Why you should do business with New Zealand

To entrepreneurs harbouring dreams of global domination, New Zealand is more likely to be the butt of sheep jokes than a serious growth option.

However, for those who bother to explore this easterly neighbour beyond watching a Bledisloe Cup match, there are profitable opportunities.

For instance, did you know that nearly half the cars sold in NZ are second-hand Japanese imports? This means that while 20 per cent of Australian-registered cars have inbuilt navigation devices, only 2 per cent of Kiwi cars do.

“And the majority of those only have maps of Tokyo on them,” says Adam Game, the head of Intelematics, a Melbourne-based provider of real-time traffic information to drivers.

This easily overlooked NZ trivia was gold for Game. He realised the market for portable and mobile phone-based navigation devices – the kind most amenable to Intelematics’ real-time traffic information – was proportionally much bigger across the Tasman.

As an added bonus, the small size of NZ’s automobile market means that manufacturers of cars and portable navigation devices demand a single product specification throughout Australasia – so the service Intelematics was already providing to drivers in Sydney and Melbourne could work straight away for motorists in Auckland and Wellington.

“New Zealand was an easy market for us to get into,” Game confirms. “It’s familiar, nearby, and there are no significant barriers to entry.”

New Zealand will never be a very lucrative market for the company, but Game says the business is paying its way as well as providing a valuable testing ground.

Yet such kudos for the Kiwis is usually drowned out in this “Asian century”, where the focus is on billions of potential customers to Australia’s immediate north, rather than the 4.4 million to its near south-east.

However, a number of large Australian corporations are looking to ramp up their investments in NZ, research conducted by banking consultancy East & Partners shows.

The survey found that almost 70 per cent of Australia’s top 500 businesses (reporting annual turnover above $530 million) would definitely, or were likely to, increase investment in NZ over the next six months. Of those businesses with annual turnover between $20 million and $540 million, 60 per cent expressed similar intentions.

Nobody was more surprised than an author of the study, East & Partners analyst Paul Dowling.

“Australian companies are hoarding cash and they’re generally not investing outside of the resource sector,” Dowling says. “So when we see that 70 per cent of the top 500 companies want to increase investments in New Zealand, it’s quite startling.”

He says the results were consistent across sectors, with the single exception of Australian manufacturers, who were “significantly” more interested in investing in NZ than other industries. As well, companies from New South Wales and Queensland were more likely to increase investments in NZ than those based in other states.

Dowling says the NZ-friendly sentiment is all the more surprising given the almost “obsessive” Australian business focus of late on “markets to the north and west”.

“[Australian businesses] haven’t really looked back over their shoulders to the sizeable market in New Zealand,” he says.

Australian business interest in NZ is not, of course, coming off a zero base. As Dowling points out, there has always been a “strong substrate of economic activity back and forth across the Tasman”.

The CIA World Factbook says Australia is NZ’s biggest trading partner, accounting for more than 22 per cent of its exports and almost 16 per cent of imports. NZ, meanwhile takes about 4.1 per cent of Australia’s exports.

Australian companies have also staked out strategic ground in NZ’s economy.

After a series of corporate raids in the 1980s, for example, the big four Australian banks now dominate NZ’s financial services industry through local subsidiaries. Australian-owned supermarket chain Woolworths has also seized about 40 per cent of the NZ market, trading under the Countdown brand.

By contrast, however, Telstra bailed out of its loss-making NZ enterprise this July, selling the unit to Vodafone for $660 million in a deal awaiting regulatory approval.

Telstra’s exit notwithstanding, Dowling says large Australian businesses are attracted to NZ primarily because of the favourable exchange rate which, over the 12 months to the end of August this year, fluctuated between about $NZ1.25 to $NZ1.30 for every Australian dollar.

Lower labour costs in NZ have also proved a drawcard for some Australian businesses, particularly those in manufacturing.

For instance, in May, food manufacturer Heinz-Watties revealed it would move a large chunk of its Australasian production to the Hawkes Bay city of Hastings, a regional centre on the east coast of NZ’s North Island. This meant shutting down several Australian factories in the process.

Then there is NZ’s perenially high ranking in the World Bank Doing Business survey.

In 2011, NZ kept its position as the third-easiest country in which to do business, ranking behind Singapore and Hong Kong.

In the same survey, Australia slipped from 11th in 2010 to 15th.

James Spenceley, head of ASX-listed Vocus Communications, concurs with the World Bank findings. “There’s nothing about doing business in New Zealand business that is hard,” Spenceley says.

Aside from a few minor lessons about GST and currency hedging, he says Vocus has grown unhindered since entering NZ in 2008.

The firm corporatised there this May following its $7.3 million purchase of NZ data centre firm MaxNet and it now sources about 35 to 40 per cent of its $45 million business from across the Tasman.

Vocus employs about 50 staff in each country, Spenceley says, with NZ providing access to reasonably priced, highly skilled staff, who are increasingly hard to come by in Australia.

Australians tend to underestimate the size and efficiency of the NZ market, he adds.

“New Zealand isn’t that small and its population is much closer together than Australia,” Spenceley says.

“If you market right, there’s some fantastic opportunities. I’m surprised more [Australian companies] don’t do it.”

The Australian and NZ governments are working on a single economic market agenda to simplify trans-Tasman business.

NZ’s Ministry of Business, Innovation and Employment says the alignment will cover “insolvency law, financial reporting policy, financial services policy, competition policy, business reporting, corporations law, personal property securities law, intellectual property law, and consumer policy”.

In a business sense, once these reforms are implemented, the two countries may be indistinguishable.

So perhaps you shouldn’t wait until the next Bledisloe Cup to book a few meetings across the ditch.

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