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By Caroline Ritchie, Owner of Investment Stuff
Nations become better off when they buy and sell from each other. The World Bank says countries should “import what the rest of the world knows, and export what it wants”.
Globalisation brings New Zealand exciting markets, fresh ideas and an injection of finance, often from the other side of the planet. In turn, the world is discovering the value of products from New Zealand’s clean, unspoiled environment. It’s a win-win.
How globalisation began
Kiwi businesses have been part of this interconnectedness for a long time. Our country’s growth has always been dependent on staying in touch and competitive.
Against the odds, New Zealand’s pioneering businesspeople did a good job. The country is well known for successfully exporting products over long distances, from our first early wool shipments to, more recently, our butter and meat exports.
A reputation for quality and purity has resonated with customers in an overly processed universe. Jet travel and refrigeration have given New Zealanders a giant audience for our agricultural products and goods.
As more countries have developed and joined the worldwide business community, flows of money and other resources have increased, improving productivity and creating competition. This has increased demand for higher-value goods and services, and has raised living standards in the developed world.
Colonial relationships were a big part of New Zealand’s early exporting efforts. Now the challenge is to find new customers, boost our exports and find new ways to connect with the world.
The changing face of globalisation
Over the past 20 years, electronic communication has made it easier for us to interact with the world.
Now the internet has fostered a new breed of entrepreneurs. They are able to stand out among competitors around the world as websites create more business opportunities for Kiwis than ever before (see Success Stories, page 35).
Challenges for Kiwis going global
With global opportunities also come challenges.
- Delivering our goods to the rest of the planet can be problematic. New Zealand is miles from anywhere. Because we’re small, it’s difficult for us to have a material impact within our trading markets. Sometimes we have to take the price we’re offered, rather than the one we’d like to ask. The volatility of the New Zealand dollar can make it even trickier. Big companies use currency hedging, which is taking steps to protect yourself against currency swings. It is not widely used by small businesses, so they tend to wait and see how much money will end up as profit.
· Taxes and tariffs
- Once Kiwi products have reached overseas markets, sometimes foreign consumers may have to pay taxes on them. This makes these imported goods too expensive for locals. Tariffs are another barrier to New Zealand’s products reaching foreign communities. Currently, tariffs for New Zealand’s exports as a whole are high, at 27 per cent. If all trade tariffs were lifted, our exports of agriculture and food would increase dramatically, by 72 per cent.*
The way of the future
As globalisation gathers momentum, we see increased specialisation into niche markets and more trades in ‘services’, rather than in ‘goods’.
Many services can be operated cross-border and require only a telephone and an internet connection. Call centres are an obvious example, and software is another.
The exciting potential for Kiwi businesses is that services like these solve our distance problem, and mostly get around tariffs, keeping us competitive. Great business ideas, well executed and using the best technology, are extremely profitable.
And lots of good things are happening. Jobs are being created, global connections are being strengthened, and we are attracting the attention of international thinkers and investors. This results in additional hundreds of millions of dollars pumping through the economy.
Not everyone agrees we’re better off with globalisation, and there are downsides to it, including the human cost of exporting tech to other countries.
The highly skilled can command big premiums for their work, while ‘old’ jobs suffer. Not everyone can be a programmer or an engineer.
Tasks further down the chain become automated. This puts more pressure on those in the workforce who have not adapted or been fast enough to upskill in new technology.
As technology plays an ever-greater role, will it continue to increase inequality in this way? The race to sell our clever ideas might leave some parts of society missing out. Cities such as San Francisco, where there is a technology boom, are starting to face real inequality problems.
The tech boom continues apace, but skills and income gaps grow as a result. Getting the socio-economic balance right will be another central issue for New Zealand.
As fibreoptics and science pull people ‘virtually’ closer to one another, the opportunities are phenomenal. We might not shift from ‘old’ to ‘new’ industries, but tech-based businesses may mushroom in size alongside industries that traditionally formed the backbone of the economy.
But the considerable financial challenges in selling New Zealand expertise to the world might well be exceeded by the human cost to Kiwis, as a side-effect of New Zealand’s success overseas.
Globalisation is not the kind of toy that you can simply put back in the box. Instead, we should embrace the opportunities it brings to New Zealanders. Whether you like it or not, globalisation is here to stay and it’s unlikely that we are going to reverse course.
* New Zealand Treasury Productivity Paper, April 2009
‘27 per cent’ World Bank (2008)
‘72 per cent’ Anderson (2009)
Caroline Ritchie is a former Authorised Financial Adviser (AFA), and a share broker and investment manager. She runs Investment Stuff, an investment-coaching service, specialising in the share market. Read more about coaching from Caroline at www.investmentstuff.co.nz. This article is not personalised financial advice.