Fran on F&P

April 20th, 2008 at 8:06 am by David Farrar

Fran O’Sullivan looks at the decision by to shift its Dunedin production line overseas.

Chairman has had plenty to say, largely behind scenes, about the difficulty of running internationally competitive manufacturing export businesses from countries that pay First World labour costs, are distant from the world’s major consumer markets, have outrageously uncompetitive transport costs and, in particular, are slammed by a crazy monetary policy which, in New Zealand’s case has had our dollar rubbing up at US80c for far too long.

There seems a degree of inevitability.

But despite his warnings and those of other manufacturers the Government did nothing major to offset the situation, despite labelling 2007 Export Year. It could have explored a special tax rate, as suggested by New Zealand First and United Future, to gear business towards increasing its export footprint offshore from manufacturing bases here. But didn’t.

It could also have cut Government spending, as the OECD suggested, to take the pressure off monetary policy. But didn’t.

The New Zealand dollar has appreciated 27 per cent against the greenback in the past two years. Investors are sucked in by interest rates that dwarf those in other OECD countries as the Reserve Bank tries to squeeze out inflationary pressure.

The Government can not stop individual manufacturers making decisions as to what is best for them. But they can play a significant role in setting an environment which is friendly for businesses to prosper.

New Zealand manufacturing is not dead – far from it. Statistics New Zealand’s manufacturing survey for the December quarter showed total manufacturing sales increased 8.3 per cent and manufacturing volumes rose 3.4 per cent.

But the ability of manufacturers to withstand higher compliance costs, such as the KiwiSaver superannuation phase-in, will get tougher if the exchange rate persists at current levels.

Every extra cost is what may push an employer and manufacturer past the tipping point.

But the reality is that Fisher & Paykel’s move is also a consequence of globalisation. The New Zealand Institute’s has promoted the necessity for more businesses to go offshore and relocate closer to markets.

Skilling’s is predicated on the notion that if New Zealand keeps the brains trust here – the designers and engineers who create the products and the company headquarters – New Zealand will benefit.

That is the likely best future for us. China is becoming or has become the world’s manufacturer. We need to specialise in areas where we have a comparative advantage.

Tags: , , , ,

8 Responses to “Fran on F&P”

  1. Danyl Mclauchlan (1,066 comments) says:

    Chairman Gary Paykel has had plenty to say, largely behind scenes, about the difficulty of running internationally competitive manufacturing export businesses from countries that pay First World labour costs, are distant from the world’s major consumer markets . . . But despite his warnings and those of other manufacturers the Government did nothing major to offset the situation, despite labelling 2007 Export Year.

    Shame on Clark and Cullen for not having the political courage to relocate this country in the middle of the North Atlantic. If Roger Douglas gets into cabinet . . .

    [DPF: Most people know the difference between problems and solutions. The solution to being distant from markets is covered later on with a move towards a more weightless economy. I suppose when one has no solutions you say stuff such as we can't relocate the country to the North Atlantic, just as Annette King said she can't stop the full moon]

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  2. Frank (320 comments) says:

    Fran O’sullivan: “The New Zealand dollar has appreciated 27 per cent against the greenback in the past two years. Investors are sucked in by interest rates that dwarf those in other OECD countries as the Reserve Bank tries to squeeze out inflationary pressure”

    Sounds like an advert from one of the failing companies that have brought global economic hardship to the investors sucked in by high interest rates.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  3. Lee C (4,516 comments) says:

    What NZ needs right now is a break from the oh so cool retro ‘class-war’ adversarial stuff, and an approach from employers and unions to put the needs of working people, investors and NZ, at the fore of the discussion. Those who aadvocate this stupid tit-for-tat attitude are no different to the employers they accuse of selling people down the river. Time to grow up and face reality. This is not a rehearsal.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  4. Ryan Sproull (7,059 comments) says:

    What NZ needs right now is a break from the oh so cool retro ‘class-war’ adversarial stuff, and an approach from employers and unions to put the needs of working people, investors and NZ

    Lee, I hope you’re not implying that investors aren’t working people!

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  5. ghostwhowalks3 (387 comments) says:

    Pity you didn’t tear La O’Sullivan apart for her apostasy in saying…

    “in particular, are slammed by a crazy monetary policy which, in New Zealand’s case has had our dollar rubbing up at U.S. for far too long”

    Fancy not supporting inflation first second and last as the only target for the Reserve Bank monetary policy.

    I’m sure you meant to give a detailed riposte to her going down that slippery slope that the US Federal reserve has done in the last few months ( and closely followed by the Bank Of England) who now practice Wall St Socialism ( but losses only its wall St after all).

    You surely must have some principles which are inviolate , or does that only apply to Winston Peters.
    Go ahead use your blog to advance your hard right economic views and lash those slackers who will revert to Muldoonism .

    AS you do for Labour , but when its the new direction by Key all is quiet

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  6. mavxp (494 comments) says:

    While the idea of a “weightless economy”/ “knowledge economy” is a nice one, it requires more investment in R&D, and education of Maths and Sciences to higher levels than currently done by either government or NZ industry. They are hollow words. Industry doesn’t want to be responsible for the costs of training people, nor meet the cost of internationally competitive salaries. Also the likes of China will be rapidly moving towards supplying the knowledge it needs internally. They already pump out thousands of highly trained engineers from their universities. I predict they will be designing our infrastructure before long, as our companies gleefully try to increase their competitiveness and profits by using this expanding pool of cheaper talent, particularly in an industry where the cheapest tender wins 95% of the time!

    Both knowledge economy and manufacturing economy are not independent and need to work together to add more value and be more competitive if we are to maintain our first world standard of living. With the free trade agreement with China, and the ability of their skilled workforce to now work here, this is more crucial than ever.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  7. PhilBest (5,120 comments) says:

    Look, how did the idea of taxes on business profits EVER get accepted? Want to keep employers in NZ, just abolish this self-kneecapping tax.

    I distinguish here, between tax on profits DISTRIBUTED to shareholders as INCOME, and tax on profits BEFORE they are distributed OR REINVESTED IN BUSINESS GROWTH. A Tax on business growth is lunacy, and always was. It is a legacy of the weakness of democracy when the majority of voters are economic ignoramuses, and have been warped by spiteful and completely invalid notions about “business”.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  8. stephen (4,063 comments) says:

    Why tax business at all? I mean really, what is the justification? ALL governments do it, left right and whatever. And why do the “ignoramuses” think we need to tax business? Perhaps i’m an ignoramus for not knowing.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote

Leave a Reply

You must be logged in to post a comment.