An Increasing Role for Small Business in New Zealand

Abstract

Major liberalization during the early 1980s transformed New Zealand into one of the most open and deregulated economies in the world. Yet the country's lack of technology-based industries made it difficult for the nation to maintain its place among the leading group of Organization for Cooperation and Development (OECD) countries. There is a need to transform the economy again, away from its dependence on agricultural commodities and toward a greater reliance on modern, knowledge-based businesses. With many of the larger enterprises now owned and controlled from overseas, this transformation will require a major contribution from the country's small business sector. In May 2001, the government implemented a policy to encourage entrepreneurship, with a fund of $100 million--a substantial budget for a nation with a population of 3.8 million. New Zealand's business is small business, both in terms of numbers and ownership. The latest figures for 1999 confirm that 86 percent of its 259,000 businesses have five or fewer employees (Statistics New Zealand 2000). The government officially has redefined these as micro businesses (Statistics New Zealand 1999), and these firms account for approximately 27 percent of the employment in this country. These are New Zealand businesses in terms of ownership; in 1999, only 1.4 percent of these micro businesses had more than 50 percent foreign ownership, compared with 18.5 percent and 33.8 percent of businesses in the 50-99 and 100+ employee categories, respectively. The level of foreign ownership increases very markedly with business size, and the country's largest firms, many utilities, and major trading banks are controlled from overseas (Fox and Walker 1997). The high level of foreign ownership of the corporate sector means that billions of dollars are being remitted out of the country each year. Another consequence of this is that four-fifths of New Zealand's foreign debt is held by the corporate sector rather than by the government. The balance of payments is an ongoing concern, aggravated by the annual exodus of corporate profits to bolster foreign balance sheets. This places greater emphasis on merchandise trade--that is, the things that actually move across the ports of the country--and the role of the indigenous small business sector. If New Zealand is to pay its way in the world economy, locally owned firms--essentially small businesses--must improve their performance internationally either by exporting more or by replacing imports. The merchandise trade balance had an annual deficit from 1996 through 2000. The total deficit accumulated during this period exceeded $10 billion (New Zealand Ministry of Foreign Affairs and Trade 2000). It is, therefore, no surprise that the New Zealand dollar fell from 70 cents US in 1996 to under 40 cents in 2000. The wider concern is that this created a mindset in which many exporters began to rely on further erosion of the currency to boost their income from foreign sales. The deputy prime minister recently summarized New Zealand's international trade problem as follows (NZ Business 2001): * New Zealand is the lowest exporter of high-technology products in the OECD; * New Zealand imports five times as much high-technology production as it exports; * Only 8,500 out of a total of 259,000 firms in New Zealand are exporting; and * A mere 30 firms earn half of New Zealand's foreign exchange. This article discusses small business in New Zealand, focusing on the related issues of technological sophistication and export propensity. The authors conclude with an outline of current initiatives to improve technological sophistication and international competitiveness. Technological Sophistication The remoteness of New Zealand has contributed to an inventive and pioneering attitude toward problems. Sir Ernest Rutherford, the first person to split the atomic nucleus and thus to pave the way for that new technology, was a New Zealander. …