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Time for a new system to support NZ companies overseas?

Recently Trade Me founder Sam Morgan labelled research and development grants a “stupid” taxpayer subsidy for unprofitable companies.

Economic Development Minister Steven Joyce responded to the criticism, tweeting Morgan that the fund functioned as a 20 per cent tax rebate. He also stated that most grant recipients were profitable and the fund encouraged the growth of the hi-tech sector.

That got me thinking about taxpayer funding that is given to NZ exporters to assist their development in overseas markets. Could assistance be in the form of a tax rebate for exporting companies also?

I just think it might be a fairer system if the decision to enter a market and attract funding assistance was more in the hands of the actual company rather than having to jump hoops to pass selection criteria just to make it onto a list. While some export development funding comes through NZTE, the reality is that nearly every company wants funding and most are prepared to walk on eggshells to get it. There is a stampede of companies who would like assistance.

There are good initiatives to promote New Zealand in Latin America now, especially with tourism and education but our trade with Brazil over the years has done little to make the most of the many opportunities available. Aside from a few one offs here and there who have dared to engage with this part of the world, ever changing South American economies makes consistent trade difficult. However I think business could and should be further encouraged. As Albert Einstein said, the definition of insanity is doing the same thing over and over again and expecting different results, maybe there is a different way to support NZ companies developing into some of the emerging and less traditional markets. Perhaps we should look at supporting companies through encouraging more in market presence to spur companies export growth. Isn’t it about time we tried something different?

Essentially where South America is concerned I would say the following

1. South America is huge with many different countries, markets, industries.

We have relatively few knowledgeable people who know these markets well. It’s big and complicated, as language and cultural differences need to be addressed. For Government organisations to decide whether a certain company should be supported in a market like this is debatable. This is simply because while they may have an idea of these markets, they certainly don’t know everything. There are already plenty of companies doing their own thing in these markets, so why not introduce a system which offer NZ companies a rebate? A rebate may be the way to support all companies (under certain criteria).

2. We need more commercial representatives here.

While I firmly believe that organisations like NZTE and sometimes MFAT help with general market information and contacts, they are not commercial. This is because it is not their job to go and sell a NZ product on behalf of a NZ company. Yes they inform, but doing a deal is in the hands of the company. Too often companies come for a week in market and then never reappear for another year or more, viewing Government as their supposed eyes and ears and seller in market. Markets require constant presence from commercial representatives of companies to build knowledge of how things work, to build credibility, to build relationships, to watch over channels and to solve problems on the spot. Generally without a commercial presence here in Brazil, companies go nowhere.

3. Success can take years.

Assuming that opportunities exist even then these markets can take a very long time to break even in. Brazil for example might take 3 or 4 months just to set up a company! Just like many markets you’ll have ups and downs in getting your business model up and running.

4. It’s expensive.

Committing to have a person full time in the market will cost a lot. Taxes on salaries make costs balloon, having an office or a secretary costs more and if you have this then you’ll probably require a company too, which means more costs!

5. We need more New Zealanders working commercially here in Brazil (and other South American countries).

There is no critical mass of knowledge building to help the next generation of businesses into these countries. There is no doubt that Latin America is of great potential for the future, yet there is a dearth of New Zealand people resources here to help link our New Zealand companies. I believe that often companies are let down by locals or vice versa. Misunderstandings abound which often leads to locals moving on to other things. My point is I think it’s better that New Zealanders gain the experience here because they will always root for New Zealand and they probably will return back to New Zealand with knowledge they may pass on. I think after living in these countries they can provide a great bridge as they can understand the way both cultures work.

With current support given to companies I also think the wider context of where companies are at may not be seen. I help a company that has, over the last years, set up a distribution network across Latin America, they are with distributors across 6 good markets now. There are not so many kiwi companies who achieve that. Sales are trickling in and I believe they will build. But essentially their pricing globally has been affected due to the strong NZ$, as the dollar reduces then the sales will definitely build. Often assistance is looked at by “well your sales aren’t growing so no funding for you”, however other things have been set in place and particularly in the last year the NZ$ was very strong. Things are relative to the strengths (and weaknesses) of economies relative to ours. Our milk powder fuelled NZ economy has diminished, enabling other exporters generally a more competitive position to price their products more competitively now and achieve sales.

Another example of a company I know is one that has actually invested in Brazil buying into a company, There are extremely few companies from New Zealand who are bold enough to do this, their business plan is logical, but it’s a new company that will only concentrate on South America. So while new, the start-up has every chance, but you never know how things will end up. They have a business model and new approach that could really change how a very well-known industry of NZ might operate in Brazil. However little track record means that funding assistance is hard to come by.

So here’s some general ideas to encourage further trade and along with it, building up of skills and knowledge of these markets for the benefit of New Zealand.

I really believe that one of the most important factors to succeed is to have commercial presence on the ground over time, working with clients, partners, distributors, across states and potentially across countries. So I would investigate how that can be assisted. More companies with people working in market.

Find clusters of companies that are interested in developing into a market(s), possibly with related complementary products (but does not necessarily need to be so). Find people interested to work overseas, perhaps with market experience, business experience and language skills.

Enable a rebate for any company that supports a person to work under contract to work in an “emerging” market as a commercial representative. The company might need to show goals and then achievements to receive any rebate.

A company might utilize a person for one or perhaps two days a week under a contract (possibly salary and commission), this reduces company costs enabling them to maintain their presence in market but over a longer term. The person can begin to work with a number of companies according to work days required.

Now there’s a bit of organisation in that and a bit more understanding of legal requirements etc. of whether that could work plus it may need some coordination to link people and businesses. However that’s essentially what I do in the market and I believe it has been a very successful model for me and the companies I have worked with. My hunch is it would be a good step to help foster New Zealand trade in this part of the world.

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