6  Summary and Conclusions

Firm growth, particularly for New Zealand’s large number of small firms, is a key issue in the story of New Zealand’s economic growth. Many factors are important to firm growth in New Zealand. Given New Zealand’s small domestic market size however, the move into exporting is especially important for firms in the tradable sector.

There is some evidence to support the existence of hurdles to exporting. The first hurdle is related to the small size of many firms that need to begin exporting in order to expand. This in turn is related to the small size of the domestic market. There seem to be fixed costs associated with the move to exporting, which is likely to have a disproportionate impact on small firms. The fluctuating real exchange rate, government regulation and tax compliance costs may add to these fixed costs of expansion[22]. Firms use a number of strategies to circumvent such problems, including focussing their resources on one product, specialising in a niche industry and using independent foreign distributors. At this stage the existence of a hurdle to entering exporting is simply conjecture backed by anecdote - systematic evidence around the firms move into exporting is not available. In terms of explaining New Zealand’s predominance of small firms (and low levels of exporting), it is also difficult to disentangle the impact of these fixed costs from other factors, namely culture, or falling transaction costs leading to smaller firms.

Interestingly, there seems to be some evidence of a hurdle to ongoing expansion that may prevent the formation of New Zealand MNEs outside of the resource sector. This ongoing hurdle seems chiefly due to firms’ lacking scale in marketing and distribution. The strategies used by firms indicate the importance of this hurdle. The most popular strategy to deal with this hurdle appears to be selling to large overseas firms in the same industry. Whether this is optimal for New Zealand depends on the strategy behind the purchase. This ongoing hurdle may not be insurmountable, there are some firms that appear to be developing their own distribution networks and approaching MNE status.

Resource firms appear to have achieved MNE status on the back of bulk standardised products. This has given them the scale to invest further in developing distribution networks and branding for more differentiated products.

The small size of the New Zealand market seems to be a crucial element in the existence of the hurdle to ongoing firm growth. New Zealand firms that are sold to overseas firms do not seem to be lacking skills, or an achievement-oriented culture. Most of these firms have proven themselves to be world leaders in their product area. However, due to problems around distribution and marketing, these companies find it difficult to achieve global status alone.

While it seems that New Zealand’s size and location create and compound the first and ongoing hurdles to exporting, this does not give a complete picture of the issue. There are many clever ways firms can find to circumvent the problems of size and location, depending on the circumstances. Indeed in some instances firms have turned the size and location of New Zealand into a competitive advantage.

I also recommend further research into the certain areas. There needs to be systematic research into small firms to draw out the issues of moving into exporting, and if the firms face hurdles in making this step. Some work should be done on the impact of foreign ownership of New Zealand’s successful businesses, both from the businesses perspective as well as that of New Zealand as a whole. More work should be done on the issue of distribution economies, including the reasons why New Zealand firms struggle to build their own distribution networks or why we do not observe the emergence of specialised distributors. Finally, some thought needs to be given to access to expertise and networks through the venture capital industry in New Zealand.