NZTE's annual report shows big company woes weigh on growth

New Zealand Trade and Enterprise, the government’s international business development agency, said the 540 key companies it works with grew their export revenues by 1.3 percent or $383 million in the 2013/2014 year after some larger companies struggled to make headway.

In its annual report out today NZTE said international revenue for those key companies grew to $25.7 billion in 2013/2014 while it helped generate $794 million in new export deals, up $100 million on the previous year. When comparing the portfolio companies with NZ’s economic growth rate, the 540 key companies collectively had growth of just 0.6 percent below New Zealand’s total export growth rate of 1.9 percent.

Chief executive Peter Chrisp said export growth was affected by large declines among a few of the biggest companies, mainly in dairy. If you remove the nine companies with revenue over $500 million, the portfolio growth rate was 5.3 percent. This is roughly half the internal target NZTE has set to achieve by 2018 in order to reach the overall goal of doubling international revenue among these companies by 2025. It matches the government’s ambitious goal to double exports from 30 to 40 percent of GDP over the same period.

Chrisp said there was one set of figures that “really make us suck in our breath and is the real challenge”. The average international revenue growth by companies’ revenue bands showed the best performers were the smallest companies making less than $3 million a year which had 38 percent annual growth compared to minus 2 percent among those making over $1 billion a year.

“What we see is lots of fast-growing small companies who then hit a valley of death between $15 million and $20 million and then slow down again at over $70 million. Some of the larger companies are having a rough time and contracting,” he said.

Two significant bottlenecks to growth NZTE has identified are the absence of scaled-up companies to take advantage of the market opportunity, and a lack of kiwi companies ready for investment by global capital. One mirrors the other, Chrisp said.

NZTE’s sweet spot was working with the 570 companies in the $5 million to $25 million revenue mark from a total 13,000 kiwi exporters to help overcome New Zealand’s lack of scale and distance from market, he said. It got an additional $69 million over four years from government to grow the number of companies in its high intensity portfolio from the original 500 to 700 by 2016. There is already a 20 percent rotation of those companies annually.

The extra funds will also help open new international offices on top of the 36 it already has. It has closed some offices in Pakistan, Argentina and Noumea, opened a new one in China, is about to open one in Papua New Guinea, and is looking at Colombia. The trigger for opening a new office is once 30 or more kiwi companies are active in that market.

Chrisp said it was difficult for any trade promotion agency to measure how much impact it makes because “you don’t know what would have happened if you were not there”.

But given criticism over so-called corporate welfare and how often he’s asked questions on NZTE’s progress, Chrisp said it was important to measure everything it could. That’s why it has become a sackable offence if staff don’t enter all companies’ details into the beefed-up customer relationship management system, he said.

NZTE has three other key measures of its progress, the most crucial for a service-based organisation being employee engagement, Chrisp said. That figure was 80 percent, compared to 69 percent four years ago when he became CEO. NZTE currently has 547 staff, with 300 having left in the past three years and an additional 200 coming in, with some 87 percent from the private sector.

On whether it was seen as adding value, 89 percent said it had, up 2 percent on last year, while a new measure of whether it was mobilising and deploying capital showed $1.63 billion capital was deployed in the past year, comprised of $1.56 billion of foreign direct investment, $67 million of outward investment, and $352.4 million of capital raised for kiwi companies.

NZTE's report showed the most successful companies do market research and validation, stay the course, focus, build capacity and presence in-market, have a different plan for each market, select the right partners and models, and customise their supply chain designs.

What companies often do poorly is underestimate how long things will take, have heroic hockey-stick forecasts on sales timing and targets, fail to realise how difficult it will be to enter a market, and don’t do enough collective activity to gain customers.

(BusinessDesk)