EXPORT MANAGEMENT Export Stresses – And strategies to cope with them

South Island-based Solid Energy, winner of this year’s New Zealand Trade & Enterprise Supreme Exporter Award in July, seemingly epitomises the attitude our exporters need to lift their game in offshore markets.
This “innovative and sustainable company… understands the need to add value to survive in the primary production sector”, said the Award judges. Solid Energy was, they added, selling added value and not simply “a lump of coal”.
Its added-value ethic led Solid Energy to optimise the company’s coal resources by developing products for specific high-value markets to meet its customers’ precise product specifications. In doing so the business generated record $180 million in foreign exchange and net profit of $56 million in 2003. Not bad for state-owned enterprise that was broke few years back.
But, sadly, Solid Energy is one of the alarmingly small percentage of New Zealand companies that make the effort to export.
Rod MacKenzie, group general manager at New Zealand Trade & Enterprise, says that while traditionally New Zealand has seen itself as trading nation, just 157 companies produce the bulk of the country’s export income.
Another 2500 companies earn about 20 percent of our export earnings and, while another 10,000 or so say they export, they represent small beer indeed.
This reality highlights the fragility of our exporting base, according to MacKenzie.
It also highlights the need for boards and CEOs to address the bigger picture of building New Zealand’s trading base and enhancing their own enterprise’s profitability and sustainability.
The volatility of the dollar and the battle to find skilled staff occupy the minds of many exporters. But so do challenges like the high cost of establishing market presence offshore, the escalation of regulation and disclosure brought about by the ongoing threat of terrorism and, importantly, the emergence of China on the world trade stage. China’s burgeoning economy could dramatically change the way global trade is undertaken.
MacKenzie believes New Zealand, along with many other countries, has so far failed to appreciate the full import China’s world trade plans and ambitions will have on the international landscape.
He points, for example, to the arrival of Chinese branded goods into the US whiteware market with the country’s largest retail chain, Wal-Mart, now selling the Haier brand products. The move is, he says, changing the whole dynamic of the US whiteware market. “New Zealand must look at how competitive we’ll be with the things we are trying to market when the Chinese will do it faster and better. And while cheaper, these goods are not of inferior quality.
“We need to think laterally about making money internationally and retaining ownership of our intellectual property. That really is the key. We must know how to protect ourselves.”
Export New Zealand CEO Bob Walters thinks New Zealand exporters are facing increasing global competition from both China and India. “It is forcing New Zealand to be more innovation. More companies are spending more on research and development and on design.”
There has, says Walters, always been competition from China. But China is now using state-of-the-art technology to produce high-quality products at low cost.
He suggests New Zealand companies work to establish strategic alliances with companies in China and seek “niches within niches”.
“Companies should find out where their advantages lie. It could well be in high-quality, short-run items,” says Walters. Wherever the markets and the advantages lie, New Zealand needs to both clearly identify and focus on them.
New Zealand is first in line to negotiate free trade agreement with China but, says MacKenzie, that is still some way off. And while FTAs can be successful, success invariably depends on how the exporting companies develop the market.
New Zealand companies should develop more international perspective on business, says MacKenzie. “We are very insular in our business thinking and individuals who come out of the business schools often have strong domestic focus.”
Our companies should also be more expansive in the way they consider how to export, he adds. Traditionally New Zealand has produced something, put it on ship and waved it off. “But how viable is that going to be? We need to think harder about licensing our IP and using resources in other countries to build our business.”
Manufacturing offshore while holding the IP in New Zealand can be profitable and New Zealand managers should be realistic, particularly in the manufacturing sector, about how competitive they are against other countries. “It’s easy to say, but you need to carry your product as far through the value chain as you can get it,” says MacKenzie.
He is, nevertheless, optimistic about New Zealand’s exporting status partly because we have no choice and must improve our exporting performance to survive.
“Because we have no choice we must find more creative ways of doing things. We need to start thinking about profitable international business in whatever form it takes.”
The importance of bigger picture issues notwithstanding, most exporters are currently focused on the impact our strong dollar is having on their export endeavours and the everyday difficulties of finding and attracting skilled employees.
The inaugural DHL Export Barometer released in May surveyed around 300 exporting companies and found exporters feeling confident. The survey identified the exchange rate as the factor with the most potential to negatively impact sales performance, but only 27 percent of exporters thought the exchange rate would affect their output and only 28 percent of them thought their future investment and business plans would be adversely affected.
The survey, developed in conjunction with New Zealand Trade & Enterprise, also found that almost 30 percent of New Zealand exporters hedge to manage currency fluctuation risks. Hedging is more prevalent in larger companies, established exporters and industries with less flexible margins, such as manufacturing and agriculture.
Currency volatility, rather than dollar strength or weakness is the critical issue, according to MacKenzie. “Within reason most companies can cope with either strength or weakness. It is the huge movement [in recent times] that puts exporters into quandary.”
Bob Walters agrees that currency volatility is the number-one issue for exporters. Uncertainty makes doing business very complicated.
How companies manage volatility depends on the type of business but, says Walters, hedging and forward contracts get less media coverage now than they did five or 10 years ago. Exporters are, in part, better educated about their exposure and the banks and financial institutions now have better mechanisms to help exporters.
Solid Energy’s chief operating officer Barry Bragg says the volatility issue relates to customer demand not dollars. The demand and supply cycles are, it seems, getting shorter and more extreme. “We spend lot of time trying to create flexibility in our systems and with our markets so we can react quickly when demand changes,” he explains.
The cycle has shortened in the past five years, trend Bragg tracks to China’s back door. China is currently consuming much of its own coal. year ago it was releasing coal into the world market.
Finding the right people with the right international experience is another tough nut for exporters to crack according to MacKenzie. “People with international experience are attracted by higher salaries. The issue of language also comes into play especially as New Zealand moves into more non-English speaking markets,” he adds.
“Finding people who understand the need to change the way they do business to fit into other cultures is hard… they need to understand how business is conducted in that country.”
In some countries reaching an agreement with buyer is just the first step on sometimes protracted and hazardous jour

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