Jump to-
Recent key developments in MAKE│NZ
• This week’s GuessMasters® question: In what year was the first patent granted to a New Zealand manufacturing business?
The winner will be the first correct guess – or, failing that – the first guess that comes closest to the actual number. Please email your guess to dieter@makenz.org . For the answer to last week’s question, and our latest entry to the MAKE│NZ GuessMasters’ Honours Board, please go to the end of this newsletter.
• Tomorrow, Wednesday 20th, the Hardware Meetup NZ will be in Christchurch!
This’ll be taking place on Wednesday 20th, November 2024, from 5:30pm to 8:30pm at the Health Technology Centre (2 Worcester Boulevard, Christchurch Central).
There’s been a slight change to the speaker line-up, so now their guest speakers are:
Daniel Milligan, the CTO of Syft Technologies
Jason Orchard, Head of Engineering for Evnex
Brendon Hale, the CTO of Basis
You can find out more and get tickets here!
Don’t forget, there will also be a livestream of the event, so make sure to not miss out!
• In our next Fireside Chat event, we’ll hear from Ben Reed, CEO of Hamilton Jet. Ben has been travelling on business extensively this year, and Hamilton Jet also had a meeting with their global distributors in New Zealand recently. Ben will share with us what he picked up about the state of the economy, and manufacturing in particular, in the countries he visited. Straight from the source – it will be exciting!
If you are a senior leader in a manufacturing business interested in attending and a member of our MAKE│NZ Community (or want to join us), please drop me an email: dieter@makenz.org
Recent key developments in New Zealand
• Myth of the Month: The ‘Weightless Economy’. This idea had its heyday about 20 years ago, when the ‘knowledge economy’ was all the rage and the future of advanced economies was all about services, rather than products. The basic idea was that New Zealand’s geographic isolation is putting it at a disadvantage in terms of time and cost when it comes to exporting anything ‘tangible’, but the export of ‘weightless’ products and services – software, video games, SaaS (Software as a Service), movies, etc. – didn’t have that problem.
And there is undoubtedly merit in the concept. We have highly successful companies based on that business model, like Xero and Wētā Workshop, to name but two. And the idea is still very much alive; take the annual ritual of the release of the TIN 200 Report (notwithstanding that a large proportion of the companies listed there are manufacturers …). In an interview on November 18, former F&P Healthcare CEO Mike Daniels congratulated TIN on its work and expressed his optimism that “the technology sector has the potential to be the country’s top export earner”, but expressed concerns that a shortage of talent “will hold the sector back”. Or take government support for the film industry – between FY 2014/15 – 2020/21 the NZ government provided direct funding of NZD 1bn to support the film industry, this year it’s down to a miserly $38.2m. Or the lament from the early champion of the concept, David Skilling, that still not enough of it is happening: “There has been less of a shift into knowledge-intensive activities than seen in many other small advanced economies. Directly knowledge or technology-intensive exports remain a relatively small part of New Zealand’s export structure despite recent growth. This is largely due to policy choices: New Zealand has not invested in skills and innovation to nearly the same extent as high performing small advanced economies; and has not focused on developing knowledge intensive competitive advantage” (https://www.treasury.govt.nz/sites/default/files/2024-05/pc-inq-nzfrff-frontier-firms-david-skilling.pdf ).
In Myth of the Month we look at the facts behind the concepts:
As we can see, over the past 20 years service exports have gown more slowly than merchandise exports. Moreover, typically around 60% of all service exports come from inbound tourism – the graph illustrates that well with the ‘COVID-19 dip’ in service exports.
At its most simple level, a movement to a (more) weightless economy would mean that, if we plot the development of export values over time and compare it with the development of export volumes over time, the gap between the two lines would become bigger over time. There is an open invitation for someone with more time and expertise to produce a single graph to allow a direct comparison, but the two graphs below don’t show such a trend, even at this crude level.
The obvious path towards a less ‘weighty’ (export) economy lies in a combination of more truly weightless exports, and increasing the value-to-weight ratio of what our merchandise exports. A 20-ft container load of milk powder is worth around NZD90,000. When we asked a couple of local manufacturers about the equivalent value of their elaborately-transformed products, figures ranged from $750k to $3.5m. And the idea isn’t new in Wellington, either. As far as we can tell, the “from volume to value” catch-cry goes back to a speech by then-Minister of Trade, David Parker, in March 2018: “We aim to diversify our exports and markets as we move from volume to value.”
All we need now is a collective effort to make it happen. Can’t be that hard, can it?!
Recent key developments in the World
• For those of you breathing a sigh of relief on the news that ILA workers in the ports on the East and Gulf coasts of the US went back to work after a three-day strike in October, it’s time to hold your breath again: The ILA walked out of negotiations with port operators (USMX) on November 13 over unresolved issues around automation resulting in potential job losses. That was after they already got employers to agree to a 62% pay increase over six years … So, the risk of a (prolonged) strike after Jan. 15 is still alive.
• Alastair Crawford is a director of LMAC, one of New Zealand’s leading advancing manufacturing consultancies. Except, it’s now spread its wings and established quite a successful presence in the UK, too. Alastair was instrumental in setting up their UK operations and has been working in the UK for almost three years now.
We interviewed Alastair recently to find out more about where manufacturing, and especially SME manufacturing, is at in the UK these days, and how it compares to New Zealand – and whom better to ask than someone who has recent experience with manufacturing in both countries? The interview broadly covered four areas:
-The general situation of (SME) manufacturing in the UK
-The introduction of advanced / networked manufacturing technologies
-The outlook for labour and skills required to grow the UK’s manufacturing sector
-Wider stakeholder expectations of and constraints on the sector
We’re getting into the first two topics this week, and the rest in next week’s Tuesday Top-Up.
To start with, in its draft Modern Industrial Strategy (Invest 2035), the UK government has laid out on 90 pages (!) its detailed economic development strategy for the country; the document is currently out for consultation. In it, two of the eight growth-driving sectors relate to manufacturing: advanced manufacturing, and defence. This isn’t the place for commenting on the strategy in detail; suffice to say it’s a fairly-well-crafted example of an economic development strategy, similar (and, at first glance even better than) what’s come out of Australia recently (https://www.gov.uk/government/consultations/invest-2035-the-uks-modern-industrial-strategy/invest-2035-the-uks-modern-industrial-strategy ).
The document also acknowledges the key role of energy: “Access to cheap and reliable energy is an influential determinant of business competitiveness and an important consideration for internationally mobile investment.” And of access to capital: “The government knows from businesses that there is still much to do to improve ease of access to growth capital and scale-up finance in the UK” – among other things.
• Is it for real? In its recently-released budget, the UK government has increased allocations to the Department of Business and Trade by 10% over last year, including ₤3.841 bn over two years in grants to aerospace and automotive industries, as well support for reducing carbon emissions in the steel industry, and direct energy subsidies for energy-intensive manufacturing industries. That’s a start at least. On the downside, the budget also contains a significant increase in the employers’ contribution to National Insurance, increasing the cost of labour across the board.
The additional funding needs to be assessed against the fact that public sector net debt in the UK amounted to 88.9% of GDP during the 2023/24 financial year (97.8% when the Bank of England is included). That is the highest debt incurred by the government since the early 1960s and more than double the levels in New Zealand.
In line with the government’s commitment to supporting manufacturing, the manufacturers Alastair is in touch with generally seem to be in a good space – the direction of travel is a good one. Keeping in mind that their client base is almost certainly a ‘biased sample’ of manufacturers overall.
Apart from the COVID-19 aberrations, manufacturing output levels have been pretty steady in the UK over many years now, and the PMI has shown an upward trend over the past few months now after a recent dip (Source: https://commonslibrary.parliament.uk/research-briefings/sn05206/ )
Energy costs have come down a bit off their extreme peaks in 2022 and 2023, but are still higher than five years ago.
Note: excluding our extreme spikes this winter, these prices are significantly higher (about double) than the equivalent prices for New Zealand manufacturers.
• My next question to Alastair was about industry exposure. What we are seeing now in Italy and Germany, for example, is the ‘ripple effect’ going through the automotive industry, not only causing Tier-1 suppliers like Continental, Scheffler and ZF to lay off thousands of people, but also putting many SMEs in their supply chains into difficulties. Is the same happening in the UK?
“We do have some big sectors like automotive and aerospace that are more exposed, but at the moment those sectors are still performing well; we’re not seeing a big downturn in those. And then the rest of the SMEs are very similar to New Zealand.” says Alastair; “I’ve been doing a lot of work in Northern Ireland recently. Northern Ireland has got a very similar feel to New Zealand and there are these small companies that are very low-volume, and they are finding it difficult to automate the highly technical products that they’re developing. Overall, you’ve got quite a few Tier-one, Tier-two, and Tier-three suppliers, CNC machine shops and the like. They are doing rather well right now, and there is a mix of supply chains they feed into. Part of the UK industry strategy is about diversification – yes, automotive, but also aerospace, green tech and defence, the latter obviously thriving at the moment.”
• Our conversation then moved to the next topic – the adoption and implementation of advanced manufacturing / Industry 4.0 technologies especially in SMEs in the UK. We know that in New Zealand quite a few of the slightly larger manufacturers are now well underway on their journey to Networked Manufacturing, although they find that journey to be quite challenging at times. But a lot of the smaller ones still can’t see a role for it in their operations.
Alastair’s response was interesting: “I think the UK and NZ are in exactly the same position in terms of digital maturity. I was really expecting UK manufacturers to be further ahead when I came back here, but apart from the big ones, they aren’t, really. We received government agency funding here to do 32 SIRI assessments in Northern Ireland, and with lots of SMEs in that sample, it was really interesting that they were low in their digital maturity when compared to countries with similar GDP per capita. They felt exactly like any of the New Zealand companies I’ve done assessments with before I came back here.
You have got the larger companies, the examples I gave before, that are feeding into aerospace and defence, where there are larger volumes and a more consistent product range. Those companies are all over these advanced manufacturing technologies – automation, and Industry 4.0. They are using approaches that are really helping them with solving some problems.
On top of that, anything to do with aerospace and defence, especially aerospace, they have much higher levels of information capture and information management for compliance reasons anyway.” Alastair then continued “The only caveat to that is that they don’t all use digital systems, it’s still heavily paper based. So, I’m working in companies that have got a huge amount of data that they’re recording, but they are still using manual processes and paper records.
And when you start to challenge that and suggest going digital, some of the Tier-one / OEM companies start raising security concerns and it becomes a challenge.”
“Companies outside of aerospace and defence and the rest of the SMEs dealing with lower-volume, higher-variety type of processes, they’re exploring things like cobots and some discrete automation opportunities for repetitive tasks within their process. I was with a company recently that manufactures showers, and they’re looking at ‘design for manufacture’. They were looking at changing the design a little bit to allow for some automation but were not considering to fully automate the entire manufacturing process.
The common opportunity we are seeing in all manufacturers is automation of information flow and connectivity between digital systems.”
But that’s a topic for next Tuesday’s Top-Up.
• And the correct answer to last week’s GuessMaster® question is – 12 (yes, twelve, or 60%)
In other words, 12, or well over half of Finland’s largest companies. One might employ a room full of economists to try and explain the difference between Finland and New Zealand in that respect – remember that in New Zealand just two of the country’s top 20 companies are manufacturers. We are not aware of any recent in-depth comparisons between the two countries’ economies other than this one from 2000. There are obvious similarities – large, sparsely populated countries with a strong dependence on primary products historically, timber in the case of Finland, for example. But more recently, and especially after Finland joined the EU in 1995, the country’s manufacturers were much ‘closer to market’. For a long time, however, Finland had still been a long way away from major markets for many of its products, which – with all but a few exceptions – weren’t ‘weightless’ by any stretch of the imagination. What the figures below suggest, and a study of the history of the companies on the list provides evidence for, is a much higher interconnectedness with the global economy in terms of capital (ownership), markets, and activities. A few more observations:
• Finland’s total manufacturing workforce is 342,000. So, while the companies below employ only 15% of Finland’s total manufacturing workforce in Finland, globally they employ more people than all of manufacturing in New Zealand (around 255,000)
• Four of the twelve companies can trace their roots directly to the processing of primary (forestry products), but many others started their life as manufacturers of machinery and equipment used in these industries
• With the exception of one (Orion, arguably), all other companies are predominantly or exclusively B-2-B manufacturers. n.b. Nokia sold its mobile phone business (but not the brand) to Microsoft in 2014. In 2016, another Finnish company, HMD, started marketing mobile phones it manufactures under the Nokia brand.
Maybe one of the key root causes for the difference between Finland and New Zealand is simply the time elapsed since manufacturing started to play a major role in the economy. They’re not all as old as Store Enso, which is assumed to be the world’s oldest limited-liability company, but a lot of them go back to the earlier stages of the industrial revolution. So, if we accept that explanation, there is hope for New Zealand yet. Let’s ‘just get on with it’. We’ve got so many companies with great potential in New Zealand, and some of the companies listed above, especially the ones involved on forestry primary processing, haven’t exactly made progress in leaps and bounds recently, either …
And the winner for last week’s GuessMasters® challenge is: Steve Lockhart, Manager- Manufacturing Engineering for Hamilton Jet – Congratulations!
Leave a Reply
You must be logged in to post a comment.