Buy Kiwi Made

The prevailing Government policy of "internationalisation" presents the idea that New Zealand can develop a robust and growing economy, even if manufacturing companies send the "dirty bits" of their production process overseas. They promote the view that labour cost differences between New Zealand and low-cost countries make the relocation of the "dirty bits" (production) away from New Zealand inevitable, therefore we should focus on keeping the "shiny bits" (design, research and development, marketing and ownership) in New Zealand.

This message is clear in the Advancing Economic Transformation Cabinet paper released last year, which says: "The key challenges arising from international integration are for New Zealand to:

A. Position itself as an attractive location for investment and skills and for those parts of international supply chains that relate to high-value products and activities and that provide the greatest return (eg R&D and design). This includes an imperative to develop more and/or larger internationally successful New Zealand businesses, networks of businesses, and segments of the economy; and

B. Capture the best return through our businesses being part of international value chains offshore (return profits to New Zealand), through developing new business models of operating internationally (such as investing directly in offshore product and distribution chains), rather than transferring valuable activities offshore."

Few would have a problem with the document's objectives and the recommended actions appear deceptively rational. However, they are constructed around a fundamentally flawed concept that "valuable activities" can be separated without penalty. Internationalisation might work in theory, but the message from New Zealand's manufacturing sector is clear that at a practical level this will not work. For global businesses, the interaction between each of their "separate" components has a subtle and pervasive impact on their performance and effectiveness.

It is not only important to get all of the elements of the business system right, but also the interconnections between those elements. Much of the literature on internationalisation simply shows the different elements or activities of the business system. Diagrams show different components of the supply chain - customers, marketing research, development, production, etc - as different blocks. While it is obvious that a global business is not compelled to physically co-locate activities, a superficial analysis can form the view that individual blocks can be separated without penalty or risk. This view underestimates the importance of supporting interconnections between functions.

Good businesses will make decisions about the location of their activities based on suitability for the activity itself and the effectiveness of interconnections with other elements of the system. There will be tradeoffs. A firm may not seek lower labour costs because it is too important that they can produce new products rapidly, suggesting they should have all their functions in the same place. Alternatively, a company may locate R&D closer to its low-cost labour production site or locate product management closer to end markets.

This might compromise the quality of the R&D, but this affect can be outweighed by the importance of the low-cost production, the productive use of multiple time zones or some other component of the competitive landscape. The cost and reliability of the supply is also a critical factor of internationalisation. The disruption to supply chains may be a huge strategic risk, and the greater the international interdependence, the worse the effect of even short-term disruption.

In reality wage costs are a fairly minor component of the overall picture that controls the profitability of manufacturing. It is worth noting that a direct labour content of less than 5 per cent of sales is not unusual in high technology products, and exchange rate fluctuations could have five times the impact of the difference in labour rates. Many factors contribute to a country's international competitiveness so the priority for Government must be to maximise the advantages available in the policy framework. What does this mean for a country like New Zealand?

There is no one-size-fits-all solution regarding the location or value of business activities. What might suit garment manufacturing will not necessarily suit high technology electronics or other complex products. The strategy for each business will be different but there are some common themes for New Zealand, given the country's attributes of isolated geography and small population.

A number of our firms now compete globally at a micro level in small markets or in the post-processing of our "primary" outputs. Policies and assistance need to nurture the creation of entire businesses in these areas, rather than trying to prescribe which bits should be encouraged and which bits should be neglected. Even if some businesses do send production overseas, it would make sense for our policies to maintain a neutral or positive bias towards locally-based production.

Policy settings need to make it more attractive for innovative business to create wealth in New Zealand through personal incentives, company incentives and national infrastructure. Factors such as broadband, transportation networks and tax incentives for productive activity can encourage activity. This comprehensive approach to policy support will promote the retention of as many of the supply chain components as possible, rather than focusing on individual links of the supply chain. The Government must not seek to pick winners or favour particular supply chain activities, as businesses will determine the profitability of their activities themselves.

Effective policy must provide incentives, or at least no disadvantage, for winning behaviour. Investment in research, development, productive activity, skills and capability development and new ventures will all assist in increasing our international competitiveness. Incentives are best delivered through the tax code generally to encourage investment in productive activity rather than in static assets. The support of winning behaviours and monetary policy that secures a stable exchange rate will help mitigate disadvantages of the wage rates. Given such changes, perhaps more companies will keep more of their supply chain in New Zealand.

* John Walley is the chief executive of the Manufacturers and Exporters Association.

Six months in and the Government's $11.5 million Buy Kiwi Made campaign is being seen as a feelgood venture to appease the Green Party rather than an initiative providing direct economic benefits.

While the Government is claiming success in terms of growing membership of the Business New Zealand-owned Buy New Zealand Made scheme, and increased awareness, critics doubt the campaign is making Kiwis patriotically throw their buying power behind local enterprises.  The campaign, made up of advertising, research, and a $3 million grant scheme, was part of the Labour Government's post-election co-operation agreement with the Greens. It has been running for six months, with television adverts featuring a robotic Oliver Driver starting in September.

Green MP Sue Bradford, government spokeswoman for Buy Kiwi Made, said attitudes were moving in the right direction.

A Research International survey showed that the percentage of consumers who always or often considered whether a product was New Zealand made before buying had increased from 35 per cent before the campaign, to 41 per cent in December.

Fifteen per cent of retailers said New Zealand goods now made up 6-10 per cent of their stock, up from 10 per cent pre-campaign.

Buy New Zealand Made, the separate self-funding organisation which administers the triangular kiwi logo, has benefited from the publicity. Director Samantha Seath said since Buy Kiwi Made started, membership had risen from 650 to 950.  Hits on the Buy New Zealand made website had also increased from 5000 to 40,000 a month.

"People want to buy New Zealand made products, there's no doubt about it," she said. "It's just getting that message through to manufacturers and retailers that they need to make sure that they are stocking products that are showing they are New Zealand made."

But both Seath and Bradford concede there is no way of measuring the campaign's success in terms of dollars spent on New Zealand goods.  The Green MP said the value of Buy Kiwi Made was in enhancing the way New Zealanders saw manufacturing, and improving their understanding of its role in our economy.  Manufacturing needed to be looked after as much as possible, she said. "We just see this as one element of trying to nurture the New Zealand economy and prepare our economy for the impacts of climate change and peak oil."

Bruce Goldsworthy, advocacy manager for EMA Northern, said while it was pleasing a government had "finally" got behind a campaign to buy local products, it had missed its window. New Zealand consumers were now used to a wide range of choice, and were less likely to err on the side of patriotism.  "The extent to which it [the campaign] is good for the country I'm not sure. I believe it would have had a much greater impact if they'd started it 20 years ago."  Referring to the deal with the Greens, Goldsworthy said Buy Kiwi Made was a political move. "There'd have to be a question whether this money is well spent."

David Skilling, chief executive of think tank the New Zealand Institute, is similarly sceptical.  "I would be surprised if what they've done to date in terms of the initiative is going to generate significant changes in behaviour." He said consumers would say one thing in a survey, but behave differently. "The issue is whether people are prepared to pay a premium, or what sort of trade up they're prepared to make, to make good on that intent."  Skilling said New Zealand enterprises in search of profitability were adopting all sorts of business models, including manufacturing offshore. "Increasingly we should be supporting New Zealand companies that are going global, and not sending a message that somehow they're less than fully New Zealand."

One area of the campaign which has clearly not been a success is the $3 million Regional and Sector Initiatives Fund. It was designed to provide support on a 50/50 funding basis for sector and regional projects that are consistent with Buy Kiwi Made's aims.  Two out of three funding rounds have now been completed, and only $575,000 has been handed out to five initiatives.  Bradford said the fund hadn't worked out as well as she had hoped.  She said she and the Ministry of Economic Development were "well aware" of the situation, and an announcement about the fund would be made shortly.

Mixed views as new members sign up

Fine furniture maker Ashton Grove has recently joined the Buy New Zealand Made scheme.  General manager Emma Davies said with the Buy Kiwi Made campaign running, the company felt it was a good time to get on the bandwagon. "A lot of people when they come into our retail shops don't realise that the product is made in New Zealand."  But she said the campaign itself hadn't necessarily brought customers to Ashton Grove's door.  "It [being Kiwi made] always had been one of our selling tools, so to publicise that a bit more is a good thing."

Supermarket group Foodstuffs, which operates the Pak'nSave, New World and Four Square chains, is another new member of Buy New Zealand Made. General manager of strategy and new ventures Rob Chemaly said it fitted with the group's sense of "Kiwi-ness", in being 100 per cent New Zealand owned and operated.  He said there would be some benefit to store operators in being able to promote Kiwi-made products, but there was no way of measuring sales made as a result.  "Certainly we would have some difficulty in keeping accurate track of individual item sales because we don't always know which are which."

One organisation which has benefited from the Buy Kiwi Made campaign's Regional and Sector Initiatives Fund is DesignTex, a group of 21 Horowhenua and Kapiti clothing manufacturers.  The $252,000 grant it received helped it win a $500,000 job to make clothing for the New Zealand Olympic team. The work is also providing spin-off benefits.  Chief executive Andy Wynne cannot speak highly enough of the scheme. "The way in which they have managed the fund is exemplary."

However the Jewellery Manufacturers Federation of New Zealand did not have as happy an experience. It decided not to take up its $88,000 grant. Chairman Alan Priestley said the need to come up with the other 50 per cent of the funding was prohibitive for a small organisation. He also felt the scheme was aimed more at helping retailers than manufacturers.

Farmers' Markets New Zealand, representing 40 markets nationwide, received a $96,000 allocation in the last funding round but has yet to sign on the dotted line. Spokesman Chris Fortune said the Buy Kiwi Made concept fitted well into what farmers' markets were trying to do, but the fund wasn't for everyone. "The criteria's fairly strict, I wouldn't see it suiting a lot of other organisations."

Caption: Emma Davies, general manager of Ashton Grove Furniture. Photo / Paul Estcourt

Clothing companies Swazi and Norsewear have opened a combined store in Wellington to tap into more "urban" customers.

Norsewear and Swazi have now opened four combined shops in the past five months, with others in Otaki, Geraldine and Tirau.  A fifth store opens in Auckland next month.

Swazi founder Davey Hughes said both companies had been having problems with urban and tourism markets.  "We were struggling to get into both of those."

Swazi specialises in heavy-duty outdoor gear.  Many people wanted to buy Swazi garments but sometimes did not want to go into a hunting or gun shop to get them, he said.

Combining the businesses halved the cost and the risk of opening up a high street store. Both companies support the Buy Kiwi Made campaign.

Mr Hughes said the shops were proving hugely successful.  Swazi's factory in Levin had taken on five more staff to cope with increased demand.  It now employed about 90 people at the factory and more in the shops.

Mr Hughes and wife Maggie started the company in October 1994. Swazi has fought to keep its production in New Zealand, despite competing with companies producing in lower-cost countries, such as China.

Norsewear was founded in 1963 by Norwegian Ola Rian. He set up its first factory in Norsewood, Hawke's Bay, in 1967.  The company went into receivership in the 1980s, when the textile industry was hit by a move to free trade that removed tariffs on imported clothing.

It now has about 70 staff at two factories, in Norsewood and Wanganui. In 2001 it branched out into urban wear and launched a range of outdoor and sports wear.

Reports of the demise of the New Zealand outdoor clothing and equipment industry have been greatly exaggerated. Locals are not only thriving, but planning to take on the big guys. David King reports.
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THE road to China is a well worn one for the Kiwi outdoor clothing industry. Kathmandu, Icebreaker, Swanndri and Macpac have all packed their bags and headed to Asia to find cheaper contract manufacturing partners, leaving what's left of the local industry to fend for itself. In their wake they've created one of the great Kiwi business myths: that you have to go to China in order to compete.

The Green Party hitched the $11.5 million Buy Kiwi-Made campaign to the wagon of Swazi, a busy Levin manufacturing business whose outdoor clothing has penetrated deep into what was once Swanndri country. The business employs 84 staff and is owned by Davey and Maggie Hughes. Mr Hughes, who likes to encourage singalongs at work and, while off on a slight conversational tangent, admits he sounds "like a socialist and a dreamer" is nonetheless a successful capitalist who has become the poster boy for Buy Kiwi-Made.

He thinks the Chinese-made Air New Zealand uniforms are a national disgrace and uses the example of a new Ministry of Social Development contract for uniforms to illustrate what's gone wrong.

The MSD -- which includes Work and Income staff -- does not require the garments to be made locally. But Mr Hughes knows that as soon as the economy slows and the dole queues grow longer in Levin it will be MSD staff, resplendent in their new Chinese-made uniforms, who will knocking on his door asking if he has space for a few more workers. "It's like, holy shit, guys, don't you know what you are doing? It's just so ironic."

By contrast the Department of Conservation has put out a similar contract and it stipulates the garments have to be New Zealand-made. He says the Buy Kiwi-Made campaign is the best way to give those left some hope. "No one left in manufacturing wants a handout, because handouts are nothing more than subsidies. "What they are doing is the best way forward."

BUT for all his patriotism, Mr Hughes praises Icebreaker founder Jeremy Moon for doing "the right thing" by quitting manufacturing in New Zealand for China. "For the company, that they want to be in the global market . . . we don't have the manufacturing base left in New Zealand."

Icebreaker has revenues in the region of $100 million and wants to take on the likes of North Face and Patagonia. Mr Hughes wishes him luck. "I don't want to be an Icebreaker but I want to see strong Icebreakers because they are good for New Zealand."

But he thinks Mr Moon could have made at least one concession. "Perhaps he could have said the Australasian markets will still be serviced by New Zealand manufacturers -- wouldn't that be a lovely compromise. "It's not too late to do it, he could be the hero who picks up the wounded mountaineer from the mountain and brings him down."

Swazi turns over about $10 million and Mr Hughes reckons he'd add a $1.5 million profit straight on to his bottom line if he shifted production to China. And surprisingly, he would not rule out some manufacturing there in the future. But "deep in his heart" he could never go to China for any Australasian-market products. Hughes says there is a wide belief that if a firm had not outsourced production to China, then it had had its day.

With just two shareholders to answer to about profitability -- he and his wife -- he is able to keep his head down and keep on working away with his business model. "I was feeling lonely there for a while but the Kiwi-Made campaign came along. "There's enough work out there for us but wouldn't it be great if we could go and build the industry. "Not everyone can be a software programmer or a designer or a journalist. Some people have to work for a living." Ultimately the power is with the consumer who has to evaluate what they buy. "Are they doing nothing more than exploiting low paid foreign workers?"

CHRISTCHURCH'S Cactus Outdoor Equipment in Lichfield St has a great claim to fame -- it is the only pack maker left in New Zealand. It is owned by four former Wellingtonians who have hit on a winning formula of making a combination of technical climbing and outdoor equipment and more prosaic products including thousands of postbags for New Zealand's legion of posties.

Co-owner Ben Kepes says Cactus is profitable and sees a good future in New Zealand. The company employs eight staff at its own manufacturing plant and contracts out work to three other manufacturers in Christchurch and Nelson. Cactus' aim is to be profitable and sustainable and put food on the table for all its stakeholders. "We don't want to be another North Face. We want to provide a good standard of living for our employees and the owners. We want to be sustainable -- financially, environmentally and socially. If that lacks ambition, then I'm happy to lack ambition."

Mr Kepes says it is hard to find skilled machinists because they have been made redundant so many times they feel they have been burned by the industry and give up on it. "It's nice to give recognition to the people who spent 40 years on sewing machines doing a fantastic job and getting very little thanks for it."

Not surprisingly, Mr Kepes likes the idea of the Buy Kiwi-Made campaign, but finds it ironic that Labour has agreed to it at the same time as trying to do reach a free trade agreement with China. Like Mr Hughes, he hopes it makes consumers think about what they are buying. "I think it's really important that people know there are businesses and brands leveraging off the New Zealand thing when they don't have a single percentage point made in New Zealand." He says the decision about where you manufacture is all about your business model. If your model puts mass market appeal and profits first, then it is off to China. "It's a failure of their business model and not a failure of New Zealand manufacturing. "They are trying to compete in a market that everyone is making offshore and they have to get their labour costs down."

He also gives credit to Icebreaker for being a success, but says Mr Moon's headquarters could just as well be in Mongolia as Wellington. What has upset him is a perception that some manufacturers have had no option but to go to China to chase better quality manufacturing. "I would challenge any Chinese factory to make better quality than we can do here. We can do anything. Our manufacturing is as good as anywhere."

Across town in the back streets of Sydenham, the sprawling Lane Walker Rudkin network of buildings is a beehive of activity. The 102-year-old textiles manufacturer is the grandfather of the New Zealand industry with a long history of providing clothing for Kiwi greats, from Peter Snell to the All Blacks. Its Jockey underwear and merino woollens have kept most of New Zealand's nether regions warm for years. LWR, which still employs 1200 staff in Australasia, is on the comeback trail. It has just launched Everest, a range of merino clothing which plays up the company's connection to Sir Edmund Hillary and Sherpa Tenzing Norgay's 1953 expedition.

Hillary wore merino supplied by LWR. Everest is about unashamedly playing the local trump card, and the results so far have been good, with the company selling between 4000 and 5000 items since its launch in the United States. LWR's general manager Mark Anderson says: "It's to claim a bit of that outdoor clothing revenue back, we don't want to roll over and see that shelf space going to Chinese made stuff."

He sees the future in making high- value raw material garments such as merino zip tops with relatively low labour time input costs. This gets around the fact that LWR has to pay workers at least $13 an hour, while a Chinese machinist would be earning about 10 cents. His favourite comparison is a business shirt with its many seams and button holes to a merino zip-up top which is much faster and relatively simple to make.

LWR does end up sourcing goods from China, but they would make up 23 per cent of what it does at most.

While he thinks the Kiwi-Made campaign is "great" and will help the cause, the businessman in him would rather see the money go on lowering ACC levies or tax. What it all comes down to it seems is picking your fights wisely. To survive, you can't try and take the Chinese head on at their own game. "Manufacturing high-quality branded products is the way to do it," Mr Anderson says. "As long as you are careful about your labour inputs you can do it. For every $100 we sell, $100 is coming back to New Zealand."

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SHOULD I STAY OR SHOULD I GO?
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Made in New Zealand
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Locals

Chalky Digits
LWR Everest
Cactus Climbing Equipment
Swazi Apparel
Ground Effect
Earth Sea Sky

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Made in China
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Kathmandu
Swanndri
Macpac
Icebreaker

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CAPTION:
Above: Swazi's Davey Hughes _ `be a hero, Mr Moon'.
Left: Cactus' Ben Kepes _ brands `leverage' off New Zealand `without a single percentage point made in New Zealand'.

Christchurch's Lane Walker Rudkin (LWR) has started a merino clothing brand to tackle firms like Kathmandu and Icebreaker.

The textiles business has launched Everest, a brand of clothing ranging from socks to jackets which cashes in on the company's connection to Sir Edmund Hillary's 1953 ascent of the world's highest mountain.  Hillary wore LWR woollen socks on the climb, and LWR is keen to push its Kiwi history, plus the fact it still manufactures at home while the opposition has outsourced to China.

LWR Brands chief executive Paul Spicer said the range was part of the firm's drive back into the brands business.  LWR has built brands including Canterbury, but the brands were sold during Brierley Investments' 11 years of ownership.

The company has developed its own rugby apparel brand, Union, and Everest was its flagship product for the outdoor leisure wear market.  "LWR is back with a vengeance," Spicer said. "We are trying to give New Zealanders the opportunity to buy genuine New Zealand-manufactured merino -- there's still a strong following in New Zealand for New Zealand-made. Why would you pay $220 plus for a Chinese product?"

LWR, the nation's largest textile firm, is owned by Christchurch's Anderson family. It has 1200 staff in Australasia.  LWR still makes a large amount of clothing for a range of clients but is keen to build its own brands again.  The Everest range, which is already available in America, will go on sale in New Zealand stores later this month.

The axing of over 80 clothing workers' jobs in Christchurch and Porirua is a direct consequence of successive Governments' free trade policies, the Green Party said today.  The Pacific Brands clothing group has announced that it will close down both the former Lane Walker Rudkin Jockey Factory in Christchurch and the Sara Lee Apparel factory in Porirua, and shift hosiery production to Melbourne.

"It makes me angry when staff who are long-serving, dedicated and highly productive lose their jobs because of Government tariff reduction policies," said Green Party co-leader Rod Donald.

"Successive Governments have slashed tariffs on clothing imports in the full knowledge that their actions were destroying the clothing manufacturing sector in New Zealand.  Despite the Labour-led government freezing tariffs on clothing imports last year, it continues to undermine what is left of the industry by signing up to a free trade agreement with Singapore and is now proposing a similar but much more dangerous agreement with Hong Kong.

"We are meant to have a close economic relationship with Australia, but they froze their tariffs at 25% on clothing compared to 19% in New Zealand.  With both countries facing a massive increase in sweatshop imports from Asia it was inevitable that higher tariff levels in Australia would keep Australian based manufacturing plants viable for longer than those in New Zealand."

Mr Donald said he took the closure of the Jockey plant quite personally, not only as an avid wearer of Jockey Y fronts, but also because both his mother and father worked for Lane Walker Rudkin Industries before he was born.  "I know how important Mum's second income was for getting my parents on their feet, enabling them to put down a deposit on a section and build their first home. The deliberate destruction of New Zealand's clothing industry is denying today's school leavers the same opportunities my parents had.

"I'd like to offer my encouragement to the redundant clothing workers and urge them to consider setting up their own manufacturing business. They have the skills and experience to make a go of it and I am sure the public would respond to a call to buy New Zealand made.  I for one would buy their products," he said.
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