Manufacturing is Dead, Long Live Manufacturing!
Listening to: Englishman in New York - Sting
Well another NZ manufacturing company has decided to chuck it in and open shop in China.
I am up to my ears in the area of manufacturing these days and I am a little shocked at the level of debate going on. Manufacturers are saying that if the corporate tax rate was dropped to between 20 and 25% then they would be ok and wouldn’t have to move. The sad news is that YES YOU WOULD!
The traditional manufacturing model is broken … there are now only very few areas where you can sustain-ably mash atoms on the edge of the world and move them 1000s of km to your market to sell them. Tax cuts aren’t going to help you. You’re competing on COST against companies that move their entire corporate structures to squeeze every last cent, rupee and yuan out of the process. They are going to kick the collective ass every single time - because while you were sleeping they changed the rules on you.
Should NZ close up the manufacturing shop? One of my advisors regularly says that the manufacturers should cut a deal with go-karters, ten-pin bowlers and anyone else who needs a large covered space ‘coz it’s game over. It’s going to be more profitable to rent out the space by the game. He’s right … the answer isn’t in big spaces here in NZ or, importantly, even in big spaces in China. The answer lies in changing the rules again. The pieces are there to be put together. If you permit me to be a little parochial we’ve just got to behave like Kiwis again. A good Rod quote is:
“This is a global opportunity that we can credibly take from New Zealand. We really do understand how small businesses work and the sort of issues our small businesses have are the same as the UK and Australia.”
The same logic applies when it comes to atoms. NZ has always been on the edge of the world and that experience is something that can’t be replicated and is rich loam in which to grow new ideas. We have always known the constraint of moving stuff around the world. It’s time our manufacturers stopped asking for tax breaks and started working out how to own a manufacturing game they can win.
May 16th, 2007 at 9:08 pm
Your comments re the viability or otherwise of meshing atoms at the edge of the earth was interesting. By extension then it is also not viable to grow merino here, or milk or meat for that matter. IceBreaker, Fonterra and the Meat producers seem to be doing ok! If your premise is (as you state at one point), that NZ manufacturers need to stop whinging and need to find ways to be viable then I agree. If your premise is that manufacturing in NZ is dead (which you also say - a dichotomy presents itself here) then I disagree entirely - witness cactusclimbing.co.nz, witness OBO, witness the myriads of other manufacturing here without moaning but with viability.
May 16th, 2007 at 9:14 pm
[…] May 17th, 2007 A disturbing post here, the crux of which is that it is no longer viable to “mesh atoms” in New Zealand. […]
May 16th, 2007 at 9:40 pm
Ben
My point is the former … NZ manufacturers need to find ways of being viable. They either find ways they can compete through the right sorts of raw products, a’la Icebreaker OR they start to deal with new processes.
May 16th, 2007 at 9:53 pm
Sweet - in that case I applaud your comment - after all my raison d’etre is to give SME’s (both manufacturing and otherwise) the capability such that they can scale their business and add to GDP growth in this country - if this includes NZ manufacturing then great, if not it’s a shame but I’ll live with it
ben
May 16th, 2007 at 9:56 pm
Dave
Excellent post! This is an area I am pretty close to. I just want to comment on a couple of your points.
“The traditional manufacturing model is broken”
Traditional manufacturing is broken (or at least it’s moved on), if you are competing purely on cost and you haven’t realized the rules have changed, then your future isn’t that bright.
“… there are now only very few areas where you can sustain-ably mash atoms on the edge of the world and move them 1000s of km to your market to sell them.”
I would argue that saying there are “very few” areas is wrong. I know there are a huge number of ideas and opportunities out there. There are a tonne of things that the ‘large’ manufacturers simply wouldn’t bother or know how to do.
If you look at someone like HP for example, their product development process uses a huge number of people with a big budget so the opportunity needs to have a payback to justify that. New Zealand has an ability and opportunity to do the opposite. We can see the opportunities that bigger players will miss. We can dream-up, design and build solutions to these problems and we can do it all for a lot less R&D outlay than the 1000 person team of a big player.This makes the opportunity a hell of a lot more attractive to us that them.
“we’ve just got to behave like Kiwis again”
I think that is a fantastic way to sum up the solution. Kiwis have developed a knack of finding solutions to problems and becoming pretty good at what we do. We have some fantastically innovative people in this country. We just need to get on with finding the opportunities, developing the solutions and taking these new, high value things to the world.
Darren
May 17th, 2007 at 12:39 am
Darren
Thanks for your comments.
I do concede that the used of the phrase “very few” is overly provocative. You’re right, as is Ben, that there are many areas of opportunity for manufacturing.
I agree, there are a huge number of great ideas out there. The real effort is making the idea real and getting into the hands of your customers. Like you I come from a software background and I am used to rapid iterations of product in the hands of real users. Rule changing needs to take advantage of the rapid evolution of ideas. The pieces are already here to enable that but the attitude that I woke up to this morning was hidebound commentary about costs and an enumeration of issues that we as a country don’t have a hope in hell of controlling. What I would’ve like to have heard was an honest taking of responsibility and a little more vision. That vision needs to harness the rapid evolution of ideas and systems that allow that to occur (I know vision is hard when you’ve been kicked in the slats).
I am under not illusions about the simplicity … it will be hard. But I imagine it is no where near as hard as turning up to work one morning to discover that your job has been shipped offshore. The rewards though …
May 17th, 2007 at 12:42 am
Ben
Your raison d’etre is the one to have … I agree with you completely. Making things is a key mechanism for that and NZ is very good at this. The real questions are around the ‘hows’.
May 17th, 2007 at 2:12 pm
Over the near term, we’ll see a division in manufacturing between those who simply continue to build the same, cost-critical components as overseas competition and a new manufacturer who builds a product that is simply new, focuses on a niche and owns that niche and makes the rules.
I think we all agree that we have the ideas and I cannot argue with the fact that it is more the issue of ‘how’ and that it will be hard. If the process for this is finding opportunities->developing products->selling then I think we have the middle bit on track(maybe with some exceptions around capital). So then the hard bit for us is the bits that surround it. Finding opportunities and selling the result of our thinking (Ben sounds like where you come in?).
Certainly I would like to see more vision. Bitching about cost competition and the dollar isn’t a vision and there doesn’t seem to be a lot coming from government by way of yesterdays budget. Although I would stress that it is not governments job to set the vision but to merely support us in getting on with it.
New Zealand has a bright future as a producer of high-value niche product. I work with companies that are doing just that, but we need more. Lets get on with finding the opportunities and making the most of them.
May 18th, 2007 at 12:10 am
All great comments guys. The answer is simple (well hideously difficult to implement but simple to articulate). As I enunciated over on the Idealog blog (and to be honest in my writing all over the place)…..”We need to keep up dialogue, to build capability, to convince NZ SME’s to take on advisory boards of directors, to embrace creativity, to turn our backs on the old boys network, to become ambitious, to add value, to realise that we don’t have the luxury of a large natural resource base, to realise that despite the hype we still need people to make things here, to align SME’s needs with economic development policies, to learn more, to read more, to look to successful and creative businesses here and overseas, to utilise design for all aspects of a business, to educate our youth on what commerce truly is, to integrate technology, education and design and to on the one hand drop our tall poppy syndrome but on the other stop putting people on pedestals.”
Yes Darren, finding the opportunities and selling the results is where I would like to think I come in - commercialising ideas, taking a concept and delivering and building the ability of entrepreneurs to work on as well as in the business is what gets me up in the morning and keeps me up at night
Keep up the dialogue team