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1  Introduction

The key strategic challenge to increasing our prosperity is connecting internationally.
(The Treasury, 2014)

The ability of New Zealand firms to operate internationally is consistently raised as a key factor influencing the country's productivity performance and prosperity. Improving the connectedness of our firms can enhance productivity through increasing scale, enhancing competition and improving access to world-class ideas and technologies. The importance of these connections is heightened by New Zealand's small population size, which constrains opportunities for domestically-driven innovation and growth. Meanwhile, the ability of New Zealand firms to forge strong international connections is hindered by our geographic isolation (Treasury, 2014).

While there are many aspects of international connectedness which are relevant for New Zealand's economic performance, policy interest has often focused on improving our export performance. New Zealand's aggregate export intensity is low compared to that of other small, developed countries, and is concentrated in a few key product areas. At a firm level, entry into exporting and expansion into new markets increases the performance gap between exporting and non-exporting firms (Fabling & Sanderson, 2013). Firms raise both employment and capital intensity as they enter exporting, and continue to do so when they expand into additional markets, increasing aggregate productivity by drawing resources into firms which were already more productive than their domestically-focussed competitors. At the same time, investment by new exporters outstrips the corresponding employment growth, raising within firm labour productivity.

Given the importance of exporting for productivity, a key concern of policy makers is to establish whether there are specific factors that are holding firms back from overseas income generation, and whether these barriers may be amenable to policy intervention. Growth in aggregate overseas income can be decomposed into that coming from two margins: the extensive margin of firms’ entry and exit to exporting, and the intensive margin of export value per firm.[1] Government intervention aimed at raising aggregate export receipts could target either margin - drawing new firms into exporting (eg, by increasing incentives to export or decreasing costs and barriers), or assisting existing exporters to increase their overseas revenues. To the extent that the incentives and barriers faced by new entrants are similar to those reported by established exporters, the same set of interventions may help achieve both goals.

This note draws on data from the International Engagement module of the Business Operations Survey 2011 (BOS11) to examine the level of interest in earning international income among the population of New Zealand firms, and how the barriers that firms perceive in entering and maintaining a place in international markets differ by their level of interest and experience. It also considers the extent to which reported interest in earning overseas income translates into realised export activity in future years, through the incorporation of data from annual BOS surveys from 2007 to 2014.

Section 2 discusses the data source used in this paper, including an assessment of data quality. Section 3 provides broad statistics on the extent of involvement in overseas income generation, and characteristics of the firms involved. The main analysis of the paper focuses on barriers to international income generation. Sections 4.1 and 4.2 consider firms that are not currently exporting, examining their motivations for future overseas income generation and the challenges they anticipate. Section 4.3 turns to the barriers reported by firms with current overseas income, and their motivations for future expansion. Finally, section 4.4 considers the factors that lead firms to cease generating overseas income, either completely or from one or more market. Section 5 concludes.

Notes

  • [1] Fabling & Sanderson (2010) show that the intensive margin accounted for between 83 and 88 percent of aggregate manufacturing export growth over the period from 1996 to 2006, primarily through incumbent exporters entering new geographic or product markets.
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