Productivity Commission inquiry

New Zealand firms: Reaching for the frontier Productivity Commission inquiry material 2019 - 2021

The Productivity Commission completed its inquiry into the economic contribution of New Zealand's most productive "frontier" firms, and presented its final report with recommendations to Government in 2021.

In 2022 the Productivity Commission undertook a follow-on review of the Government's policy settings against the recommendations in the Frontier firms inquiry.

What did the inquiry find?#

The productivity of New Zealand's frontier firms lags on average up to 45% behind that of high-performing small advanced economies (SAEs). These countries provide a good benchmark for New Zealand, with their small domestic markets.

Frontier firms can increase national productivity and wellbeing by lifting their own productivity towards the global frontier, by scaling up and putting national resources to better use, and, indirectly, by diffusing innovation and best practice through the domestic economy.

New Zealand's small domestic market and distant location makes it difficult and risky for firms to get the scale required to be world class in their industry.

Māori firms outperform other New Zealand firms on some dimensions associated with higher productivity and have unique features that support innovation. They offer valuable lessons for other New Zealand businesses.

Exporting specialised, distinctive products at scale is the best way to build world-leading firms. Scale, through large "anchor firms" and/or through collaboration among smaller firms, is needed to earn returns on investment in innovation and exporting.

Innovation is key. The Commission recommends learning from international experience and overhauling New Zealand's innovation ecosystems to enable firms to innovate and export at scale.

Government investment should be focused on areas of existing or emerging economic strength and competitive advantage. A small country can excel in only a limited number of areas that can get to critical mass and support sustained world-class competitive performance. Rigorous monitoring, evaluation and review of strategies and of particular initiatives is essential for success.

The Commission's final report presented 71 findings and 30 recommendations.

Frontier firms: Four industry case studies#

The Commission conducted case studies to examine specific issues facing four significant industries in New Zealand's economy: Dairy, Health technology, Horticulture and Software products and services.

This work compares the four industries and identifies significant opportunities for improving productivity, some industry-specific and some generic. The associated policy recommendations are in the inquiry's final report.

He Manukura - Insights from Māori frontier firms#

Māori frontier firms can leverage features of their business to create opportunities for innovation and growth.

This insights report summarises the findings of in-depth interviews with 17 experienced iwi and Māori business people. It explores the opportunities and challenges facing Māori businesses in relation to innovating, growing and lifting productivity.

Focused innovation policy: Lessons from international experience

Focused innovation policy is a key recommendation from this inquiry. It means for governments to work with industry, knowledge institutions and other stakeholders to realise the potential for productivity growth and export success in chosen areas of the economy.

Governments in most SAEs take a more deliberate approach to innovation policy than New Zealand. This working paper looks at the lessons that New Zealand can take from other SAEs.

Government response#

The final report was presented to the House of Representatives and the Government's response was received in April 2022.

See Response to Productivity Commission report - 8 April 2022 (Beehive website).

Follow-on review: Frontier firms#

In April 2022 the Ministers of Finance and Economic Development requested the Commission to undertake a follow-on review of the Government’s policy settings to determine whether the productivity dial is shifting.

The Commission assessed the Government’s policies and programmes relating to the New Zealand Firms: Reaching for the frontier inquiry, and to lifting New Zealand’s productivity against the recommendations made in the final report of the inquiry. The Commission undertook a ‘helicopter-level assessment’ of whether the Government’s reform agenda is having the intended effects. The report reviewed initiatives undertaken, how far these have progressed, and the general direction of travel to assess what progress has been made and look at the development and implementation of policy to lift New Zealand’s productivity performance.

What does the Commission recommend?#

Frontier firms are vital to lifting national productivity and wellbeing. To help lift the wellbeing of all New Zealanders, frontier firms in New Zealand need to raise their performance closer to the global frontier, they need to grow larger, and diffuse innovation through the rest of the economy.

Focused innovation policy will create the conditions for frontier firms to achieve these things. The development of innovation ecosystems that enable firms to innovate and export at scale requires government investment in focused innovation policy in areas of existing or emerging economic strength and competitive advantage. The Government needs to work with industry, knowledge institutions, and other stakeholders to realise the potential for productivity growth and export success in these chosen areas of the economy. This was a key recommendation in the original New Zealand Firms: Reaching for the frontier inquiry.

Timeline#

  • Terms of reference - December 2019
  • Issues paper - April 2020
    • Public submissions
  • Draft report - December 2020
    • Public submissions
  • Final report - April 2021
  • Evaluation - July 2021
  • Government response - April 2022
  • Follow-on review - September 2022

Key documents#

Final report and Government response#

Final Report: New Zealand Firms: Reaching for the Frontier Inquiry
Doc. Date Sort ascending Creator Title
Government of New Zealand
New Zealand Productivity Commission
New Zealand Productivity Commission
New Zealand Productivity Commission

Follow-on review#

Follow On Review: New Zealand Firms: Reaching for the Frontier Inquiry
Doc. Date Sort ascending Creator Title
Minister of Finance; Minister of Research, Science and Innovation
New Zealand Productivity Commission
New Zealand Productivity Commission

Terms of reference and issues paper#

Issues Paper: New Zealand Firms: Reaching for the Frontier Inquiry
Doc. Date Sort ascending Creator Title
New Zealand Productivity Commission
New Zealand Productivity Commission
Minister of Finance

Research#

Research: New Zealand Firms: Reaching for the Frontier Inquiry
Doc. Date Creator Title Sort descending
Deloitte
New Zealand Productivity Commission
Zheng, Guanyu; Hoang, Minh Duy; Pacheco, Gail
Sim, Stella; Bull, Brian; Mok, Penny
Crawford, Ron
Skilling, David
Lewis, Geoff; Garden, Sally; Shafiee, Hamed; Simmons, Geoff; Smith, Jo
Mill, Anaru; Millin, Declan
Smith, Jo; Garden, Sally
Haar, Jarrod
Haar, Jarrod
Haar, Jarrod

Research (externally hosted)

Draft report#

Draft Report: New Zealand Firms: Reaching for the Frontier Inquiry
Doc. Date Sort ascending Creator Title
New Zealand Productivity Commission
New Zealand Productivity Commission
New Zealand Productivity Commission

Submissions#

Public submissions on issues paper - New Zealand firms: Reaching for the frontier

Public submissions on draft report - New Zealand firms: Reaching for the frontier

Evaluation#

Evaluation: New Zealand Firms: Reaching for the Frontier Inquiry
Doc. Date Sort ascending Creator Title
Beatson, Guy
New Zealand Productivity Commission
Pickens, David