
Hon Jim Anderton Minister of Economic Development
European Article Numbering Conference. 6 May 2004, Sheraton Hotel, Auckland
You’ll see from the title of my speech that I have been asked to talk about supply chains from a global perspective.
Supply chains are a vital aspect of business.
I commend the conference organisers for ensuring there is a focus, and exchange of ideas, on how to manage supply chains better.
The supply chain model focuses on activities that get raw materials and sub-assemblies into a manufacturing operation smoothly and economically.
From an economic development perspective – the government’s perspective -- the issue is the value chain.
Although the two concepts are related, there is a real difference.
The value-chain notion has a different focus, and a larger scope.
Value-chain analysis looks at every step from raw materials to the eventual end-user - right down to disposing of the packaging after use.
I will focus more on value chains today, because that is where the government can make the most difference.
A good example of a New Zealand company linked into global value chains is Navman.
It’s a quickly growing high-tech New Zealand marine electronics company.
Its founders have an ambition of creating a billion dollar company, and many experts believe Navman is well on its way.
The only way Navman could grow was by being plugged into global networks.
On its first day in business it manufactured a product in Singapore for a client in the US.
More recently, it has responded to the trend in the market by designing electronics into boats at the manufacturing stage – like electronics in cars, rather than making things like fish-finders ‘after-market accessories.’
Navman saw it needed a relationship with a manufacturer, and the giant boat manufacturer Brunswick bought a strategic stake in the company last year.
Navman’s business now consists of managing a process that may involve: research and development in one country, design and integration in another, manufacturing in several more countries, assembly in yet another,
All to supply a final product which is installed in another manufactured product (the boat!).
The implications for New Zealand are considerable.
If you talk to people like Peter Maire – who is the chief executive of Navman – he will inspire you with his vision of building a giant New Zealand company.
But he will also tell you he will not base activities in New Zealand out of sentiment; Seeking to become a global scale company – Navman will base activities in the best place for them to be.
The challenge for New Zealand is to be that best place.
That means we have to get a lot of things right.
Some are regulatory, like taxes, resource management laws, labour laws and so on – as well as stable government, transparent democracy and the rule of law.
Some are fixed – like proximity to markets and the availability of certain resources.
But we also need to have skilled staff (and the lifestyle to attract and retain staff in a competitive world market for labour).
We need a culture of excellence and creativity and the conditions to unleash our unique talents.
If we can get all of this right at the national level, then our companies will find it easier to join the global economy.
It’s an economy that features increasingly sophisticated consumer demands, and vastly more complex goods and services.
In terms of transport and communications barriers, the world is shrinking.
The trend is for production to be spread across many countries and businesses.
That trend is something we simply have to accept and deal with.
We need to recognise it has many potential opportunities for New Zealand – as well potential downfalls.
The creation of global value chains creates new opportunities for small businesses to specialise in their areas of expertise.
It means many small scale businesses can get their products to very large markets.
But greater specialisation means that businesses need to be world class to be globally competitive in their area of specialisation.
The theme for this conference is getting IT (as in information technology) right for supply chain management
In particular, information and communications technology is important as one of the glues that hold global value chains together
IT applications can work across organisational boundaries
They can streamline global value chains and increase the number of niche opportunities.
There is a very good example of New Zealand using IT connections in this way:
New Zealand is set to make its mark through world leadership in food safety
In many markets for New Zealand’s primary produce, animal welfare, disease resistance and food chain safety are increasingly important factors in decisions over what to buy
But how do you convince buyers that New Zealand products achieve a high standard of excellence?
The seamless integration of electronics-based farm technologies has the ability to ensure New Zealand farmers can give buyers on the other side of the world the confidence that their products are safe, meet international standards and are fully traceable.
As with the Navman story, this is a story of New Zealand generating a global income stream by being more integrated to the global economy.
If we are going to sell more high-value, high-skill and high tech goods and services it will be through global value chains.
We have a lot of work to do.
Over the last ten years, New Zealand’s export growth has been slower than the global average.
Although we’ve done well for the last four years or so, New Zealand’s total merchandise exports grew by 1.2% p.a. over the 1990s compared to the OECD growth rate of 3.2% p.a.
Simply put, the ‘hands-off’ reforms of the eighties and nineties didn’t deliver gains quickly enough.
We are overly dependent on the export of commodities, or low-tech raw materials.
In 2001, 70 per cent of New Zealand’s export trade in goods was earned from primary commodities and a further 12 per cent from resource-based, low-skill and low-tech products.
In comparison, world export trade in goods is dominated by high-skill and high tech goods, which represent nearly three quarters of world trade.
The average output of all New Zealand workers nationally is around $60,000 to $70,000 per person.
The average added value output of a worker in a Christchurch electronic engineering firm is $250,000.
The average value added by a biotech worker in Taranaki? $1 million each.
Consider this: The United States exported the same weight of goods in the year 2000 as it did in 1900.
Yet the value of exports increased massively.
New Zealand is not trading sufficiently in high knowledge and technology based goods and services.
This is a key global growth area.
We need to do better.
We can’t simply copy other countries.
Others small economies that have grown quickly in the last thirty years or so have benefited from advantages such as proximity to market (Finland, Ireland – even Taiwan, which had the same size economy as New Zealand thirty years ago and now is in the top ten in the world).
Yet we can’t simply copy what those countries have done.
We need our own strategy that builds on our strengths.
We have a competitive primary sector, with high levels of innovation and expertise.
There are opportunities for growth in this sector through innovation and focusing on the safety, quality and purity of New Zealand’s product.
There are new growth areas such as ‘functional’ foods and the growing Asian markets.
Food traceability talked about earlier is an example of this.
We also have strengths including our high level of innovation in business; and our high-quality science research activity.
Our small size and isolation have made us more innovative, resourceful and flexible.
These qualities are highly suited to the requirements of high-quality and customer focused value chains.
There are many great examples of New Zealand companies leveraging off their competitive advantages
The problem is that there are not enough of them and they are not large enough
One example I have been working closely with is Tenon – formerly Fletcher Challenge Forests –which has set up a relationship with a Danish furniture design company, Zenia House.
The partnership adds a significant new dimension to New Zealand’s wood processing industry.
It is a great example for all New Zealand companies of how international relationships can be used to get footholds in international markets, and in the case of Tenon, move its products further up the value chain.
Back in January, Zenia House launched a new range of furniture made from New Zealand Radiata pine at one of the world’s leading furniture fairs in Cologne, Germany.
Two government agencies – New Zealand Trade and Enterprise and Investment New Zealand - worked behind the scenes in Europe to help dispel the myth that radiata is not suitable for designer furniture.
From those initial approaches, Zenia House visited New Zealand and were introduced to Tenon.
The Zenia House-Tenon partnership is an example of how government can work with New Zealand businesses to help them expand.
It’s also an example of what other New Zealand companies need to be doing and the government will be there to help if required.
The government is committed to playing our part to assist industry to build on our strengths.
Our exporters need to be driven by the demands and requirements of customers in global markets.
Export businesses need to be globally-focused from the outset.
We need to move from a “production-push” mentality to a “market-pull” approach.
We need to search out actively what the world needs and use smart ways to up global value chains.
This will require our businesses to be intimately connected to the rest of the world.
We need our businesses to plug into global value chains if we are going to generate the business success we need.
Success for business provides the jobs and the prosperity we need to support the lifestyle New Zealanders aspire to.
We are not the richest country in the world.
But I believe New Zealand is the most attractive one to live in.
That’s because we offer opportunities no other place on earth can offer.
An enviable lifestyle, where individuals have security in life, the freedom to flourish, the outdoors to roam and a place most people can call their own.
We need to build on that heritage with opportunities for all New Zealanders and the freedom for our talent and creativity to flourish.
We need to set out ambitions high for the success of our businesses and our country.
We need to commit ourselves to work together to secure that success.
And we need to bring the benefits back to produce the overall advancement of New Zealanders.
New Zealand has inspiring potential.
I’m committed to working with industry and individual businesses to unlock it and to see just how much we can achieve.
The case for us to press on is overwhelming.
The only thing that can hold us back is ourselves.