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Dalziel: "Getting on with Business"

Hon Lianne Dalziel
Minister of Commerce, Minister for Small Business,
Minister of Women’s Affairs, MP for Christchurch East

14 September 2006 Speech Notes
"Getting on with Business"

Labour Party Rooms
158 Tupaka Street, New Plymouth

Thank you for inviting me to speak to you tonight. I am in New Plymouth tonight, because I am speaking at the NZ Association of Credit Union's tomorrow morning. Harry Duynhoven asked if I could use some of my time tonight to let more people know about my role in the Economic Transformation agenda promoted by this Labour-led government. As Minister for Small Business, my role doesn't quite have the impact of some my colleagues, but it is a team effort, and as I have been saying recently, it is often the small things that cumulatively make a big difference.

Many of you will already know that I have been charged with leading a review of the regulatory environment in which our businesses operate. But, before I talk about that, I would like to talk about why small business is so important to the New Zealand economy.

SMEs, defined as firms employing less than 20 employees, make up 96% of firms in New Zealand. Many of New Zealand’s innovators and entrepreneurs can be found in our SMEs, with many of our leading-edge products and ideas coming from the SME sector.

Because of their sheer numbers, SMEs are important to the economy, but it is their potential for growth that makes them important to economic transformation.
To increase their productivity or to lift their sights to the export sector, they must be the best that they can be. But many SMEs are run by the people who have the idea or the skill, but little business experience to match.

This means we have started focusing our attention on which business owners are more likely to go to the next level and what might encourage them to do so. My officials like to characterise three main types of SME, which they describe as mountain climbers, freedom fighters and craftspeople.

Mountain climbers are motivated by growth and achievement. They often view entrepreneurship as being about achieving the impossible:

- They climb mountains in business in order to reach the top and look for the next point on the horizon;

- they’re never satisfied;

- they use money as a yardstick to measure their success but are rarely motivated by the money itself; and,

- their businesses usually grow at a rate of 20 per cent or more.

These courageous go-getters make up about 2 per cent of business owners.

Freedom Fighters are motivated by independence. They tend not to pursue change, and as result tend to experience only modest growth, but they have some interesting characteristics too:

- They can’t stand having people tell them what to do.

- Before starting on their own, they have often spent years working for someone else, constantly dreaming of ways to run a better business if they were in charge.

- They are often consensus-builders in management style, but that could be related to the fact that they tend to hire friends or family and continue to employ weak employees despite poor performance (and complain about not being able to sack staff); and,

- they tend to refer to big business and government as “them”.
They make up just under one-quarter of SMEs.

Craftspeople are the largest group, making up nearly three-quarters of the New Zealand SME landscape:

- These business owners are motivated by mastering their particular craft;

- They think of themselves in terms of their particular skill or service: as a jeweller, for example, or a plumber.

- They work by themselves or with one or two helpers.

- Many are laid-off employees who started small ventures with their severance packages.

- Generally, they don’t see themselves as entrepreneurs or small business owners; and

- most are price-sensitive bargain-hunters.

The growth motivations of these groups are different. The question we need to ask is how could we motivate an individual in any of these groups to expand his or her business horizon? We are confronted in this regard with what has been called the Triple B syndrome – happy with the Bach, the Boat and the BMW, there is no desire to go any further.

Their small size means that they usually have fewer resources, fewer in-house specialist skills and less capacity to deal with change when compared with larger firms. Their owners are known for their strong vision, short-term focus, strong work ethic and self-reliance. But these are both the strength and the weakness of the sector. But, they are not necessarily positive characteristics if the vision is an unrealistic dream or the self-reliance includes a reluctance to seek professional help.

Commitment to hard work is the most consistent common thread because of the need of the owner/management team to cover most of the administrative tasks in addition to the income earning ones.

So, these are exceptionally busy people and they tend to see the paperwork involved in meeting compliance requirements as a hassle and a cost on their time. They complain the loudest but they are the hardest to get to. I have relied heavily on Chambers of Commerce, Employers and Manufacturers Associations to make some of the connections for me.

Through them I have found SMEs have a real sense of frustration with overlapping frameworks, occasionally contradictory interpretations of requirements (even within the same department), the number of forms they fill in covering the same or similar issues and the number of visits by regulatory agencies dealing with overlapping issues. Time is of the essence to these people, because time means money – literally.

Given that many of our small businesses and the entrepreneurs that run them are – as I have said – a key source of innovation, government clearly has an interest in making it easier for them to get on with business.

When I started the review, I began with a blank sheet of paper. The first point that had to made though was that we have rules for many purposes. Of course, we need rules to ensure workplace health and safety for our workforce, and product safety for consumers; rules set and maintain quality standards that enable local and international requirements to be met; quality assurance is usually a pre-requisite to publicly-funded contracts; environmental sustainability requires the exercise of inter-generational responsibility. Rules can provide comfort that the people we are doing business with can be trusted even though we don't know them personally – industry codes of practice work well in this respect. Look at the growth in our capital markets since the rules were strengthened – takeover rules, insider-trading, securities markets rules – they all give confidence to investors.

I think we all accept that we need rules – we just want to make sure they're the right rules and that they are applied in a way that is proportionate to the risks that are faced. Nor should we think we are starting from a zero base. We rate No 2 in the World Bank survey out of 175 countries for ease of Doing Business.

As I implied before, we have found in our meetings that the stated 'burden' of compliance has been more about 'weight' - that it is the cumulative effect of the rules rather than one rule in particular. Small things can make a big difference, especially to SMEs.

What I also discovered was that, even though the weight was felt more keenly at the small end of town, it was the affect on morale that was universal. Size does matter when you're in business. The reality is that the vast majority of our businesses simply do not have the economies of scale or scope to absorb the multiple layers of regulatory requirements, and that therefore the transaction and compliance costs of these requirements fall disproportionately on the shoulders of SME owners.

As part of the review, I have asked the question why the many arms of government cannot extend a single hand to business, and then the government take responsibility for transferring the information where it needs to go.

One of the key features of the review is to see if we can reduce the cumulative effect of compliance that impacts heavily on smaller businesses. We are not looking at the policy – we are looking at the framework that implements the policy. That doesn't mean we won't look at policy in the future, but it is not the work of this review. So for example, there may be issues with the Holidays Act changes, but the compliance issues are about how the calculations are done, not about whether we have 4 weeks off like most of the rest of the OECD or whether you get time-and-a-half for statutory holidays.

We have set up the website for people to suggest how they think law and regulations could be made better. If you have ideas about improvements that can be made, please go to the website and have your say. You will see that we are asking for problems and solutions.

Officials and I have also been out talking to business to seek to understand their issues and to find potential solutions.

Officials have also been working with sectors, where we are getting really high quality feedback on the sorts of things that could be done better.

We have established a high-level inter-departmental taskforce that reports to the Ministerial Group that I chair. I have been given tight reporting timeframes and my first milestone report is due in October.

I have also made personal representations to the Standing Orders Committee of Parliament, in the hope that I can get an Omnibus Bill, which will enable the government to fix a lot of small regulatory issues in a single hit. The wheels of government can move very slowly even when we are seeking to improve the regulatory environment, which you would expect would attract cross-party support. I am hoping that we will create a permanent mechanism for fast-track changes when necessary.

In conclusion, we want to lift our game, because we believe it is better for everyone that we do. But although we are committed to effective regulatory frameworks, we remain clear that the government cannot and will not assume all of the risks because most of them belong to business and belong to investors.

Entrepreneurship and investment are about risk-taking and risk-taking lies at the heart of creativity and innovation and they are part of our national identity.

- Our brand is "exciting and dynamic" – that's how Tony Blair sees us.

- Trusted and good for business – that's how the World Bank sees us.

- Delivering reliable, high-quality products and services – that's how our markets see us.

- Committed to environmental values – that's how our tourists see us.

- World-leading science and research – that's how history already sees us.

And that's how we should see ourselves. Thank you.


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