The New Zealand Institute

Connecting New Zealand To The Global Economy

12 Mar 2007

The New Zealand Institute has today released the sixth report in its series on ‘Creating a global New Zealand economy’.  This report, ‘So Far Yet So Close: Connecting New Zealand to the global economy’, identifies ways in which the international supply chain links of New Zealand firms can be strengthened so that they can better connect to the global economy.

This report follows five previous reports that the New Zealand Institute has released over the past year, which have outlined the importance of international economic engagement and identified solution areas to increase New Zealand’s international economic activity. 

The progress in reducing the cost and improving the quality of international transport and communications over the past century has brought the world closer to New Zealand.  Despite this progress, however, it still takes longer and costs more to transport goods and people from New Zealand to offshore markets than from many other countries.  Distance is not dead.

These relative differences have a significant impact on the competitive position of New Zealand firms in international markets.  Further strengthening New Zealand’s international supply chain links is an important part of helping New Zealand firms to go global and positioning New Zealand as an attractive place for people and firms to locate.  The report identifies three priority areas for action in this regard.

The first priority is to strengthen New Zealand’s international air and shipping links.  The efficiency of New Zealand’s international shipping links can be improved by encouraging more efficient investments at ports and by ensuring that domestic road and rail infrastructure is aligned with these investments.  New Zealand’s international air links, which are vital to tourism, business travel, and some trade, can be strengthened by promoting in-bound tourism as well as ensuring that New Zealand continues to be served by a national airline.  Decisions about the future ownership of Air New Zealand need to be informed by these strategic considerations.

However, these actions, although worthwhile, are unlikely to be game-changing.  New Zealand firms will still be at a competitive disadvantage in terms of the cost and speed to market.  The remaining two priority areas for action respond to this ongoing gap.

The second response is for firms to re-think the location of their production activity. By locating their production activity close to the end-consumer or to international transportation infrastructure, New Zealand firms will level the competitive playing field and will compete on the basis of price, quality, branding and so on, rather than on the basis of supply chains.  They will be able to strengthen their competitive position by reducing their exposure to New Zealand’s international supply chain links.  Rather than relying on exporting goods and services from New Zealand to distant markets, New Zealand firms can go global using different types of business models.

Some New Zealand firms are successfully using such business models, but there is the potential for many more firms to do so.  Making progress in this area is largely dependent on firm decision-making, but governments can make the policy environment more conducive to this type of international engagement.  The government also has a role in championing this form of international engagement by New Zealand firms; the Buy Kiwi Made campaign sends the wrong messages in this regard.

The third response is to invest in developing virtual supply chains, which enable New Zealand firms to participate in the weightless economy by exporting services electronically to offshore markets eg the creative and software industries.  The development of communications technology has the potential to have a profound impact on the New Zealand economy, just as the introduction of refrigerated shipping did 125 years ago, by improving the ability of New Zealand firms to get to market. 

New Zealand has to invest behind these opportunities if it wants to obtain the benefits.  In particular, New Zealand should aim to be a world leader in terms of communications technology to make it as easy as possible for New Zealand firms to connect to the world from a New Zealand base.  In this regard, New Zealand should be looking at options to significantly improve the quality and pricing of broadband - which is the transport infrastructure of the 21st century - and ensure that New Zealand firms can access global markets in a competitive manner using communications technology. 

The world has never been so close.  New technologies, new communications platforms, and new business models combine to make it much easier for New Zealand firms to go global.  To take full advantage of these developments will require ongoing investments in new business models as well as a serious policy commitment in areas ranging from transport infrastructure to broadband to savings policy.  But the good news is that New Zealand need not be the last bus stop on the planet anymore.

- ENDS -

For information please contact: 
Dr David Skilling, Chief Executive, The New Zealand Institute, Ph: (09) 309 6230, Email: , Web site: http://www.nzinstitute.org

Notes to editors:
Copies of the New Zealand Institute’s previous reports are available on our website at http://www.nzinstitute.org.