To most New Zealanders, Professor Michael Enright is one of the trio behind the groundbreaking 1991 report ‘Upgrading New Zealand’s Competitive Advantage’. The report unleashed wave of new thinking around how New Zealand could lift its game by cross-pollinating ideas and actions across industry groupings.
Now heading his own firm Enright, Scott & Associates based in both Hong Kong and Singapore, he’s back in New Zealand. He’s working with sponsor group that includes New Zealand Trade & Enterprise, the Ministry of Economic Development, Ministry of Science and Innovation, Department of Labour, Economic Development Agencies New Zealand (EDANZ), and Auckland Tourism, Events and Economic Development (ATEED).
Why are you here?
I’m looking at New Zealand’s competitiveness today and where it might go in the future. This project unpacks the various international sources on competitiveness.
There’s tendency for countries to focus on the aggregate indices from limited number of sources such as World Economic Forum or IMD competitiveness reports. So I’m taking apart data from about 12 to 15 different major sources to delve into different aspects of competitiveness.
These include reports on economic freedom by The Heritage Foundation and the Fraser Institute, World Bank indices on the knowledge economy, Transparency International’s reports on corruption, and studies from other sources on corporate governance and city competitiveness.
The key thing is that the single aggregated indices that these groups come up with are all interesting but, by their nature, they have to be one-size-fits-all.
That means sometimes the measurement scheme isn’t really appropriate for individual economies that have their own idiosyncrasies.
How can New Zealand use that information?
All these indices are made up of many components. In my view, these are more useful than the aggregates. We’ll line up what New Zealand does, and doesn’t do, well.
The interesting ones are where New Zealand doesn’t score as well as it should. It’s also interesting to focus on areas where New Zealand needs to score well in order to compete globally and where there’s potential to do something about that.
New Zealand doesn’t score particularly well in terms of its infrastructure, for example. In itself, that’s an interesting piece of information. But couple that with the notion of small economy far away from major markets, and you see that you can’t afford not to have infrastructure that’s absolutely world class.
Anything that creates additional friction between New Zealand companies and individuals interacting with the rest of the world is concern to me.
The idea is to identify all of the things out there that are potential influencers and then start to piece together the story about what they mean for New Zealand’s economy.
Twenty years on, what’s new or different about businesses clustering together to innovate?
The reality of clustering hasn’t changed. But the way people think about it has. Historically, people used to think of clusters as vertically integrated production chains. People now understand that you can even have clusters of individual activities within production chain.
These days you’ll see companies doing their advanced R&D in Silicon Valley, and their process engineering in Singapore and Taiwan. They can be doing part of their software development in the US and another part in India. They can have their call centre in The Philippines and their manufacturing in the Chinese Mainland.
International companies are now slicing up their activities into smaller and smaller bits and placing each bit in its optimum location. This is being facilitated by modern communication technologies and management systems.
Do companies still need to be physically close to each other in an increasingly wired world?
Do you mean: if distance is dead, is location dead? The answer to that turns out to be resounding ‘no’. Activities are not dispersed evenly over space.
Why do we have over 300,000 people in Bangalore – and 160,000 people in Dalian, China – engaged in the IT sector?
These things should be dispersed to the four winds but they’re not because skills, capabilities, organisation and management are involved. There is critical mass in terms of generating the infrastructure, attracting the people and having competition among firms.
The wired world is two-edged sword. Industries tend to disperse if they are not too scale-sensitive and where the knowledge that’s required can be readily codified.
But exactly the same mechanisms that allow those industries to disperse, result in other industries where the creative process is critical. Those are the industries that tend to centralise. Both Hollywood and Wall Street are much more dominant now than they were 20 years ago.
You’ve said stories of failure can bind cluster together. How does that work?
In industries where innovation, research and development are critical, there are many reasons why geographic co-location is an advantage. These places tend to be repository of expertise. There tends to be more common understanding of what the problems are. If you have multiple companies, you have multiple different approaches going on. And you have local rivalries involved.
But one of the key reasons, in my view, why research-intensive industries tend to cluster is what I call the value of negative information.
If company is successful in an innovation or research project, sooner or later the rest of the world finds out. But when projects are failures, very rarely does that information get out.
Where there’s lot of informal communication, people learn about the failures. That’s the value of being in local community. Anyone working in an R&D-type operation knows full well that 80 percent of the time is spent on dead ends. And if one can limit the number of dead ends it hugely increases the efficiency of investment in innovative activities.
This is one of the untold stories of clustering. People inside the cluster know about other people’s failures. People outside the cluster don’t.
How worried should we be about many New Zealand managers’ relative lack of international experience?
It’s significant concern. There’s dichotomy. subset of the New Zealand population is out there: either they’ve left the country or they’re based here but they have travelled widely and know what’s going on.
But the bulk of the business community is not so widely travelled and New Zealand is not in the centre of the mainstream information flows for much of the world’s economy.
As result, there are some lost opportunities. International markets, how to segment them and the speed with which some of them move, are not well understood here.
An understanding of international competitors and how they’re moving in third markets is perhaps lacking.
We see some collaboration in New Zealand. But because that way of thinking is not as advanced here as it is elsewhere, there doesn’t seem to be as much of tendency to coordinate with other companies to go out and get information.
Should we be setting up companies as potential international players right from the get-go?
In any country, most firms never go beyond their national borders. But in other small countries we tend to see much greater tendency to go out.
We need to think about the extent to which New Zealand companies can tap into the advent of modern communication technology and globalisation which allow companies from anywhere to potentially harness global resources.
Companies from the rest of the world are doing so. I’ve worked with companies that start up in California and never intend to have more than 20 employees there.
From the start, they’re thinking not only about domestic or international market, but they’re also thinking about doing their production in China, and having their back office in India and their call centre in The
