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Recent key developments in MAKE│NZ
• And now, a brief interview with one of our members- Matthew O’Brien, CEO of Kiwicare:
MAKE│NZ: What was the first product manufactured by your company?
Matthew: Kiwicare’s early success came from our pest control products. Now well known as the “No brand” and with the phrase “Whatever the problem No is the answer.”
MAKE│NZ: What role did the initial product play in establishing the company’s market presence?
Matthew: Kiwicare was able to establish trust and reliability for quality products that work. This provided the confidence to expand the range and do more.
MAKE│NZ: Can you share an example of how early customer feedback influenced the development of your company’s products?
Matthew: We became known for products that worked. So we focused on developing the best products possible so we could always be trusted.
MAKE│NZ: What were the key factors that contributed to the success or failure of the company’s early manufacturing efforts?
Matthew: A willingness to have a go and try things, test and learn.
• On the heels of the recent electricity supply and price crisis, and a government announcement that clarifies its expectations that the Electricity Authority must play a more active role in preventing a future re-occurrence of such a crisis, the New Zealand Manufacturing Alliance has submitted nominations for the independent chair and two members of the Electricity Authority’s Security and Reliability Council, a key subcommittee that provides the Authority with independent advice on reliability of supply issues, the performance of the electricity system and the system operator. We have managed to find and nominate three candidates for these roles who have very close connections to manufacturing and between them a vast body of experience in all aspects of the generation and distribution of electricity. We expect the Board of the Electricity Authority to accept those nominations as an opportunity to add some real-life domain expertise and experience to its ranks
• Our next Fireside Chat will be on Monday, November 4. The topic will be Strategic Planning’ – something often talked about, not the least by a large number of strategic advisors and entire shelves of ‘How-To’ books, but still often not done well. Calendar invitations for the event will go out today. If you don’t receive an invitation, but are eligible and would like to attend, please let me know: dieter@makenz.org . A reminder, too, that as of this month, we are requiring those who wish to attend our events in person to either pay a one-off fee per event, or an annual membership fee. Details can be found here: https://makenz.org/membership/
On November 6 we’ll have the next meeting of our Transparent Factory Working Group. That group is made up of operations and production managers, and digital manufacturing specialists, from Canterbury manufacturers who have started their own Networked Manufacturing (Industry 4.0) journey. Again, if you didn’t receive an invitation to that event, but are interested to join that group, please let me know: dieter@makenz.org .
Recent key developments in New Zealand
• Oh to be a property developer … on Oct. 4, government announced its Residential Development Underwrite programme, which basically removes the commercial risk for large property developers for some of their projects (https://www.hud.govt.nz/our-work/residential-development-underwrite ) . Essentially, and at no cost to developers, the government will guarantee to purchase at an agreed (in advance) price houses that don’t sell at an (approved) market price within an approved period of time. The stated purpose is to ensure that the houses government wants to be build in key regions are actually being built.
Imagine, for a moment, a government that wants to see its manufacturing sector to grow and puts in place a similar put option (purchase guarantee) for a range of manufacturing products. Doesn’t happen, of course, not even in manufacturing economies. But what does happen in such economies is that the government puts in place loan guarantees for investments in manufacturing – unless it supports the expansion of its manufacturing sector with direct subsidies, of course. But we shouldn’t complain – that’s what happens in manufacturing economies. And ours, as we all know, is a real estate economy.
• Myth of the Month: New Zealand is an export nation. Again, we hear it all the time “exports are the backbone of our economy” – or, as our Minister for Trade, Todd McClay, put it recently: “Trade underpins New Zealand’s economy, and the standard of living for every one of us depends on it.” ‘Underpin’ means ‘form the basis for’, and the second part of the statement reinforces the impression that trade (meaning exports here) is, indeed, a critical element in / contributor to our economy. We could look at that by asking how much of our GDP is contributed by exports – goods and services together, where the former accounts for about70% of all exports. And what does that ratio look like in comparison to other OECD countries?
We’re not exactly world champions … nor has the ratio improved over the past 50+ years:
There are various other ways of analysing this data – correcting for population size for example. When we do that, it turns out there is a moderately strong trendline indicating that smaller countries tend to have higher export-to-GDP ratios. Except New Zealand clearly defies that trend, with lowest the export-to-GDP ratio among countries of similar size (2016 data – https://croakingcassandra.com/2020/05/02/new-zealand-the-foreign-trade-failure/ ).
However, the question has to be asked whether right now, and looking ahead, it is even desirable to be an ‘export champion’? More and more international trade barriers of all sorts are being put in place, including sanctions, fuelled by increasing geopolitical tensions, and the WTO has been reduced to a paper tiger. If you ask German economists these days about the German industry’s role as ‘export world champions’, they sound increasingly gloomy (the Germans are quite good at being gloomy …). Politicians of either persuasion – not only in the USA – increasingly plead the case for more ‘autarky’ – having an economy that is as independent of other countries as possible. Leaving aside the reality of the hugely complicated network of international supplies chains that won’t be disentangled in a hurry, if at all, for New Zealand that is a moot question. From medicines to LNG compressors, for a lot of things we import it simply wouldn’t be realistically practical to make them at home – as much as we will always advocate that we should have a strategic approach to reshoring manufacturing wherever that is profitably possible.
The National Party statement then goes on to say that it will “set an ambitious target to double the value of exports including from agriculture and forestry, services, international education, technology and tourism within ten years.” As it should. Not because we need to improve our ranking in some international league table, but because “right now New Zealand has a $16 billion trade deficit and the second worst current account deficit in the developed world relative to GDP, behind only Greece.”
We talked about New Zealand’s Current Account Deficit here before (#10; 17-9-2024), but it’s ok to mention it again, because it really does matter. While other factors come into play as well, the biggest contributor to our (negative) current account balance is our trade deficit. Here we can see our trade balance for the past 50-odd years:
This is quarterly data, showing what we’ve earned from exports minus what we’ve paid for imports. Because of variations in trade flows, especially in a country where commodity exports play a key role, trade balance data can be quite ‘noisy’, but an increasing trend over the past few years is clear visible. When, how and how much trade and current account deficits are a problem is a more complicated question, but they are never a good thing: “A current account deficit is sustainable when its underlying drivers support a smooth correction in the future. It is unsustainable when [it is] symptomatic of macro-economic imbalances that would eventually trigger disruptive adjustments.” – so says the World Bank in its advice. You be the judge which applies to New Zealand in its current situation.
So, is this a bad-news story? Not from a manufacturing perspective. The National Party paper quoted above suggests that a major part of improving the situation should come from ‘food and fibre, which in New Zealan’s case means commodity primary products and sounds a bit like doing the same thing we’ve done over the past 50 years and expect a different result – see also below. We need to and will keep making the point that an expansion of the manufacturing of elaborately-transformed, high-value goods (for export) will be an essential factor in improving the situation. And the many of you doing that already can be proud of your contribution to the economic wellbeing of our country!
• It makes no sense from a manufacturer’s perspective to knock the important contribution ‘food & fibre’ commodity exports make to New Zealand’s economy.
Neither does it make sense from a ‘New Zealand, Inc.’ perspective to ignore the risks, when a significant part of our food & fibre exports go to a single market – China. We mentioned New Zealand’s high level of dependence to that market for log exports a couple of weeks ago (#11 – 24/9/2024) already, here are the export prices over the past ten years (NZD, unadjusted / JASm3 FOB):
When it comes to dairy commodity exports, milk powder is the predominant category and New Zealand is the biggest player globally when it comes to the cross-border trade in milk powder, and China is by far the biggest export market (30%) for our milk powder.
The steep increase in sales revenue is largely due to increased volumes traded, as prices for the same period showed no persistent increases. GDT auction prices, which also determine the prices of sales to China, are shown below for a mix of the eleven most-traded dairy commodities (https://www.globaldairytrade.info/en/product-results/ ):
Also worth noting is that context is a recent article in The Economist, describing the overproduction of fresh milk in China, and the resulting drop in domestic milk prices:
Recent key developments in the World
• 33,000 workers at the WA factories of aircraft manufacturer BOEING went on strike over pay and conditions on September 13. Their union, the International Association of Machinists and Aerospace Workers, had complained last month that Boeing had publicised its latest offer to 33,000 striking workers without first bargaining with union negotiators, trying to by-pass the union.
Boing had initially offered a 25% pay rise over four years and then increased that to 30%, meaning the average annual pay for machinists would rise from $75,608 now to $111,155 at the end of the four-year contract. The union originally demanded 40% over three years. Boeing has now withdrawn its offer and negotiations have broken down.
More on that, and what the strike means before the ongoing problems at Boeing and developments in the wider passenger aircraft industry globally in next week’s Tuesday Top-Up.
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