Fisher & Paykel Appliances

New Zealand is likely to lose more home-grown companies as head offices follow manufacturing facilities overseas, warns a Treasury report, but ministry officials say there may be little the government can, or should, do about it.  The research was part of a wide array of work at government level assessing the risks of a "hollowing out" of the economy as jobs, firms and ownership go overseas.

Consultants Andrew Sweet and Murray Nash reported to the Treasury in September that New Zealand firms with global ambitions soon encountered the almost irresistible pull of large masses of consumers and bigger manufacturing bases overseas. Once production left New Zealand, they said, sales and marketing soon followed, with head office and R&D usually left last.

"Once a company has begun relocating key components of its supply chain offshore, a self-reinforcing process often begins, with the relocated components acting as `magnets' of attraction for components remaining in New Zealand," the study, based on confidential interviews with 15 firms with substantial overseas sales, said.  Head office functions tended to be "stickiest", or most resistant to uprooting, often because key staff wanted to stay in New Zealand. However in the long run, even this was not always compelling.

The report also found that companies, once purchased by foreign owners, were more likely to have their local offices shut down and moved overseas. Other than to access New Zealand's natural resources, "firms see few compelling benefits from locating activity here".

Although the Sweet/Nash report highlights the risks of corporate exodus, Treasury's position, revealed in papers released to the Sunday Star-Times under the Official Information Act, appears to have shifted in the past 12 months. 

A December 2006 Treasury internal discussion paper on "hollowing out" says the loss of head office type functions and high-skill, high-wage jobs overseas poses risks to the economy because of spillover effects.  These include loss of income for New Zealand; loss of job opportunities and career progression; loss of international connections; and loss of expertise that could encourage the emergence of a cluster of industries.  Prime Minister Helen Clark was briefed by Treasury on the issue in March, a month before Fisher & Paykel announced 350 job losses due to shifting production to Thailand.

But by October this year officials were telling ministers there was no hard evidence any "hollowing out" was under way, and that there was little the government could do about persuading firms to stay in New Zealand.

It pointed to the fact that total manufacturing jobs have grown by 14% between 2000 and 2006, even as manufacturing declined in relative terms compared to other sectors of the economy.  Treasury said even the loss of entire firms overseas was not necessarily a problem, as long as skilled individuals and capital switched to new ventures in New Zealand. There was already evidence, for example, that ex-Navman staff and management had been re-employed.  "In practical terms this means there is probably only a limited role for policies directly aimed at holding firms in New Zealand, given the fiscal and economic risks of the government targeting support and assistance toward narrowly defined sectors or firms," it said.

Finance Minister Michael Cullen told a law firm's business breakfast meeting last month that firms would succeed by focusing on their strengths.  "If New Zealand can determine which elements in the value chain we can realistically seek to achieve some level of dominance, we can go one step further in improving our competitiveness and in securing greater gains from globalisation," said Cullen.  He pointed to the introduction of a new research and development tax credit from April 1 and said the new research showed policies such as KiwiSaver helped retain local ownership.

Some directors got bumper pay rises in recent years and others got nothing - but the average still vastly outstripped rises for other workers.

A study by Institutional Shareholder Services found the average fee for a non-executive director rose nearly 25 per cent from $49,253 in 2004 to $61,416 last year.  Telecom and Fletcher Building chairman Roderick Deane was the highest-paid director last year, at $665,500.  Wayne Boyd was second with $392,961 for his role on the Telecom board and his chairmanships of Auckland International Airport and Freightways.  Third was Keith Smith with $345,000 for his seat on the PGG Wrightson board and chairing Skellerup, Warehouse Group and Tourism Holdings.

The rate of pay increase for directors over the period was more than three times that of inflation - based on a consumer price index rise of 6.9 per cent - and four times the 5.9 per cent growth in wages as measured by the Labour Cost Index.

But ISS lead analyst Martin Lawrence said there was a two-tier market for director pay.  "There are some big companies where director fees appear to be tracking the increases in Australia, albeit at a slower rate, and then there is a large group of companies, some big and some small, where director fees aren't increasing at a rapid rate," Lawrence said.

Of 177 directors who, for the entire period, sat on a board of one of the top 48 listed New Zealand companies surveyed, 20.3 per cent did not get a pay rise, and 12.4 per cent got a raise of at least 50 per cent, the study said.  "It is unheard of in most markets to have directors whose fees have not moved for three years," Lawrence said.

Australia and the UK had shown a substantial growth in fees after corporate collapses in 2001, with non-executive director fees for the top 100 listed Australian companies rising on average 81 per cent between 2001 and 2006.  Some New Zealand firms were following the overseas trend but not as rapidly.  "It seems to be explained by some New Zealand-specific facts, some of which are probably cultural."

Another was that New Zealand did not have the company collapses in 2001 and 2002 which increased attention to corporate governance.  International comparison on pay levels was more relevant for companies with overseas operations and markets, although Lawrence said he was startled by generally how much lower director fees were in New Zealand.

The best paid directorships were relatively concentrated.  Last year 28 directors on 35 boardroom seats each received at least $100,000 a year from a company. Five directors held two of these seats and one had three.

Many larger New Zealand firms did not pay the same as similar-sized operations in Australia.  "That seems to suggest there's some cultural factor that says because Australian directors are paid a lot doesn't mean that we will be," Lawrence said.

Some companies towards the bottom end of the pay rise scale had long established boards with powerful strategic shareholders, he said.  "In that kind of scenario director and executive pay doesn't tend to increase very fast."

The 22 directors whose pay rose by at least half between 2004 and 2006 were associated with seven companies - two of which had profit grow at a faster rate than fees and one of which had a drop in profit.  Fees in New Zealand had remained relatively constant as a proportion of operating cash flow and net profit, although pay did not seem to be necessarily related to company performance, Lawrence said.

"You could argue that directors fees shouldn't be directly related to performance, that they should be sufficiently divorced from the swings and roundabouts of the company so that they're not making decisions with an eye on what their fee will be this year," he said.  "You want them to be saying, 'Well this might hurt the company this year but in three years it'll be worth it for everybody involved'."

Des Hunt from the New Zealand Shareholders' Association said there had to be a relationship between directors fees and the average salary within the company and living standards.  "Living in Sydney is a lot more expensive than, say, living in Auckland," Hunt said.  Comparing companies was not a good guide, he said. "It's where a company is trying to head, the sort of skills required ... the performance of the company would have a bearing on how these people should be rewarded."

Institute of Directors chief executive Nicki Crauford was happy to have performance-based pay for directors, although it was hard to make it work.  "You're wanting directors to consider the business over time, in many cases a substantial period of time, because you want them to grow the business in the medium term," Crauford said.  "So short term financial targets can be misleading."

New Zealand directors were very poorly paid which was a concern.  "If we're going to want quality directors to run quality businesses then we have to pay them accordingly."

Top paid directors 2006

• Roderick Deane: $665,500 - chairman Telecom, Fletcher Building.
• Wayne Boyd: $392,961 - chairman Auckland International Airport, Freightways; director Telecom.
• Keith Smith: $345,000 - chairman Skellerup Holdings, Warehouse Group, Tourism Holdings; director PGG Wrightson.
• Rod McGeoch: $309,889 - chairman SkyCity Entertainment; director Telecom.
• Gary Paykel: $297,469 - chairman Fisher & Paykel Appliances, Fisher & Paykel Healthcare.

Changes 2004-2006

• 24.7 per cent rise in average director pay to $61,416.
• That's four times faster than the growth in wages.
• And three times faster than inflation.
• 12.4 per cent of directors given more than a 50 per cent rise.
• 20.3 per cent of directors saw no increase.

Fisher & Paykel Appliances Holdings Limited
FPA Stock Exchange Release ASX/NZX 15 August 2007

Electronics Factory Relocation to Thailand for Fisher & Paykel Appliances

Fisher & Paykel Appliances (FPA) today announced plans to relocate its Auckland based Electronics factory operation to Thailand.  Production facilities for the manufacture of electronic circuit boards for use in Fisher & Paykel built appliances would be located in Rayong, Thailand on the same site as the proposed new Laundry plant.

After consultation with the Engineering, Printing & Manufacturing Union, the relocation of the facility will be completed by December 2008. Additional inventory will be manufactured in order to cover the lead times for the transfer and re-commissioning of the plant. This will amount to an additional temporary working capital value of between $2 and $3 million. Required capital expenditure is estimated at $3 million.

Once the line is fully operational, the expected financial benefits are in the vicinity of $6 million per annum, at a one-off cost in the order of $5 million, both at a pre-tax level. From the initial indications regarding the sourcing of local components for the Laundry factory, additional cost savings are also expected to arise from the sourcing of electronic components from local vendors in Thailand.

"In recent times it has become obvious that the future of Electronics lay with being located close to its major customer, Laundry" said John Bongard, Chief Executive Officer and Managing Director. "With the experience we have gained in the short time we have been in Thailand we are confident that these ongoing savings will be quickly realised."

The relocation will lead to an estimated reduction in the Auckland based work force of approximately 96 positions. As is the case with the Laundry announcement, the Company will endeavour to relocate as many staff as possible to other areas of the existing business as vacancies arise over the next 16 months.  Plant and equipment is expected to be shifted during the 2008 calendar year and will be housed in an 1800 sq metre air-conditioned building adjacent to the office complex on the Rayong site. Progress on the Thailand Laundry facility was celebrated with a ground turning ceremony last week and currently plans are on track for production to commence in March 2008.

Contacts:
John Bongard or Paul Brockett
Fisher & Paykel Appliances Holdings Limited
Phone +64 9 273 0600

Cabinet ministers reacted like headless chooks to news that major NZ exporters are upping sticks to Asia.  Instead of lashing out at political opponents ("Just take a cold shower please, Trevor Mallard"), they would have been better off calling a summit to find a common accord on how to avert a looming exchange-rate crisis.

There's no need to subject National to another round of wedge politicking, as Mallard is obviously attempting by focusing on his opponents instead of a rather serious problem. Ministers and their National counterparts tried to do just that at a secret meeting with the heads of the Reserve Bank and Treasury last year.

They got together to study a range of supplementary stabilisation instruments devised by Reserve Bank and Treasury officials. The secrecy was blown in February after some politicking from both sides.

On the agenda this time should be an investigation into non-politically correct options: These could include currency controls under study in much of Asia; Reserve Bank intervention in the dollar; pegging the NZ dollar to its Australian counterpart, and dropping interest rates to spark an outflow of hot money.

None of these are particularly palatable. They could all fail - and might attract another judgment from Bollard that they simply won't work.

What should go onto the agenda are the elements over which the politicians do have control. Primarily lavish government spending levels, which are increasing the pressure on monetary policy, as Bollard notes.

We are all paying for the 2005 electoral auction. Labour offered interest-free student loans and expanded its Working for Families tax credits. National countered with wide-ranging tax cuts.  Irrespective of the ideological differences between the respective policy stances, the impact is obvious.

The OECD suggests that, while supplementary stablisation instruments should be pursued, adjustments to fiscal settings provide an obvious alternative. It noted that the Treasury forecasts a significant fiscal impulse in the current and next two fiscal years, which is helping to underpin domestic demand. If the stance was neutral, the burden on monetary policy would be easier and interest rates could be lower.

It suggested there is limited ability to scale back spending plans. But there should be greater flexibility around 2008-09, which happens to be smack in the middle of the 2008 election bidding cycle.

The OECD doesn't say so outright, but if Labour and National could reach an accommodation for 2008-09 - or, better still, allow Labour to reduce committed spend in 2007-08 in return for a National ceasefire on opportunistic political attacks - much economic heartache may be avoided.

The outlook for exporters is not great. If the NZ dollar remains high, squeezed profits in the tradeables sector will spread via slower wage growth, job losses and postponed or forgone business investment.

The OECD notes three potential possibilities over where the burden of adjustment might fall:

* On exporters and import-competing producers;
* Through households deciding to cut back their consumption in response to the impact of higher interest rates; and
* The risk of a less benign scenario triggered by a sharp shift in foreign investor sentiment.

If investors decided to pull out of NZ dollar denominated assets, this could lead to a large, potentially disorderly fall in the exchange rate, which would restore the external balance and boost exporters' competitiveness.  This, in turn, would place households under renewed stress as the Reserve Bank would have to increase the interest rate premium to attract investors back into the currency.

Given the potential variables, we should not be surprised at the decisions by some of our leading exporters to shift production offshore.

Fisher & Paykel's plant move to Thailand had been widely telegraphed among the Auckland business community. But the forthcoming departure of this iconic company has touched many New Zealanders, as F&P had defied the odds by keeping its Auckland plant going for so long.

The decision to move closer to markets is a rational one. The alternative is to stay at home, be punished by crippling exchange and interest rates - and still be left without sufficient critical mass to achieve the economies of scale to stay competitive.

Other competitive pressures will emerge as we slip further behind Australia. The New Zealand Institute's number-crunchers released a graphic report at last week's Australia New Zealand Leadership Forum in Sydney.

Australia's GDP per capita (A$47,181) is about 30 per cent higher than New Zealand's (A$33,682), with NZ well below the OECD average. NZ's figure is now lower than all Australian states, including Tasmania.  Top performers are resource-rich Northern Territory (A$59,649) and Western Australia (A$58,688). The lowest is Tasmania at A$35,253 - but even that state heads off New Zealand on A$33,682.

Those low incomes are driven off the low wages are paid here, which have acted as an incentive to keep manufacturing exporters here.  But there's problems ahead. Each week, about 700 Kiwis join the exodus to Australia.

If companies want to stay here and develop high-growth technologically advanced industries to replace the departing manufacturing base, they will be hard-pressed to compete for highly-skilled labour.

Other figures presented to the forum suggest that a million New Zealanders now live offshore - roughly 20 per cent of our population.

Australia, with a population of 20 million, has just 800,000 offshore.  While Australia turns to our highly-skilled people to fill gaps, New Zealand's ethnic mix is changing as we turn to the rest of the world to cover shortages. The business implications from this are profound.

The Engineering, Printing and Manufacturing Union says it will spearhead discussions to find ways of keeping local manufacturers in New Zealand.

It follows Fisher & Paykel's announcement on Thursday that it will shift its laundry factory to Thailand to save an estimated $10 million a year, with the loss of 350 jobs in Auckland.

Sleepyhead, the country's biggest bed manufacturer, is also considering moving its operations to China next year. It employs about 500 people in New Zealand. About 250 jobs are expected to be lost.

The union's national secretary, Andrew Little, says an urgent review of manufacturing policies is needed to prevent a mass exodus overseas.

Mr Little says he plans to assemble representatives from the business community, other unions and the Government to discuss incentives for manufacturers to stay in New Zealand.

Sleepyhead managing director Graeme Turner says high interest rates and a huge array of costs have led it to look at China as a manufacturing site He says the only things that would keep Sleepyhead in New Zealand are a drop in interest rates and a change in government policy.

The Canterbury Manufacturers Association says it is the same situation for many manufacturers and warns that more will either leave or go under. Spokesman John Walley says manufacturers are being abandoned.

The Employers and Manufacturers Association says it makes sense for companies to move overseas because the business environment in New Zealand is not good.

Chief executive Alasdair Thompson says it is a mess for exporters trying to operate in the face of high taxes and other costs.

He says countries such as Thailand and China are offering manufacturers tax cuts and cheap land to help them to get started.

Manukau mayor Barry Curtis believes workers set to lose their jobs at Fisher & Paykel's east Tamaki plant will easily find work elsewhere.

He says "hundreds of jobs" are going spare in the district each month and it is unlikely that his constituents will be unemployed for long.

The Government says it acknowledges the pain many exporters are feeling but says it has an economic strategy to help.

Prime Minister Helen Clark says there is still a place for manufacturing in New Zealand, despite some companies shifting their production overseas She says what is happening in New Zealand is typical of many developed countries where manufacturers are moving their operations to low-cost countries.

Miss Clark acknowledges the high value of the dollar is causing problems for exporters, but points out that the Australian and British currencies are also at 25-year highs against the US dollar.

Minister of Economic Development Trevor Mallard says it is unfortunate some manufacturers feel they are being forced overseas, but the sector is changing. It is difficult to compete against other countries that supply cheap labour and land.

He says options apart from capital gains tax and mortgage levies need to be explored to try to help businesses that are struggling.

Mr Mallard says New Zealand must focus on high-end manufacturing that come from local research and design initiatives. Any wide-ranging change to monetary policy would need to have the support of all the main political parties.

The National Party says the Government should be doing what it can to help struggling businesses.

National finance spokesperson Bill English says the Government needs to stop charging record amounts of tax and change the business environment. He says the Government also needs to rein in its own spending, which would take pressure off interest rates and the dollar.

Prime Minister Helen Clark says the closure of a Fisher & Paykel plant in Auckland is the "way of the world" and that the future of manufacturing in New Zealand lies in design, research development and niche products.

Kiwi whiteware maker Fisher & Paykel announced last week it was moving production of its washing machines and clothes dryers to Thailand, at the cost of 350 jobs in the next year.

The company said many of its competitors were already making machines in low-cost Asian countries. It expects the move will deliver annual benefits of $10 -$15 million.

Clark said yesterday: "It's the way of the world... For a long time, processing work like the type Fisher & Paykel does has been migrating from western centres to low-cost centres..."The key for [New Zealand] is where the company is based, and where the high-value design R&D work is done, where it's branded, where the export revenue comes."

The F&P news triggered a warning from Sleepyhead that manufacturers were being squeezed out of New Zealand by interest-rate hikes and the high dollar. It said others would be forced to move offshore if conditions didn't improve. Clark said: "That's a business decision for them."

The Green Party and the Engineering, Printing and Manufacturing Union both say the Government's sole reliance on the official cash rate as a brake on inflation is hurting exporters.

Clark yesterday conceded the official cash rate was a "blunt instrument". But she said there was no cross-party consensus on workable alternatives. She also dismissed suggestions Government spending was driving the dollar upward.

Labour was isolated yesterday as two coalition partners and the National Party called for cross-party talks to solve New Zealand's manufacturing crisis.

It follows the announcement by iconic New Zealand manufacturer and exporter Fisher & Paykel that a significant portion of its manufacturing sector would be sent overseas, costing 350 jobs.

As New Zealand First, the Greens and National said they were prepared to talk and find a solution, Prime Minister Helen Clark had a stark message for the sector: "All western economies have seen manufacturers migrate to lower cost centres. It's been the way of the world for a long time."

Manufacturing employs 235,000 people, accounts for more than 65 per cent of our exports, and 15 per cent of GDP.

Last night, National deputy leader and finance spokesman Bill English said National would consider cross-party talks but only if they led to actual policy change.

"We would need to see an indication that the Government was willing to change its policies to make these industries more competitive and stop treating them as a cash machine for Labour to spend their money."

English said current policy had been of no benefit to manufacturers, despite the industry providing a strategy to the Government. He said flexible labour law, less red tape and competitive ACC are essential to making the industry more competitive. He also said if the Government hauled back their spending programme it would take pressure off interest rates and lower the dollar, easing pressure on exporters.

English said he believed there was a future for manufacturing in this country. "New Zealand manufacturing has proven to be very resilient. They've had a decade where they haven't had any protection at all and they've changed enormously in that time. I don't believe they're doomed. I don't think it's the end for New Zealand manufacturing.

"They're getting good at finding their niche and they don't have to be high-tech. As Fisher and Paykel proved being more sophisticated doesn't get you out of China's grasp. There's no doubt that a US75-cent dollar is a crisis for some manufacturers and they need all the help they can get."

The Green Party's Sue Bradford, who's driven the Buy New Zealand Made campaign, said manufacturing would be saved by addressing big-picture issues - especially how we tweak the value of our dollar through monetary policy. Bradford agreed that New Zealand needed to focus on the high-skilled, high-value elements of manufacturing - design, research and development - and niche products. She said the low-tech end was also important - specialising in the brainy stuff won't be enough as the Asian economies, with their bigger populations and good universities, become more sophisticated and move in on this territory.

Although global economic forces were beyond our control, New Zealand needed to retain the ability to manufacture here to avoid becoming more open to those external forces.

Fisher & Paykel bowed out with reasons that were an echo of those from other major New Zealand manufacturers - it was tired of trying to keep up with competitors who had already taken advantage of the cheap labour and other savings offered by China and other developing Asian economies. At home, high interest rates and the high dollar have also squeezed profit margins.

Bedmaker Sleepyhead has come out saying Fisher & Paykel's departure shows the sector has reached tipping point. Unless things change, expect more firms, including the bedmaker, to shift their factories - and jobs - offshore. "Manufacturers are not asking for hand-outs," says Sleepyhead's Graeme Turner. "They are asking for economic policy that assists them to be globally competitive."

The sentiment was echoed by the Engineering, Printing and Manufacturing Union (EPMU), which estimates that in the past 12 months the high dollar was behind 1200 redundancies, either through cheap importers pushing local firms out of the domestic market or exporting costs becoming too high. The smaller manufacturing businesses tended to simply shut rather than outsource overseas.

The Government says it has the right mix of policies for exporters, despite Fisher & Paykel citing the deteriorating environment for manufacturers as a key reason for moving 350 jobs offshore.

Fisher & Paykel's managing director, John Bongard, on Thursday announced the decision to move washing machine production to Thailand and said the company's other lines of business could follow.  The New Zealand company employs about 2000 local staff.

Bed maker Sleepyhead has said it is considering a similar move.

Fisher & Paykel's announcement came of the same day as Reserve Bank Governor Alan Bollard lifted the Official Cash Rate (OCR) to 7.75 per cent – one of the highest rates in the developed world.

The move prompted a collective groan from exporters, which said they were being sacrificed – through higher loan rates and a higher dollar – for the Reserve Bank's moves to quash the overheated housing market.

Political parties of all colour joined the fray, calling on the Government to do more to develop alternative tools to rein in domestic inflation that did not hit exporters.

But Economic Development Minister Trevor Mallard yesterday said the Government's economic strategy was sound and would help exporters deal with the challenges of a global economy.  Both he and Prime Minister Helen Clark said the weak United States dollar was mostly to blame for the strong New Zealand dollar, which is trading at record highs.

Mr Mallard said the Government was developing incentives for exporters, which would be included in its expected billion dollar budget business tax-cut package, and was also exploring alternatives to the OCR for controlling inflation.

But he said National had repeatedly attacked its planned tax breaks for exporters and had also appeared unlikely to support alternative measures to control inflation, such as a levy on fixed rate mortgages.

Any introduction of such policies would need a broad political consensus to succeed, he said.

Miss Clark said Fisher & Paykel's move was part of a long-standing international trend.  "Our own country, right through Europe, North America – we have lost manufacturing and continue to, to where ever the low cost centre is. It used to be Mexico. Now Mexico is getting expensive so it's gone out to China. . . South East Asia," she said on Radio New Zealand.

But Miss Clark said there was a future for local manufacturing, but it would be different from the nuts and bolts kind of the past.  "It's not the manufacturing we knew 30 years ago before tariffs and import controls went. It will be high value, produced by very skilled workers, with a lot of research and development and science behind it and it will look for niches, small areas in global markets where we can excel and sell for a high price."

Manukau mayor Sir Barry Curtis yesterday said the loss of the 350 jobs to Thailand is disappointing, but he hoped the affected workers will find jobs elsewhere in the city.

Maori Party co-leader Pita Sharples said the move would have a massive impact on local Maori and Pacific Islanders and the Government needed to give more incentives for exporters.

Union leader Andrew Little is worried the move by Fisher & Paykel in seeking cheap labour overseas could result in copycat action by other manufacturers.  "They might say we'll do it now because the debate is running and the Government is copping it," he said.

Mr Little, national secretary of the Engineers, Printers and Manufacturing Union, said companies tended to get away with blaming shareholders wanting to maximise profits, which could be done by sending work overseas without much heed to what happened to the local communities.

"You have to wonder how worthwhile the cost savings to Fisher & Paykel of $10 million to $15 million will be ... given the disruption it is likely to cause not just to 350 workers and their families but the communities they come from."

Mr Little said the manufacturing sector was being squeezed, with jobs increasingly being shed. The workers would not necessarily be easily reabsorbed into similar work, he warned.  Mr Little challenged the manufacturing sector to "move up the value chain" and increase margins to better withstand volatile exchange and interest rates.

National Bank chief economist Cameron Bagrie said structural aspects of the economy made it more expensive to do business in New Zealand. From 1990 to 2000 there was productivity growth of 2.6 per cent per year in the business sector but from 2001 to 2006 that fell to 1.1 per cent.  "So that's been a massive deterioration ... You've got to start asking why. It suggests businesses are finding it a lot harder and, to me, there's a certain policy element to it."  Mr Bagrie said the regulatory environment saw compliance costs imposed on the business sector, which could legitimately have a few gripes.

Deutsche Bank chief economist Darren Gibbs said there was more to Fisher & Paykel's decision than currency values. To some extent globalisation had prompted matters.

"Clearly it's possible to produce some of these things cheaper offshore. While currency may have accelerated the moves, there is an argument it may well have happened in any case."

Alasdair Thompson, chief executive of the Employers and Manufacturers Association, said cheaper labour had been available overseas for a long time.  Asian Governments had also offered big incentives such as lower tax environments.  "You have to ask what finally triggers companies to go."

Mr Thompson said the local business environment had to be a major factor.  He criticised poor-quality and "out-of-control" Government spending which fuelled inflation, high interest rates and the dollar.

Mr Thompson said the Government needed to relax regulations and introduce lower and flatter taxes, reform local government and help organise assistance to exporters in overseas markets.

Fisher & Paykel workers have been warned there could be more job losses after yesterday's shock announcement that 350 staff would be axed and washing machine production moved to Thailand.

Workers at the company's East Tamaki plant eagerly filed into a meeting yesterday expecting to be given a bonus. Instead they were told the bad news. "The mouths just dropped," said one employee.

After delivering the news, Chief executive John Bongard said there were no guarantees that more production lines would not be shifted abroad. "So I can't stand up in front of you today ... and say, 'That's it', because I'd be lying to you," he said.

Today he ruled out another closure before the end of the year, but could not say if jobs would be safe from next year.

Green Party economic development and employment spokesperson Sue Bradford said today: "Fisher & Paykel is seen as an iconic NZ manufacturing company. "I am therefore very disturbed not only to hear today's announcement of 350 job losses, but also the statement of F&P managing director John Bongard when he says there are no guarantees the rest of the company's manufacturing jobs won't one day also be moved offshore.''

Overtime

Workers, who would not be named for fear it would hurt their future employment, said they had been doing overtime every week to meet targets. Fisher & Paykel blamed the move on competition, the loss of a duty preference and a "crippling" environment at home.

The announcement came just hours after the Reserve Bank raised the cash rate by another 0.25 per cent in a move that is expected to push the New Zealand dollar up and put further pressure on exporters.

Bongard said production of washing machines and clothes dryers would be moved from Auckland to Thailand, costing about 350 people their jobs. The business environment in New Zealand had deteriorated, thanks to high interest and exchange rates and some policies on trade and tariffs, Mr Bongard said. "Exchange rates and high interest rates [are] crippling the whole productive sector in New Zealand in my view."

Margins in the washing machine business had suffered considerably over the past four to five years. Most of Fisher & Paykel's competitors supplied the Australasian market from low-cost Asian countries, he said

"Without this relocation to Thailand our continued future in laundry design and manufacture would be doubtful."

Plans by a competitor to move its production out of Australia would also cost the firm a 5 per cent duty preference under the Closer Economic Relations trade agreement. "I guess the loss of the CER duty preference into Australia early next year was kind of the straw that broke the camel's back," Mr Bongard said.

Free-trade agreements with countries such as India, China and Thailand being sought by the Government were also unhelpful to the manufacturing sector, he added.

The relocation to a purpose-built factory in Thailand would take a year and result in annual pre-tax savings of up to $15 million. At present the company has a global workforce of more than 4000 people, with about 2100 in New Zealand (1600 in Auckland).

The company also has operations in Italy, the US and Australia. More than 80 per cent of its sales revenue is generated overseas. Engineers' union secretary Andrew Little said F&P's margins had been squeezed by the high New Zealand dollar, adding, "This has got to be a wake-up call for the Government".