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This paper surveys qualitative evidence with the aim of identifying consistent issues surrounding the growth of New Zealand firms. The available literature is focussed on exporters and raises the possibility of two "hurdles" to growth for New Zealand firms. The first is the fixed-cost hurdle to entering exporting. The second is the hurdle of establishing the offshore distribution channels required for continued growth. While the evidence for these hurdles is far from conclusive, their existence is consistent with many of the available case studies. The hurdle to ongoing growth may explain why so many promising New Zealand companies are sold to foreign firms in the same industry. Overseas ownership by a firm in the same industry often solves the distribution problems of many small New Zealand firms and allows growth to continue. The outcome of overseas ownership is therefore not necessarily bad for New Zealand.
The case study evidence suggests many plausible causes of these hurdles. These include New Zealand's small market size and distant location and the fluctuating exchange rate. While the evidence on capital markets is mixed, case studies suggest a possible lack of specialised expertise on the part of New Zealand's small venture capital industry may also be a hurdle to growth.
I would like to thank Geoff Lewis and David Skilling for their ongoing input and guidance on this paper. I am also grateful to Andrew Gawith, Colin Campbell-Hunt, Doug Watt, Joanna Gordon, Frederic Sautet, Ron Sandrey, Jas McKenzie, Ellen MacGregor-Reid and Bob Buckle for their useful insights.
This paper has been presented internally at Treasury, and I am grateful for all the comments I received from the participants.
The views expressed in this Working Paper are those of the author and do not necessarily reflect the views of the New Zealand Treasury. The paper is presented not as policy, but with a view to inform and stimulate wider debate.
Table of Contents
- 1 Introduction
- 2 Background
- 2.2 New Zealand’s recent exporting situation
- 3 How Do Firms Approach Exporting?
- 3.1.3 Impact of Fixed Costs on New Zealand Firms’ Export Strategies
- 3.2 Is There a Hurdle to Ongoing Export Growth?
- 3.3 How Do Firms Deal With The Hurdle to Ongoing Expansion?
- 3.3.5 Selling To Overseas Purchasers
- 4 What Are The Causes of These Hurdles?
- 4.3 Capital Market Failure
- 5 Policy Implications
- 6 Summary and Conclusions