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News From The World of Manufacturing
•It’s always slightly disconcerting when people who ought to know better say things that are demonstrably incorrect. Last week we pointed to the Prime Minister’s apparent perception that “The food and fibre sector is … without doubt the engine room of the economy.” Then came StatisticsNZ’s Release last Thursday of the GDP figures for Q1/2026, with manufacturing showing the biggest increase in absolute terms over the previous quarter:
The Release further broke down the contribution from manufacturing: “The rise in manufacturing activity was led by a 4.0 percent increase in transportation equipment, machinery, and equipment manufacturing and a 1.7 percent rise in food, beverage, and tobacco manufacturing.”
In in her comments on the Release in Thursday’s RNZ Midday Report, ANZ Chief Economist Sharon Zollner said that “Manufacturing in New Zealand is – sort of very handwavy broad – half food and half construction material, and then there is other stuff, too, but those are the two big drivers of it.” A self-admitted oversimplification, but simplifications in particular need to ensure that the simplified picture is correctly representing the basic facts.
It isn’t really difficult to access the StatisticsNZ data on contributions to GDP by industry, albeit available up until 2024 only at this stage:
It can well be argued that some / a reasonable share of polymer and rubber products, as well as metal products (aluminium extrusions for windows and doors, for example) count as construction materials, but even with the most generous handwaving the statement that roughly half of New Zealand’s manufacturing output is construction materials is incorrect.
However, that (slight) lapse by one of New Zealand’s most prominent bank economists doesn’t detract from the good news overall that manufacturing had a good first quarter this year. Onwards and upwards!
•Over the next two issues, we’ll bring you two reports from abroad, apparently unrelated. The question – as always – has to be: what is in these reports that might be relevant to New Zealand’s manufacturing leaders? We’ll come to that –
later.
In this issue, the first account. As reported by a leading German newspaper, FAZ, Chinese investors show an increasing interest in buying German manufacturing SMEs. And these investments appear to be strategic, rather than opportunistic bargain hunting. We reported on one example of this already in a case study a few editions back.
Beyond material acquisitions, there is a strong interest in understanding the role of manufacturing SMEs in Germany’s manufacturing ecosystem; there have been several ‘study tours’ by Chinese delegations to understand the particular nature of German manufacturing SMEs and their role in the overall network of supply chains that form the backbone of German industries.
It is exactly that – the key role of manufacturing SMEs in ensuring resilience in their country’s industrial ecosystem – that the Chinese government had identified as a critical component of its industry policy. The trigger was the initial move of the US government in 2018 that set off a long list of actions to try and slow down growth in the Chinese economy by denying access to advanced technologies.
The following is a quote from a recent article in a University of Cambridge publication, based on an original contribution by the author to the South China Morning Post:
“Three days after Washington imposed sanctions on ZTE in April 2018 by suspending exports of semiconductors and related products to the company, the Ministry of Science and Technology published a “chokepoint” technology list covering 35 fields. In November 2018, the Ministry of Industry and Information Technology (MIIT) announced a policy programme to incubate 600 “little giants” between 2018 and 2020 by selecting from the pool of “specialised” firms. Mastering key technologies was clearly stated as a central objective.
Since then, “little giants” have become important contributors to breakthroughs in “chokepoint” areas. Photoresist, a critical material for semiconductor production, was included on the 35-field list. By 2024, there were 35 “little giants” in this area, with average R&D spending of RMB 127 million (about US$18 million) and average revenue of RMB 1.9 billion (about US$273 million).
“Little giants” are also expected to strengthen the completeness of China’s industrial chain. One major pathway for certification is participation in the “six industrial fundamentals”: core mechanical components, core electronic components, key software, advanced core manufacturing processes, key materials, and industrial technology foundations such as testing platforms. These fundamentals are widely treated by policymakers as the foundation of China’s manufacturing capability.
Beijing’s expectations for these technology-driven SMEs, especially the “little giants”, can be summarised into three main areas. First, they are expected to enhance technological self-sufficiency by addressing “chokepoint” technologies. Second, they are tasked with strengthening the integrity of the industrial chain and the resilience of the supply chain. Third, they are positioned to support the development of “new quality productive forces”.
[End of Quote]
The success of this policy can be seen in the numbers below, but also in the way China’s industries have mastered challenges put to them by having access denied to advanced technologies in other countries.
And back home? New Zealand has industry policies (of sorts) for some industries, like film, or primary industries. But not for manufacturing. Neither does government – or anybody else – have a national-scale map of potential choke points in manufacturing supply chains. Individual manufacturing businesses will most certainly have in-depth knowledge of their upstream supply chains, including risks and vulnerabilities, as well as potential alternative suppliers. But these are individual ‘snap shots’ that can’t replace an industry overview.
We’ve been in discussion with senior MBIE officials for years about the desirability to have a map of the network of supply chains within and beyond our manufacturing sector, but nothing ever happened; it’s not a priority, apparently.
In biological ecosystems we find – as a rough generalisation -that the smaller the range (number) of species, the more vulnerable the system is. Predators that have a range of species they can prey on, for example, are less likely to disappear than ones that rely on one species of prey only – when that goes, they go. There is also a basic positive relationship between the size of a habitat (natural home / environment where biological organisms live) and the number of species it can accommodate. That’s why habitat reduction and fragmentation increase the risk of a loss of species / biodiversity.
What’s all that about?!
Well, as it turns out, similar mechanisms operate in the manufacturing sector of a country. We can describe the assembly of manufacturing companies as the manufacturing ecosystem, with the network of supply-chain relationships between them corresponding to the way species interact in a biological ecosystem. If one supplier drops out and no alternative suppliers are available, the impacts of that can go well beyond affecting just one of its customers. And the risk of having just one supplier of a particular intermediary product or service is greater in countries with a small manufacturing sector, naturally.
The Chinese are taking a long-term approach. In their case it’s not a matter of filling gaps in supply chains that have arisen from domestic manufacturers disappearing, but gaps created by being cut off from suppliers abroad.
New Zealand is unlikely to invest in a similar approach. But, for starters, it would be nice to have an overview of whether there is a problem, and if so, where and how big it is. Or even an industry policy for the manufacturing sector – Keeping in mind that our manufacturing sector is itself a key supplier of goods and services to other parts of the economy, from infrastructure to construction to primary industries and beyond. Not all of these domestic supplies are easily replaced by imports – let alone considering aspects of the economic resilience of our country.
More on that in next week’s issue.
Other news of interest to manufacturers
•The consequences of demographic change come to us in different ways. The most recent example is the National Party’s policy proposal around Kiwi Saver, framed as allowing New Zealanders to “retire with greater financial security” There are several aspects to this, but the one of material impact to employers will be an increase in the cost of labour. Unless, that is, they can transfer the obligation of higher employer contributions to the employee – something the National Party is considering to remove as an option.
In principle, every rise in the cost of inputs weakens the global competitive positioning of New Zealand manufacturers. By how much in this instance will depend on the share of labour in the total cost of inputs.
The good news in the bad news is that we are not alone. In Germany, for example, a government-appointed commission is just about to publish its recommendations for a reform of the German retirement benefit system, employer contributions to which are already driving German labour costs to the top tier within the EU, let alone other OECD countries:
Employer organisations have already warned of any moves proposed in the Commission’s report that would further drive up labour costs and weaken the competitive position of German industries.
Fun Facts (some of them not so funny)
•She may not be able to claim original authorship, but our Minister for Immigration, the Hon Erica Stanford, has come up with a striking example of neologism (a newly coined word, phrase, or expression, or a new meaning given to an existing word) in expressing her dissatisfaction with the lack of correct information provided by MBIE officials on the failed Biometric Capability Update project: it wasn’t “a lie”, it was information “diametrically opposed to the truth”.
(Diametrically opposed: different from something in every way possible)
An interesting concept. Information not simply incorrect, but worse. How? An example, maybe: Mother asks daughter: “Did you brush your teeth before you went to bed?” Daughter: “Yes, Mummy.” But she hadn’t.
•There is a saying about old dogs and new tricks. In the world of science, there has long been a debate about the impact of age on creativity. In this case, the relevant aspect of ‘age’ is academic age – the length of time scientists have been active for since the most recent qualification, usually a doctorate.
A recent paper by a group of researchers from the US and China is shedding new light on this. ‘Creativity’ can be expressed in many ways. The authors have chosen disruption as their criterion, measured “by how subsequent papers cite a focal paper but not its references, indicating when new ideas displace older ones.” The data, as presented by the authors clears shows that disruptive creativity declines with advancing academic age across a range of scientific disciplines:
With one noteworthy exception – Engineering, indicating that the skills and knowledge accumulated over a long career play a bigger role in enabling engineering scientists to produce a ‘disruptive finding’ than in other disciplines.
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