COVER STORY : No Pain No Gain – Manufacturing faces a new future

St Jude must be licking his lips. The patron saint of lost causes should be packing in the overtime as local manufacturers strive to survive in an environment increasingly dominated by low-cost economies such as China and India.
That’s today’s popular mythology. Discussion of the future of New Zealand manufacturing attracts snide comments: our manufacturers have no future, some believe. Everything will be made in China.
Not so, says an increasingly vocal and active group of manufacturers, union representatives and business organisations. Their plans for the future may hurt, they say. But they’ll work.

If many business observers were to pay St Jude, “the miraculous saint of cases despaired of”, by the hour he’d be rich man. New Zealand manufacturing, according to them, is sunset industry. steady stream of media reports on companies shifting all or parts of their manufacturing overseas doesn’t help. When Fisher & Paykel Appliances announced late last year its plan to shift production of its SmartLoad dryers from Auckland to Ohio in the United States, it joined other organisations such as Macpac, Formway Furniture, Sunbeam, Interlock, Electrolux, Icebreaker, Moontide, Fairydown and Bendon that have plumped for similar course.
Yet growing number of folk now publicly back Phil O’Reilly, chief executive of Business New Zealand, when he rebuffs the notion that New Zealand manufacturing is dying and calls for “conversation transplant” on the future of manufacturing.
O’Reilly admits manufacturing must stare down some serious challenges. “But to suggest that it is some sort of sunset industry is factually and objectively wrong.”
He rattles off list of manufacturing pluses: “Think,” he says, “about Comalco and its contribution to the Southland economy. Think about Kinleith and its contribution to the economy of the mid-north island. Think about New Zealand Steel and its contribution to south Auckland. And no matter what it’s doing offshore, think about Fisher & Paykel’s contribution to the Auckland community.”
Simple as it sounds, big part of the issue may be that manufacturing is not seen as sexy – fact that David Penny, sector director specialised manufacturing for New Zealand Trade & Enterprise, attributes to people’s outdated 1950s perception of manufacturing. Very few folk, he says – and particularly those in the education sector – have an intimate working knowledge of the advances and new technologies that have taken place since then.
Bruce Goldsworthy, the Employers and Manufacturers Association’s manager of manufacturing services, paints picture of dirty-floored factories belching smoke. That’s the image that most Kiwis carry in their heads, he says: never mind that it’s quite at odds with the realities of today’s far more high-tech and environmentally friendly manufacturing plants.
Laurie Margrain, CEO of long-established furniture manufacturer Criterion Group, agrees that trade skills are sometimes seen as “yesterday’s careers”. Manufacturing is not seen as glamorous and glitzy, he says, “but vast tracts of the New Zealand population won’t work in the knowledge economy”. (Also see box story “Time for new toolkit” on page 33).
Like Margrain, David Penny’s concerns track back long way. Originally trained as an electronics engineer and with an extensive career as senior manager in manufacturing, he’s watched the sector slowly fade into the background as others have gained prominence in the minds of politicians and the public.
Manufacturing now carries the status of dowdy cousin at the flash weddings of its richer relatives from other sectors of the economy. Tourism, the wider area of services, information and communications technology, and the creative sector get the limo and better class of sandwich. Buoyed by recent years of strong economic growth, there’s “almost belief”, one commentator mutters darkly, “that New Zealand doesn’t have to be manufacturer at all”. China, India – or any other burgeoning low-cost producer for that matter – can do it for us.
Combined Trade Unions economist Peter Conway worries that not enough bureaucratic or creative muscle is being flexed for our manufacturing sector. Tellingly, we lack, for example, Ministry of Manufacturing. The current piecemeal approach spreads thinking and action across layers of organisations: NZTE, the Ministry of Economic Development, and an overlapping network of other ministries. “It means that we don’t have people specifically in bureaucracy who get up each day and go to work focused on getting the policies absolutely right for the sector.”
Nigel Bamford, managing director of fast-growing Dunedin-based gas-fire manufacturer Escea, sees benefit in any initiative that will help focus on the value and importance of the manufacturing sector in our present and future economy. Manufacturing, he points out, has been around in this country as long as sheep. “People take it for granted but unless we act smartly – as we have in some agricultural sectors, for example – there’s chance that it will continue to decline.”
Penny warns of living in fool’s economy in which our current seeds of wealth could prove illusionary. While it’s “nice” to think that tourism will pick up the tab should other areas of business falter, he says, we’ve seen what happened to tourism around SARS. “Tourism is fickle. It’s fashionable.”
Besides, Penny recalls recent visit to Italy where the queue to get into museum in Florence stretched for four hours. This was no isolated incident, he stresses. “Every high-profile area that I wanted to see in the city meant waiting at least three or four hours.”
He flagged the idea of seeing Michelangelo’s famous Statue of David at the Accademia Gallery. Lingering outside for six hours proved too much. In the end, he settled for admiring the exteriors of number of the larger churches. Queues to see the insides snaked round several blocks.
“Do we want to be invaded by major upsurge of tourists to the point where we can’t get near our own facilities to enjoy them? Is that what living in New Zealand should be like?
“I don’t think anybody’s stopped and made calculation about what you have to increase the service industries to be to replace manufacturing – and what impact that would have on the environment and other things. Frankly, service industry jobs are not, generally, highly paid. And do we want to be in that low-income bracket? It doesn’t support our whole idea of the knowledge economy.”
Bamford, proud advocate of the current push towards the creative economy, also sees the sense in spreading our economic options. “At the end of the day there are not sufficient gains to the country by having focus only on the creative sector,” he says. “We need to think about who is actually going to make these designs and how we can transform them into money, profits and added value with tax paid in this country. The only way to do that is to make some of these products in New Zealand.
“Not everyone can be designer, musician, writer or moviemaker. We need to build both ends of our economy.”
Despite its bad press, manufacturing still rakes in some 15 percent of our GDP (around $5 billion year), directly affects over 20 percent of our workforce (double that if you include those affected by contracting) and represents the income of around half million New Zealand families.
The importance of manufacturing to the New Zealand economy can hardly be over-emphasised, O’Reilly claimed in his organisation’s publication Manufacturing Perspectives last year. “Earning export revenue, creating demand for local materials and components, creating jobs, fostering technical and management skills, helping the service sector to grow… all are the work of the New Zealand manufacturing sector.”
Admittedly, says Business New Zealand, today’s sector is mini-me version of its former self before the reforms of the 1980s. In 1986 about 340,000 people were engaged in manufacturing. Put that closer to

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