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Barriers to Generating International Income: Evidence from the Business Operations Survey

3  Involvement in overseas income generation

This section outlines the number and basic characteristics of firms involved in the generation of overseas income (including income from overseas assets). We classify firms according to three categories based on their income generation status: current overseas income refers to those firms that have “generated overseas income in the last financial year”;[10] past overseas income refers to those that have “not generated overseas income in the last financial year but [had] in previous years”; and no overseas income refers to those that have “never generated overseas income”.

Table 1 reports weighted and unweighted counts of firms according to their status.[11] Thirty percent of the sample report earning overseas income in the past financial year. After weighting to reflect the population, this implies that around one in five New Zealand firms was generating overseas income in the financial year ending in 2011.[12] Only a small proportion of firms report having earned overseas income in the past but not recently (though recall that there appears to be some under-reporting of past income). Firms that are currently engaged in overseas income generation tend to be larger than those with past income, which in turn are larger than firms that report no overseas income. Figure 1 illustrates this difference with a kernel density graph of log employment relative to other BOS respondents in the same industry for each of the three groups.

Table 1: Population counts
  Raw counts Weighted counts
N(firms) Share N(firms) Share
Current overseas income 1,536 (0.30) 6,711 (0.19)
Past overseas income 228 (0.04) 1,581 (0.04)
No overseas income 3,417 (0.66) 27,204 (0.77)
Total 5,181 (1.00) 35,499 (1.00)

All firm counts random rounded base 3 in accordance with Statistics New Zealand confidentiality requirements.

Figure 1: Kernel density of log employment by overseas income status
Figure 1: Kernel density of log employment by overseas income status   .

lrme_demeaned: Industry-demeaned log of rolling mean employment

There are also differences in the degree of international engagement by industry (figure 2), with high rates of overseas income generation among manufacturing firms, and low rates among firms in utilities and construction and social and recreational services.[13]

Overseas income is generally a small proportion of firms' total income. As shown in figure 3, 38 percent of firms that report any overseas income state that it accounts for ten percent of their total income or less. At the other extreme, 15 percent of firms report that more than 90 percent of their income comes from overseas.[14]

Figure 2: Share of firms with overseas income, by broad industry
Figure 2: Share of firms with overseas income, by broad industry   .

Proportions based on weighted counts random rounded base three in accordance with Statistics New Zealand confidentiality requirements. Horizontal line represents the overall proportion of firms with overseas income (19%). One-digit ANZSIC96 industry codes in parentheses.

Figure 3: Overseas share of total income, firms with current overseas income
Figure 3: Overseas share of total income, firms with current overseas income   .

Item non-response: 6%.

Figure 4: Overseas share of total income, industry averages, firms with current overseas income
Figure 4: Overseas share of total income, industry averages, firms with current overseas income   .

Proportions based on weighted counts random rounded base three in accordance with Statistics New Zealand confidentiality requirements. Horizontal line represents the average overseas share of income across all industries (37%). Item non-response: 6%.

Just as the propensity to earn income differs by industry (figure 2), so too does the relative importance of overseas income in total income. Figure 4 reports industry average shares of overseas income in total income, conditional on reporting current overseas income. Comparing the two tables shows that within firm intensity of overseas income generation is not closely correlated with the share of engaged firms. For example, while the share of primary sector firms involved in overseas income generation is moderate, with 22 percent of firms reporting some overseas income, the share of overseas income in total income among engaged firms is high, accounting on average for 63 percent of total income.[15] Conversely, while manufacturing firms are the most likely to report overseas income, the average reported share is moderate at 36 percent.

Table 2 reports the prevalence of different sources of overseas income. The most commonly reported source of overseas income is “sales of goods manufactured, processed or finished in New Zealand, primarily for use by other businesses”, which is reported by 40 percent of firms that currently earn overseas income, or eight percent of the population as a whole. Other common sources of overseas income include the “provision of services” and “sales of goods manufactured, processed or finished overseas”.[16] Conversely, although New Zealand is commonly viewed as a commodity exporter, the number of firms that report exports of raw goods is low. This may reflect the concentration of commodity exports among a small number of firms or, alternatively, that many commodities undergo enough processing in New Zealand that their producers would not consider them to be “raw, unprocessed materials”.

Table 2: Sources of overseas income
  Raw
count
Weighted
count
Share
of pop.
Share of firms
w/ o.s income
Business goods 711 2,631 0.08 0.40
Consumer goods 237 1,074 0.03 0.16
Raw goods 60 249 0.01 0.04
Overseas goods 249 1,248 0.04 0.19
Services 444 2,082 0.06 0.32
IP 96 360 0.01 0.05
Assets 24 75 0.00 0.01
Other      63 285 0.01 0.04

Weighted counts. Firms may report multiple income sources. Proportions calculated excluding firms that failed to indicate the source of overseas earnings (2%).

Definitions: Business goods: sales of goods manufactured, processed or finished in New Zealand, primarily for use by other businesses. Consumer goods: sales of goods manufactured, processed or finished in New Zealand, primarily for personal or household use. Raw goods: sales of raw, unprocessed materials from New Zealand. Overseas goods: sales of goods manufactured, processed or finished overseas. Services: provision of services. IP: licensing or franchising arrangements and royalties, including for the use of technology. Assets: earnings from assets. Other: other.

Table 2 double counts firms that report multiple sources of overseas income. Most firms (86%) report only a single source.[17] A further five percent report income from multiple sources, but with a clear “main” income source - one which accounts for at least 95 percent of their total overseas income. In later sections of the paper, we focus our attention on “exporters”, which we define as those firms whose predominant source of overseas income is from the sales of either goods or services.[18] Firms are allocated to a predominant category if at least 95 percent of their total income comes from that source. We make these restrictions for clarity and because the numbers of firms involved in non-export forms of overseas income generation (earnings from “licensing/franchising arrangements and royalties” (IP), “earnings from assets” or “other”) are too small to draw conclusions about these activities.[19] This latter concern is also valid for exporters of raw goods. Although we choose to report results for raw goods exporters, as these are the predominant source of overseas income for a significant number of firms in primary industries, these results should be treated with caution due to the small number of respondents involved.

After allocating firms that earn at least 95 percent of overseas earnings from one specific activity (eg, export of raw goods), we then collect together total income from sales of goods, and joint income from sales of goods and services to generate two additional categories: multiple goods exporters are firms for which no individual category is predominant but the combined share of the four goods exports categories reaches 95 percent, and goods and services exporters are those firms for which the goods and services categories combine to at least 95 percent of overseas income.

Table 3 reports the share of firms in each of the seven main categories of export activities plus the share that fall into “other” categories (either predominant earnings from IP and assets or that cannot be allocated to a predominant income source). Shares are presented relative to both the total number of firms with a given source of overseas income (panel A), and as a share of firms in the industry (panel B). That is, taking the first cell in each panel as an example, panel A shows that of the 1,977 firms primarily engaged in exports of goods for business use, seven percent are in primary industries. Meanwhile, panel B shows that of the 729 primary industry firms that report overseas income, 19 percent gain this income primarily from the export of business goods.

Table 3: Industry distribution of overseas income generating activities
Panel A: Industry share of firms by predominant income source (column percentages add to one)
Sales of goods: Sales
of services:
Sales of goods
and services:
Other Total
business consumer raw overseas multiple
Primary (A,B) 0.07 0.21 0.90 0.09 0.07 0.02 0.03 0.17 0.11
Manufacturing (C) 0.59 0.41 0.02 0.09 0.52 0.02 0.18 0.17 0.30
Utilities & construction (D,E) 0.03 0.00 0.03 0.05 0.00 0.01 0.01 0.00 0.02
Wholesale & retail trade (F,G) 0.17 0.25 0.02 0.67 0.32 0.01 0.28 0.16 0.21
Accommodation & food services (H) 0.00 0.08 0.00 0.00 0.00 0.29 0.28 0.04 0.09
Transport & communications (I,J) 0.02 0.02 0.00 0.00 0.02 0.10 0.03 0.07 0.04
Professional services (K,L,M,N) 0.11 0.02 0.05 0.09 0.03 0.46 0.17 0.33 0.20
Education (P) 0.00 0.00 0.00 0.00 0.00 0.08 0.00 0.02 0.02
Social & recreational services (Q,R,S) 0.01 0.01 0.00 0.00 0.04 0.01 0.03 0.02 0.01
Total 1,977 753 177 822 408 1,635 216 726 6,711
Table 3: Industry distribution of overseas income generating activities
Panel B: Income source share of firms by industry (row percentages add to 1)
Sales of goods: Sales
of services:
Sales of goods
and services:
Other Total
business consumer raw overseas multiple
Primary (A,B) 0.19 0.22 0.22 0.11 0.04 0.05 0.01 0.17 729
Manufacturing (C) 0.59 0.16 0.00 0.04 0.11 0.02 0.02 0.06 1,983
Utilities & construction (D,E) 0.47 0.00 0.05 0.37 0.00 0.08 0.03 0.00 114
Wholesale & retail trade (F,G) 0.24 0.14 0.00 0.39 0.02 0.08 1,407
Accommodation & restaurants (H) 0.00 0.10 0.00 0.00 0.00 0.75 0.10 0.05 624
Transport & communications (I,J) 0.12 0.04 0.00 0.00 0.03 0.59 0.02 0.19 270
Professional services (K,L,M,N) 0.16 0.01 0.01 0.05 0.01 0.55 0.03 0.18 1,341
Education (P) 0.00 0.00 0.00 0.00 0.00 0.88 0.00 0.12 147
Social services (Q,R,S) 0.25 0.06 0.00 0.00 0.19 0.25 0.06 0.19 96
Total 0.29 0.11 0.03 0.12 0.06 0.24 0.03 0.11 6,711

Proportions based on weighted counts, random rounded base 3 in accordance with Statistics New Zealand confidentiality requirements. See notes from table 2 for definition of income sources.

Jointly, three industry groups account for 70 percent of exporting firms in New Zealand - 30% from manufacturing, and 20% each from wholesale and retail trade and professional services (panel A, final column). Manufacturing firms are particularly dominant in the export of processed goods for use by other businesses, while wholesale and retail trade firms dominate in the sale of goods produced overseas. The split between goods and services industries is clear (panels A&B, column 6), though a substantial number of firms in professional services industries are engaged in the export of goods or fall into the “other” category (panel B, row 7).

Exports of raw goods are almost entirely restricted to the primary industries of agriculture, forestry, fishing and mining (panel A, column 3). However, even within these industries, firms earn overseas income from a variety of sources (panel B, row 1). An equal number of primary industry firms report earnings from sales of consumer goods as raw goods, and almost as many again report earnings from sales of processed goods for business use.

Notes

  • [10] We refer to these firms as “currently” involved, even though some may have exited from overseas markets part-way through the year.
  • [11] Raw counts are provided in selected tables to indicate the size of the underlying sample. Unlesss pecifically mentioned, the rest of the paper reports weighted counts.
  • [12] The exclusion of onshore industries suggests that almost one in four firms was earning some overseas income in 2011. That is, reported overseas income is less common among these onshore industries.
  • [13] Industries are combined into broad groups for presentation purposes. Statistics New Zealand provide a more detailed breakdown by industry and firm size through Infoshare.
  • [14] Six percent of firms failed to give a useable answer to this question. In many cases, this was because the percentages they reported did not add to 100 percent. The bi-modal pattern is broadly consistent across firms which report earning overseas income from different sources, rather than reflecting high overseas income shares for firms involved in particular types of activity and low shares for firms operating in other activities.
  • [15] This may reflect market structure in the primary sector, with multiple small producers supplying goods to a small number of processing firms which are responsible for the bulk of exports.
  • [16] The difference between income sources is not always clear-cut. For example, while some goods can be easily allocated according to their final use, others (eg, computers) may be commonly used both by consumers and by other businesses. Similarly, some firms in traditionally defined service sectors (eg, accommodation and food services) may report income from “sales of goods primarily for personal or household use” (eg, restaurant meals) rather than services.
  • [17] If the various forms of goods were grouped together, as the survey does for services, 90 percent of firms would report a single income source.
  • [18] As noted above, some of these firms will be earning overseas income onshore, eg through tourism.
  • [19] While a significant number of firms earn overseas income from IP, for almost all of these firms, their main form of overseas income is earnings from exports of either goods or services, with IP accounting for a very small proportion of earnings. Earnings from IP appear to be complementary with sales of business goods and sales of services, though the differences are not statistically significant.
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