Forget the farm, and keep an eye on the future if kiwis really want to fly says Greg Shanahan.
A change of consciousness away from biological production towards more ICT, high tech manufacturing and biotechnology is occurring in New Zealand, and most people would be surprised how big the sectors have become he says.
As the managing director of the Technology Investment Network, which recently launched the sixth edition of the TIN100 Report [though ironically, this version has 200 companies in it], Shanahan’s in a unique position to comment on what and why certain industries and sectors are doing well.
So, while dairying’s exports were $8,373,000, the technology export sector’s contribution was just shy of $5 billion, while employing 24,000 people. A key point that Shanahan also makes is that while dairying and meat’s export revenues dropped 7% and 8% to March 2010, the TIN100’s revenues only fell 1%.
“That’s partly because the technology companies are across a diverse range of markets, and these have shown a strong resilience,” he says.
As well as showcasing and summarising developments in companies from Fisher & Paykel Healthcare to Pacific Aerospace, the TIN100 report’s purpose is “to quantify the sector and look at its trends so we can actively facilitate its growth,” Shanahan says.
“By looking at sectors and companies, rather than prognosticating what might work, we can take a look at what is working, and promote that.”
The TIN100, sponsored by NZ Trade & Enterprise and the Foundation for Research and Technology’s TechNZ has shown exactly what successful exporting companies are doing right says Shanahan.
Organisations with both technological and market leadership transform that into a market advantage.
And while everyone wants to be a market leader, it tends to be even more important for New Zealand given the country’s currency appreciation and high volatility, over the past decade.
“In these circumstances, unless you have a handsome gross margin, you’re going to find it difficult to make money,” he says. “You only sustain your gross margin by being a price maker, not a price taker. Being a price maker gives you some insulation, and you only achieve that by being a market leader.”
Shanahan says the global market is almost a perfect example of a Darwinian biological contest. “Unless you’re in a leadership position, compared to being third or fourth, its an extremely hard row to hoe,” he says.
One huge advantage for New Zealand is being next door to one of the best performing economies in the world. The fact that the $NZ is closely aligned to Australia’s also means that currency fluctuations against our trans-Tasman neighbour is nowhere as severe as the rest of the world.
Partly for this reason, partly by dint of proximity, TIN100 exports across the ditch have risen to 28% of the total from 24% two years ago, and the lucky country remains the destination for a large number of New Zealand companies’ products.
Another purpose of the report is to demonstrate that New Zealand can, and should, adopt some lofty growth goals Shanahan says.
These goals are backed by creating new products, and in 2010 TIN100 companies spent $370m or 6% of their total revenue on R&D. The nine identified market or technology leaders spent 9% of their total revenue, involving 13% of their staff, on R&D.
The point of these successful companies is that they’re “big, resilient, and have highly scalable businesses,” Shanahan says. “This high technology sector will, if managed and supported properly, will soon be the largest export earner for our country.”
A summary of the TIN100 report (as well as the opportunity to purchase it) is available at http://www.tinetwork.co.nz/
‘Ten companies to watch’, which grew combined revenues by 14% or $229m to the year ended March 2010 are:
• Datacom – won numerous ‘best company’ awards during the year
• Fisher & Paykel Healthcare – sales of consumables and accessory products for its sleep apnea, respiratory humidification and acute care products represent 75% of operating revenue
• Skope – 49% growth in Australian market for its commercial refrigeration, food service and heating products promoted 90% increase in local Christchurch production and the creation of 100 new jobs
• Temperzone – air conditioning business that has grown 16% last year, added 100 new jobs, mainly in NZ, and formed strategic alliance with Hitachi
• NextWindow – though now owned by Canada’s Smart Technologies, was early in appreciating the growth potential of the touch screen market, and demonstrated the rapid growth that’s possible when the technology hot spot is achieved
• Tait Radio – iconic Kiwi company landed the biggest contract in the company’s 42 year history with a $39m deal to supply 10,000 radios for Victoria’s County Fire Authority
• Orthopaedic Synergy – revenue grew to $42m in the March 2010, up from $12m in 2008; 90% of sales in the USA
• Zee Tags – one in four USA cattle have a Zee one-piece eartag, and the company has recently taken over American distribution from licensee Farnam with whom it enjoyed a 20 year relationship
• Wellington Drive Technologies – though the listed electric motor manufacturer made a $16m loss last year, as sales volumes grow over the present 600,000 motors a year, gross margins should improve
• Zintel – payment terminals business with an original NZ focus, now expanding rapidly in Australia