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Brief presentation on the New Zealand Marine Industry
Citation preview
Adam Ireland
Ani Satchcroft
Ben Mayson (NZ)
Malte Janzarik
NEW ZEALANDlsquoS MARINE CLUSTER
May 8 2009
Contents
New Zealand
Marine Cluster
China
NZhellip a small isolated island where sheep outnumber people
(Fun) FactshellipLocatedhellip nowhere
Population
bull Human 42m
bull Sheep 401m
Prosperity
bull Think S Korea or Israel
bull GDP per capita $29220
Economic Drivers
bull Dairy Meat Forestry Fishing
National lsquoiconsrsquo
Auckland (pop 13m)
Wellington (capital pop 400k)
Christchurch (pop 400k)
Australia
Distance (by air) from
bull Sydney ndash 3 hrs
bull Singapore ndash 10 hrs
bull Los Angeles ndash 13 hrs
bull London ndash 23 hrs
Moderate historical prosperity growth driven by increases in workforce participation and employment
Source OECD EIU
Real GDP ( chg)
Participation Rate ()
Population Growth ()
Labour Productivity ( chg)
Real GDP pc ( chg)
Employment Growth ()
Unemployment Rate ()
Employment gains are positive however little progress has been made on the more important driver of economic progress labour productivity
Economic Performance Drivers of Real GDP per capita
-4-20246
1986 1992 1998 2004
-202468
1986 1992 1998 2004
0
1
2
3
1986 1992 1998 2004
-4
-2
0
2
4
1986 1992 1998 2004
-2
0
2
4
1986 1992 1998 2004
6264666870
1986 1992 1998 2004
02468
1012
1986 1992 1998 2004
x-
-
Average pa growthbull lsquo86-96 10bull lsquo97-07 21
UKAustralia
Canada
GermanyFranceJapan
GreeceNZKorea
MexicoPolandTurkey
USIreland
Norway
0
10
20
30
40
50
60
10 30 50 70 90
Labour productivity low by international standards
Source OECD
hellipWith No Sign NZ Is Closing The Gap
-20
-10
00
10
20
30
40
1983 1987 1991 1995 1999 2003 2007
Period 83-87 88-92 93-97 98-02 03-07
Average 12 18 11 18 10
Cha
nge
in la
bour
pro
duct
ivity
( p
a)
Average (83-07)
NZ
G7Australia
NZ is lagging its OECD peers in terms of prosperity due its low labour productivity
GDP per hour worked (US$hour)
GD
P pe
r cap
ita
(US$
rsquo000
PPP
)
OECD average ($32664)
$4030hour
Low Labour Productivityhellip
Labour Productivity vs GDP per capita (PPP) 2007
Labour Productivity Growth 1983-2007
NZ has a number of unique and valuable endowmentshellip isolation coupled with a tiny population are the major negatives
New Zealand National Endowments
x
bull lsquoClean and greenrsquo image (perception and reality)
bull Good climate for agriculture
bull Southern Hemisphere location provides off-season growing opportunities in serving Northern Hemisphere markets
bull High rainfall and Southern Alps snowmelt provide good conditions for inexpensive Hydro-power (70 of electricity supply)
bull Large ocean territory 7th largest exclusive economic zone (EEZ) in the world
bull Huge distance to markets particularly the most attractive (Europe US)
bull Tiny population low density
bull Unlike Australia for example NZ has few significant natural resource deposits (minerals oil etc)
Favorablehellip Not so Favorablehellip
Note Marine specific endowments addressed elsewhere
A mixed macroeconomic report card
Source OECD EIU
Macroeconomic Performance Overview
0
5
10
15
1983 1987 1991 1995 1999 2003 2007
Low inflation since mid 1980s
CPI ( change pa)
05
10152025
1987 1991 1995 1999 2003 2007
Long-Term Bond Yield () x
-15
-10
-5
01983 1987 1991 1995 1999 2003 2007
Current Account ( of GDP) x
10
15
20
25
1983 1988 1993 1998 2003 2008
Exchange rate (NZDUSD mthly avg) x
0
2
4
6
8
1983 1987 1991 1995 1999 2003 2007
FDI ( of GDP) x
20
30
40
1983 1987 1991 1995 1999 2003 2007
ExportsImports
Internationalisation of economy
Imports and Exports ( GDP)
Decreasing over time
High versus OECD peers Volatile Currency
Persistent current account deficits
Strong business-friendly national institutionsInternationally Ranked(1)
(1) Heritage Foundation 2009 Index of Economic Freedom this is another source in addition to the GCR which tells a similar story (highlights can be found in the backup section of the presentation)
Stable Politics
bull Multi-party moderate
Robust Anti-Trust
bull Com Commission
Independent Central Bank
bull Pure Inflation mandate
Universities
bull 5 universities in top 500 (global)
Labour Policy
bull Weak unions good flexibility
Non-distortive Export Support
bull NZTE
Sensible Trade
bull Low Tariffs (27)
bull FTA China Singapore Thailand Chile Australia ASEAN (coming)
Health Care
bull Cost-effective
bull Ban on litigation for personal injury
Efficient Legal System
Free Capital Flows
Institutional Highlights
bull High Taxes Big Govt
bull 30 corporate 39 top income bracket
bull Govt 40 of GDP
bull Underdevelopedshallow capital markets
bull Prevalence of SOEs
bull Restrictions on Foreign Capital (land telco airline)
Weak Spots()
Low Corruption
bull Ranked 1
High quality human capital but not enough of it
Strong HDIhellipPartial Offset
From Immigration
of College Educated Population Living OSeas
(Select Countries Rank)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 NZ
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
bull NZ is 19th in the world in human development
bull Citizens enjoy long healthy lives excellent education access and high standards of living
But People Leavehellip
bull 87000 permanent migrants in 2007
bull 10100 in net migrationbull 24 on work
permits
bull Government Policybull Focus on certain
categories - skilled Migrant Policy and Active Investor Migrant category
bull Source countriesbull UK (26)bull China (12)bull India (9) bull South Africa (8)
Source Human Development Index (UNDP) OECD
Human capital is a strength although retention seems to be an issue
Poor prosperity given relatively strong competitiveness metrics
Overall GCI vs GDP pc
GDP pc log scale
High GCI
GCI Ranking
Low GCI
Macro (MP) vs hellip
Institutions (SIPI) vs hellip Micro (MICRO) vs hellip
NZrsquos prosperity lags peers with comparable GCIs Is NZrsquos microeconomic environment the reason for this disparity
GDP pc log scale
High SIPILow SIPI High MICROLow MICRO
High MPLow MP
GDP pc log scale
GDP pc log scale
NZ
NZ
NZ
NZ
Note GCI = (Overall) Global Competitiveness Index SIPI = Social and Political Infrastructure MP = Competitiveness of Macroeconomic Policy MICRO = Microeconomic competitiveness Source Institute for Strategy and Competitiveness
Estonia
Ireland
US
S Korea
US
US
US
Estonia
NZrsquos national diamond characterised by extremeshellip some areas world-class while others are morehellip emerging economy
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
New Zealand National Diamond
+ Low trade barriers+ Flexible labour policies+ Strong antitrust + Good investor protection
- Lack of rivalryintensity- ldquoKiwirdquo lifestyle = leisure-focused- Job securitysafety net valued- Low foreign ownership and international tech transfer
+ Brand NZ clean and green+ Low levels of bureaucracy+ Strong primsec education + Easy to start a business
- Brain drain - Low foreign language skills- Lack of scientistsengineers- Weak RampDinnovation- Infra gaps (roads rail telco)- Weak capital markets
+ Awareness of the need for cluster development+ Efforts to push cluster policy to a regional level
- Weak clusters- Few specialized input suppliers high reliance on imported inputs
+ National passions have driven key international successes eg sport
- Historic trade relationship with UK led to a focus on primary products- Demand seldom drives innovation or anticipates trends- Govt procurement not advanced
x
x
x
x
Relatively undiversified economyhellip dominated by agriculture
-05 -03 -01 01 03
NZ Exports Portfolio By Cluster 1997-2007
Share Of World Exports 2007 ()
Change in Nationrsquos Share Of Exports ( 1997-2007)
Processed Food (Dairy)
Agri Product (Meat)
Tourism
Fishing
FurnitureForestry
Two of NZrsquos key clusters dairy and tourism are doing well however majority of other clusters are losing ground
Marine(1)
(1) Relative position of the marine cluster estimated based on data we have collected and interviews conducted the International Cluster Analysis definition includes commercial shipbuilding which distorts the true position of NZrsquos marine cluster which focuses on boats for private use
Communications
25
20
15
05
Four main recommendations to address NZrsquos key challengesIssues Being Addressed More Detail On Actions
Alleviate Factor
Bottlenecks
Mitigate Distance
Encourage Investment
Institute a New Cluster Programme
Recommendations
1
2
3
4
bull Lack of successful clustersbull Lack of strategy at a cluster levelbull Lack of collaborationbull Lack of effective cluster policy
bull Low labour productivitybull Lack of capital intensitybull Lack of investment (domesticFDI)bull Low savings rates
bull Barriers to lsquoeasyrsquo tradebull Inefficiencies at NZrsquos portsbull Inability of NZ firms to
internationalize
bull Weak infrastructure electricity roads rail telco
bull Human capital gaps
bull Infrastructure spendbull Skilled immigration bull Graduate retentionbull Tertiary education reform
bull New cluster policybull More $$ more focusedbull Private sector drivenbull Collaborative Decentralized
bull Kiwisaver compulsorybull Tax reform propertybull FDI policy reform
bull Privatize all portsbull Streamline customsbull Open skiesbull Focused help from NZTE
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
Contents
New Zealand
Marine Cluster
NZrsquos marine cluster generates NZ$19B(1) in sales annuallyhellip
Major Segments In The Cluster Recent Cluster Performance
2003 2005 2006 2008
Superyachts
Total Sales (NZ$m)
Imports ()
Exports ()
Size total sales (NZ$m)
ImpExp ( of Sales)
Superyachts Racing Yachts
Trailer BoatsLaunches
InflatablesRHIBs
RefitMaintenance Other Services
Equipment
(1) Segmentation and data as per the New Zealand Marine Industry Association NZ$19B equivalent to US$11B at current exchange rate of 0567US$ per NZ$
bull Sails masts winches electronics interiorshellip
bull Sail
bull For competition
bull gt25m
bull Sail or Motor
bull 8-25m
bull Sail or Motor
bull 3-8m
bull Motor
bull Inflatable
bull Motor
bull Repair facilities
bull Fuel marinas insurance charters retailinghellip
Equipment
SuperyachtsLaunches
Inflatables
Other
Trailer Boats
Racing
Refit
CAGR (03-08)
6
417
2
15
(3)
5
101366
1548 16411905
Racing Yachts
LaunchesRefit
Inflatables
Trailer BoatsOther
50
50
Equipment
Most internationally competitive segments
100
7Total
75 of marine activity is located in Auckland or nearby regions
NZ Marine Industry Activity
West Park Marina (3 in Auckland)
Gulf Harbour Marina (2 in Auckland)
Hobsonville
Westhaven Marina (1 in Auckland)Alloy
Yachts
Wynyard Point
Evidence of other Marine ActivitySuperYacht Mfg Marinas
Auckland Cluster (examples)
(1) Remaining 8 of activity not marked occurs across a variety of smaller regions
Source New Zealand Marine Industry Survey 2005 Googlemaps
Christchurch
Wellington
Bay of Plenty
Northland
Auckland
9
6
4
5Waikato
4
58
x of NZ Marine Industry Activity (2005)(1) Evidence of agglomeration even within parts of Auckland
3Taranaki
3 Otago
Long-term outlook looks goodhellip although current economic conditions obviously taking a toll (lsquo09 forecast to be down 50)
bull US and Europe are largest end-markets (an estimated 90 of end-market demand) US market more penetrated and lower growth
bull Market is fragmented largest player (Brunswick US) has 14 global share in boat building
bull Bifurcated market cost price increasingly important for lowermid segment (increased standardization) but less so for higher end (custom yachts)
Global Market Size and Growth Global Market Key Features
bull The global pleasure craft market = US$18B
bull Growth of around 5 per annum on a value basis between 1997 and 2007
ndash Superyachts fastest growing
bull Volume growth has been steady since 1970 with some cyclicality Real value growth driven by increasing average boat size
The cluster competes in a global market that has recorded solid growthhellip strongest gains at the top-end
ItalyFerretti 7Azimt Benetti 6Cantiere 1Aicon 1FIPA lt1Perini Navi lt1
FranceBeneteau 6Rodriguez 3Couach lt1Dufour lt1
UKSunseeker 3Princess 2Fairline 2
GermanyBavaria 2Hanse 1Luerssen lt1
DenmarkDanish Yacht lt1
SwedenHallberg Rassy lt1
SloveniaElan Marine lt1
CroatiaElan lt1Lagoon lt1
New ZealandAlloy Yachts lt1Cookson lt1Fitzroy Yachts lt1Yachting Dev lt1
AustraliaAzzura Yachts lt1Seawind lt1Jarkan lt1
ChinaHolland Custom Yachts lt1
TaiwanHorizon Yacht lt1
TurkeyAegean lt1
NetherlandsRoyal Huisman lt1Feadship lt1
USBrunswick 14Genmar 5Catalina 1Hunter 1
NZ is very much a niche player on the global stage
Global Recreational Boat Building Firms ndashmarket shares
Largest firms located in Italy France and US
Source ODDO Equity Research June 2008 MoC team estimates
Superyacht Market Data
(1) Of orders made in top 10 manufacturing countries Note of the 916 superyachts ordered in 2008 60 were sailing yachts
Source Showboats International
bull Superyacht orders have grown each year for last 10 years ndash although for 2009 global order intake down about 50
bull Largest categories (61m+) have seen the rapid growth (gtUS$1m per meter to build)
bull Italy dominates the sectorbull Growing share for Taiwan Turkey China
bull NZ is 10th largest superyacht builder bull 3 in sailing superyachts (estimate 15 global
market share)ndash Particularly strong in racing yachts
bull NZ focuses almost exclusively on custom-built yachts very little activity in lsquoproduction yachtsrsquo
bull World-renowned for qualityndash NZrsquos largest superyacht manufacturer Alloy
Yachts has won 19 international awards since 1991
2003 2004 2005 2006 2007 2008
24-27m
27-30m30-37m
61-76m
37-46m
76m+
46-61m
CAGR (03-08)
14
18
2612
16
16
14
9
480
of Orders By Size
507652 688
777916
of Orders By Location(1)
The Global Superyacht Market
New Zealandrsquos Position
46
121096
11
Italy
US
NetherlandsGermanyTaiwanUKOtherNew Zealand (16)
NZ highly ranked within lucrative superyacht segment
Institutions for collaboration
The NZ cluster centres on boat building
The New Zealand Marine Cluster
Super Yachts
Racing Yachts
Trailer Boats
Launches amp Yachts
Inflatables
Refit amp Maintenance
Marine Events
Boating Consumables amp Other Services
Marinas
Boat Building
Downstream
Upstream
Significant ExportsLimited Exports
Related Clusters
Tourism
Fishing Commercial
Boats
Government Institutions
bull Trade Promotion (NZTE)bull Local Government (ARC)bull Universities (Auckland)bull Industrial Research Ltd
bull Industry Assoc (MIA)bull Export Group (NZ Marine)bull Training Org (BITO)
Yacht Management
Sails amp Rigging
Electronics
Interiors
Masts amp Winches
Other Services (eg Finance)
Composites
Other Equipment
Design
Support provided by public and private institutions for collaboration
(1) BITO is a division of the Marine Industry Association NZ Marine is a separate organization but shares facilities with the MIA
(2) AucklandPlus the economic development arm of the ARC is overseeing the Hobsonville marine precinct and the marine sector feasibility study
Key Institutions NZ Marine Cluster
Marine Industry
Association
NZ Marine
Boating Industry
Training Org
NZ Trade amp Enterprise
Auckland Regional Council
Institutions For Collaboration Government Institutions
bull 500+ members 50 of industrybull Fees $400-$1200 per firmbull Data collection on industrybull Newsletter on industrybull Fosters collaboration at sub-
cluster (eg CPC standards scheme for trailer boats)
bull Provides lsquobusinessrsquo workshops
bull Represents Exportersbull 100 members 85 of exportsbull Runs ldquoYacht visionrdquo 1st int
conference for yacht designersbull Assists at global boat shows
other exporter opportunities (eg Millennium Cup)
bull Administers Marine Apprenticeship scheme (600 currently ~100 graduates pa)
bull 75 government funded
bull Local government authoritybull Regional development strategybull Infrastructurezoning issuesbull Two cluster specific initiatives(2)
bull Support for NZ Exportersbull Global network of officesbull Formerly responsible for
overseeing NZ cluster policy
Auckland University
Industrial Research
Ltd
Closely linked(1)
bull Yacht Research Unitbull Centre for Advanced Composite
Materials (CACM)
bull Government funded RampD entitybull collaboration with Marine firms
(eg in composites)
1995bull Team New
Zealand win Americarsquos Cup
2000bull Americarsquos Cup held in
Auckland Team New Zealand successfully defend title
2003bull Auckland again hosts
Americarsquos Cup Team New Zealand loses to Alinghi skippered by a New Zealander
1984bull NZ wins 2 gold and
1 bronze medal at Los Angeles Olympics ndash first medals for 20 years
1987 bull NZ launches 1st
Americas Cup bid when event is hosted in Australia after Australiarsquos win in lsquo83
1990 1993bull NZ wins
Whitbread Round the World race (and wins again in 1993)
Competitive Sailing Milestones
History of cluster closely aligned with competitive sailing achievements and major yachting events
1992bull Alloy Yachts
wins New Zealandrsquos first Show Boats International Award for Super Yachts
1991bull Southern
Spars produce their first carbon fiber spar
2003bull 8 out of 10
Americarsquos Cup syndicates use Southern Spars rigs
1986 bull High Modulus
instrumental in developing composites for New Zealandrsquos first Americarsquos Cup challenge
2000bull Millennium
Cup launched in Auckland to showcase New Zealand Super Yachts
1979bull High
Modulus founded as surfboard mnfcturer
1987bull Alloy
Yachts founded
2006bull Southern
Spars merge with largest NZ competitor ndash Marten Spars
1996bull MIA (est 1965)
takes out office space and employs 1st
professional officers
1994bull Inaugural lsquoYacht
Visionrsquo run by NZ Marine
Industry Milestones
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
Contents
New Zealand
Marine Cluster
China
NZhellip a small isolated island where sheep outnumber people
(Fun) FactshellipLocatedhellip nowhere
Population
bull Human 42m
bull Sheep 401m
Prosperity
bull Think S Korea or Israel
bull GDP per capita $29220
Economic Drivers
bull Dairy Meat Forestry Fishing
National lsquoiconsrsquo
Auckland (pop 13m)
Wellington (capital pop 400k)
Christchurch (pop 400k)
Australia
Distance (by air) from
bull Sydney ndash 3 hrs
bull Singapore ndash 10 hrs
bull Los Angeles ndash 13 hrs
bull London ndash 23 hrs
Moderate historical prosperity growth driven by increases in workforce participation and employment
Source OECD EIU
Real GDP ( chg)
Participation Rate ()
Population Growth ()
Labour Productivity ( chg)
Real GDP pc ( chg)
Employment Growth ()
Unemployment Rate ()
Employment gains are positive however little progress has been made on the more important driver of economic progress labour productivity
Economic Performance Drivers of Real GDP per capita
-4-20246
1986 1992 1998 2004
-202468
1986 1992 1998 2004
0
1
2
3
1986 1992 1998 2004
-4
-2
0
2
4
1986 1992 1998 2004
-2
0
2
4
1986 1992 1998 2004
6264666870
1986 1992 1998 2004
02468
1012
1986 1992 1998 2004
x-
-
Average pa growthbull lsquo86-96 10bull lsquo97-07 21
UKAustralia
Canada
GermanyFranceJapan
GreeceNZKorea
MexicoPolandTurkey
USIreland
Norway
0
10
20
30
40
50
60
10 30 50 70 90
Labour productivity low by international standards
Source OECD
hellipWith No Sign NZ Is Closing The Gap
-20
-10
00
10
20
30
40
1983 1987 1991 1995 1999 2003 2007
Period 83-87 88-92 93-97 98-02 03-07
Average 12 18 11 18 10
Cha
nge
in la
bour
pro
duct
ivity
( p
a)
Average (83-07)
NZ
G7Australia
NZ is lagging its OECD peers in terms of prosperity due its low labour productivity
GDP per hour worked (US$hour)
GD
P pe
r cap
ita
(US$
rsquo000
PPP
)
OECD average ($32664)
$4030hour
Low Labour Productivityhellip
Labour Productivity vs GDP per capita (PPP) 2007
Labour Productivity Growth 1983-2007
NZ has a number of unique and valuable endowmentshellip isolation coupled with a tiny population are the major negatives
New Zealand National Endowments
x
bull lsquoClean and greenrsquo image (perception and reality)
bull Good climate for agriculture
bull Southern Hemisphere location provides off-season growing opportunities in serving Northern Hemisphere markets
bull High rainfall and Southern Alps snowmelt provide good conditions for inexpensive Hydro-power (70 of electricity supply)
bull Large ocean territory 7th largest exclusive economic zone (EEZ) in the world
bull Huge distance to markets particularly the most attractive (Europe US)
bull Tiny population low density
bull Unlike Australia for example NZ has few significant natural resource deposits (minerals oil etc)
Favorablehellip Not so Favorablehellip
Note Marine specific endowments addressed elsewhere
A mixed macroeconomic report card
Source OECD EIU
Macroeconomic Performance Overview
0
5
10
15
1983 1987 1991 1995 1999 2003 2007
Low inflation since mid 1980s
CPI ( change pa)
05
10152025
1987 1991 1995 1999 2003 2007
Long-Term Bond Yield () x
-15
-10
-5
01983 1987 1991 1995 1999 2003 2007
Current Account ( of GDP) x
10
15
20
25
1983 1988 1993 1998 2003 2008
Exchange rate (NZDUSD mthly avg) x
0
2
4
6
8
1983 1987 1991 1995 1999 2003 2007
FDI ( of GDP) x
20
30
40
1983 1987 1991 1995 1999 2003 2007
ExportsImports
Internationalisation of economy
Imports and Exports ( GDP)
Decreasing over time
High versus OECD peers Volatile Currency
Persistent current account deficits
Strong business-friendly national institutionsInternationally Ranked(1)
(1) Heritage Foundation 2009 Index of Economic Freedom this is another source in addition to the GCR which tells a similar story (highlights can be found in the backup section of the presentation)
Stable Politics
bull Multi-party moderate
Robust Anti-Trust
bull Com Commission
Independent Central Bank
bull Pure Inflation mandate
Universities
bull 5 universities in top 500 (global)
Labour Policy
bull Weak unions good flexibility
Non-distortive Export Support
bull NZTE
Sensible Trade
bull Low Tariffs (27)
bull FTA China Singapore Thailand Chile Australia ASEAN (coming)
Health Care
bull Cost-effective
bull Ban on litigation for personal injury
Efficient Legal System
Free Capital Flows
Institutional Highlights
bull High Taxes Big Govt
bull 30 corporate 39 top income bracket
bull Govt 40 of GDP
bull Underdevelopedshallow capital markets
bull Prevalence of SOEs
bull Restrictions on Foreign Capital (land telco airline)
Weak Spots()
Low Corruption
bull Ranked 1
High quality human capital but not enough of it
Strong HDIhellipPartial Offset
From Immigration
of College Educated Population Living OSeas
(Select Countries Rank)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 NZ
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
bull NZ is 19th in the world in human development
bull Citizens enjoy long healthy lives excellent education access and high standards of living
But People Leavehellip
bull 87000 permanent migrants in 2007
bull 10100 in net migrationbull 24 on work
permits
bull Government Policybull Focus on certain
categories - skilled Migrant Policy and Active Investor Migrant category
bull Source countriesbull UK (26)bull China (12)bull India (9) bull South Africa (8)
Source Human Development Index (UNDP) OECD
Human capital is a strength although retention seems to be an issue
Poor prosperity given relatively strong competitiveness metrics
Overall GCI vs GDP pc
GDP pc log scale
High GCI
GCI Ranking
Low GCI
Macro (MP) vs hellip
Institutions (SIPI) vs hellip Micro (MICRO) vs hellip
NZrsquos prosperity lags peers with comparable GCIs Is NZrsquos microeconomic environment the reason for this disparity
GDP pc log scale
High SIPILow SIPI High MICROLow MICRO
High MPLow MP
GDP pc log scale
GDP pc log scale
NZ
NZ
NZ
NZ
Note GCI = (Overall) Global Competitiveness Index SIPI = Social and Political Infrastructure MP = Competitiveness of Macroeconomic Policy MICRO = Microeconomic competitiveness Source Institute for Strategy and Competitiveness
Estonia
Ireland
US
S Korea
US
US
US
Estonia
NZrsquos national diamond characterised by extremeshellip some areas world-class while others are morehellip emerging economy
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
New Zealand National Diamond
+ Low trade barriers+ Flexible labour policies+ Strong antitrust + Good investor protection
- Lack of rivalryintensity- ldquoKiwirdquo lifestyle = leisure-focused- Job securitysafety net valued- Low foreign ownership and international tech transfer
+ Brand NZ clean and green+ Low levels of bureaucracy+ Strong primsec education + Easy to start a business
- Brain drain - Low foreign language skills- Lack of scientistsengineers- Weak RampDinnovation- Infra gaps (roads rail telco)- Weak capital markets
+ Awareness of the need for cluster development+ Efforts to push cluster policy to a regional level
- Weak clusters- Few specialized input suppliers high reliance on imported inputs
+ National passions have driven key international successes eg sport
- Historic trade relationship with UK led to a focus on primary products- Demand seldom drives innovation or anticipates trends- Govt procurement not advanced
x
x
x
x
Relatively undiversified economyhellip dominated by agriculture
-05 -03 -01 01 03
NZ Exports Portfolio By Cluster 1997-2007
Share Of World Exports 2007 ()
Change in Nationrsquos Share Of Exports ( 1997-2007)
Processed Food (Dairy)
Agri Product (Meat)
Tourism
Fishing
FurnitureForestry
Two of NZrsquos key clusters dairy and tourism are doing well however majority of other clusters are losing ground
Marine(1)
(1) Relative position of the marine cluster estimated based on data we have collected and interviews conducted the International Cluster Analysis definition includes commercial shipbuilding which distorts the true position of NZrsquos marine cluster which focuses on boats for private use
Communications
25
20
15
05
Four main recommendations to address NZrsquos key challengesIssues Being Addressed More Detail On Actions
Alleviate Factor
Bottlenecks
Mitigate Distance
Encourage Investment
Institute a New Cluster Programme
Recommendations
1
2
3
4
bull Lack of successful clustersbull Lack of strategy at a cluster levelbull Lack of collaborationbull Lack of effective cluster policy
bull Low labour productivitybull Lack of capital intensitybull Lack of investment (domesticFDI)bull Low savings rates
bull Barriers to lsquoeasyrsquo tradebull Inefficiencies at NZrsquos portsbull Inability of NZ firms to
internationalize
bull Weak infrastructure electricity roads rail telco
bull Human capital gaps
bull Infrastructure spendbull Skilled immigration bull Graduate retentionbull Tertiary education reform
bull New cluster policybull More $$ more focusedbull Private sector drivenbull Collaborative Decentralized
bull Kiwisaver compulsorybull Tax reform propertybull FDI policy reform
bull Privatize all portsbull Streamline customsbull Open skiesbull Focused help from NZTE
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
Contents
New Zealand
Marine Cluster
NZrsquos marine cluster generates NZ$19B(1) in sales annuallyhellip
Major Segments In The Cluster Recent Cluster Performance
2003 2005 2006 2008
Superyachts
Total Sales (NZ$m)
Imports ()
Exports ()
Size total sales (NZ$m)
ImpExp ( of Sales)
Superyachts Racing Yachts
Trailer BoatsLaunches
InflatablesRHIBs
RefitMaintenance Other Services
Equipment
(1) Segmentation and data as per the New Zealand Marine Industry Association NZ$19B equivalent to US$11B at current exchange rate of 0567US$ per NZ$
bull Sails masts winches electronics interiorshellip
bull Sail
bull For competition
bull gt25m
bull Sail or Motor
bull 8-25m
bull Sail or Motor
bull 3-8m
bull Motor
bull Inflatable
bull Motor
bull Repair facilities
bull Fuel marinas insurance charters retailinghellip
Equipment
SuperyachtsLaunches
Inflatables
Other
Trailer Boats
Racing
Refit
CAGR (03-08)
6
417
2
15
(3)
5
101366
1548 16411905
Racing Yachts
LaunchesRefit
Inflatables
Trailer BoatsOther
50
50
Equipment
Most internationally competitive segments
100
7Total
75 of marine activity is located in Auckland or nearby regions
NZ Marine Industry Activity
West Park Marina (3 in Auckland)
Gulf Harbour Marina (2 in Auckland)
Hobsonville
Westhaven Marina (1 in Auckland)Alloy
Yachts
Wynyard Point
Evidence of other Marine ActivitySuperYacht Mfg Marinas
Auckland Cluster (examples)
(1) Remaining 8 of activity not marked occurs across a variety of smaller regions
Source New Zealand Marine Industry Survey 2005 Googlemaps
Christchurch
Wellington
Bay of Plenty
Northland
Auckland
9
6
4
5Waikato
4
58
x of NZ Marine Industry Activity (2005)(1) Evidence of agglomeration even within parts of Auckland
3Taranaki
3 Otago
Long-term outlook looks goodhellip although current economic conditions obviously taking a toll (lsquo09 forecast to be down 50)
bull US and Europe are largest end-markets (an estimated 90 of end-market demand) US market more penetrated and lower growth
bull Market is fragmented largest player (Brunswick US) has 14 global share in boat building
bull Bifurcated market cost price increasingly important for lowermid segment (increased standardization) but less so for higher end (custom yachts)
Global Market Size and Growth Global Market Key Features
bull The global pleasure craft market = US$18B
bull Growth of around 5 per annum on a value basis between 1997 and 2007
ndash Superyachts fastest growing
bull Volume growth has been steady since 1970 with some cyclicality Real value growth driven by increasing average boat size
The cluster competes in a global market that has recorded solid growthhellip strongest gains at the top-end
ItalyFerretti 7Azimt Benetti 6Cantiere 1Aicon 1FIPA lt1Perini Navi lt1
FranceBeneteau 6Rodriguez 3Couach lt1Dufour lt1
UKSunseeker 3Princess 2Fairline 2
GermanyBavaria 2Hanse 1Luerssen lt1
DenmarkDanish Yacht lt1
SwedenHallberg Rassy lt1
SloveniaElan Marine lt1
CroatiaElan lt1Lagoon lt1
New ZealandAlloy Yachts lt1Cookson lt1Fitzroy Yachts lt1Yachting Dev lt1
AustraliaAzzura Yachts lt1Seawind lt1Jarkan lt1
ChinaHolland Custom Yachts lt1
TaiwanHorizon Yacht lt1
TurkeyAegean lt1
NetherlandsRoyal Huisman lt1Feadship lt1
USBrunswick 14Genmar 5Catalina 1Hunter 1
NZ is very much a niche player on the global stage
Global Recreational Boat Building Firms ndashmarket shares
Largest firms located in Italy France and US
Source ODDO Equity Research June 2008 MoC team estimates
Superyacht Market Data
(1) Of orders made in top 10 manufacturing countries Note of the 916 superyachts ordered in 2008 60 were sailing yachts
Source Showboats International
bull Superyacht orders have grown each year for last 10 years ndash although for 2009 global order intake down about 50
bull Largest categories (61m+) have seen the rapid growth (gtUS$1m per meter to build)
bull Italy dominates the sectorbull Growing share for Taiwan Turkey China
bull NZ is 10th largest superyacht builder bull 3 in sailing superyachts (estimate 15 global
market share)ndash Particularly strong in racing yachts
bull NZ focuses almost exclusively on custom-built yachts very little activity in lsquoproduction yachtsrsquo
bull World-renowned for qualityndash NZrsquos largest superyacht manufacturer Alloy
Yachts has won 19 international awards since 1991
2003 2004 2005 2006 2007 2008
24-27m
27-30m30-37m
61-76m
37-46m
76m+
46-61m
CAGR (03-08)
14
18
2612
16
16
14
9
480
of Orders By Size
507652 688
777916
of Orders By Location(1)
The Global Superyacht Market
New Zealandrsquos Position
46
121096
11
Italy
US
NetherlandsGermanyTaiwanUKOtherNew Zealand (16)
NZ highly ranked within lucrative superyacht segment
Institutions for collaboration
The NZ cluster centres on boat building
The New Zealand Marine Cluster
Super Yachts
Racing Yachts
Trailer Boats
Launches amp Yachts
Inflatables
Refit amp Maintenance
Marine Events
Boating Consumables amp Other Services
Marinas
Boat Building
Downstream
Upstream
Significant ExportsLimited Exports
Related Clusters
Tourism
Fishing Commercial
Boats
Government Institutions
bull Trade Promotion (NZTE)bull Local Government (ARC)bull Universities (Auckland)bull Industrial Research Ltd
bull Industry Assoc (MIA)bull Export Group (NZ Marine)bull Training Org (BITO)
Yacht Management
Sails amp Rigging
Electronics
Interiors
Masts amp Winches
Other Services (eg Finance)
Composites
Other Equipment
Design
Support provided by public and private institutions for collaboration
(1) BITO is a division of the Marine Industry Association NZ Marine is a separate organization but shares facilities with the MIA
(2) AucklandPlus the economic development arm of the ARC is overseeing the Hobsonville marine precinct and the marine sector feasibility study
Key Institutions NZ Marine Cluster
Marine Industry
Association
NZ Marine
Boating Industry
Training Org
NZ Trade amp Enterprise
Auckland Regional Council
Institutions For Collaboration Government Institutions
bull 500+ members 50 of industrybull Fees $400-$1200 per firmbull Data collection on industrybull Newsletter on industrybull Fosters collaboration at sub-
cluster (eg CPC standards scheme for trailer boats)
bull Provides lsquobusinessrsquo workshops
bull Represents Exportersbull 100 members 85 of exportsbull Runs ldquoYacht visionrdquo 1st int
conference for yacht designersbull Assists at global boat shows
other exporter opportunities (eg Millennium Cup)
bull Administers Marine Apprenticeship scheme (600 currently ~100 graduates pa)
bull 75 government funded
bull Local government authoritybull Regional development strategybull Infrastructurezoning issuesbull Two cluster specific initiatives(2)
bull Support for NZ Exportersbull Global network of officesbull Formerly responsible for
overseeing NZ cluster policy
Auckland University
Industrial Research
Ltd
Closely linked(1)
bull Yacht Research Unitbull Centre for Advanced Composite
Materials (CACM)
bull Government funded RampD entitybull collaboration with Marine firms
(eg in composites)
1995bull Team New
Zealand win Americarsquos Cup
2000bull Americarsquos Cup held in
Auckland Team New Zealand successfully defend title
2003bull Auckland again hosts
Americarsquos Cup Team New Zealand loses to Alinghi skippered by a New Zealander
1984bull NZ wins 2 gold and
1 bronze medal at Los Angeles Olympics ndash first medals for 20 years
1987 bull NZ launches 1st
Americas Cup bid when event is hosted in Australia after Australiarsquos win in lsquo83
1990 1993bull NZ wins
Whitbread Round the World race (and wins again in 1993)
Competitive Sailing Milestones
History of cluster closely aligned with competitive sailing achievements and major yachting events
1992bull Alloy Yachts
wins New Zealandrsquos first Show Boats International Award for Super Yachts
1991bull Southern
Spars produce their first carbon fiber spar
2003bull 8 out of 10
Americarsquos Cup syndicates use Southern Spars rigs
1986 bull High Modulus
instrumental in developing composites for New Zealandrsquos first Americarsquos Cup challenge
2000bull Millennium
Cup launched in Auckland to showcase New Zealand Super Yachts
1979bull High
Modulus founded as surfboard mnfcturer
1987bull Alloy
Yachts founded
2006bull Southern
Spars merge with largest NZ competitor ndash Marten Spars
1996bull MIA (est 1965)
takes out office space and employs 1st
professional officers
1994bull Inaugural lsquoYacht
Visionrsquo run by NZ Marine
Industry Milestones
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
China
NZhellip a small isolated island where sheep outnumber people
(Fun) FactshellipLocatedhellip nowhere
Population
bull Human 42m
bull Sheep 401m
Prosperity
bull Think S Korea or Israel
bull GDP per capita $29220
Economic Drivers
bull Dairy Meat Forestry Fishing
National lsquoiconsrsquo
Auckland (pop 13m)
Wellington (capital pop 400k)
Christchurch (pop 400k)
Australia
Distance (by air) from
bull Sydney ndash 3 hrs
bull Singapore ndash 10 hrs
bull Los Angeles ndash 13 hrs
bull London ndash 23 hrs
Moderate historical prosperity growth driven by increases in workforce participation and employment
Source OECD EIU
Real GDP ( chg)
Participation Rate ()
Population Growth ()
Labour Productivity ( chg)
Real GDP pc ( chg)
Employment Growth ()
Unemployment Rate ()
Employment gains are positive however little progress has been made on the more important driver of economic progress labour productivity
Economic Performance Drivers of Real GDP per capita
-4-20246
1986 1992 1998 2004
-202468
1986 1992 1998 2004
0
1
2
3
1986 1992 1998 2004
-4
-2
0
2
4
1986 1992 1998 2004
-2
0
2
4
1986 1992 1998 2004
6264666870
1986 1992 1998 2004
02468
1012
1986 1992 1998 2004
x-
-
Average pa growthbull lsquo86-96 10bull lsquo97-07 21
UKAustralia
Canada
GermanyFranceJapan
GreeceNZKorea
MexicoPolandTurkey
USIreland
Norway
0
10
20
30
40
50
60
10 30 50 70 90
Labour productivity low by international standards
Source OECD
hellipWith No Sign NZ Is Closing The Gap
-20
-10
00
10
20
30
40
1983 1987 1991 1995 1999 2003 2007
Period 83-87 88-92 93-97 98-02 03-07
Average 12 18 11 18 10
Cha
nge
in la
bour
pro
duct
ivity
( p
a)
Average (83-07)
NZ
G7Australia
NZ is lagging its OECD peers in terms of prosperity due its low labour productivity
GDP per hour worked (US$hour)
GD
P pe
r cap
ita
(US$
rsquo000
PPP
)
OECD average ($32664)
$4030hour
Low Labour Productivityhellip
Labour Productivity vs GDP per capita (PPP) 2007
Labour Productivity Growth 1983-2007
NZ has a number of unique and valuable endowmentshellip isolation coupled with a tiny population are the major negatives
New Zealand National Endowments
x
bull lsquoClean and greenrsquo image (perception and reality)
bull Good climate for agriculture
bull Southern Hemisphere location provides off-season growing opportunities in serving Northern Hemisphere markets
bull High rainfall and Southern Alps snowmelt provide good conditions for inexpensive Hydro-power (70 of electricity supply)
bull Large ocean territory 7th largest exclusive economic zone (EEZ) in the world
bull Huge distance to markets particularly the most attractive (Europe US)
bull Tiny population low density
bull Unlike Australia for example NZ has few significant natural resource deposits (minerals oil etc)
Favorablehellip Not so Favorablehellip
Note Marine specific endowments addressed elsewhere
A mixed macroeconomic report card
Source OECD EIU
Macroeconomic Performance Overview
0
5
10
15
1983 1987 1991 1995 1999 2003 2007
Low inflation since mid 1980s
CPI ( change pa)
05
10152025
1987 1991 1995 1999 2003 2007
Long-Term Bond Yield () x
-15
-10
-5
01983 1987 1991 1995 1999 2003 2007
Current Account ( of GDP) x
10
15
20
25
1983 1988 1993 1998 2003 2008
Exchange rate (NZDUSD mthly avg) x
0
2
4
6
8
1983 1987 1991 1995 1999 2003 2007
FDI ( of GDP) x
20
30
40
1983 1987 1991 1995 1999 2003 2007
ExportsImports
Internationalisation of economy
Imports and Exports ( GDP)
Decreasing over time
High versus OECD peers Volatile Currency
Persistent current account deficits
Strong business-friendly national institutionsInternationally Ranked(1)
(1) Heritage Foundation 2009 Index of Economic Freedom this is another source in addition to the GCR which tells a similar story (highlights can be found in the backup section of the presentation)
Stable Politics
bull Multi-party moderate
Robust Anti-Trust
bull Com Commission
Independent Central Bank
bull Pure Inflation mandate
Universities
bull 5 universities in top 500 (global)
Labour Policy
bull Weak unions good flexibility
Non-distortive Export Support
bull NZTE
Sensible Trade
bull Low Tariffs (27)
bull FTA China Singapore Thailand Chile Australia ASEAN (coming)
Health Care
bull Cost-effective
bull Ban on litigation for personal injury
Efficient Legal System
Free Capital Flows
Institutional Highlights
bull High Taxes Big Govt
bull 30 corporate 39 top income bracket
bull Govt 40 of GDP
bull Underdevelopedshallow capital markets
bull Prevalence of SOEs
bull Restrictions on Foreign Capital (land telco airline)
Weak Spots()
Low Corruption
bull Ranked 1
High quality human capital but not enough of it
Strong HDIhellipPartial Offset
From Immigration
of College Educated Population Living OSeas
(Select Countries Rank)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 NZ
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
bull NZ is 19th in the world in human development
bull Citizens enjoy long healthy lives excellent education access and high standards of living
But People Leavehellip
bull 87000 permanent migrants in 2007
bull 10100 in net migrationbull 24 on work
permits
bull Government Policybull Focus on certain
categories - skilled Migrant Policy and Active Investor Migrant category
bull Source countriesbull UK (26)bull China (12)bull India (9) bull South Africa (8)
Source Human Development Index (UNDP) OECD
Human capital is a strength although retention seems to be an issue
Poor prosperity given relatively strong competitiveness metrics
Overall GCI vs GDP pc
GDP pc log scale
High GCI
GCI Ranking
Low GCI
Macro (MP) vs hellip
Institutions (SIPI) vs hellip Micro (MICRO) vs hellip
NZrsquos prosperity lags peers with comparable GCIs Is NZrsquos microeconomic environment the reason for this disparity
GDP pc log scale
High SIPILow SIPI High MICROLow MICRO
High MPLow MP
GDP pc log scale
GDP pc log scale
NZ
NZ
NZ
NZ
Note GCI = (Overall) Global Competitiveness Index SIPI = Social and Political Infrastructure MP = Competitiveness of Macroeconomic Policy MICRO = Microeconomic competitiveness Source Institute for Strategy and Competitiveness
Estonia
Ireland
US
S Korea
US
US
US
Estonia
NZrsquos national diamond characterised by extremeshellip some areas world-class while others are morehellip emerging economy
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
New Zealand National Diamond
+ Low trade barriers+ Flexible labour policies+ Strong antitrust + Good investor protection
- Lack of rivalryintensity- ldquoKiwirdquo lifestyle = leisure-focused- Job securitysafety net valued- Low foreign ownership and international tech transfer
+ Brand NZ clean and green+ Low levels of bureaucracy+ Strong primsec education + Easy to start a business
- Brain drain - Low foreign language skills- Lack of scientistsengineers- Weak RampDinnovation- Infra gaps (roads rail telco)- Weak capital markets
+ Awareness of the need for cluster development+ Efforts to push cluster policy to a regional level
- Weak clusters- Few specialized input suppliers high reliance on imported inputs
+ National passions have driven key international successes eg sport
- Historic trade relationship with UK led to a focus on primary products- Demand seldom drives innovation or anticipates trends- Govt procurement not advanced
x
x
x
x
Relatively undiversified economyhellip dominated by agriculture
-05 -03 -01 01 03
NZ Exports Portfolio By Cluster 1997-2007
Share Of World Exports 2007 ()
Change in Nationrsquos Share Of Exports ( 1997-2007)
Processed Food (Dairy)
Agri Product (Meat)
Tourism
Fishing
FurnitureForestry
Two of NZrsquos key clusters dairy and tourism are doing well however majority of other clusters are losing ground
Marine(1)
(1) Relative position of the marine cluster estimated based on data we have collected and interviews conducted the International Cluster Analysis definition includes commercial shipbuilding which distorts the true position of NZrsquos marine cluster which focuses on boats for private use
Communications
25
20
15
05
Four main recommendations to address NZrsquos key challengesIssues Being Addressed More Detail On Actions
Alleviate Factor
Bottlenecks
Mitigate Distance
Encourage Investment
Institute a New Cluster Programme
Recommendations
1
2
3
4
bull Lack of successful clustersbull Lack of strategy at a cluster levelbull Lack of collaborationbull Lack of effective cluster policy
bull Low labour productivitybull Lack of capital intensitybull Lack of investment (domesticFDI)bull Low savings rates
bull Barriers to lsquoeasyrsquo tradebull Inefficiencies at NZrsquos portsbull Inability of NZ firms to
internationalize
bull Weak infrastructure electricity roads rail telco
bull Human capital gaps
bull Infrastructure spendbull Skilled immigration bull Graduate retentionbull Tertiary education reform
bull New cluster policybull More $$ more focusedbull Private sector drivenbull Collaborative Decentralized
bull Kiwisaver compulsorybull Tax reform propertybull FDI policy reform
bull Privatize all portsbull Streamline customsbull Open skiesbull Focused help from NZTE
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
Contents
New Zealand
Marine Cluster
NZrsquos marine cluster generates NZ$19B(1) in sales annuallyhellip
Major Segments In The Cluster Recent Cluster Performance
2003 2005 2006 2008
Superyachts
Total Sales (NZ$m)
Imports ()
Exports ()
Size total sales (NZ$m)
ImpExp ( of Sales)
Superyachts Racing Yachts
Trailer BoatsLaunches
InflatablesRHIBs
RefitMaintenance Other Services
Equipment
(1) Segmentation and data as per the New Zealand Marine Industry Association NZ$19B equivalent to US$11B at current exchange rate of 0567US$ per NZ$
bull Sails masts winches electronics interiorshellip
bull Sail
bull For competition
bull gt25m
bull Sail or Motor
bull 8-25m
bull Sail or Motor
bull 3-8m
bull Motor
bull Inflatable
bull Motor
bull Repair facilities
bull Fuel marinas insurance charters retailinghellip
Equipment
SuperyachtsLaunches
Inflatables
Other
Trailer Boats
Racing
Refit
CAGR (03-08)
6
417
2
15
(3)
5
101366
1548 16411905
Racing Yachts
LaunchesRefit
Inflatables
Trailer BoatsOther
50
50
Equipment
Most internationally competitive segments
100
7Total
75 of marine activity is located in Auckland or nearby regions
NZ Marine Industry Activity
West Park Marina (3 in Auckland)
Gulf Harbour Marina (2 in Auckland)
Hobsonville
Westhaven Marina (1 in Auckland)Alloy
Yachts
Wynyard Point
Evidence of other Marine ActivitySuperYacht Mfg Marinas
Auckland Cluster (examples)
(1) Remaining 8 of activity not marked occurs across a variety of smaller regions
Source New Zealand Marine Industry Survey 2005 Googlemaps
Christchurch
Wellington
Bay of Plenty
Northland
Auckland
9
6
4
5Waikato
4
58
x of NZ Marine Industry Activity (2005)(1) Evidence of agglomeration even within parts of Auckland
3Taranaki
3 Otago
Long-term outlook looks goodhellip although current economic conditions obviously taking a toll (lsquo09 forecast to be down 50)
bull US and Europe are largest end-markets (an estimated 90 of end-market demand) US market more penetrated and lower growth
bull Market is fragmented largest player (Brunswick US) has 14 global share in boat building
bull Bifurcated market cost price increasingly important for lowermid segment (increased standardization) but less so for higher end (custom yachts)
Global Market Size and Growth Global Market Key Features
bull The global pleasure craft market = US$18B
bull Growth of around 5 per annum on a value basis between 1997 and 2007
ndash Superyachts fastest growing
bull Volume growth has been steady since 1970 with some cyclicality Real value growth driven by increasing average boat size
The cluster competes in a global market that has recorded solid growthhellip strongest gains at the top-end
ItalyFerretti 7Azimt Benetti 6Cantiere 1Aicon 1FIPA lt1Perini Navi lt1
FranceBeneteau 6Rodriguez 3Couach lt1Dufour lt1
UKSunseeker 3Princess 2Fairline 2
GermanyBavaria 2Hanse 1Luerssen lt1
DenmarkDanish Yacht lt1
SwedenHallberg Rassy lt1
SloveniaElan Marine lt1
CroatiaElan lt1Lagoon lt1
New ZealandAlloy Yachts lt1Cookson lt1Fitzroy Yachts lt1Yachting Dev lt1
AustraliaAzzura Yachts lt1Seawind lt1Jarkan lt1
ChinaHolland Custom Yachts lt1
TaiwanHorizon Yacht lt1
TurkeyAegean lt1
NetherlandsRoyal Huisman lt1Feadship lt1
USBrunswick 14Genmar 5Catalina 1Hunter 1
NZ is very much a niche player on the global stage
Global Recreational Boat Building Firms ndashmarket shares
Largest firms located in Italy France and US
Source ODDO Equity Research June 2008 MoC team estimates
Superyacht Market Data
(1) Of orders made in top 10 manufacturing countries Note of the 916 superyachts ordered in 2008 60 were sailing yachts
Source Showboats International
bull Superyacht orders have grown each year for last 10 years ndash although for 2009 global order intake down about 50
bull Largest categories (61m+) have seen the rapid growth (gtUS$1m per meter to build)
bull Italy dominates the sectorbull Growing share for Taiwan Turkey China
bull NZ is 10th largest superyacht builder bull 3 in sailing superyachts (estimate 15 global
market share)ndash Particularly strong in racing yachts
bull NZ focuses almost exclusively on custom-built yachts very little activity in lsquoproduction yachtsrsquo
bull World-renowned for qualityndash NZrsquos largest superyacht manufacturer Alloy
Yachts has won 19 international awards since 1991
2003 2004 2005 2006 2007 2008
24-27m
27-30m30-37m
61-76m
37-46m
76m+
46-61m
CAGR (03-08)
14
18
2612
16
16
14
9
480
of Orders By Size
507652 688
777916
of Orders By Location(1)
The Global Superyacht Market
New Zealandrsquos Position
46
121096
11
Italy
US
NetherlandsGermanyTaiwanUKOtherNew Zealand (16)
NZ highly ranked within lucrative superyacht segment
Institutions for collaboration
The NZ cluster centres on boat building
The New Zealand Marine Cluster
Super Yachts
Racing Yachts
Trailer Boats
Launches amp Yachts
Inflatables
Refit amp Maintenance
Marine Events
Boating Consumables amp Other Services
Marinas
Boat Building
Downstream
Upstream
Significant ExportsLimited Exports
Related Clusters
Tourism
Fishing Commercial
Boats
Government Institutions
bull Trade Promotion (NZTE)bull Local Government (ARC)bull Universities (Auckland)bull Industrial Research Ltd
bull Industry Assoc (MIA)bull Export Group (NZ Marine)bull Training Org (BITO)
Yacht Management
Sails amp Rigging
Electronics
Interiors
Masts amp Winches
Other Services (eg Finance)
Composites
Other Equipment
Design
Support provided by public and private institutions for collaboration
(1) BITO is a division of the Marine Industry Association NZ Marine is a separate organization but shares facilities with the MIA
(2) AucklandPlus the economic development arm of the ARC is overseeing the Hobsonville marine precinct and the marine sector feasibility study
Key Institutions NZ Marine Cluster
Marine Industry
Association
NZ Marine
Boating Industry
Training Org
NZ Trade amp Enterprise
Auckland Regional Council
Institutions For Collaboration Government Institutions
bull 500+ members 50 of industrybull Fees $400-$1200 per firmbull Data collection on industrybull Newsletter on industrybull Fosters collaboration at sub-
cluster (eg CPC standards scheme for trailer boats)
bull Provides lsquobusinessrsquo workshops
bull Represents Exportersbull 100 members 85 of exportsbull Runs ldquoYacht visionrdquo 1st int
conference for yacht designersbull Assists at global boat shows
other exporter opportunities (eg Millennium Cup)
bull Administers Marine Apprenticeship scheme (600 currently ~100 graduates pa)
bull 75 government funded
bull Local government authoritybull Regional development strategybull Infrastructurezoning issuesbull Two cluster specific initiatives(2)
bull Support for NZ Exportersbull Global network of officesbull Formerly responsible for
overseeing NZ cluster policy
Auckland University
Industrial Research
Ltd
Closely linked(1)
bull Yacht Research Unitbull Centre for Advanced Composite
Materials (CACM)
bull Government funded RampD entitybull collaboration with Marine firms
(eg in composites)
1995bull Team New
Zealand win Americarsquos Cup
2000bull Americarsquos Cup held in
Auckland Team New Zealand successfully defend title
2003bull Auckland again hosts
Americarsquos Cup Team New Zealand loses to Alinghi skippered by a New Zealander
1984bull NZ wins 2 gold and
1 bronze medal at Los Angeles Olympics ndash first medals for 20 years
1987 bull NZ launches 1st
Americas Cup bid when event is hosted in Australia after Australiarsquos win in lsquo83
1990 1993bull NZ wins
Whitbread Round the World race (and wins again in 1993)
Competitive Sailing Milestones
History of cluster closely aligned with competitive sailing achievements and major yachting events
1992bull Alloy Yachts
wins New Zealandrsquos first Show Boats International Award for Super Yachts
1991bull Southern
Spars produce their first carbon fiber spar
2003bull 8 out of 10
Americarsquos Cup syndicates use Southern Spars rigs
1986 bull High Modulus
instrumental in developing composites for New Zealandrsquos first Americarsquos Cup challenge
2000bull Millennium
Cup launched in Auckland to showcase New Zealand Super Yachts
1979bull High
Modulus founded as surfboard mnfcturer
1987bull Alloy
Yachts founded
2006bull Southern
Spars merge with largest NZ competitor ndash Marten Spars
1996bull MIA (est 1965)
takes out office space and employs 1st
professional officers
1994bull Inaugural lsquoYacht
Visionrsquo run by NZ Marine
Industry Milestones
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
Moderate historical prosperity growth driven by increases in workforce participation and employment
Source OECD EIU
Real GDP ( chg)
Participation Rate ()
Population Growth ()
Labour Productivity ( chg)
Real GDP pc ( chg)
Employment Growth ()
Unemployment Rate ()
Employment gains are positive however little progress has been made on the more important driver of economic progress labour productivity
Economic Performance Drivers of Real GDP per capita
-4-20246
1986 1992 1998 2004
-202468
1986 1992 1998 2004
0
1
2
3
1986 1992 1998 2004
-4
-2
0
2
4
1986 1992 1998 2004
-2
0
2
4
1986 1992 1998 2004
6264666870
1986 1992 1998 2004
02468
1012
1986 1992 1998 2004
x-
-
Average pa growthbull lsquo86-96 10bull lsquo97-07 21
UKAustralia
Canada
GermanyFranceJapan
GreeceNZKorea
MexicoPolandTurkey
USIreland
Norway
0
10
20
30
40
50
60
10 30 50 70 90
Labour productivity low by international standards
Source OECD
hellipWith No Sign NZ Is Closing The Gap
-20
-10
00
10
20
30
40
1983 1987 1991 1995 1999 2003 2007
Period 83-87 88-92 93-97 98-02 03-07
Average 12 18 11 18 10
Cha
nge
in la
bour
pro
duct
ivity
( p
a)
Average (83-07)
NZ
G7Australia
NZ is lagging its OECD peers in terms of prosperity due its low labour productivity
GDP per hour worked (US$hour)
GD
P pe
r cap
ita
(US$
rsquo000
PPP
)
OECD average ($32664)
$4030hour
Low Labour Productivityhellip
Labour Productivity vs GDP per capita (PPP) 2007
Labour Productivity Growth 1983-2007
NZ has a number of unique and valuable endowmentshellip isolation coupled with a tiny population are the major negatives
New Zealand National Endowments
x
bull lsquoClean and greenrsquo image (perception and reality)
bull Good climate for agriculture
bull Southern Hemisphere location provides off-season growing opportunities in serving Northern Hemisphere markets
bull High rainfall and Southern Alps snowmelt provide good conditions for inexpensive Hydro-power (70 of electricity supply)
bull Large ocean territory 7th largest exclusive economic zone (EEZ) in the world
bull Huge distance to markets particularly the most attractive (Europe US)
bull Tiny population low density
bull Unlike Australia for example NZ has few significant natural resource deposits (minerals oil etc)
Favorablehellip Not so Favorablehellip
Note Marine specific endowments addressed elsewhere
A mixed macroeconomic report card
Source OECD EIU
Macroeconomic Performance Overview
0
5
10
15
1983 1987 1991 1995 1999 2003 2007
Low inflation since mid 1980s
CPI ( change pa)
05
10152025
1987 1991 1995 1999 2003 2007
Long-Term Bond Yield () x
-15
-10
-5
01983 1987 1991 1995 1999 2003 2007
Current Account ( of GDP) x
10
15
20
25
1983 1988 1993 1998 2003 2008
Exchange rate (NZDUSD mthly avg) x
0
2
4
6
8
1983 1987 1991 1995 1999 2003 2007
FDI ( of GDP) x
20
30
40
1983 1987 1991 1995 1999 2003 2007
ExportsImports
Internationalisation of economy
Imports and Exports ( GDP)
Decreasing over time
High versus OECD peers Volatile Currency
Persistent current account deficits
Strong business-friendly national institutionsInternationally Ranked(1)
(1) Heritage Foundation 2009 Index of Economic Freedom this is another source in addition to the GCR which tells a similar story (highlights can be found in the backup section of the presentation)
Stable Politics
bull Multi-party moderate
Robust Anti-Trust
bull Com Commission
Independent Central Bank
bull Pure Inflation mandate
Universities
bull 5 universities in top 500 (global)
Labour Policy
bull Weak unions good flexibility
Non-distortive Export Support
bull NZTE
Sensible Trade
bull Low Tariffs (27)
bull FTA China Singapore Thailand Chile Australia ASEAN (coming)
Health Care
bull Cost-effective
bull Ban on litigation for personal injury
Efficient Legal System
Free Capital Flows
Institutional Highlights
bull High Taxes Big Govt
bull 30 corporate 39 top income bracket
bull Govt 40 of GDP
bull Underdevelopedshallow capital markets
bull Prevalence of SOEs
bull Restrictions on Foreign Capital (land telco airline)
Weak Spots()
Low Corruption
bull Ranked 1
High quality human capital but not enough of it
Strong HDIhellipPartial Offset
From Immigration
of College Educated Population Living OSeas
(Select Countries Rank)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 NZ
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
bull NZ is 19th in the world in human development
bull Citizens enjoy long healthy lives excellent education access and high standards of living
But People Leavehellip
bull 87000 permanent migrants in 2007
bull 10100 in net migrationbull 24 on work
permits
bull Government Policybull Focus on certain
categories - skilled Migrant Policy and Active Investor Migrant category
bull Source countriesbull UK (26)bull China (12)bull India (9) bull South Africa (8)
Source Human Development Index (UNDP) OECD
Human capital is a strength although retention seems to be an issue
Poor prosperity given relatively strong competitiveness metrics
Overall GCI vs GDP pc
GDP pc log scale
High GCI
GCI Ranking
Low GCI
Macro (MP) vs hellip
Institutions (SIPI) vs hellip Micro (MICRO) vs hellip
NZrsquos prosperity lags peers with comparable GCIs Is NZrsquos microeconomic environment the reason for this disparity
GDP pc log scale
High SIPILow SIPI High MICROLow MICRO
High MPLow MP
GDP pc log scale
GDP pc log scale
NZ
NZ
NZ
NZ
Note GCI = (Overall) Global Competitiveness Index SIPI = Social and Political Infrastructure MP = Competitiveness of Macroeconomic Policy MICRO = Microeconomic competitiveness Source Institute for Strategy and Competitiveness
Estonia
Ireland
US
S Korea
US
US
US
Estonia
NZrsquos national diamond characterised by extremeshellip some areas world-class while others are morehellip emerging economy
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
New Zealand National Diamond
+ Low trade barriers+ Flexible labour policies+ Strong antitrust + Good investor protection
- Lack of rivalryintensity- ldquoKiwirdquo lifestyle = leisure-focused- Job securitysafety net valued- Low foreign ownership and international tech transfer
+ Brand NZ clean and green+ Low levels of bureaucracy+ Strong primsec education + Easy to start a business
- Brain drain - Low foreign language skills- Lack of scientistsengineers- Weak RampDinnovation- Infra gaps (roads rail telco)- Weak capital markets
+ Awareness of the need for cluster development+ Efforts to push cluster policy to a regional level
- Weak clusters- Few specialized input suppliers high reliance on imported inputs
+ National passions have driven key international successes eg sport
- Historic trade relationship with UK led to a focus on primary products- Demand seldom drives innovation or anticipates trends- Govt procurement not advanced
x
x
x
x
Relatively undiversified economyhellip dominated by agriculture
-05 -03 -01 01 03
NZ Exports Portfolio By Cluster 1997-2007
Share Of World Exports 2007 ()
Change in Nationrsquos Share Of Exports ( 1997-2007)
Processed Food (Dairy)
Agri Product (Meat)
Tourism
Fishing
FurnitureForestry
Two of NZrsquos key clusters dairy and tourism are doing well however majority of other clusters are losing ground
Marine(1)
(1) Relative position of the marine cluster estimated based on data we have collected and interviews conducted the International Cluster Analysis definition includes commercial shipbuilding which distorts the true position of NZrsquos marine cluster which focuses on boats for private use
Communications
25
20
15
05
Four main recommendations to address NZrsquos key challengesIssues Being Addressed More Detail On Actions
Alleviate Factor
Bottlenecks
Mitigate Distance
Encourage Investment
Institute a New Cluster Programme
Recommendations
1
2
3
4
bull Lack of successful clustersbull Lack of strategy at a cluster levelbull Lack of collaborationbull Lack of effective cluster policy
bull Low labour productivitybull Lack of capital intensitybull Lack of investment (domesticFDI)bull Low savings rates
bull Barriers to lsquoeasyrsquo tradebull Inefficiencies at NZrsquos portsbull Inability of NZ firms to
internationalize
bull Weak infrastructure electricity roads rail telco
bull Human capital gaps
bull Infrastructure spendbull Skilled immigration bull Graduate retentionbull Tertiary education reform
bull New cluster policybull More $$ more focusedbull Private sector drivenbull Collaborative Decentralized
bull Kiwisaver compulsorybull Tax reform propertybull FDI policy reform
bull Privatize all portsbull Streamline customsbull Open skiesbull Focused help from NZTE
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
Contents
New Zealand
Marine Cluster
NZrsquos marine cluster generates NZ$19B(1) in sales annuallyhellip
Major Segments In The Cluster Recent Cluster Performance
2003 2005 2006 2008
Superyachts
Total Sales (NZ$m)
Imports ()
Exports ()
Size total sales (NZ$m)
ImpExp ( of Sales)
Superyachts Racing Yachts
Trailer BoatsLaunches
InflatablesRHIBs
RefitMaintenance Other Services
Equipment
(1) Segmentation and data as per the New Zealand Marine Industry Association NZ$19B equivalent to US$11B at current exchange rate of 0567US$ per NZ$
bull Sails masts winches electronics interiorshellip
bull Sail
bull For competition
bull gt25m
bull Sail or Motor
bull 8-25m
bull Sail or Motor
bull 3-8m
bull Motor
bull Inflatable
bull Motor
bull Repair facilities
bull Fuel marinas insurance charters retailinghellip
Equipment
SuperyachtsLaunches
Inflatables
Other
Trailer Boats
Racing
Refit
CAGR (03-08)
6
417
2
15
(3)
5
101366
1548 16411905
Racing Yachts
LaunchesRefit
Inflatables
Trailer BoatsOther
50
50
Equipment
Most internationally competitive segments
100
7Total
75 of marine activity is located in Auckland or nearby regions
NZ Marine Industry Activity
West Park Marina (3 in Auckland)
Gulf Harbour Marina (2 in Auckland)
Hobsonville
Westhaven Marina (1 in Auckland)Alloy
Yachts
Wynyard Point
Evidence of other Marine ActivitySuperYacht Mfg Marinas
Auckland Cluster (examples)
(1) Remaining 8 of activity not marked occurs across a variety of smaller regions
Source New Zealand Marine Industry Survey 2005 Googlemaps
Christchurch
Wellington
Bay of Plenty
Northland
Auckland
9
6
4
5Waikato
4
58
x of NZ Marine Industry Activity (2005)(1) Evidence of agglomeration even within parts of Auckland
3Taranaki
3 Otago
Long-term outlook looks goodhellip although current economic conditions obviously taking a toll (lsquo09 forecast to be down 50)
bull US and Europe are largest end-markets (an estimated 90 of end-market demand) US market more penetrated and lower growth
bull Market is fragmented largest player (Brunswick US) has 14 global share in boat building
bull Bifurcated market cost price increasingly important for lowermid segment (increased standardization) but less so for higher end (custom yachts)
Global Market Size and Growth Global Market Key Features
bull The global pleasure craft market = US$18B
bull Growth of around 5 per annum on a value basis between 1997 and 2007
ndash Superyachts fastest growing
bull Volume growth has been steady since 1970 with some cyclicality Real value growth driven by increasing average boat size
The cluster competes in a global market that has recorded solid growthhellip strongest gains at the top-end
ItalyFerretti 7Azimt Benetti 6Cantiere 1Aicon 1FIPA lt1Perini Navi lt1
FranceBeneteau 6Rodriguez 3Couach lt1Dufour lt1
UKSunseeker 3Princess 2Fairline 2
GermanyBavaria 2Hanse 1Luerssen lt1
DenmarkDanish Yacht lt1
SwedenHallberg Rassy lt1
SloveniaElan Marine lt1
CroatiaElan lt1Lagoon lt1
New ZealandAlloy Yachts lt1Cookson lt1Fitzroy Yachts lt1Yachting Dev lt1
AustraliaAzzura Yachts lt1Seawind lt1Jarkan lt1
ChinaHolland Custom Yachts lt1
TaiwanHorizon Yacht lt1
TurkeyAegean lt1
NetherlandsRoyal Huisman lt1Feadship lt1
USBrunswick 14Genmar 5Catalina 1Hunter 1
NZ is very much a niche player on the global stage
Global Recreational Boat Building Firms ndashmarket shares
Largest firms located in Italy France and US
Source ODDO Equity Research June 2008 MoC team estimates
Superyacht Market Data
(1) Of orders made in top 10 manufacturing countries Note of the 916 superyachts ordered in 2008 60 were sailing yachts
Source Showboats International
bull Superyacht orders have grown each year for last 10 years ndash although for 2009 global order intake down about 50
bull Largest categories (61m+) have seen the rapid growth (gtUS$1m per meter to build)
bull Italy dominates the sectorbull Growing share for Taiwan Turkey China
bull NZ is 10th largest superyacht builder bull 3 in sailing superyachts (estimate 15 global
market share)ndash Particularly strong in racing yachts
bull NZ focuses almost exclusively on custom-built yachts very little activity in lsquoproduction yachtsrsquo
bull World-renowned for qualityndash NZrsquos largest superyacht manufacturer Alloy
Yachts has won 19 international awards since 1991
2003 2004 2005 2006 2007 2008
24-27m
27-30m30-37m
61-76m
37-46m
76m+
46-61m
CAGR (03-08)
14
18
2612
16
16
14
9
480
of Orders By Size
507652 688
777916
of Orders By Location(1)
The Global Superyacht Market
New Zealandrsquos Position
46
121096
11
Italy
US
NetherlandsGermanyTaiwanUKOtherNew Zealand (16)
NZ highly ranked within lucrative superyacht segment
Institutions for collaboration
The NZ cluster centres on boat building
The New Zealand Marine Cluster
Super Yachts
Racing Yachts
Trailer Boats
Launches amp Yachts
Inflatables
Refit amp Maintenance
Marine Events
Boating Consumables amp Other Services
Marinas
Boat Building
Downstream
Upstream
Significant ExportsLimited Exports
Related Clusters
Tourism
Fishing Commercial
Boats
Government Institutions
bull Trade Promotion (NZTE)bull Local Government (ARC)bull Universities (Auckland)bull Industrial Research Ltd
bull Industry Assoc (MIA)bull Export Group (NZ Marine)bull Training Org (BITO)
Yacht Management
Sails amp Rigging
Electronics
Interiors
Masts amp Winches
Other Services (eg Finance)
Composites
Other Equipment
Design
Support provided by public and private institutions for collaboration
(1) BITO is a division of the Marine Industry Association NZ Marine is a separate organization but shares facilities with the MIA
(2) AucklandPlus the economic development arm of the ARC is overseeing the Hobsonville marine precinct and the marine sector feasibility study
Key Institutions NZ Marine Cluster
Marine Industry
Association
NZ Marine
Boating Industry
Training Org
NZ Trade amp Enterprise
Auckland Regional Council
Institutions For Collaboration Government Institutions
bull 500+ members 50 of industrybull Fees $400-$1200 per firmbull Data collection on industrybull Newsletter on industrybull Fosters collaboration at sub-
cluster (eg CPC standards scheme for trailer boats)
bull Provides lsquobusinessrsquo workshops
bull Represents Exportersbull 100 members 85 of exportsbull Runs ldquoYacht visionrdquo 1st int
conference for yacht designersbull Assists at global boat shows
other exporter opportunities (eg Millennium Cup)
bull Administers Marine Apprenticeship scheme (600 currently ~100 graduates pa)
bull 75 government funded
bull Local government authoritybull Regional development strategybull Infrastructurezoning issuesbull Two cluster specific initiatives(2)
bull Support for NZ Exportersbull Global network of officesbull Formerly responsible for
overseeing NZ cluster policy
Auckland University
Industrial Research
Ltd
Closely linked(1)
bull Yacht Research Unitbull Centre for Advanced Composite
Materials (CACM)
bull Government funded RampD entitybull collaboration with Marine firms
(eg in composites)
1995bull Team New
Zealand win Americarsquos Cup
2000bull Americarsquos Cup held in
Auckland Team New Zealand successfully defend title
2003bull Auckland again hosts
Americarsquos Cup Team New Zealand loses to Alinghi skippered by a New Zealander
1984bull NZ wins 2 gold and
1 bronze medal at Los Angeles Olympics ndash first medals for 20 years
1987 bull NZ launches 1st
Americas Cup bid when event is hosted in Australia after Australiarsquos win in lsquo83
1990 1993bull NZ wins
Whitbread Round the World race (and wins again in 1993)
Competitive Sailing Milestones
History of cluster closely aligned with competitive sailing achievements and major yachting events
1992bull Alloy Yachts
wins New Zealandrsquos first Show Boats International Award for Super Yachts
1991bull Southern
Spars produce their first carbon fiber spar
2003bull 8 out of 10
Americarsquos Cup syndicates use Southern Spars rigs
1986 bull High Modulus
instrumental in developing composites for New Zealandrsquos first Americarsquos Cup challenge
2000bull Millennium
Cup launched in Auckland to showcase New Zealand Super Yachts
1979bull High
Modulus founded as surfboard mnfcturer
1987bull Alloy
Yachts founded
2006bull Southern
Spars merge with largest NZ competitor ndash Marten Spars
1996bull MIA (est 1965)
takes out office space and employs 1st
professional officers
1994bull Inaugural lsquoYacht
Visionrsquo run by NZ Marine
Industry Milestones
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
UKAustralia
Canada
GermanyFranceJapan
GreeceNZKorea
MexicoPolandTurkey
USIreland
Norway
0
10
20
30
40
50
60
10 30 50 70 90
Labour productivity low by international standards
Source OECD
hellipWith No Sign NZ Is Closing The Gap
-20
-10
00
10
20
30
40
1983 1987 1991 1995 1999 2003 2007
Period 83-87 88-92 93-97 98-02 03-07
Average 12 18 11 18 10
Cha
nge
in la
bour
pro
duct
ivity
( p
a)
Average (83-07)
NZ
G7Australia
NZ is lagging its OECD peers in terms of prosperity due its low labour productivity
GDP per hour worked (US$hour)
GD
P pe
r cap
ita
(US$
rsquo000
PPP
)
OECD average ($32664)
$4030hour
Low Labour Productivityhellip
Labour Productivity vs GDP per capita (PPP) 2007
Labour Productivity Growth 1983-2007
NZ has a number of unique and valuable endowmentshellip isolation coupled with a tiny population are the major negatives
New Zealand National Endowments
x
bull lsquoClean and greenrsquo image (perception and reality)
bull Good climate for agriculture
bull Southern Hemisphere location provides off-season growing opportunities in serving Northern Hemisphere markets
bull High rainfall and Southern Alps snowmelt provide good conditions for inexpensive Hydro-power (70 of electricity supply)
bull Large ocean territory 7th largest exclusive economic zone (EEZ) in the world
bull Huge distance to markets particularly the most attractive (Europe US)
bull Tiny population low density
bull Unlike Australia for example NZ has few significant natural resource deposits (minerals oil etc)
Favorablehellip Not so Favorablehellip
Note Marine specific endowments addressed elsewhere
A mixed macroeconomic report card
Source OECD EIU
Macroeconomic Performance Overview
0
5
10
15
1983 1987 1991 1995 1999 2003 2007
Low inflation since mid 1980s
CPI ( change pa)
05
10152025
1987 1991 1995 1999 2003 2007
Long-Term Bond Yield () x
-15
-10
-5
01983 1987 1991 1995 1999 2003 2007
Current Account ( of GDP) x
10
15
20
25
1983 1988 1993 1998 2003 2008
Exchange rate (NZDUSD mthly avg) x
0
2
4
6
8
1983 1987 1991 1995 1999 2003 2007
FDI ( of GDP) x
20
30
40
1983 1987 1991 1995 1999 2003 2007
ExportsImports
Internationalisation of economy
Imports and Exports ( GDP)
Decreasing over time
High versus OECD peers Volatile Currency
Persistent current account deficits
Strong business-friendly national institutionsInternationally Ranked(1)
(1) Heritage Foundation 2009 Index of Economic Freedom this is another source in addition to the GCR which tells a similar story (highlights can be found in the backup section of the presentation)
Stable Politics
bull Multi-party moderate
Robust Anti-Trust
bull Com Commission
Independent Central Bank
bull Pure Inflation mandate
Universities
bull 5 universities in top 500 (global)
Labour Policy
bull Weak unions good flexibility
Non-distortive Export Support
bull NZTE
Sensible Trade
bull Low Tariffs (27)
bull FTA China Singapore Thailand Chile Australia ASEAN (coming)
Health Care
bull Cost-effective
bull Ban on litigation for personal injury
Efficient Legal System
Free Capital Flows
Institutional Highlights
bull High Taxes Big Govt
bull 30 corporate 39 top income bracket
bull Govt 40 of GDP
bull Underdevelopedshallow capital markets
bull Prevalence of SOEs
bull Restrictions on Foreign Capital (land telco airline)
Weak Spots()
Low Corruption
bull Ranked 1
High quality human capital but not enough of it
Strong HDIhellipPartial Offset
From Immigration
of College Educated Population Living OSeas
(Select Countries Rank)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 NZ
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
bull NZ is 19th in the world in human development
bull Citizens enjoy long healthy lives excellent education access and high standards of living
But People Leavehellip
bull 87000 permanent migrants in 2007
bull 10100 in net migrationbull 24 on work
permits
bull Government Policybull Focus on certain
categories - skilled Migrant Policy and Active Investor Migrant category
bull Source countriesbull UK (26)bull China (12)bull India (9) bull South Africa (8)
Source Human Development Index (UNDP) OECD
Human capital is a strength although retention seems to be an issue
Poor prosperity given relatively strong competitiveness metrics
Overall GCI vs GDP pc
GDP pc log scale
High GCI
GCI Ranking
Low GCI
Macro (MP) vs hellip
Institutions (SIPI) vs hellip Micro (MICRO) vs hellip
NZrsquos prosperity lags peers with comparable GCIs Is NZrsquos microeconomic environment the reason for this disparity
GDP pc log scale
High SIPILow SIPI High MICROLow MICRO
High MPLow MP
GDP pc log scale
GDP pc log scale
NZ
NZ
NZ
NZ
Note GCI = (Overall) Global Competitiveness Index SIPI = Social and Political Infrastructure MP = Competitiveness of Macroeconomic Policy MICRO = Microeconomic competitiveness Source Institute for Strategy and Competitiveness
Estonia
Ireland
US
S Korea
US
US
US
Estonia
NZrsquos national diamond characterised by extremeshellip some areas world-class while others are morehellip emerging economy
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
New Zealand National Diamond
+ Low trade barriers+ Flexible labour policies+ Strong antitrust + Good investor protection
- Lack of rivalryintensity- ldquoKiwirdquo lifestyle = leisure-focused- Job securitysafety net valued- Low foreign ownership and international tech transfer
+ Brand NZ clean and green+ Low levels of bureaucracy+ Strong primsec education + Easy to start a business
- Brain drain - Low foreign language skills- Lack of scientistsengineers- Weak RampDinnovation- Infra gaps (roads rail telco)- Weak capital markets
+ Awareness of the need for cluster development+ Efforts to push cluster policy to a regional level
- Weak clusters- Few specialized input suppliers high reliance on imported inputs
+ National passions have driven key international successes eg sport
- Historic trade relationship with UK led to a focus on primary products- Demand seldom drives innovation or anticipates trends- Govt procurement not advanced
x
x
x
x
Relatively undiversified economyhellip dominated by agriculture
-05 -03 -01 01 03
NZ Exports Portfolio By Cluster 1997-2007
Share Of World Exports 2007 ()
Change in Nationrsquos Share Of Exports ( 1997-2007)
Processed Food (Dairy)
Agri Product (Meat)
Tourism
Fishing
FurnitureForestry
Two of NZrsquos key clusters dairy and tourism are doing well however majority of other clusters are losing ground
Marine(1)
(1) Relative position of the marine cluster estimated based on data we have collected and interviews conducted the International Cluster Analysis definition includes commercial shipbuilding which distorts the true position of NZrsquos marine cluster which focuses on boats for private use
Communications
25
20
15
05
Four main recommendations to address NZrsquos key challengesIssues Being Addressed More Detail On Actions
Alleviate Factor
Bottlenecks
Mitigate Distance
Encourage Investment
Institute a New Cluster Programme
Recommendations
1
2
3
4
bull Lack of successful clustersbull Lack of strategy at a cluster levelbull Lack of collaborationbull Lack of effective cluster policy
bull Low labour productivitybull Lack of capital intensitybull Lack of investment (domesticFDI)bull Low savings rates
bull Barriers to lsquoeasyrsquo tradebull Inefficiencies at NZrsquos portsbull Inability of NZ firms to
internationalize
bull Weak infrastructure electricity roads rail telco
bull Human capital gaps
bull Infrastructure spendbull Skilled immigration bull Graduate retentionbull Tertiary education reform
bull New cluster policybull More $$ more focusedbull Private sector drivenbull Collaborative Decentralized
bull Kiwisaver compulsorybull Tax reform propertybull FDI policy reform
bull Privatize all portsbull Streamline customsbull Open skiesbull Focused help from NZTE
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
Contents
New Zealand
Marine Cluster
NZrsquos marine cluster generates NZ$19B(1) in sales annuallyhellip
Major Segments In The Cluster Recent Cluster Performance
2003 2005 2006 2008
Superyachts
Total Sales (NZ$m)
Imports ()
Exports ()
Size total sales (NZ$m)
ImpExp ( of Sales)
Superyachts Racing Yachts
Trailer BoatsLaunches
InflatablesRHIBs
RefitMaintenance Other Services
Equipment
(1) Segmentation and data as per the New Zealand Marine Industry Association NZ$19B equivalent to US$11B at current exchange rate of 0567US$ per NZ$
bull Sails masts winches electronics interiorshellip
bull Sail
bull For competition
bull gt25m
bull Sail or Motor
bull 8-25m
bull Sail or Motor
bull 3-8m
bull Motor
bull Inflatable
bull Motor
bull Repair facilities
bull Fuel marinas insurance charters retailinghellip
Equipment
SuperyachtsLaunches
Inflatables
Other
Trailer Boats
Racing
Refit
CAGR (03-08)
6
417
2
15
(3)
5
101366
1548 16411905
Racing Yachts
LaunchesRefit
Inflatables
Trailer BoatsOther
50
50
Equipment
Most internationally competitive segments
100
7Total
75 of marine activity is located in Auckland or nearby regions
NZ Marine Industry Activity
West Park Marina (3 in Auckland)
Gulf Harbour Marina (2 in Auckland)
Hobsonville
Westhaven Marina (1 in Auckland)Alloy
Yachts
Wynyard Point
Evidence of other Marine ActivitySuperYacht Mfg Marinas
Auckland Cluster (examples)
(1) Remaining 8 of activity not marked occurs across a variety of smaller regions
Source New Zealand Marine Industry Survey 2005 Googlemaps
Christchurch
Wellington
Bay of Plenty
Northland
Auckland
9
6
4
5Waikato
4
58
x of NZ Marine Industry Activity (2005)(1) Evidence of agglomeration even within parts of Auckland
3Taranaki
3 Otago
Long-term outlook looks goodhellip although current economic conditions obviously taking a toll (lsquo09 forecast to be down 50)
bull US and Europe are largest end-markets (an estimated 90 of end-market demand) US market more penetrated and lower growth
bull Market is fragmented largest player (Brunswick US) has 14 global share in boat building
bull Bifurcated market cost price increasingly important for lowermid segment (increased standardization) but less so for higher end (custom yachts)
Global Market Size and Growth Global Market Key Features
bull The global pleasure craft market = US$18B
bull Growth of around 5 per annum on a value basis between 1997 and 2007
ndash Superyachts fastest growing
bull Volume growth has been steady since 1970 with some cyclicality Real value growth driven by increasing average boat size
The cluster competes in a global market that has recorded solid growthhellip strongest gains at the top-end
ItalyFerretti 7Azimt Benetti 6Cantiere 1Aicon 1FIPA lt1Perini Navi lt1
FranceBeneteau 6Rodriguez 3Couach lt1Dufour lt1
UKSunseeker 3Princess 2Fairline 2
GermanyBavaria 2Hanse 1Luerssen lt1
DenmarkDanish Yacht lt1
SwedenHallberg Rassy lt1
SloveniaElan Marine lt1
CroatiaElan lt1Lagoon lt1
New ZealandAlloy Yachts lt1Cookson lt1Fitzroy Yachts lt1Yachting Dev lt1
AustraliaAzzura Yachts lt1Seawind lt1Jarkan lt1
ChinaHolland Custom Yachts lt1
TaiwanHorizon Yacht lt1
TurkeyAegean lt1
NetherlandsRoyal Huisman lt1Feadship lt1
USBrunswick 14Genmar 5Catalina 1Hunter 1
NZ is very much a niche player on the global stage
Global Recreational Boat Building Firms ndashmarket shares
Largest firms located in Italy France and US
Source ODDO Equity Research June 2008 MoC team estimates
Superyacht Market Data
(1) Of orders made in top 10 manufacturing countries Note of the 916 superyachts ordered in 2008 60 were sailing yachts
Source Showboats International
bull Superyacht orders have grown each year for last 10 years ndash although for 2009 global order intake down about 50
bull Largest categories (61m+) have seen the rapid growth (gtUS$1m per meter to build)
bull Italy dominates the sectorbull Growing share for Taiwan Turkey China
bull NZ is 10th largest superyacht builder bull 3 in sailing superyachts (estimate 15 global
market share)ndash Particularly strong in racing yachts
bull NZ focuses almost exclusively on custom-built yachts very little activity in lsquoproduction yachtsrsquo
bull World-renowned for qualityndash NZrsquos largest superyacht manufacturer Alloy
Yachts has won 19 international awards since 1991
2003 2004 2005 2006 2007 2008
24-27m
27-30m30-37m
61-76m
37-46m
76m+
46-61m
CAGR (03-08)
14
18
2612
16
16
14
9
480
of Orders By Size
507652 688
777916
of Orders By Location(1)
The Global Superyacht Market
New Zealandrsquos Position
46
121096
11
Italy
US
NetherlandsGermanyTaiwanUKOtherNew Zealand (16)
NZ highly ranked within lucrative superyacht segment
Institutions for collaboration
The NZ cluster centres on boat building
The New Zealand Marine Cluster
Super Yachts
Racing Yachts
Trailer Boats
Launches amp Yachts
Inflatables
Refit amp Maintenance
Marine Events
Boating Consumables amp Other Services
Marinas
Boat Building
Downstream
Upstream
Significant ExportsLimited Exports
Related Clusters
Tourism
Fishing Commercial
Boats
Government Institutions
bull Trade Promotion (NZTE)bull Local Government (ARC)bull Universities (Auckland)bull Industrial Research Ltd
bull Industry Assoc (MIA)bull Export Group (NZ Marine)bull Training Org (BITO)
Yacht Management
Sails amp Rigging
Electronics
Interiors
Masts amp Winches
Other Services (eg Finance)
Composites
Other Equipment
Design
Support provided by public and private institutions for collaboration
(1) BITO is a division of the Marine Industry Association NZ Marine is a separate organization but shares facilities with the MIA
(2) AucklandPlus the economic development arm of the ARC is overseeing the Hobsonville marine precinct and the marine sector feasibility study
Key Institutions NZ Marine Cluster
Marine Industry
Association
NZ Marine
Boating Industry
Training Org
NZ Trade amp Enterprise
Auckland Regional Council
Institutions For Collaboration Government Institutions
bull 500+ members 50 of industrybull Fees $400-$1200 per firmbull Data collection on industrybull Newsletter on industrybull Fosters collaboration at sub-
cluster (eg CPC standards scheme for trailer boats)
bull Provides lsquobusinessrsquo workshops
bull Represents Exportersbull 100 members 85 of exportsbull Runs ldquoYacht visionrdquo 1st int
conference for yacht designersbull Assists at global boat shows
other exporter opportunities (eg Millennium Cup)
bull Administers Marine Apprenticeship scheme (600 currently ~100 graduates pa)
bull 75 government funded
bull Local government authoritybull Regional development strategybull Infrastructurezoning issuesbull Two cluster specific initiatives(2)
bull Support for NZ Exportersbull Global network of officesbull Formerly responsible for
overseeing NZ cluster policy
Auckland University
Industrial Research
Ltd
Closely linked(1)
bull Yacht Research Unitbull Centre for Advanced Composite
Materials (CACM)
bull Government funded RampD entitybull collaboration with Marine firms
(eg in composites)
1995bull Team New
Zealand win Americarsquos Cup
2000bull Americarsquos Cup held in
Auckland Team New Zealand successfully defend title
2003bull Auckland again hosts
Americarsquos Cup Team New Zealand loses to Alinghi skippered by a New Zealander
1984bull NZ wins 2 gold and
1 bronze medal at Los Angeles Olympics ndash first medals for 20 years
1987 bull NZ launches 1st
Americas Cup bid when event is hosted in Australia after Australiarsquos win in lsquo83
1990 1993bull NZ wins
Whitbread Round the World race (and wins again in 1993)
Competitive Sailing Milestones
History of cluster closely aligned with competitive sailing achievements and major yachting events
1992bull Alloy Yachts
wins New Zealandrsquos first Show Boats International Award for Super Yachts
1991bull Southern
Spars produce their first carbon fiber spar
2003bull 8 out of 10
Americarsquos Cup syndicates use Southern Spars rigs
1986 bull High Modulus
instrumental in developing composites for New Zealandrsquos first Americarsquos Cup challenge
2000bull Millennium
Cup launched in Auckland to showcase New Zealand Super Yachts
1979bull High
Modulus founded as surfboard mnfcturer
1987bull Alloy
Yachts founded
2006bull Southern
Spars merge with largest NZ competitor ndash Marten Spars
1996bull MIA (est 1965)
takes out office space and employs 1st
professional officers
1994bull Inaugural lsquoYacht
Visionrsquo run by NZ Marine
Industry Milestones
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
NZ has a number of unique and valuable endowmentshellip isolation coupled with a tiny population are the major negatives
New Zealand National Endowments
x
bull lsquoClean and greenrsquo image (perception and reality)
bull Good climate for agriculture
bull Southern Hemisphere location provides off-season growing opportunities in serving Northern Hemisphere markets
bull High rainfall and Southern Alps snowmelt provide good conditions for inexpensive Hydro-power (70 of electricity supply)
bull Large ocean territory 7th largest exclusive economic zone (EEZ) in the world
bull Huge distance to markets particularly the most attractive (Europe US)
bull Tiny population low density
bull Unlike Australia for example NZ has few significant natural resource deposits (minerals oil etc)
Favorablehellip Not so Favorablehellip
Note Marine specific endowments addressed elsewhere
A mixed macroeconomic report card
Source OECD EIU
Macroeconomic Performance Overview
0
5
10
15
1983 1987 1991 1995 1999 2003 2007
Low inflation since mid 1980s
CPI ( change pa)
05
10152025
1987 1991 1995 1999 2003 2007
Long-Term Bond Yield () x
-15
-10
-5
01983 1987 1991 1995 1999 2003 2007
Current Account ( of GDP) x
10
15
20
25
1983 1988 1993 1998 2003 2008
Exchange rate (NZDUSD mthly avg) x
0
2
4
6
8
1983 1987 1991 1995 1999 2003 2007
FDI ( of GDP) x
20
30
40
1983 1987 1991 1995 1999 2003 2007
ExportsImports
Internationalisation of economy
Imports and Exports ( GDP)
Decreasing over time
High versus OECD peers Volatile Currency
Persistent current account deficits
Strong business-friendly national institutionsInternationally Ranked(1)
(1) Heritage Foundation 2009 Index of Economic Freedom this is another source in addition to the GCR which tells a similar story (highlights can be found in the backup section of the presentation)
Stable Politics
bull Multi-party moderate
Robust Anti-Trust
bull Com Commission
Independent Central Bank
bull Pure Inflation mandate
Universities
bull 5 universities in top 500 (global)
Labour Policy
bull Weak unions good flexibility
Non-distortive Export Support
bull NZTE
Sensible Trade
bull Low Tariffs (27)
bull FTA China Singapore Thailand Chile Australia ASEAN (coming)
Health Care
bull Cost-effective
bull Ban on litigation for personal injury
Efficient Legal System
Free Capital Flows
Institutional Highlights
bull High Taxes Big Govt
bull 30 corporate 39 top income bracket
bull Govt 40 of GDP
bull Underdevelopedshallow capital markets
bull Prevalence of SOEs
bull Restrictions on Foreign Capital (land telco airline)
Weak Spots()
Low Corruption
bull Ranked 1
High quality human capital but not enough of it
Strong HDIhellipPartial Offset
From Immigration
of College Educated Population Living OSeas
(Select Countries Rank)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 NZ
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
bull NZ is 19th in the world in human development
bull Citizens enjoy long healthy lives excellent education access and high standards of living
But People Leavehellip
bull 87000 permanent migrants in 2007
bull 10100 in net migrationbull 24 on work
permits
bull Government Policybull Focus on certain
categories - skilled Migrant Policy and Active Investor Migrant category
bull Source countriesbull UK (26)bull China (12)bull India (9) bull South Africa (8)
Source Human Development Index (UNDP) OECD
Human capital is a strength although retention seems to be an issue
Poor prosperity given relatively strong competitiveness metrics
Overall GCI vs GDP pc
GDP pc log scale
High GCI
GCI Ranking
Low GCI
Macro (MP) vs hellip
Institutions (SIPI) vs hellip Micro (MICRO) vs hellip
NZrsquos prosperity lags peers with comparable GCIs Is NZrsquos microeconomic environment the reason for this disparity
GDP pc log scale
High SIPILow SIPI High MICROLow MICRO
High MPLow MP
GDP pc log scale
GDP pc log scale
NZ
NZ
NZ
NZ
Note GCI = (Overall) Global Competitiveness Index SIPI = Social and Political Infrastructure MP = Competitiveness of Macroeconomic Policy MICRO = Microeconomic competitiveness Source Institute for Strategy and Competitiveness
Estonia
Ireland
US
S Korea
US
US
US
Estonia
NZrsquos national diamond characterised by extremeshellip some areas world-class while others are morehellip emerging economy
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
New Zealand National Diamond
+ Low trade barriers+ Flexible labour policies+ Strong antitrust + Good investor protection
- Lack of rivalryintensity- ldquoKiwirdquo lifestyle = leisure-focused- Job securitysafety net valued- Low foreign ownership and international tech transfer
+ Brand NZ clean and green+ Low levels of bureaucracy+ Strong primsec education + Easy to start a business
- Brain drain - Low foreign language skills- Lack of scientistsengineers- Weak RampDinnovation- Infra gaps (roads rail telco)- Weak capital markets
+ Awareness of the need for cluster development+ Efforts to push cluster policy to a regional level
- Weak clusters- Few specialized input suppliers high reliance on imported inputs
+ National passions have driven key international successes eg sport
- Historic trade relationship with UK led to a focus on primary products- Demand seldom drives innovation or anticipates trends- Govt procurement not advanced
x
x
x
x
Relatively undiversified economyhellip dominated by agriculture
-05 -03 -01 01 03
NZ Exports Portfolio By Cluster 1997-2007
Share Of World Exports 2007 ()
Change in Nationrsquos Share Of Exports ( 1997-2007)
Processed Food (Dairy)
Agri Product (Meat)
Tourism
Fishing
FurnitureForestry
Two of NZrsquos key clusters dairy and tourism are doing well however majority of other clusters are losing ground
Marine(1)
(1) Relative position of the marine cluster estimated based on data we have collected and interviews conducted the International Cluster Analysis definition includes commercial shipbuilding which distorts the true position of NZrsquos marine cluster which focuses on boats for private use
Communications
25
20
15
05
Four main recommendations to address NZrsquos key challengesIssues Being Addressed More Detail On Actions
Alleviate Factor
Bottlenecks
Mitigate Distance
Encourage Investment
Institute a New Cluster Programme
Recommendations
1
2
3
4
bull Lack of successful clustersbull Lack of strategy at a cluster levelbull Lack of collaborationbull Lack of effective cluster policy
bull Low labour productivitybull Lack of capital intensitybull Lack of investment (domesticFDI)bull Low savings rates
bull Barriers to lsquoeasyrsquo tradebull Inefficiencies at NZrsquos portsbull Inability of NZ firms to
internationalize
bull Weak infrastructure electricity roads rail telco
bull Human capital gaps
bull Infrastructure spendbull Skilled immigration bull Graduate retentionbull Tertiary education reform
bull New cluster policybull More $$ more focusedbull Private sector drivenbull Collaborative Decentralized
bull Kiwisaver compulsorybull Tax reform propertybull FDI policy reform
bull Privatize all portsbull Streamline customsbull Open skiesbull Focused help from NZTE
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
Contents
New Zealand
Marine Cluster
NZrsquos marine cluster generates NZ$19B(1) in sales annuallyhellip
Major Segments In The Cluster Recent Cluster Performance
2003 2005 2006 2008
Superyachts
Total Sales (NZ$m)
Imports ()
Exports ()
Size total sales (NZ$m)
ImpExp ( of Sales)
Superyachts Racing Yachts
Trailer BoatsLaunches
InflatablesRHIBs
RefitMaintenance Other Services
Equipment
(1) Segmentation and data as per the New Zealand Marine Industry Association NZ$19B equivalent to US$11B at current exchange rate of 0567US$ per NZ$
bull Sails masts winches electronics interiorshellip
bull Sail
bull For competition
bull gt25m
bull Sail or Motor
bull 8-25m
bull Sail or Motor
bull 3-8m
bull Motor
bull Inflatable
bull Motor
bull Repair facilities
bull Fuel marinas insurance charters retailinghellip
Equipment
SuperyachtsLaunches
Inflatables
Other
Trailer Boats
Racing
Refit
CAGR (03-08)
6
417
2
15
(3)
5
101366
1548 16411905
Racing Yachts
LaunchesRefit
Inflatables
Trailer BoatsOther
50
50
Equipment
Most internationally competitive segments
100
7Total
75 of marine activity is located in Auckland or nearby regions
NZ Marine Industry Activity
West Park Marina (3 in Auckland)
Gulf Harbour Marina (2 in Auckland)
Hobsonville
Westhaven Marina (1 in Auckland)Alloy
Yachts
Wynyard Point
Evidence of other Marine ActivitySuperYacht Mfg Marinas
Auckland Cluster (examples)
(1) Remaining 8 of activity not marked occurs across a variety of smaller regions
Source New Zealand Marine Industry Survey 2005 Googlemaps
Christchurch
Wellington
Bay of Plenty
Northland
Auckland
9
6
4
5Waikato
4
58
x of NZ Marine Industry Activity (2005)(1) Evidence of agglomeration even within parts of Auckland
3Taranaki
3 Otago
Long-term outlook looks goodhellip although current economic conditions obviously taking a toll (lsquo09 forecast to be down 50)
bull US and Europe are largest end-markets (an estimated 90 of end-market demand) US market more penetrated and lower growth
bull Market is fragmented largest player (Brunswick US) has 14 global share in boat building
bull Bifurcated market cost price increasingly important for lowermid segment (increased standardization) but less so for higher end (custom yachts)
Global Market Size and Growth Global Market Key Features
bull The global pleasure craft market = US$18B
bull Growth of around 5 per annum on a value basis between 1997 and 2007
ndash Superyachts fastest growing
bull Volume growth has been steady since 1970 with some cyclicality Real value growth driven by increasing average boat size
The cluster competes in a global market that has recorded solid growthhellip strongest gains at the top-end
ItalyFerretti 7Azimt Benetti 6Cantiere 1Aicon 1FIPA lt1Perini Navi lt1
FranceBeneteau 6Rodriguez 3Couach lt1Dufour lt1
UKSunseeker 3Princess 2Fairline 2
GermanyBavaria 2Hanse 1Luerssen lt1
DenmarkDanish Yacht lt1
SwedenHallberg Rassy lt1
SloveniaElan Marine lt1
CroatiaElan lt1Lagoon lt1
New ZealandAlloy Yachts lt1Cookson lt1Fitzroy Yachts lt1Yachting Dev lt1
AustraliaAzzura Yachts lt1Seawind lt1Jarkan lt1
ChinaHolland Custom Yachts lt1
TaiwanHorizon Yacht lt1
TurkeyAegean lt1
NetherlandsRoyal Huisman lt1Feadship lt1
USBrunswick 14Genmar 5Catalina 1Hunter 1
NZ is very much a niche player on the global stage
Global Recreational Boat Building Firms ndashmarket shares
Largest firms located in Italy France and US
Source ODDO Equity Research June 2008 MoC team estimates
Superyacht Market Data
(1) Of orders made in top 10 manufacturing countries Note of the 916 superyachts ordered in 2008 60 were sailing yachts
Source Showboats International
bull Superyacht orders have grown each year for last 10 years ndash although for 2009 global order intake down about 50
bull Largest categories (61m+) have seen the rapid growth (gtUS$1m per meter to build)
bull Italy dominates the sectorbull Growing share for Taiwan Turkey China
bull NZ is 10th largest superyacht builder bull 3 in sailing superyachts (estimate 15 global
market share)ndash Particularly strong in racing yachts
bull NZ focuses almost exclusively on custom-built yachts very little activity in lsquoproduction yachtsrsquo
bull World-renowned for qualityndash NZrsquos largest superyacht manufacturer Alloy
Yachts has won 19 international awards since 1991
2003 2004 2005 2006 2007 2008
24-27m
27-30m30-37m
61-76m
37-46m
76m+
46-61m
CAGR (03-08)
14
18
2612
16
16
14
9
480
of Orders By Size
507652 688
777916
of Orders By Location(1)
The Global Superyacht Market
New Zealandrsquos Position
46
121096
11
Italy
US
NetherlandsGermanyTaiwanUKOtherNew Zealand (16)
NZ highly ranked within lucrative superyacht segment
Institutions for collaboration
The NZ cluster centres on boat building
The New Zealand Marine Cluster
Super Yachts
Racing Yachts
Trailer Boats
Launches amp Yachts
Inflatables
Refit amp Maintenance
Marine Events
Boating Consumables amp Other Services
Marinas
Boat Building
Downstream
Upstream
Significant ExportsLimited Exports
Related Clusters
Tourism
Fishing Commercial
Boats
Government Institutions
bull Trade Promotion (NZTE)bull Local Government (ARC)bull Universities (Auckland)bull Industrial Research Ltd
bull Industry Assoc (MIA)bull Export Group (NZ Marine)bull Training Org (BITO)
Yacht Management
Sails amp Rigging
Electronics
Interiors
Masts amp Winches
Other Services (eg Finance)
Composites
Other Equipment
Design
Support provided by public and private institutions for collaboration
(1) BITO is a division of the Marine Industry Association NZ Marine is a separate organization but shares facilities with the MIA
(2) AucklandPlus the economic development arm of the ARC is overseeing the Hobsonville marine precinct and the marine sector feasibility study
Key Institutions NZ Marine Cluster
Marine Industry
Association
NZ Marine
Boating Industry
Training Org
NZ Trade amp Enterprise
Auckland Regional Council
Institutions For Collaboration Government Institutions
bull 500+ members 50 of industrybull Fees $400-$1200 per firmbull Data collection on industrybull Newsletter on industrybull Fosters collaboration at sub-
cluster (eg CPC standards scheme for trailer boats)
bull Provides lsquobusinessrsquo workshops
bull Represents Exportersbull 100 members 85 of exportsbull Runs ldquoYacht visionrdquo 1st int
conference for yacht designersbull Assists at global boat shows
other exporter opportunities (eg Millennium Cup)
bull Administers Marine Apprenticeship scheme (600 currently ~100 graduates pa)
bull 75 government funded
bull Local government authoritybull Regional development strategybull Infrastructurezoning issuesbull Two cluster specific initiatives(2)
bull Support for NZ Exportersbull Global network of officesbull Formerly responsible for
overseeing NZ cluster policy
Auckland University
Industrial Research
Ltd
Closely linked(1)
bull Yacht Research Unitbull Centre for Advanced Composite
Materials (CACM)
bull Government funded RampD entitybull collaboration with Marine firms
(eg in composites)
1995bull Team New
Zealand win Americarsquos Cup
2000bull Americarsquos Cup held in
Auckland Team New Zealand successfully defend title
2003bull Auckland again hosts
Americarsquos Cup Team New Zealand loses to Alinghi skippered by a New Zealander
1984bull NZ wins 2 gold and
1 bronze medal at Los Angeles Olympics ndash first medals for 20 years
1987 bull NZ launches 1st
Americas Cup bid when event is hosted in Australia after Australiarsquos win in lsquo83
1990 1993bull NZ wins
Whitbread Round the World race (and wins again in 1993)
Competitive Sailing Milestones
History of cluster closely aligned with competitive sailing achievements and major yachting events
1992bull Alloy Yachts
wins New Zealandrsquos first Show Boats International Award for Super Yachts
1991bull Southern
Spars produce their first carbon fiber spar
2003bull 8 out of 10
Americarsquos Cup syndicates use Southern Spars rigs
1986 bull High Modulus
instrumental in developing composites for New Zealandrsquos first Americarsquos Cup challenge
2000bull Millennium
Cup launched in Auckland to showcase New Zealand Super Yachts
1979bull High
Modulus founded as surfboard mnfcturer
1987bull Alloy
Yachts founded
2006bull Southern
Spars merge with largest NZ competitor ndash Marten Spars
1996bull MIA (est 1965)
takes out office space and employs 1st
professional officers
1994bull Inaugural lsquoYacht
Visionrsquo run by NZ Marine
Industry Milestones
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
A mixed macroeconomic report card
Source OECD EIU
Macroeconomic Performance Overview
0
5
10
15
1983 1987 1991 1995 1999 2003 2007
Low inflation since mid 1980s
CPI ( change pa)
05
10152025
1987 1991 1995 1999 2003 2007
Long-Term Bond Yield () x
-15
-10
-5
01983 1987 1991 1995 1999 2003 2007
Current Account ( of GDP) x
10
15
20
25
1983 1988 1993 1998 2003 2008
Exchange rate (NZDUSD mthly avg) x
0
2
4
6
8
1983 1987 1991 1995 1999 2003 2007
FDI ( of GDP) x
20
30
40
1983 1987 1991 1995 1999 2003 2007
ExportsImports
Internationalisation of economy
Imports and Exports ( GDP)
Decreasing over time
High versus OECD peers Volatile Currency
Persistent current account deficits
Strong business-friendly national institutionsInternationally Ranked(1)
(1) Heritage Foundation 2009 Index of Economic Freedom this is another source in addition to the GCR which tells a similar story (highlights can be found in the backup section of the presentation)
Stable Politics
bull Multi-party moderate
Robust Anti-Trust
bull Com Commission
Independent Central Bank
bull Pure Inflation mandate
Universities
bull 5 universities in top 500 (global)
Labour Policy
bull Weak unions good flexibility
Non-distortive Export Support
bull NZTE
Sensible Trade
bull Low Tariffs (27)
bull FTA China Singapore Thailand Chile Australia ASEAN (coming)
Health Care
bull Cost-effective
bull Ban on litigation for personal injury
Efficient Legal System
Free Capital Flows
Institutional Highlights
bull High Taxes Big Govt
bull 30 corporate 39 top income bracket
bull Govt 40 of GDP
bull Underdevelopedshallow capital markets
bull Prevalence of SOEs
bull Restrictions on Foreign Capital (land telco airline)
Weak Spots()
Low Corruption
bull Ranked 1
High quality human capital but not enough of it
Strong HDIhellipPartial Offset
From Immigration
of College Educated Population Living OSeas
(Select Countries Rank)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 NZ
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
bull NZ is 19th in the world in human development
bull Citizens enjoy long healthy lives excellent education access and high standards of living
But People Leavehellip
bull 87000 permanent migrants in 2007
bull 10100 in net migrationbull 24 on work
permits
bull Government Policybull Focus on certain
categories - skilled Migrant Policy and Active Investor Migrant category
bull Source countriesbull UK (26)bull China (12)bull India (9) bull South Africa (8)
Source Human Development Index (UNDP) OECD
Human capital is a strength although retention seems to be an issue
Poor prosperity given relatively strong competitiveness metrics
Overall GCI vs GDP pc
GDP pc log scale
High GCI
GCI Ranking
Low GCI
Macro (MP) vs hellip
Institutions (SIPI) vs hellip Micro (MICRO) vs hellip
NZrsquos prosperity lags peers with comparable GCIs Is NZrsquos microeconomic environment the reason for this disparity
GDP pc log scale
High SIPILow SIPI High MICROLow MICRO
High MPLow MP
GDP pc log scale
GDP pc log scale
NZ
NZ
NZ
NZ
Note GCI = (Overall) Global Competitiveness Index SIPI = Social and Political Infrastructure MP = Competitiveness of Macroeconomic Policy MICRO = Microeconomic competitiveness Source Institute for Strategy and Competitiveness
Estonia
Ireland
US
S Korea
US
US
US
Estonia
NZrsquos national diamond characterised by extremeshellip some areas world-class while others are morehellip emerging economy
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
New Zealand National Diamond
+ Low trade barriers+ Flexible labour policies+ Strong antitrust + Good investor protection
- Lack of rivalryintensity- ldquoKiwirdquo lifestyle = leisure-focused- Job securitysafety net valued- Low foreign ownership and international tech transfer
+ Brand NZ clean and green+ Low levels of bureaucracy+ Strong primsec education + Easy to start a business
- Brain drain - Low foreign language skills- Lack of scientistsengineers- Weak RampDinnovation- Infra gaps (roads rail telco)- Weak capital markets
+ Awareness of the need for cluster development+ Efforts to push cluster policy to a regional level
- Weak clusters- Few specialized input suppliers high reliance on imported inputs
+ National passions have driven key international successes eg sport
- Historic trade relationship with UK led to a focus on primary products- Demand seldom drives innovation or anticipates trends- Govt procurement not advanced
x
x
x
x
Relatively undiversified economyhellip dominated by agriculture
-05 -03 -01 01 03
NZ Exports Portfolio By Cluster 1997-2007
Share Of World Exports 2007 ()
Change in Nationrsquos Share Of Exports ( 1997-2007)
Processed Food (Dairy)
Agri Product (Meat)
Tourism
Fishing
FurnitureForestry
Two of NZrsquos key clusters dairy and tourism are doing well however majority of other clusters are losing ground
Marine(1)
(1) Relative position of the marine cluster estimated based on data we have collected and interviews conducted the International Cluster Analysis definition includes commercial shipbuilding which distorts the true position of NZrsquos marine cluster which focuses on boats for private use
Communications
25
20
15
05
Four main recommendations to address NZrsquos key challengesIssues Being Addressed More Detail On Actions
Alleviate Factor
Bottlenecks
Mitigate Distance
Encourage Investment
Institute a New Cluster Programme
Recommendations
1
2
3
4
bull Lack of successful clustersbull Lack of strategy at a cluster levelbull Lack of collaborationbull Lack of effective cluster policy
bull Low labour productivitybull Lack of capital intensitybull Lack of investment (domesticFDI)bull Low savings rates
bull Barriers to lsquoeasyrsquo tradebull Inefficiencies at NZrsquos portsbull Inability of NZ firms to
internationalize
bull Weak infrastructure electricity roads rail telco
bull Human capital gaps
bull Infrastructure spendbull Skilled immigration bull Graduate retentionbull Tertiary education reform
bull New cluster policybull More $$ more focusedbull Private sector drivenbull Collaborative Decentralized
bull Kiwisaver compulsorybull Tax reform propertybull FDI policy reform
bull Privatize all portsbull Streamline customsbull Open skiesbull Focused help from NZTE
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
Contents
New Zealand
Marine Cluster
NZrsquos marine cluster generates NZ$19B(1) in sales annuallyhellip
Major Segments In The Cluster Recent Cluster Performance
2003 2005 2006 2008
Superyachts
Total Sales (NZ$m)
Imports ()
Exports ()
Size total sales (NZ$m)
ImpExp ( of Sales)
Superyachts Racing Yachts
Trailer BoatsLaunches
InflatablesRHIBs
RefitMaintenance Other Services
Equipment
(1) Segmentation and data as per the New Zealand Marine Industry Association NZ$19B equivalent to US$11B at current exchange rate of 0567US$ per NZ$
bull Sails masts winches electronics interiorshellip
bull Sail
bull For competition
bull gt25m
bull Sail or Motor
bull 8-25m
bull Sail or Motor
bull 3-8m
bull Motor
bull Inflatable
bull Motor
bull Repair facilities
bull Fuel marinas insurance charters retailinghellip
Equipment
SuperyachtsLaunches
Inflatables
Other
Trailer Boats
Racing
Refit
CAGR (03-08)
6
417
2
15
(3)
5
101366
1548 16411905
Racing Yachts
LaunchesRefit
Inflatables
Trailer BoatsOther
50
50
Equipment
Most internationally competitive segments
100
7Total
75 of marine activity is located in Auckland or nearby regions
NZ Marine Industry Activity
West Park Marina (3 in Auckland)
Gulf Harbour Marina (2 in Auckland)
Hobsonville
Westhaven Marina (1 in Auckland)Alloy
Yachts
Wynyard Point
Evidence of other Marine ActivitySuperYacht Mfg Marinas
Auckland Cluster (examples)
(1) Remaining 8 of activity not marked occurs across a variety of smaller regions
Source New Zealand Marine Industry Survey 2005 Googlemaps
Christchurch
Wellington
Bay of Plenty
Northland
Auckland
9
6
4
5Waikato
4
58
x of NZ Marine Industry Activity (2005)(1) Evidence of agglomeration even within parts of Auckland
3Taranaki
3 Otago
Long-term outlook looks goodhellip although current economic conditions obviously taking a toll (lsquo09 forecast to be down 50)
bull US and Europe are largest end-markets (an estimated 90 of end-market demand) US market more penetrated and lower growth
bull Market is fragmented largest player (Brunswick US) has 14 global share in boat building
bull Bifurcated market cost price increasingly important for lowermid segment (increased standardization) but less so for higher end (custom yachts)
Global Market Size and Growth Global Market Key Features
bull The global pleasure craft market = US$18B
bull Growth of around 5 per annum on a value basis between 1997 and 2007
ndash Superyachts fastest growing
bull Volume growth has been steady since 1970 with some cyclicality Real value growth driven by increasing average boat size
The cluster competes in a global market that has recorded solid growthhellip strongest gains at the top-end
ItalyFerretti 7Azimt Benetti 6Cantiere 1Aicon 1FIPA lt1Perini Navi lt1
FranceBeneteau 6Rodriguez 3Couach lt1Dufour lt1
UKSunseeker 3Princess 2Fairline 2
GermanyBavaria 2Hanse 1Luerssen lt1
DenmarkDanish Yacht lt1
SwedenHallberg Rassy lt1
SloveniaElan Marine lt1
CroatiaElan lt1Lagoon lt1
New ZealandAlloy Yachts lt1Cookson lt1Fitzroy Yachts lt1Yachting Dev lt1
AustraliaAzzura Yachts lt1Seawind lt1Jarkan lt1
ChinaHolland Custom Yachts lt1
TaiwanHorizon Yacht lt1
TurkeyAegean lt1
NetherlandsRoyal Huisman lt1Feadship lt1
USBrunswick 14Genmar 5Catalina 1Hunter 1
NZ is very much a niche player on the global stage
Global Recreational Boat Building Firms ndashmarket shares
Largest firms located in Italy France and US
Source ODDO Equity Research June 2008 MoC team estimates
Superyacht Market Data
(1) Of orders made in top 10 manufacturing countries Note of the 916 superyachts ordered in 2008 60 were sailing yachts
Source Showboats International
bull Superyacht orders have grown each year for last 10 years ndash although for 2009 global order intake down about 50
bull Largest categories (61m+) have seen the rapid growth (gtUS$1m per meter to build)
bull Italy dominates the sectorbull Growing share for Taiwan Turkey China
bull NZ is 10th largest superyacht builder bull 3 in sailing superyachts (estimate 15 global
market share)ndash Particularly strong in racing yachts
bull NZ focuses almost exclusively on custom-built yachts very little activity in lsquoproduction yachtsrsquo
bull World-renowned for qualityndash NZrsquos largest superyacht manufacturer Alloy
Yachts has won 19 international awards since 1991
2003 2004 2005 2006 2007 2008
24-27m
27-30m30-37m
61-76m
37-46m
76m+
46-61m
CAGR (03-08)
14
18
2612
16
16
14
9
480
of Orders By Size
507652 688
777916
of Orders By Location(1)
The Global Superyacht Market
New Zealandrsquos Position
46
121096
11
Italy
US
NetherlandsGermanyTaiwanUKOtherNew Zealand (16)
NZ highly ranked within lucrative superyacht segment
Institutions for collaboration
The NZ cluster centres on boat building
The New Zealand Marine Cluster
Super Yachts
Racing Yachts
Trailer Boats
Launches amp Yachts
Inflatables
Refit amp Maintenance
Marine Events
Boating Consumables amp Other Services
Marinas
Boat Building
Downstream
Upstream
Significant ExportsLimited Exports
Related Clusters
Tourism
Fishing Commercial
Boats
Government Institutions
bull Trade Promotion (NZTE)bull Local Government (ARC)bull Universities (Auckland)bull Industrial Research Ltd
bull Industry Assoc (MIA)bull Export Group (NZ Marine)bull Training Org (BITO)
Yacht Management
Sails amp Rigging
Electronics
Interiors
Masts amp Winches
Other Services (eg Finance)
Composites
Other Equipment
Design
Support provided by public and private institutions for collaboration
(1) BITO is a division of the Marine Industry Association NZ Marine is a separate organization but shares facilities with the MIA
(2) AucklandPlus the economic development arm of the ARC is overseeing the Hobsonville marine precinct and the marine sector feasibility study
Key Institutions NZ Marine Cluster
Marine Industry
Association
NZ Marine
Boating Industry
Training Org
NZ Trade amp Enterprise
Auckland Regional Council
Institutions For Collaboration Government Institutions
bull 500+ members 50 of industrybull Fees $400-$1200 per firmbull Data collection on industrybull Newsletter on industrybull Fosters collaboration at sub-
cluster (eg CPC standards scheme for trailer boats)
bull Provides lsquobusinessrsquo workshops
bull Represents Exportersbull 100 members 85 of exportsbull Runs ldquoYacht visionrdquo 1st int
conference for yacht designersbull Assists at global boat shows
other exporter opportunities (eg Millennium Cup)
bull Administers Marine Apprenticeship scheme (600 currently ~100 graduates pa)
bull 75 government funded
bull Local government authoritybull Regional development strategybull Infrastructurezoning issuesbull Two cluster specific initiatives(2)
bull Support for NZ Exportersbull Global network of officesbull Formerly responsible for
overseeing NZ cluster policy
Auckland University
Industrial Research
Ltd
Closely linked(1)
bull Yacht Research Unitbull Centre for Advanced Composite
Materials (CACM)
bull Government funded RampD entitybull collaboration with Marine firms
(eg in composites)
1995bull Team New
Zealand win Americarsquos Cup
2000bull Americarsquos Cup held in
Auckland Team New Zealand successfully defend title
2003bull Auckland again hosts
Americarsquos Cup Team New Zealand loses to Alinghi skippered by a New Zealander
1984bull NZ wins 2 gold and
1 bronze medal at Los Angeles Olympics ndash first medals for 20 years
1987 bull NZ launches 1st
Americas Cup bid when event is hosted in Australia after Australiarsquos win in lsquo83
1990 1993bull NZ wins
Whitbread Round the World race (and wins again in 1993)
Competitive Sailing Milestones
History of cluster closely aligned with competitive sailing achievements and major yachting events
1992bull Alloy Yachts
wins New Zealandrsquos first Show Boats International Award for Super Yachts
1991bull Southern
Spars produce their first carbon fiber spar
2003bull 8 out of 10
Americarsquos Cup syndicates use Southern Spars rigs
1986 bull High Modulus
instrumental in developing composites for New Zealandrsquos first Americarsquos Cup challenge
2000bull Millennium
Cup launched in Auckland to showcase New Zealand Super Yachts
1979bull High
Modulus founded as surfboard mnfcturer
1987bull Alloy
Yachts founded
2006bull Southern
Spars merge with largest NZ competitor ndash Marten Spars
1996bull MIA (est 1965)
takes out office space and employs 1st
professional officers
1994bull Inaugural lsquoYacht
Visionrsquo run by NZ Marine
Industry Milestones
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
Strong business-friendly national institutionsInternationally Ranked(1)
(1) Heritage Foundation 2009 Index of Economic Freedom this is another source in addition to the GCR which tells a similar story (highlights can be found in the backup section of the presentation)
Stable Politics
bull Multi-party moderate
Robust Anti-Trust
bull Com Commission
Independent Central Bank
bull Pure Inflation mandate
Universities
bull 5 universities in top 500 (global)
Labour Policy
bull Weak unions good flexibility
Non-distortive Export Support
bull NZTE
Sensible Trade
bull Low Tariffs (27)
bull FTA China Singapore Thailand Chile Australia ASEAN (coming)
Health Care
bull Cost-effective
bull Ban on litigation for personal injury
Efficient Legal System
Free Capital Flows
Institutional Highlights
bull High Taxes Big Govt
bull 30 corporate 39 top income bracket
bull Govt 40 of GDP
bull Underdevelopedshallow capital markets
bull Prevalence of SOEs
bull Restrictions on Foreign Capital (land telco airline)
Weak Spots()
Low Corruption
bull Ranked 1
High quality human capital but not enough of it
Strong HDIhellipPartial Offset
From Immigration
of College Educated Population Living OSeas
(Select Countries Rank)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 NZ
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
bull NZ is 19th in the world in human development
bull Citizens enjoy long healthy lives excellent education access and high standards of living
But People Leavehellip
bull 87000 permanent migrants in 2007
bull 10100 in net migrationbull 24 on work
permits
bull Government Policybull Focus on certain
categories - skilled Migrant Policy and Active Investor Migrant category
bull Source countriesbull UK (26)bull China (12)bull India (9) bull South Africa (8)
Source Human Development Index (UNDP) OECD
Human capital is a strength although retention seems to be an issue
Poor prosperity given relatively strong competitiveness metrics
Overall GCI vs GDP pc
GDP pc log scale
High GCI
GCI Ranking
Low GCI
Macro (MP) vs hellip
Institutions (SIPI) vs hellip Micro (MICRO) vs hellip
NZrsquos prosperity lags peers with comparable GCIs Is NZrsquos microeconomic environment the reason for this disparity
GDP pc log scale
High SIPILow SIPI High MICROLow MICRO
High MPLow MP
GDP pc log scale
GDP pc log scale
NZ
NZ
NZ
NZ
Note GCI = (Overall) Global Competitiveness Index SIPI = Social and Political Infrastructure MP = Competitiveness of Macroeconomic Policy MICRO = Microeconomic competitiveness Source Institute for Strategy and Competitiveness
Estonia
Ireland
US
S Korea
US
US
US
Estonia
NZrsquos national diamond characterised by extremeshellip some areas world-class while others are morehellip emerging economy
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
New Zealand National Diamond
+ Low trade barriers+ Flexible labour policies+ Strong antitrust + Good investor protection
- Lack of rivalryintensity- ldquoKiwirdquo lifestyle = leisure-focused- Job securitysafety net valued- Low foreign ownership and international tech transfer
+ Brand NZ clean and green+ Low levels of bureaucracy+ Strong primsec education + Easy to start a business
- Brain drain - Low foreign language skills- Lack of scientistsengineers- Weak RampDinnovation- Infra gaps (roads rail telco)- Weak capital markets
+ Awareness of the need for cluster development+ Efforts to push cluster policy to a regional level
- Weak clusters- Few specialized input suppliers high reliance on imported inputs
+ National passions have driven key international successes eg sport
- Historic trade relationship with UK led to a focus on primary products- Demand seldom drives innovation or anticipates trends- Govt procurement not advanced
x
x
x
x
Relatively undiversified economyhellip dominated by agriculture
-05 -03 -01 01 03
NZ Exports Portfolio By Cluster 1997-2007
Share Of World Exports 2007 ()
Change in Nationrsquos Share Of Exports ( 1997-2007)
Processed Food (Dairy)
Agri Product (Meat)
Tourism
Fishing
FurnitureForestry
Two of NZrsquos key clusters dairy and tourism are doing well however majority of other clusters are losing ground
Marine(1)
(1) Relative position of the marine cluster estimated based on data we have collected and interviews conducted the International Cluster Analysis definition includes commercial shipbuilding which distorts the true position of NZrsquos marine cluster which focuses on boats for private use
Communications
25
20
15
05
Four main recommendations to address NZrsquos key challengesIssues Being Addressed More Detail On Actions
Alleviate Factor
Bottlenecks
Mitigate Distance
Encourage Investment
Institute a New Cluster Programme
Recommendations
1
2
3
4
bull Lack of successful clustersbull Lack of strategy at a cluster levelbull Lack of collaborationbull Lack of effective cluster policy
bull Low labour productivitybull Lack of capital intensitybull Lack of investment (domesticFDI)bull Low savings rates
bull Barriers to lsquoeasyrsquo tradebull Inefficiencies at NZrsquos portsbull Inability of NZ firms to
internationalize
bull Weak infrastructure electricity roads rail telco
bull Human capital gaps
bull Infrastructure spendbull Skilled immigration bull Graduate retentionbull Tertiary education reform
bull New cluster policybull More $$ more focusedbull Private sector drivenbull Collaborative Decentralized
bull Kiwisaver compulsorybull Tax reform propertybull FDI policy reform
bull Privatize all portsbull Streamline customsbull Open skiesbull Focused help from NZTE
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
Contents
New Zealand
Marine Cluster
NZrsquos marine cluster generates NZ$19B(1) in sales annuallyhellip
Major Segments In The Cluster Recent Cluster Performance
2003 2005 2006 2008
Superyachts
Total Sales (NZ$m)
Imports ()
Exports ()
Size total sales (NZ$m)
ImpExp ( of Sales)
Superyachts Racing Yachts
Trailer BoatsLaunches
InflatablesRHIBs
RefitMaintenance Other Services
Equipment
(1) Segmentation and data as per the New Zealand Marine Industry Association NZ$19B equivalent to US$11B at current exchange rate of 0567US$ per NZ$
bull Sails masts winches electronics interiorshellip
bull Sail
bull For competition
bull gt25m
bull Sail or Motor
bull 8-25m
bull Sail or Motor
bull 3-8m
bull Motor
bull Inflatable
bull Motor
bull Repair facilities
bull Fuel marinas insurance charters retailinghellip
Equipment
SuperyachtsLaunches
Inflatables
Other
Trailer Boats
Racing
Refit
CAGR (03-08)
6
417
2
15
(3)
5
101366
1548 16411905
Racing Yachts
LaunchesRefit
Inflatables
Trailer BoatsOther
50
50
Equipment
Most internationally competitive segments
100
7Total
75 of marine activity is located in Auckland or nearby regions
NZ Marine Industry Activity
West Park Marina (3 in Auckland)
Gulf Harbour Marina (2 in Auckland)
Hobsonville
Westhaven Marina (1 in Auckland)Alloy
Yachts
Wynyard Point
Evidence of other Marine ActivitySuperYacht Mfg Marinas
Auckland Cluster (examples)
(1) Remaining 8 of activity not marked occurs across a variety of smaller regions
Source New Zealand Marine Industry Survey 2005 Googlemaps
Christchurch
Wellington
Bay of Plenty
Northland
Auckland
9
6
4
5Waikato
4
58
x of NZ Marine Industry Activity (2005)(1) Evidence of agglomeration even within parts of Auckland
3Taranaki
3 Otago
Long-term outlook looks goodhellip although current economic conditions obviously taking a toll (lsquo09 forecast to be down 50)
bull US and Europe are largest end-markets (an estimated 90 of end-market demand) US market more penetrated and lower growth
bull Market is fragmented largest player (Brunswick US) has 14 global share in boat building
bull Bifurcated market cost price increasingly important for lowermid segment (increased standardization) but less so for higher end (custom yachts)
Global Market Size and Growth Global Market Key Features
bull The global pleasure craft market = US$18B
bull Growth of around 5 per annum on a value basis between 1997 and 2007
ndash Superyachts fastest growing
bull Volume growth has been steady since 1970 with some cyclicality Real value growth driven by increasing average boat size
The cluster competes in a global market that has recorded solid growthhellip strongest gains at the top-end
ItalyFerretti 7Azimt Benetti 6Cantiere 1Aicon 1FIPA lt1Perini Navi lt1
FranceBeneteau 6Rodriguez 3Couach lt1Dufour lt1
UKSunseeker 3Princess 2Fairline 2
GermanyBavaria 2Hanse 1Luerssen lt1
DenmarkDanish Yacht lt1
SwedenHallberg Rassy lt1
SloveniaElan Marine lt1
CroatiaElan lt1Lagoon lt1
New ZealandAlloy Yachts lt1Cookson lt1Fitzroy Yachts lt1Yachting Dev lt1
AustraliaAzzura Yachts lt1Seawind lt1Jarkan lt1
ChinaHolland Custom Yachts lt1
TaiwanHorizon Yacht lt1
TurkeyAegean lt1
NetherlandsRoyal Huisman lt1Feadship lt1
USBrunswick 14Genmar 5Catalina 1Hunter 1
NZ is very much a niche player on the global stage
Global Recreational Boat Building Firms ndashmarket shares
Largest firms located in Italy France and US
Source ODDO Equity Research June 2008 MoC team estimates
Superyacht Market Data
(1) Of orders made in top 10 manufacturing countries Note of the 916 superyachts ordered in 2008 60 were sailing yachts
Source Showboats International
bull Superyacht orders have grown each year for last 10 years ndash although for 2009 global order intake down about 50
bull Largest categories (61m+) have seen the rapid growth (gtUS$1m per meter to build)
bull Italy dominates the sectorbull Growing share for Taiwan Turkey China
bull NZ is 10th largest superyacht builder bull 3 in sailing superyachts (estimate 15 global
market share)ndash Particularly strong in racing yachts
bull NZ focuses almost exclusively on custom-built yachts very little activity in lsquoproduction yachtsrsquo
bull World-renowned for qualityndash NZrsquos largest superyacht manufacturer Alloy
Yachts has won 19 international awards since 1991
2003 2004 2005 2006 2007 2008
24-27m
27-30m30-37m
61-76m
37-46m
76m+
46-61m
CAGR (03-08)
14
18
2612
16
16
14
9
480
of Orders By Size
507652 688
777916
of Orders By Location(1)
The Global Superyacht Market
New Zealandrsquos Position
46
121096
11
Italy
US
NetherlandsGermanyTaiwanUKOtherNew Zealand (16)
NZ highly ranked within lucrative superyacht segment
Institutions for collaboration
The NZ cluster centres on boat building
The New Zealand Marine Cluster
Super Yachts
Racing Yachts
Trailer Boats
Launches amp Yachts
Inflatables
Refit amp Maintenance
Marine Events
Boating Consumables amp Other Services
Marinas
Boat Building
Downstream
Upstream
Significant ExportsLimited Exports
Related Clusters
Tourism
Fishing Commercial
Boats
Government Institutions
bull Trade Promotion (NZTE)bull Local Government (ARC)bull Universities (Auckland)bull Industrial Research Ltd
bull Industry Assoc (MIA)bull Export Group (NZ Marine)bull Training Org (BITO)
Yacht Management
Sails amp Rigging
Electronics
Interiors
Masts amp Winches
Other Services (eg Finance)
Composites
Other Equipment
Design
Support provided by public and private institutions for collaboration
(1) BITO is a division of the Marine Industry Association NZ Marine is a separate organization but shares facilities with the MIA
(2) AucklandPlus the economic development arm of the ARC is overseeing the Hobsonville marine precinct and the marine sector feasibility study
Key Institutions NZ Marine Cluster
Marine Industry
Association
NZ Marine
Boating Industry
Training Org
NZ Trade amp Enterprise
Auckland Regional Council
Institutions For Collaboration Government Institutions
bull 500+ members 50 of industrybull Fees $400-$1200 per firmbull Data collection on industrybull Newsletter on industrybull Fosters collaboration at sub-
cluster (eg CPC standards scheme for trailer boats)
bull Provides lsquobusinessrsquo workshops
bull Represents Exportersbull 100 members 85 of exportsbull Runs ldquoYacht visionrdquo 1st int
conference for yacht designersbull Assists at global boat shows
other exporter opportunities (eg Millennium Cup)
bull Administers Marine Apprenticeship scheme (600 currently ~100 graduates pa)
bull 75 government funded
bull Local government authoritybull Regional development strategybull Infrastructurezoning issuesbull Two cluster specific initiatives(2)
bull Support for NZ Exportersbull Global network of officesbull Formerly responsible for
overseeing NZ cluster policy
Auckland University
Industrial Research
Ltd
Closely linked(1)
bull Yacht Research Unitbull Centre for Advanced Composite
Materials (CACM)
bull Government funded RampD entitybull collaboration with Marine firms
(eg in composites)
1995bull Team New
Zealand win Americarsquos Cup
2000bull Americarsquos Cup held in
Auckland Team New Zealand successfully defend title
2003bull Auckland again hosts
Americarsquos Cup Team New Zealand loses to Alinghi skippered by a New Zealander
1984bull NZ wins 2 gold and
1 bronze medal at Los Angeles Olympics ndash first medals for 20 years
1987 bull NZ launches 1st
Americas Cup bid when event is hosted in Australia after Australiarsquos win in lsquo83
1990 1993bull NZ wins
Whitbread Round the World race (and wins again in 1993)
Competitive Sailing Milestones
History of cluster closely aligned with competitive sailing achievements and major yachting events
1992bull Alloy Yachts
wins New Zealandrsquos first Show Boats International Award for Super Yachts
1991bull Southern
Spars produce their first carbon fiber spar
2003bull 8 out of 10
Americarsquos Cup syndicates use Southern Spars rigs
1986 bull High Modulus
instrumental in developing composites for New Zealandrsquos first Americarsquos Cup challenge
2000bull Millennium
Cup launched in Auckland to showcase New Zealand Super Yachts
1979bull High
Modulus founded as surfboard mnfcturer
1987bull Alloy
Yachts founded
2006bull Southern
Spars merge with largest NZ competitor ndash Marten Spars
1996bull MIA (est 1965)
takes out office space and employs 1st
professional officers
1994bull Inaugural lsquoYacht
Visionrsquo run by NZ Marine
Industry Milestones
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
High quality human capital but not enough of it
Strong HDIhellipPartial Offset
From Immigration
of College Educated Population Living OSeas
(Select Countries Rank)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 NZ
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
bull NZ is 19th in the world in human development
bull Citizens enjoy long healthy lives excellent education access and high standards of living
But People Leavehellip
bull 87000 permanent migrants in 2007
bull 10100 in net migrationbull 24 on work
permits
bull Government Policybull Focus on certain
categories - skilled Migrant Policy and Active Investor Migrant category
bull Source countriesbull UK (26)bull China (12)bull India (9) bull South Africa (8)
Source Human Development Index (UNDP) OECD
Human capital is a strength although retention seems to be an issue
Poor prosperity given relatively strong competitiveness metrics
Overall GCI vs GDP pc
GDP pc log scale
High GCI
GCI Ranking
Low GCI
Macro (MP) vs hellip
Institutions (SIPI) vs hellip Micro (MICRO) vs hellip
NZrsquos prosperity lags peers with comparable GCIs Is NZrsquos microeconomic environment the reason for this disparity
GDP pc log scale
High SIPILow SIPI High MICROLow MICRO
High MPLow MP
GDP pc log scale
GDP pc log scale
NZ
NZ
NZ
NZ
Note GCI = (Overall) Global Competitiveness Index SIPI = Social and Political Infrastructure MP = Competitiveness of Macroeconomic Policy MICRO = Microeconomic competitiveness Source Institute for Strategy and Competitiveness
Estonia
Ireland
US
S Korea
US
US
US
Estonia
NZrsquos national diamond characterised by extremeshellip some areas world-class while others are morehellip emerging economy
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
New Zealand National Diamond
+ Low trade barriers+ Flexible labour policies+ Strong antitrust + Good investor protection
- Lack of rivalryintensity- ldquoKiwirdquo lifestyle = leisure-focused- Job securitysafety net valued- Low foreign ownership and international tech transfer
+ Brand NZ clean and green+ Low levels of bureaucracy+ Strong primsec education + Easy to start a business
- Brain drain - Low foreign language skills- Lack of scientistsengineers- Weak RampDinnovation- Infra gaps (roads rail telco)- Weak capital markets
+ Awareness of the need for cluster development+ Efforts to push cluster policy to a regional level
- Weak clusters- Few specialized input suppliers high reliance on imported inputs
+ National passions have driven key international successes eg sport
- Historic trade relationship with UK led to a focus on primary products- Demand seldom drives innovation or anticipates trends- Govt procurement not advanced
x
x
x
x
Relatively undiversified economyhellip dominated by agriculture
-05 -03 -01 01 03
NZ Exports Portfolio By Cluster 1997-2007
Share Of World Exports 2007 ()
Change in Nationrsquos Share Of Exports ( 1997-2007)
Processed Food (Dairy)
Agri Product (Meat)
Tourism
Fishing
FurnitureForestry
Two of NZrsquos key clusters dairy and tourism are doing well however majority of other clusters are losing ground
Marine(1)
(1) Relative position of the marine cluster estimated based on data we have collected and interviews conducted the International Cluster Analysis definition includes commercial shipbuilding which distorts the true position of NZrsquos marine cluster which focuses on boats for private use
Communications
25
20
15
05
Four main recommendations to address NZrsquos key challengesIssues Being Addressed More Detail On Actions
Alleviate Factor
Bottlenecks
Mitigate Distance
Encourage Investment
Institute a New Cluster Programme
Recommendations
1
2
3
4
bull Lack of successful clustersbull Lack of strategy at a cluster levelbull Lack of collaborationbull Lack of effective cluster policy
bull Low labour productivitybull Lack of capital intensitybull Lack of investment (domesticFDI)bull Low savings rates
bull Barriers to lsquoeasyrsquo tradebull Inefficiencies at NZrsquos portsbull Inability of NZ firms to
internationalize
bull Weak infrastructure electricity roads rail telco
bull Human capital gaps
bull Infrastructure spendbull Skilled immigration bull Graduate retentionbull Tertiary education reform
bull New cluster policybull More $$ more focusedbull Private sector drivenbull Collaborative Decentralized
bull Kiwisaver compulsorybull Tax reform propertybull FDI policy reform
bull Privatize all portsbull Streamline customsbull Open skiesbull Focused help from NZTE
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
Contents
New Zealand
Marine Cluster
NZrsquos marine cluster generates NZ$19B(1) in sales annuallyhellip
Major Segments In The Cluster Recent Cluster Performance
2003 2005 2006 2008
Superyachts
Total Sales (NZ$m)
Imports ()
Exports ()
Size total sales (NZ$m)
ImpExp ( of Sales)
Superyachts Racing Yachts
Trailer BoatsLaunches
InflatablesRHIBs
RefitMaintenance Other Services
Equipment
(1) Segmentation and data as per the New Zealand Marine Industry Association NZ$19B equivalent to US$11B at current exchange rate of 0567US$ per NZ$
bull Sails masts winches electronics interiorshellip
bull Sail
bull For competition
bull gt25m
bull Sail or Motor
bull 8-25m
bull Sail or Motor
bull 3-8m
bull Motor
bull Inflatable
bull Motor
bull Repair facilities
bull Fuel marinas insurance charters retailinghellip
Equipment
SuperyachtsLaunches
Inflatables
Other
Trailer Boats
Racing
Refit
CAGR (03-08)
6
417
2
15
(3)
5
101366
1548 16411905
Racing Yachts
LaunchesRefit
Inflatables
Trailer BoatsOther
50
50
Equipment
Most internationally competitive segments
100
7Total
75 of marine activity is located in Auckland or nearby regions
NZ Marine Industry Activity
West Park Marina (3 in Auckland)
Gulf Harbour Marina (2 in Auckland)
Hobsonville
Westhaven Marina (1 in Auckland)Alloy
Yachts
Wynyard Point
Evidence of other Marine ActivitySuperYacht Mfg Marinas
Auckland Cluster (examples)
(1) Remaining 8 of activity not marked occurs across a variety of smaller regions
Source New Zealand Marine Industry Survey 2005 Googlemaps
Christchurch
Wellington
Bay of Plenty
Northland
Auckland
9
6
4
5Waikato
4
58
x of NZ Marine Industry Activity (2005)(1) Evidence of agglomeration even within parts of Auckland
3Taranaki
3 Otago
Long-term outlook looks goodhellip although current economic conditions obviously taking a toll (lsquo09 forecast to be down 50)
bull US and Europe are largest end-markets (an estimated 90 of end-market demand) US market more penetrated and lower growth
bull Market is fragmented largest player (Brunswick US) has 14 global share in boat building
bull Bifurcated market cost price increasingly important for lowermid segment (increased standardization) but less so for higher end (custom yachts)
Global Market Size and Growth Global Market Key Features
bull The global pleasure craft market = US$18B
bull Growth of around 5 per annum on a value basis between 1997 and 2007
ndash Superyachts fastest growing
bull Volume growth has been steady since 1970 with some cyclicality Real value growth driven by increasing average boat size
The cluster competes in a global market that has recorded solid growthhellip strongest gains at the top-end
ItalyFerretti 7Azimt Benetti 6Cantiere 1Aicon 1FIPA lt1Perini Navi lt1
FranceBeneteau 6Rodriguez 3Couach lt1Dufour lt1
UKSunseeker 3Princess 2Fairline 2
GermanyBavaria 2Hanse 1Luerssen lt1
DenmarkDanish Yacht lt1
SwedenHallberg Rassy lt1
SloveniaElan Marine lt1
CroatiaElan lt1Lagoon lt1
New ZealandAlloy Yachts lt1Cookson lt1Fitzroy Yachts lt1Yachting Dev lt1
AustraliaAzzura Yachts lt1Seawind lt1Jarkan lt1
ChinaHolland Custom Yachts lt1
TaiwanHorizon Yacht lt1
TurkeyAegean lt1
NetherlandsRoyal Huisman lt1Feadship lt1
USBrunswick 14Genmar 5Catalina 1Hunter 1
NZ is very much a niche player on the global stage
Global Recreational Boat Building Firms ndashmarket shares
Largest firms located in Italy France and US
Source ODDO Equity Research June 2008 MoC team estimates
Superyacht Market Data
(1) Of orders made in top 10 manufacturing countries Note of the 916 superyachts ordered in 2008 60 were sailing yachts
Source Showboats International
bull Superyacht orders have grown each year for last 10 years ndash although for 2009 global order intake down about 50
bull Largest categories (61m+) have seen the rapid growth (gtUS$1m per meter to build)
bull Italy dominates the sectorbull Growing share for Taiwan Turkey China
bull NZ is 10th largest superyacht builder bull 3 in sailing superyachts (estimate 15 global
market share)ndash Particularly strong in racing yachts
bull NZ focuses almost exclusively on custom-built yachts very little activity in lsquoproduction yachtsrsquo
bull World-renowned for qualityndash NZrsquos largest superyacht manufacturer Alloy
Yachts has won 19 international awards since 1991
2003 2004 2005 2006 2007 2008
24-27m
27-30m30-37m
61-76m
37-46m
76m+
46-61m
CAGR (03-08)
14
18
2612
16
16
14
9
480
of Orders By Size
507652 688
777916
of Orders By Location(1)
The Global Superyacht Market
New Zealandrsquos Position
46
121096
11
Italy
US
NetherlandsGermanyTaiwanUKOtherNew Zealand (16)
NZ highly ranked within lucrative superyacht segment
Institutions for collaboration
The NZ cluster centres on boat building
The New Zealand Marine Cluster
Super Yachts
Racing Yachts
Trailer Boats
Launches amp Yachts
Inflatables
Refit amp Maintenance
Marine Events
Boating Consumables amp Other Services
Marinas
Boat Building
Downstream
Upstream
Significant ExportsLimited Exports
Related Clusters
Tourism
Fishing Commercial
Boats
Government Institutions
bull Trade Promotion (NZTE)bull Local Government (ARC)bull Universities (Auckland)bull Industrial Research Ltd
bull Industry Assoc (MIA)bull Export Group (NZ Marine)bull Training Org (BITO)
Yacht Management
Sails amp Rigging
Electronics
Interiors
Masts amp Winches
Other Services (eg Finance)
Composites
Other Equipment
Design
Support provided by public and private institutions for collaboration
(1) BITO is a division of the Marine Industry Association NZ Marine is a separate organization but shares facilities with the MIA
(2) AucklandPlus the economic development arm of the ARC is overseeing the Hobsonville marine precinct and the marine sector feasibility study
Key Institutions NZ Marine Cluster
Marine Industry
Association
NZ Marine
Boating Industry
Training Org
NZ Trade amp Enterprise
Auckland Regional Council
Institutions For Collaboration Government Institutions
bull 500+ members 50 of industrybull Fees $400-$1200 per firmbull Data collection on industrybull Newsletter on industrybull Fosters collaboration at sub-
cluster (eg CPC standards scheme for trailer boats)
bull Provides lsquobusinessrsquo workshops
bull Represents Exportersbull 100 members 85 of exportsbull Runs ldquoYacht visionrdquo 1st int
conference for yacht designersbull Assists at global boat shows
other exporter opportunities (eg Millennium Cup)
bull Administers Marine Apprenticeship scheme (600 currently ~100 graduates pa)
bull 75 government funded
bull Local government authoritybull Regional development strategybull Infrastructurezoning issuesbull Two cluster specific initiatives(2)
bull Support for NZ Exportersbull Global network of officesbull Formerly responsible for
overseeing NZ cluster policy
Auckland University
Industrial Research
Ltd
Closely linked(1)
bull Yacht Research Unitbull Centre for Advanced Composite
Materials (CACM)
bull Government funded RampD entitybull collaboration with Marine firms
(eg in composites)
1995bull Team New
Zealand win Americarsquos Cup
2000bull Americarsquos Cup held in
Auckland Team New Zealand successfully defend title
2003bull Auckland again hosts
Americarsquos Cup Team New Zealand loses to Alinghi skippered by a New Zealander
1984bull NZ wins 2 gold and
1 bronze medal at Los Angeles Olympics ndash first medals for 20 years
1987 bull NZ launches 1st
Americas Cup bid when event is hosted in Australia after Australiarsquos win in lsquo83
1990 1993bull NZ wins
Whitbread Round the World race (and wins again in 1993)
Competitive Sailing Milestones
History of cluster closely aligned with competitive sailing achievements and major yachting events
1992bull Alloy Yachts
wins New Zealandrsquos first Show Boats International Award for Super Yachts
1991bull Southern
Spars produce their first carbon fiber spar
2003bull 8 out of 10
Americarsquos Cup syndicates use Southern Spars rigs
1986 bull High Modulus
instrumental in developing composites for New Zealandrsquos first Americarsquos Cup challenge
2000bull Millennium
Cup launched in Auckland to showcase New Zealand Super Yachts
1979bull High
Modulus founded as surfboard mnfcturer
1987bull Alloy
Yachts founded
2006bull Southern
Spars merge with largest NZ competitor ndash Marten Spars
1996bull MIA (est 1965)
takes out office space and employs 1st
professional officers
1994bull Inaugural lsquoYacht
Visionrsquo run by NZ Marine
Industry Milestones
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
Poor prosperity given relatively strong competitiveness metrics
Overall GCI vs GDP pc
GDP pc log scale
High GCI
GCI Ranking
Low GCI
Macro (MP) vs hellip
Institutions (SIPI) vs hellip Micro (MICRO) vs hellip
NZrsquos prosperity lags peers with comparable GCIs Is NZrsquos microeconomic environment the reason for this disparity
GDP pc log scale
High SIPILow SIPI High MICROLow MICRO
High MPLow MP
GDP pc log scale
GDP pc log scale
NZ
NZ
NZ
NZ
Note GCI = (Overall) Global Competitiveness Index SIPI = Social and Political Infrastructure MP = Competitiveness of Macroeconomic Policy MICRO = Microeconomic competitiveness Source Institute for Strategy and Competitiveness
Estonia
Ireland
US
S Korea
US
US
US
Estonia
NZrsquos national diamond characterised by extremeshellip some areas world-class while others are morehellip emerging economy
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
New Zealand National Diamond
+ Low trade barriers+ Flexible labour policies+ Strong antitrust + Good investor protection
- Lack of rivalryintensity- ldquoKiwirdquo lifestyle = leisure-focused- Job securitysafety net valued- Low foreign ownership and international tech transfer
+ Brand NZ clean and green+ Low levels of bureaucracy+ Strong primsec education + Easy to start a business
- Brain drain - Low foreign language skills- Lack of scientistsengineers- Weak RampDinnovation- Infra gaps (roads rail telco)- Weak capital markets
+ Awareness of the need for cluster development+ Efforts to push cluster policy to a regional level
- Weak clusters- Few specialized input suppliers high reliance on imported inputs
+ National passions have driven key international successes eg sport
- Historic trade relationship with UK led to a focus on primary products- Demand seldom drives innovation or anticipates trends- Govt procurement not advanced
x
x
x
x
Relatively undiversified economyhellip dominated by agriculture
-05 -03 -01 01 03
NZ Exports Portfolio By Cluster 1997-2007
Share Of World Exports 2007 ()
Change in Nationrsquos Share Of Exports ( 1997-2007)
Processed Food (Dairy)
Agri Product (Meat)
Tourism
Fishing
FurnitureForestry
Two of NZrsquos key clusters dairy and tourism are doing well however majority of other clusters are losing ground
Marine(1)
(1) Relative position of the marine cluster estimated based on data we have collected and interviews conducted the International Cluster Analysis definition includes commercial shipbuilding which distorts the true position of NZrsquos marine cluster which focuses on boats for private use
Communications
25
20
15
05
Four main recommendations to address NZrsquos key challengesIssues Being Addressed More Detail On Actions
Alleviate Factor
Bottlenecks
Mitigate Distance
Encourage Investment
Institute a New Cluster Programme
Recommendations
1
2
3
4
bull Lack of successful clustersbull Lack of strategy at a cluster levelbull Lack of collaborationbull Lack of effective cluster policy
bull Low labour productivitybull Lack of capital intensitybull Lack of investment (domesticFDI)bull Low savings rates
bull Barriers to lsquoeasyrsquo tradebull Inefficiencies at NZrsquos portsbull Inability of NZ firms to
internationalize
bull Weak infrastructure electricity roads rail telco
bull Human capital gaps
bull Infrastructure spendbull Skilled immigration bull Graduate retentionbull Tertiary education reform
bull New cluster policybull More $$ more focusedbull Private sector drivenbull Collaborative Decentralized
bull Kiwisaver compulsorybull Tax reform propertybull FDI policy reform
bull Privatize all portsbull Streamline customsbull Open skiesbull Focused help from NZTE
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
Contents
New Zealand
Marine Cluster
NZrsquos marine cluster generates NZ$19B(1) in sales annuallyhellip
Major Segments In The Cluster Recent Cluster Performance
2003 2005 2006 2008
Superyachts
Total Sales (NZ$m)
Imports ()
Exports ()
Size total sales (NZ$m)
ImpExp ( of Sales)
Superyachts Racing Yachts
Trailer BoatsLaunches
InflatablesRHIBs
RefitMaintenance Other Services
Equipment
(1) Segmentation and data as per the New Zealand Marine Industry Association NZ$19B equivalent to US$11B at current exchange rate of 0567US$ per NZ$
bull Sails masts winches electronics interiorshellip
bull Sail
bull For competition
bull gt25m
bull Sail or Motor
bull 8-25m
bull Sail or Motor
bull 3-8m
bull Motor
bull Inflatable
bull Motor
bull Repair facilities
bull Fuel marinas insurance charters retailinghellip
Equipment
SuperyachtsLaunches
Inflatables
Other
Trailer Boats
Racing
Refit
CAGR (03-08)
6
417
2
15
(3)
5
101366
1548 16411905
Racing Yachts
LaunchesRefit
Inflatables
Trailer BoatsOther
50
50
Equipment
Most internationally competitive segments
100
7Total
75 of marine activity is located in Auckland or nearby regions
NZ Marine Industry Activity
West Park Marina (3 in Auckland)
Gulf Harbour Marina (2 in Auckland)
Hobsonville
Westhaven Marina (1 in Auckland)Alloy
Yachts
Wynyard Point
Evidence of other Marine ActivitySuperYacht Mfg Marinas
Auckland Cluster (examples)
(1) Remaining 8 of activity not marked occurs across a variety of smaller regions
Source New Zealand Marine Industry Survey 2005 Googlemaps
Christchurch
Wellington
Bay of Plenty
Northland
Auckland
9
6
4
5Waikato
4
58
x of NZ Marine Industry Activity (2005)(1) Evidence of agglomeration even within parts of Auckland
3Taranaki
3 Otago
Long-term outlook looks goodhellip although current economic conditions obviously taking a toll (lsquo09 forecast to be down 50)
bull US and Europe are largest end-markets (an estimated 90 of end-market demand) US market more penetrated and lower growth
bull Market is fragmented largest player (Brunswick US) has 14 global share in boat building
bull Bifurcated market cost price increasingly important for lowermid segment (increased standardization) but less so for higher end (custom yachts)
Global Market Size and Growth Global Market Key Features
bull The global pleasure craft market = US$18B
bull Growth of around 5 per annum on a value basis between 1997 and 2007
ndash Superyachts fastest growing
bull Volume growth has been steady since 1970 with some cyclicality Real value growth driven by increasing average boat size
The cluster competes in a global market that has recorded solid growthhellip strongest gains at the top-end
ItalyFerretti 7Azimt Benetti 6Cantiere 1Aicon 1FIPA lt1Perini Navi lt1
FranceBeneteau 6Rodriguez 3Couach lt1Dufour lt1
UKSunseeker 3Princess 2Fairline 2
GermanyBavaria 2Hanse 1Luerssen lt1
DenmarkDanish Yacht lt1
SwedenHallberg Rassy lt1
SloveniaElan Marine lt1
CroatiaElan lt1Lagoon lt1
New ZealandAlloy Yachts lt1Cookson lt1Fitzroy Yachts lt1Yachting Dev lt1
AustraliaAzzura Yachts lt1Seawind lt1Jarkan lt1
ChinaHolland Custom Yachts lt1
TaiwanHorizon Yacht lt1
TurkeyAegean lt1
NetherlandsRoyal Huisman lt1Feadship lt1
USBrunswick 14Genmar 5Catalina 1Hunter 1
NZ is very much a niche player on the global stage
Global Recreational Boat Building Firms ndashmarket shares
Largest firms located in Italy France and US
Source ODDO Equity Research June 2008 MoC team estimates
Superyacht Market Data
(1) Of orders made in top 10 manufacturing countries Note of the 916 superyachts ordered in 2008 60 were sailing yachts
Source Showboats International
bull Superyacht orders have grown each year for last 10 years ndash although for 2009 global order intake down about 50
bull Largest categories (61m+) have seen the rapid growth (gtUS$1m per meter to build)
bull Italy dominates the sectorbull Growing share for Taiwan Turkey China
bull NZ is 10th largest superyacht builder bull 3 in sailing superyachts (estimate 15 global
market share)ndash Particularly strong in racing yachts
bull NZ focuses almost exclusively on custom-built yachts very little activity in lsquoproduction yachtsrsquo
bull World-renowned for qualityndash NZrsquos largest superyacht manufacturer Alloy
Yachts has won 19 international awards since 1991
2003 2004 2005 2006 2007 2008
24-27m
27-30m30-37m
61-76m
37-46m
76m+
46-61m
CAGR (03-08)
14
18
2612
16
16
14
9
480
of Orders By Size
507652 688
777916
of Orders By Location(1)
The Global Superyacht Market
New Zealandrsquos Position
46
121096
11
Italy
US
NetherlandsGermanyTaiwanUKOtherNew Zealand (16)
NZ highly ranked within lucrative superyacht segment
Institutions for collaboration
The NZ cluster centres on boat building
The New Zealand Marine Cluster
Super Yachts
Racing Yachts
Trailer Boats
Launches amp Yachts
Inflatables
Refit amp Maintenance
Marine Events
Boating Consumables amp Other Services
Marinas
Boat Building
Downstream
Upstream
Significant ExportsLimited Exports
Related Clusters
Tourism
Fishing Commercial
Boats
Government Institutions
bull Trade Promotion (NZTE)bull Local Government (ARC)bull Universities (Auckland)bull Industrial Research Ltd
bull Industry Assoc (MIA)bull Export Group (NZ Marine)bull Training Org (BITO)
Yacht Management
Sails amp Rigging
Electronics
Interiors
Masts amp Winches
Other Services (eg Finance)
Composites
Other Equipment
Design
Support provided by public and private institutions for collaboration
(1) BITO is a division of the Marine Industry Association NZ Marine is a separate organization but shares facilities with the MIA
(2) AucklandPlus the economic development arm of the ARC is overseeing the Hobsonville marine precinct and the marine sector feasibility study
Key Institutions NZ Marine Cluster
Marine Industry
Association
NZ Marine
Boating Industry
Training Org
NZ Trade amp Enterprise
Auckland Regional Council
Institutions For Collaboration Government Institutions
bull 500+ members 50 of industrybull Fees $400-$1200 per firmbull Data collection on industrybull Newsletter on industrybull Fosters collaboration at sub-
cluster (eg CPC standards scheme for trailer boats)
bull Provides lsquobusinessrsquo workshops
bull Represents Exportersbull 100 members 85 of exportsbull Runs ldquoYacht visionrdquo 1st int
conference for yacht designersbull Assists at global boat shows
other exporter opportunities (eg Millennium Cup)
bull Administers Marine Apprenticeship scheme (600 currently ~100 graduates pa)
bull 75 government funded
bull Local government authoritybull Regional development strategybull Infrastructurezoning issuesbull Two cluster specific initiatives(2)
bull Support for NZ Exportersbull Global network of officesbull Formerly responsible for
overseeing NZ cluster policy
Auckland University
Industrial Research
Ltd
Closely linked(1)
bull Yacht Research Unitbull Centre for Advanced Composite
Materials (CACM)
bull Government funded RampD entitybull collaboration with Marine firms
(eg in composites)
1995bull Team New
Zealand win Americarsquos Cup
2000bull Americarsquos Cup held in
Auckland Team New Zealand successfully defend title
2003bull Auckland again hosts
Americarsquos Cup Team New Zealand loses to Alinghi skippered by a New Zealander
1984bull NZ wins 2 gold and
1 bronze medal at Los Angeles Olympics ndash first medals for 20 years
1987 bull NZ launches 1st
Americas Cup bid when event is hosted in Australia after Australiarsquos win in lsquo83
1990 1993bull NZ wins
Whitbread Round the World race (and wins again in 1993)
Competitive Sailing Milestones
History of cluster closely aligned with competitive sailing achievements and major yachting events
1992bull Alloy Yachts
wins New Zealandrsquos first Show Boats International Award for Super Yachts
1991bull Southern
Spars produce their first carbon fiber spar
2003bull 8 out of 10
Americarsquos Cup syndicates use Southern Spars rigs
1986 bull High Modulus
instrumental in developing composites for New Zealandrsquos first Americarsquos Cup challenge
2000bull Millennium
Cup launched in Auckland to showcase New Zealand Super Yachts
1979bull High
Modulus founded as surfboard mnfcturer
1987bull Alloy
Yachts founded
2006bull Southern
Spars merge with largest NZ competitor ndash Marten Spars
1996bull MIA (est 1965)
takes out office space and employs 1st
professional officers
1994bull Inaugural lsquoYacht
Visionrsquo run by NZ Marine
Industry Milestones
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
NZrsquos national diamond characterised by extremeshellip some areas world-class while others are morehellip emerging economy
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
New Zealand National Diamond
+ Low trade barriers+ Flexible labour policies+ Strong antitrust + Good investor protection
- Lack of rivalryintensity- ldquoKiwirdquo lifestyle = leisure-focused- Job securitysafety net valued- Low foreign ownership and international tech transfer
+ Brand NZ clean and green+ Low levels of bureaucracy+ Strong primsec education + Easy to start a business
- Brain drain - Low foreign language skills- Lack of scientistsengineers- Weak RampDinnovation- Infra gaps (roads rail telco)- Weak capital markets
+ Awareness of the need for cluster development+ Efforts to push cluster policy to a regional level
- Weak clusters- Few specialized input suppliers high reliance on imported inputs
+ National passions have driven key international successes eg sport
- Historic trade relationship with UK led to a focus on primary products- Demand seldom drives innovation or anticipates trends- Govt procurement not advanced
x
x
x
x
Relatively undiversified economyhellip dominated by agriculture
-05 -03 -01 01 03
NZ Exports Portfolio By Cluster 1997-2007
Share Of World Exports 2007 ()
Change in Nationrsquos Share Of Exports ( 1997-2007)
Processed Food (Dairy)
Agri Product (Meat)
Tourism
Fishing
FurnitureForestry
Two of NZrsquos key clusters dairy and tourism are doing well however majority of other clusters are losing ground
Marine(1)
(1) Relative position of the marine cluster estimated based on data we have collected and interviews conducted the International Cluster Analysis definition includes commercial shipbuilding which distorts the true position of NZrsquos marine cluster which focuses on boats for private use
Communications
25
20
15
05
Four main recommendations to address NZrsquos key challengesIssues Being Addressed More Detail On Actions
Alleviate Factor
Bottlenecks
Mitigate Distance
Encourage Investment
Institute a New Cluster Programme
Recommendations
1
2
3
4
bull Lack of successful clustersbull Lack of strategy at a cluster levelbull Lack of collaborationbull Lack of effective cluster policy
bull Low labour productivitybull Lack of capital intensitybull Lack of investment (domesticFDI)bull Low savings rates
bull Barriers to lsquoeasyrsquo tradebull Inefficiencies at NZrsquos portsbull Inability of NZ firms to
internationalize
bull Weak infrastructure electricity roads rail telco
bull Human capital gaps
bull Infrastructure spendbull Skilled immigration bull Graduate retentionbull Tertiary education reform
bull New cluster policybull More $$ more focusedbull Private sector drivenbull Collaborative Decentralized
bull Kiwisaver compulsorybull Tax reform propertybull FDI policy reform
bull Privatize all portsbull Streamline customsbull Open skiesbull Focused help from NZTE
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
Contents
New Zealand
Marine Cluster
NZrsquos marine cluster generates NZ$19B(1) in sales annuallyhellip
Major Segments In The Cluster Recent Cluster Performance
2003 2005 2006 2008
Superyachts
Total Sales (NZ$m)
Imports ()
Exports ()
Size total sales (NZ$m)
ImpExp ( of Sales)
Superyachts Racing Yachts
Trailer BoatsLaunches
InflatablesRHIBs
RefitMaintenance Other Services
Equipment
(1) Segmentation and data as per the New Zealand Marine Industry Association NZ$19B equivalent to US$11B at current exchange rate of 0567US$ per NZ$
bull Sails masts winches electronics interiorshellip
bull Sail
bull For competition
bull gt25m
bull Sail or Motor
bull 8-25m
bull Sail or Motor
bull 3-8m
bull Motor
bull Inflatable
bull Motor
bull Repair facilities
bull Fuel marinas insurance charters retailinghellip
Equipment
SuperyachtsLaunches
Inflatables
Other
Trailer Boats
Racing
Refit
CAGR (03-08)
6
417
2
15
(3)
5
101366
1548 16411905
Racing Yachts
LaunchesRefit
Inflatables
Trailer BoatsOther
50
50
Equipment
Most internationally competitive segments
100
7Total
75 of marine activity is located in Auckland or nearby regions
NZ Marine Industry Activity
West Park Marina (3 in Auckland)
Gulf Harbour Marina (2 in Auckland)
Hobsonville
Westhaven Marina (1 in Auckland)Alloy
Yachts
Wynyard Point
Evidence of other Marine ActivitySuperYacht Mfg Marinas
Auckland Cluster (examples)
(1) Remaining 8 of activity not marked occurs across a variety of smaller regions
Source New Zealand Marine Industry Survey 2005 Googlemaps
Christchurch
Wellington
Bay of Plenty
Northland
Auckland
9
6
4
5Waikato
4
58
x of NZ Marine Industry Activity (2005)(1) Evidence of agglomeration even within parts of Auckland
3Taranaki
3 Otago
Long-term outlook looks goodhellip although current economic conditions obviously taking a toll (lsquo09 forecast to be down 50)
bull US and Europe are largest end-markets (an estimated 90 of end-market demand) US market more penetrated and lower growth
bull Market is fragmented largest player (Brunswick US) has 14 global share in boat building
bull Bifurcated market cost price increasingly important for lowermid segment (increased standardization) but less so for higher end (custom yachts)
Global Market Size and Growth Global Market Key Features
bull The global pleasure craft market = US$18B
bull Growth of around 5 per annum on a value basis between 1997 and 2007
ndash Superyachts fastest growing
bull Volume growth has been steady since 1970 with some cyclicality Real value growth driven by increasing average boat size
The cluster competes in a global market that has recorded solid growthhellip strongest gains at the top-end
ItalyFerretti 7Azimt Benetti 6Cantiere 1Aicon 1FIPA lt1Perini Navi lt1
FranceBeneteau 6Rodriguez 3Couach lt1Dufour lt1
UKSunseeker 3Princess 2Fairline 2
GermanyBavaria 2Hanse 1Luerssen lt1
DenmarkDanish Yacht lt1
SwedenHallberg Rassy lt1
SloveniaElan Marine lt1
CroatiaElan lt1Lagoon lt1
New ZealandAlloy Yachts lt1Cookson lt1Fitzroy Yachts lt1Yachting Dev lt1
AustraliaAzzura Yachts lt1Seawind lt1Jarkan lt1
ChinaHolland Custom Yachts lt1
TaiwanHorizon Yacht lt1
TurkeyAegean lt1
NetherlandsRoyal Huisman lt1Feadship lt1
USBrunswick 14Genmar 5Catalina 1Hunter 1
NZ is very much a niche player on the global stage
Global Recreational Boat Building Firms ndashmarket shares
Largest firms located in Italy France and US
Source ODDO Equity Research June 2008 MoC team estimates
Superyacht Market Data
(1) Of orders made in top 10 manufacturing countries Note of the 916 superyachts ordered in 2008 60 were sailing yachts
Source Showboats International
bull Superyacht orders have grown each year for last 10 years ndash although for 2009 global order intake down about 50
bull Largest categories (61m+) have seen the rapid growth (gtUS$1m per meter to build)
bull Italy dominates the sectorbull Growing share for Taiwan Turkey China
bull NZ is 10th largest superyacht builder bull 3 in sailing superyachts (estimate 15 global
market share)ndash Particularly strong in racing yachts
bull NZ focuses almost exclusively on custom-built yachts very little activity in lsquoproduction yachtsrsquo
bull World-renowned for qualityndash NZrsquos largest superyacht manufacturer Alloy
Yachts has won 19 international awards since 1991
2003 2004 2005 2006 2007 2008
24-27m
27-30m30-37m
61-76m
37-46m
76m+
46-61m
CAGR (03-08)
14
18
2612
16
16
14
9
480
of Orders By Size
507652 688
777916
of Orders By Location(1)
The Global Superyacht Market
New Zealandrsquos Position
46
121096
11
Italy
US
NetherlandsGermanyTaiwanUKOtherNew Zealand (16)
NZ highly ranked within lucrative superyacht segment
Institutions for collaboration
The NZ cluster centres on boat building
The New Zealand Marine Cluster
Super Yachts
Racing Yachts
Trailer Boats
Launches amp Yachts
Inflatables
Refit amp Maintenance
Marine Events
Boating Consumables amp Other Services
Marinas
Boat Building
Downstream
Upstream
Significant ExportsLimited Exports
Related Clusters
Tourism
Fishing Commercial
Boats
Government Institutions
bull Trade Promotion (NZTE)bull Local Government (ARC)bull Universities (Auckland)bull Industrial Research Ltd
bull Industry Assoc (MIA)bull Export Group (NZ Marine)bull Training Org (BITO)
Yacht Management
Sails amp Rigging
Electronics
Interiors
Masts amp Winches
Other Services (eg Finance)
Composites
Other Equipment
Design
Support provided by public and private institutions for collaboration
(1) BITO is a division of the Marine Industry Association NZ Marine is a separate organization but shares facilities with the MIA
(2) AucklandPlus the economic development arm of the ARC is overseeing the Hobsonville marine precinct and the marine sector feasibility study
Key Institutions NZ Marine Cluster
Marine Industry
Association
NZ Marine
Boating Industry
Training Org
NZ Trade amp Enterprise
Auckland Regional Council
Institutions For Collaboration Government Institutions
bull 500+ members 50 of industrybull Fees $400-$1200 per firmbull Data collection on industrybull Newsletter on industrybull Fosters collaboration at sub-
cluster (eg CPC standards scheme for trailer boats)
bull Provides lsquobusinessrsquo workshops
bull Represents Exportersbull 100 members 85 of exportsbull Runs ldquoYacht visionrdquo 1st int
conference for yacht designersbull Assists at global boat shows
other exporter opportunities (eg Millennium Cup)
bull Administers Marine Apprenticeship scheme (600 currently ~100 graduates pa)
bull 75 government funded
bull Local government authoritybull Regional development strategybull Infrastructurezoning issuesbull Two cluster specific initiatives(2)
bull Support for NZ Exportersbull Global network of officesbull Formerly responsible for
overseeing NZ cluster policy
Auckland University
Industrial Research
Ltd
Closely linked(1)
bull Yacht Research Unitbull Centre for Advanced Composite
Materials (CACM)
bull Government funded RampD entitybull collaboration with Marine firms
(eg in composites)
1995bull Team New
Zealand win Americarsquos Cup
2000bull Americarsquos Cup held in
Auckland Team New Zealand successfully defend title
2003bull Auckland again hosts
Americarsquos Cup Team New Zealand loses to Alinghi skippered by a New Zealander
1984bull NZ wins 2 gold and
1 bronze medal at Los Angeles Olympics ndash first medals for 20 years
1987 bull NZ launches 1st
Americas Cup bid when event is hosted in Australia after Australiarsquos win in lsquo83
1990 1993bull NZ wins
Whitbread Round the World race (and wins again in 1993)
Competitive Sailing Milestones
History of cluster closely aligned with competitive sailing achievements and major yachting events
1992bull Alloy Yachts
wins New Zealandrsquos first Show Boats International Award for Super Yachts
1991bull Southern
Spars produce their first carbon fiber spar
2003bull 8 out of 10
Americarsquos Cup syndicates use Southern Spars rigs
1986 bull High Modulus
instrumental in developing composites for New Zealandrsquos first Americarsquos Cup challenge
2000bull Millennium
Cup launched in Auckland to showcase New Zealand Super Yachts
1979bull High
Modulus founded as surfboard mnfcturer
1987bull Alloy
Yachts founded
2006bull Southern
Spars merge with largest NZ competitor ndash Marten Spars
1996bull MIA (est 1965)
takes out office space and employs 1st
professional officers
1994bull Inaugural lsquoYacht
Visionrsquo run by NZ Marine
Industry Milestones
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
Relatively undiversified economyhellip dominated by agriculture
-05 -03 -01 01 03
NZ Exports Portfolio By Cluster 1997-2007
Share Of World Exports 2007 ()
Change in Nationrsquos Share Of Exports ( 1997-2007)
Processed Food (Dairy)
Agri Product (Meat)
Tourism
Fishing
FurnitureForestry
Two of NZrsquos key clusters dairy and tourism are doing well however majority of other clusters are losing ground
Marine(1)
(1) Relative position of the marine cluster estimated based on data we have collected and interviews conducted the International Cluster Analysis definition includes commercial shipbuilding which distorts the true position of NZrsquos marine cluster which focuses on boats for private use
Communications
25
20
15
05
Four main recommendations to address NZrsquos key challengesIssues Being Addressed More Detail On Actions
Alleviate Factor
Bottlenecks
Mitigate Distance
Encourage Investment
Institute a New Cluster Programme
Recommendations
1
2
3
4
bull Lack of successful clustersbull Lack of strategy at a cluster levelbull Lack of collaborationbull Lack of effective cluster policy
bull Low labour productivitybull Lack of capital intensitybull Lack of investment (domesticFDI)bull Low savings rates
bull Barriers to lsquoeasyrsquo tradebull Inefficiencies at NZrsquos portsbull Inability of NZ firms to
internationalize
bull Weak infrastructure electricity roads rail telco
bull Human capital gaps
bull Infrastructure spendbull Skilled immigration bull Graduate retentionbull Tertiary education reform
bull New cluster policybull More $$ more focusedbull Private sector drivenbull Collaborative Decentralized
bull Kiwisaver compulsorybull Tax reform propertybull FDI policy reform
bull Privatize all portsbull Streamline customsbull Open skiesbull Focused help from NZTE
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
Contents
New Zealand
Marine Cluster
NZrsquos marine cluster generates NZ$19B(1) in sales annuallyhellip
Major Segments In The Cluster Recent Cluster Performance
2003 2005 2006 2008
Superyachts
Total Sales (NZ$m)
Imports ()
Exports ()
Size total sales (NZ$m)
ImpExp ( of Sales)
Superyachts Racing Yachts
Trailer BoatsLaunches
InflatablesRHIBs
RefitMaintenance Other Services
Equipment
(1) Segmentation and data as per the New Zealand Marine Industry Association NZ$19B equivalent to US$11B at current exchange rate of 0567US$ per NZ$
bull Sails masts winches electronics interiorshellip
bull Sail
bull For competition
bull gt25m
bull Sail or Motor
bull 8-25m
bull Sail or Motor
bull 3-8m
bull Motor
bull Inflatable
bull Motor
bull Repair facilities
bull Fuel marinas insurance charters retailinghellip
Equipment
SuperyachtsLaunches
Inflatables
Other
Trailer Boats
Racing
Refit
CAGR (03-08)
6
417
2
15
(3)
5
101366
1548 16411905
Racing Yachts
LaunchesRefit
Inflatables
Trailer BoatsOther
50
50
Equipment
Most internationally competitive segments
100
7Total
75 of marine activity is located in Auckland or nearby regions
NZ Marine Industry Activity
West Park Marina (3 in Auckland)
Gulf Harbour Marina (2 in Auckland)
Hobsonville
Westhaven Marina (1 in Auckland)Alloy
Yachts
Wynyard Point
Evidence of other Marine ActivitySuperYacht Mfg Marinas
Auckland Cluster (examples)
(1) Remaining 8 of activity not marked occurs across a variety of smaller regions
Source New Zealand Marine Industry Survey 2005 Googlemaps
Christchurch
Wellington
Bay of Plenty
Northland
Auckland
9
6
4
5Waikato
4
58
x of NZ Marine Industry Activity (2005)(1) Evidence of agglomeration even within parts of Auckland
3Taranaki
3 Otago
Long-term outlook looks goodhellip although current economic conditions obviously taking a toll (lsquo09 forecast to be down 50)
bull US and Europe are largest end-markets (an estimated 90 of end-market demand) US market more penetrated and lower growth
bull Market is fragmented largest player (Brunswick US) has 14 global share in boat building
bull Bifurcated market cost price increasingly important for lowermid segment (increased standardization) but less so for higher end (custom yachts)
Global Market Size and Growth Global Market Key Features
bull The global pleasure craft market = US$18B
bull Growth of around 5 per annum on a value basis between 1997 and 2007
ndash Superyachts fastest growing
bull Volume growth has been steady since 1970 with some cyclicality Real value growth driven by increasing average boat size
The cluster competes in a global market that has recorded solid growthhellip strongest gains at the top-end
ItalyFerretti 7Azimt Benetti 6Cantiere 1Aicon 1FIPA lt1Perini Navi lt1
FranceBeneteau 6Rodriguez 3Couach lt1Dufour lt1
UKSunseeker 3Princess 2Fairline 2
GermanyBavaria 2Hanse 1Luerssen lt1
DenmarkDanish Yacht lt1
SwedenHallberg Rassy lt1
SloveniaElan Marine lt1
CroatiaElan lt1Lagoon lt1
New ZealandAlloy Yachts lt1Cookson lt1Fitzroy Yachts lt1Yachting Dev lt1
AustraliaAzzura Yachts lt1Seawind lt1Jarkan lt1
ChinaHolland Custom Yachts lt1
TaiwanHorizon Yacht lt1
TurkeyAegean lt1
NetherlandsRoyal Huisman lt1Feadship lt1
USBrunswick 14Genmar 5Catalina 1Hunter 1
NZ is very much a niche player on the global stage
Global Recreational Boat Building Firms ndashmarket shares
Largest firms located in Italy France and US
Source ODDO Equity Research June 2008 MoC team estimates
Superyacht Market Data
(1) Of orders made in top 10 manufacturing countries Note of the 916 superyachts ordered in 2008 60 were sailing yachts
Source Showboats International
bull Superyacht orders have grown each year for last 10 years ndash although for 2009 global order intake down about 50
bull Largest categories (61m+) have seen the rapid growth (gtUS$1m per meter to build)
bull Italy dominates the sectorbull Growing share for Taiwan Turkey China
bull NZ is 10th largest superyacht builder bull 3 in sailing superyachts (estimate 15 global
market share)ndash Particularly strong in racing yachts
bull NZ focuses almost exclusively on custom-built yachts very little activity in lsquoproduction yachtsrsquo
bull World-renowned for qualityndash NZrsquos largest superyacht manufacturer Alloy
Yachts has won 19 international awards since 1991
2003 2004 2005 2006 2007 2008
24-27m
27-30m30-37m
61-76m
37-46m
76m+
46-61m
CAGR (03-08)
14
18
2612
16
16
14
9
480
of Orders By Size
507652 688
777916
of Orders By Location(1)
The Global Superyacht Market
New Zealandrsquos Position
46
121096
11
Italy
US
NetherlandsGermanyTaiwanUKOtherNew Zealand (16)
NZ highly ranked within lucrative superyacht segment
Institutions for collaboration
The NZ cluster centres on boat building
The New Zealand Marine Cluster
Super Yachts
Racing Yachts
Trailer Boats
Launches amp Yachts
Inflatables
Refit amp Maintenance
Marine Events
Boating Consumables amp Other Services
Marinas
Boat Building
Downstream
Upstream
Significant ExportsLimited Exports
Related Clusters
Tourism
Fishing Commercial
Boats
Government Institutions
bull Trade Promotion (NZTE)bull Local Government (ARC)bull Universities (Auckland)bull Industrial Research Ltd
bull Industry Assoc (MIA)bull Export Group (NZ Marine)bull Training Org (BITO)
Yacht Management
Sails amp Rigging
Electronics
Interiors
Masts amp Winches
Other Services (eg Finance)
Composites
Other Equipment
Design
Support provided by public and private institutions for collaboration
(1) BITO is a division of the Marine Industry Association NZ Marine is a separate organization but shares facilities with the MIA
(2) AucklandPlus the economic development arm of the ARC is overseeing the Hobsonville marine precinct and the marine sector feasibility study
Key Institutions NZ Marine Cluster
Marine Industry
Association
NZ Marine
Boating Industry
Training Org
NZ Trade amp Enterprise
Auckland Regional Council
Institutions For Collaboration Government Institutions
bull 500+ members 50 of industrybull Fees $400-$1200 per firmbull Data collection on industrybull Newsletter on industrybull Fosters collaboration at sub-
cluster (eg CPC standards scheme for trailer boats)
bull Provides lsquobusinessrsquo workshops
bull Represents Exportersbull 100 members 85 of exportsbull Runs ldquoYacht visionrdquo 1st int
conference for yacht designersbull Assists at global boat shows
other exporter opportunities (eg Millennium Cup)
bull Administers Marine Apprenticeship scheme (600 currently ~100 graduates pa)
bull 75 government funded
bull Local government authoritybull Regional development strategybull Infrastructurezoning issuesbull Two cluster specific initiatives(2)
bull Support for NZ Exportersbull Global network of officesbull Formerly responsible for
overseeing NZ cluster policy
Auckland University
Industrial Research
Ltd
Closely linked(1)
bull Yacht Research Unitbull Centre for Advanced Composite
Materials (CACM)
bull Government funded RampD entitybull collaboration with Marine firms
(eg in composites)
1995bull Team New
Zealand win Americarsquos Cup
2000bull Americarsquos Cup held in
Auckland Team New Zealand successfully defend title
2003bull Auckland again hosts
Americarsquos Cup Team New Zealand loses to Alinghi skippered by a New Zealander
1984bull NZ wins 2 gold and
1 bronze medal at Los Angeles Olympics ndash first medals for 20 years
1987 bull NZ launches 1st
Americas Cup bid when event is hosted in Australia after Australiarsquos win in lsquo83
1990 1993bull NZ wins
Whitbread Round the World race (and wins again in 1993)
Competitive Sailing Milestones
History of cluster closely aligned with competitive sailing achievements and major yachting events
1992bull Alloy Yachts
wins New Zealandrsquos first Show Boats International Award for Super Yachts
1991bull Southern
Spars produce their first carbon fiber spar
2003bull 8 out of 10
Americarsquos Cup syndicates use Southern Spars rigs
1986 bull High Modulus
instrumental in developing composites for New Zealandrsquos first Americarsquos Cup challenge
2000bull Millennium
Cup launched in Auckland to showcase New Zealand Super Yachts
1979bull High
Modulus founded as surfboard mnfcturer
1987bull Alloy
Yachts founded
2006bull Southern
Spars merge with largest NZ competitor ndash Marten Spars
1996bull MIA (est 1965)
takes out office space and employs 1st
professional officers
1994bull Inaugural lsquoYacht
Visionrsquo run by NZ Marine
Industry Milestones
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
Four main recommendations to address NZrsquos key challengesIssues Being Addressed More Detail On Actions
Alleviate Factor
Bottlenecks
Mitigate Distance
Encourage Investment
Institute a New Cluster Programme
Recommendations
1
2
3
4
bull Lack of successful clustersbull Lack of strategy at a cluster levelbull Lack of collaborationbull Lack of effective cluster policy
bull Low labour productivitybull Lack of capital intensitybull Lack of investment (domesticFDI)bull Low savings rates
bull Barriers to lsquoeasyrsquo tradebull Inefficiencies at NZrsquos portsbull Inability of NZ firms to
internationalize
bull Weak infrastructure electricity roads rail telco
bull Human capital gaps
bull Infrastructure spendbull Skilled immigration bull Graduate retentionbull Tertiary education reform
bull New cluster policybull More $$ more focusedbull Private sector drivenbull Collaborative Decentralized
bull Kiwisaver compulsorybull Tax reform propertybull FDI policy reform
bull Privatize all portsbull Streamline customsbull Open skiesbull Focused help from NZTE
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
Contents
New Zealand
Marine Cluster
NZrsquos marine cluster generates NZ$19B(1) in sales annuallyhellip
Major Segments In The Cluster Recent Cluster Performance
2003 2005 2006 2008
Superyachts
Total Sales (NZ$m)
Imports ()
Exports ()
Size total sales (NZ$m)
ImpExp ( of Sales)
Superyachts Racing Yachts
Trailer BoatsLaunches
InflatablesRHIBs
RefitMaintenance Other Services
Equipment
(1) Segmentation and data as per the New Zealand Marine Industry Association NZ$19B equivalent to US$11B at current exchange rate of 0567US$ per NZ$
bull Sails masts winches electronics interiorshellip
bull Sail
bull For competition
bull gt25m
bull Sail or Motor
bull 8-25m
bull Sail or Motor
bull 3-8m
bull Motor
bull Inflatable
bull Motor
bull Repair facilities
bull Fuel marinas insurance charters retailinghellip
Equipment
SuperyachtsLaunches
Inflatables
Other
Trailer Boats
Racing
Refit
CAGR (03-08)
6
417
2
15
(3)
5
101366
1548 16411905
Racing Yachts
LaunchesRefit
Inflatables
Trailer BoatsOther
50
50
Equipment
Most internationally competitive segments
100
7Total
75 of marine activity is located in Auckland or nearby regions
NZ Marine Industry Activity
West Park Marina (3 in Auckland)
Gulf Harbour Marina (2 in Auckland)
Hobsonville
Westhaven Marina (1 in Auckland)Alloy
Yachts
Wynyard Point
Evidence of other Marine ActivitySuperYacht Mfg Marinas
Auckland Cluster (examples)
(1) Remaining 8 of activity not marked occurs across a variety of smaller regions
Source New Zealand Marine Industry Survey 2005 Googlemaps
Christchurch
Wellington
Bay of Plenty
Northland
Auckland
9
6
4
5Waikato
4
58
x of NZ Marine Industry Activity (2005)(1) Evidence of agglomeration even within parts of Auckland
3Taranaki
3 Otago
Long-term outlook looks goodhellip although current economic conditions obviously taking a toll (lsquo09 forecast to be down 50)
bull US and Europe are largest end-markets (an estimated 90 of end-market demand) US market more penetrated and lower growth
bull Market is fragmented largest player (Brunswick US) has 14 global share in boat building
bull Bifurcated market cost price increasingly important for lowermid segment (increased standardization) but less so for higher end (custom yachts)
Global Market Size and Growth Global Market Key Features
bull The global pleasure craft market = US$18B
bull Growth of around 5 per annum on a value basis between 1997 and 2007
ndash Superyachts fastest growing
bull Volume growth has been steady since 1970 with some cyclicality Real value growth driven by increasing average boat size
The cluster competes in a global market that has recorded solid growthhellip strongest gains at the top-end
ItalyFerretti 7Azimt Benetti 6Cantiere 1Aicon 1FIPA lt1Perini Navi lt1
FranceBeneteau 6Rodriguez 3Couach lt1Dufour lt1
UKSunseeker 3Princess 2Fairline 2
GermanyBavaria 2Hanse 1Luerssen lt1
DenmarkDanish Yacht lt1
SwedenHallberg Rassy lt1
SloveniaElan Marine lt1
CroatiaElan lt1Lagoon lt1
New ZealandAlloy Yachts lt1Cookson lt1Fitzroy Yachts lt1Yachting Dev lt1
AustraliaAzzura Yachts lt1Seawind lt1Jarkan lt1
ChinaHolland Custom Yachts lt1
TaiwanHorizon Yacht lt1
TurkeyAegean lt1
NetherlandsRoyal Huisman lt1Feadship lt1
USBrunswick 14Genmar 5Catalina 1Hunter 1
NZ is very much a niche player on the global stage
Global Recreational Boat Building Firms ndashmarket shares
Largest firms located in Italy France and US
Source ODDO Equity Research June 2008 MoC team estimates
Superyacht Market Data
(1) Of orders made in top 10 manufacturing countries Note of the 916 superyachts ordered in 2008 60 were sailing yachts
Source Showboats International
bull Superyacht orders have grown each year for last 10 years ndash although for 2009 global order intake down about 50
bull Largest categories (61m+) have seen the rapid growth (gtUS$1m per meter to build)
bull Italy dominates the sectorbull Growing share for Taiwan Turkey China
bull NZ is 10th largest superyacht builder bull 3 in sailing superyachts (estimate 15 global
market share)ndash Particularly strong in racing yachts
bull NZ focuses almost exclusively on custom-built yachts very little activity in lsquoproduction yachtsrsquo
bull World-renowned for qualityndash NZrsquos largest superyacht manufacturer Alloy
Yachts has won 19 international awards since 1991
2003 2004 2005 2006 2007 2008
24-27m
27-30m30-37m
61-76m
37-46m
76m+
46-61m
CAGR (03-08)
14
18
2612
16
16
14
9
480
of Orders By Size
507652 688
777916
of Orders By Location(1)
The Global Superyacht Market
New Zealandrsquos Position
46
121096
11
Italy
US
NetherlandsGermanyTaiwanUKOtherNew Zealand (16)
NZ highly ranked within lucrative superyacht segment
Institutions for collaboration
The NZ cluster centres on boat building
The New Zealand Marine Cluster
Super Yachts
Racing Yachts
Trailer Boats
Launches amp Yachts
Inflatables
Refit amp Maintenance
Marine Events
Boating Consumables amp Other Services
Marinas
Boat Building
Downstream
Upstream
Significant ExportsLimited Exports
Related Clusters
Tourism
Fishing Commercial
Boats
Government Institutions
bull Trade Promotion (NZTE)bull Local Government (ARC)bull Universities (Auckland)bull Industrial Research Ltd
bull Industry Assoc (MIA)bull Export Group (NZ Marine)bull Training Org (BITO)
Yacht Management
Sails amp Rigging
Electronics
Interiors
Masts amp Winches
Other Services (eg Finance)
Composites
Other Equipment
Design
Support provided by public and private institutions for collaboration
(1) BITO is a division of the Marine Industry Association NZ Marine is a separate organization but shares facilities with the MIA
(2) AucklandPlus the economic development arm of the ARC is overseeing the Hobsonville marine precinct and the marine sector feasibility study
Key Institutions NZ Marine Cluster
Marine Industry
Association
NZ Marine
Boating Industry
Training Org
NZ Trade amp Enterprise
Auckland Regional Council
Institutions For Collaboration Government Institutions
bull 500+ members 50 of industrybull Fees $400-$1200 per firmbull Data collection on industrybull Newsletter on industrybull Fosters collaboration at sub-
cluster (eg CPC standards scheme for trailer boats)
bull Provides lsquobusinessrsquo workshops
bull Represents Exportersbull 100 members 85 of exportsbull Runs ldquoYacht visionrdquo 1st int
conference for yacht designersbull Assists at global boat shows
other exporter opportunities (eg Millennium Cup)
bull Administers Marine Apprenticeship scheme (600 currently ~100 graduates pa)
bull 75 government funded
bull Local government authoritybull Regional development strategybull Infrastructurezoning issuesbull Two cluster specific initiatives(2)
bull Support for NZ Exportersbull Global network of officesbull Formerly responsible for
overseeing NZ cluster policy
Auckland University
Industrial Research
Ltd
Closely linked(1)
bull Yacht Research Unitbull Centre for Advanced Composite
Materials (CACM)
bull Government funded RampD entitybull collaboration with Marine firms
(eg in composites)
1995bull Team New
Zealand win Americarsquos Cup
2000bull Americarsquos Cup held in
Auckland Team New Zealand successfully defend title
2003bull Auckland again hosts
Americarsquos Cup Team New Zealand loses to Alinghi skippered by a New Zealander
1984bull NZ wins 2 gold and
1 bronze medal at Los Angeles Olympics ndash first medals for 20 years
1987 bull NZ launches 1st
Americas Cup bid when event is hosted in Australia after Australiarsquos win in lsquo83
1990 1993bull NZ wins
Whitbread Round the World race (and wins again in 1993)
Competitive Sailing Milestones
History of cluster closely aligned with competitive sailing achievements and major yachting events
1992bull Alloy Yachts
wins New Zealandrsquos first Show Boats International Award for Super Yachts
1991bull Southern
Spars produce their first carbon fiber spar
2003bull 8 out of 10
Americarsquos Cup syndicates use Southern Spars rigs
1986 bull High Modulus
instrumental in developing composites for New Zealandrsquos first Americarsquos Cup challenge
2000bull Millennium
Cup launched in Auckland to showcase New Zealand Super Yachts
1979bull High
Modulus founded as surfboard mnfcturer
1987bull Alloy
Yachts founded
2006bull Southern
Spars merge with largest NZ competitor ndash Marten Spars
1996bull MIA (est 1965)
takes out office space and employs 1st
professional officers
1994bull Inaugural lsquoYacht
Visionrsquo run by NZ Marine
Industry Milestones
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
Contents
New Zealand
Marine Cluster
NZrsquos marine cluster generates NZ$19B(1) in sales annuallyhellip
Major Segments In The Cluster Recent Cluster Performance
2003 2005 2006 2008
Superyachts
Total Sales (NZ$m)
Imports ()
Exports ()
Size total sales (NZ$m)
ImpExp ( of Sales)
Superyachts Racing Yachts
Trailer BoatsLaunches
InflatablesRHIBs
RefitMaintenance Other Services
Equipment
(1) Segmentation and data as per the New Zealand Marine Industry Association NZ$19B equivalent to US$11B at current exchange rate of 0567US$ per NZ$
bull Sails masts winches electronics interiorshellip
bull Sail
bull For competition
bull gt25m
bull Sail or Motor
bull 8-25m
bull Sail or Motor
bull 3-8m
bull Motor
bull Inflatable
bull Motor
bull Repair facilities
bull Fuel marinas insurance charters retailinghellip
Equipment
SuperyachtsLaunches
Inflatables
Other
Trailer Boats
Racing
Refit
CAGR (03-08)
6
417
2
15
(3)
5
101366
1548 16411905
Racing Yachts
LaunchesRefit
Inflatables
Trailer BoatsOther
50
50
Equipment
Most internationally competitive segments
100
7Total
75 of marine activity is located in Auckland or nearby regions
NZ Marine Industry Activity
West Park Marina (3 in Auckland)
Gulf Harbour Marina (2 in Auckland)
Hobsonville
Westhaven Marina (1 in Auckland)Alloy
Yachts
Wynyard Point
Evidence of other Marine ActivitySuperYacht Mfg Marinas
Auckland Cluster (examples)
(1) Remaining 8 of activity not marked occurs across a variety of smaller regions
Source New Zealand Marine Industry Survey 2005 Googlemaps
Christchurch
Wellington
Bay of Plenty
Northland
Auckland
9
6
4
5Waikato
4
58
x of NZ Marine Industry Activity (2005)(1) Evidence of agglomeration even within parts of Auckland
3Taranaki
3 Otago
Long-term outlook looks goodhellip although current economic conditions obviously taking a toll (lsquo09 forecast to be down 50)
bull US and Europe are largest end-markets (an estimated 90 of end-market demand) US market more penetrated and lower growth
bull Market is fragmented largest player (Brunswick US) has 14 global share in boat building
bull Bifurcated market cost price increasingly important for lowermid segment (increased standardization) but less so for higher end (custom yachts)
Global Market Size and Growth Global Market Key Features
bull The global pleasure craft market = US$18B
bull Growth of around 5 per annum on a value basis between 1997 and 2007
ndash Superyachts fastest growing
bull Volume growth has been steady since 1970 with some cyclicality Real value growth driven by increasing average boat size
The cluster competes in a global market that has recorded solid growthhellip strongest gains at the top-end
ItalyFerretti 7Azimt Benetti 6Cantiere 1Aicon 1FIPA lt1Perini Navi lt1
FranceBeneteau 6Rodriguez 3Couach lt1Dufour lt1
UKSunseeker 3Princess 2Fairline 2
GermanyBavaria 2Hanse 1Luerssen lt1
DenmarkDanish Yacht lt1
SwedenHallberg Rassy lt1
SloveniaElan Marine lt1
CroatiaElan lt1Lagoon lt1
New ZealandAlloy Yachts lt1Cookson lt1Fitzroy Yachts lt1Yachting Dev lt1
AustraliaAzzura Yachts lt1Seawind lt1Jarkan lt1
ChinaHolland Custom Yachts lt1
TaiwanHorizon Yacht lt1
TurkeyAegean lt1
NetherlandsRoyal Huisman lt1Feadship lt1
USBrunswick 14Genmar 5Catalina 1Hunter 1
NZ is very much a niche player on the global stage
Global Recreational Boat Building Firms ndashmarket shares
Largest firms located in Italy France and US
Source ODDO Equity Research June 2008 MoC team estimates
Superyacht Market Data
(1) Of orders made in top 10 manufacturing countries Note of the 916 superyachts ordered in 2008 60 were sailing yachts
Source Showboats International
bull Superyacht orders have grown each year for last 10 years ndash although for 2009 global order intake down about 50
bull Largest categories (61m+) have seen the rapid growth (gtUS$1m per meter to build)
bull Italy dominates the sectorbull Growing share for Taiwan Turkey China
bull NZ is 10th largest superyacht builder bull 3 in sailing superyachts (estimate 15 global
market share)ndash Particularly strong in racing yachts
bull NZ focuses almost exclusively on custom-built yachts very little activity in lsquoproduction yachtsrsquo
bull World-renowned for qualityndash NZrsquos largest superyacht manufacturer Alloy
Yachts has won 19 international awards since 1991
2003 2004 2005 2006 2007 2008
24-27m
27-30m30-37m
61-76m
37-46m
76m+
46-61m
CAGR (03-08)
14
18
2612
16
16
14
9
480
of Orders By Size
507652 688
777916
of Orders By Location(1)
The Global Superyacht Market
New Zealandrsquos Position
46
121096
11
Italy
US
NetherlandsGermanyTaiwanUKOtherNew Zealand (16)
NZ highly ranked within lucrative superyacht segment
Institutions for collaboration
The NZ cluster centres on boat building
The New Zealand Marine Cluster
Super Yachts
Racing Yachts
Trailer Boats
Launches amp Yachts
Inflatables
Refit amp Maintenance
Marine Events
Boating Consumables amp Other Services
Marinas
Boat Building
Downstream
Upstream
Significant ExportsLimited Exports
Related Clusters
Tourism
Fishing Commercial
Boats
Government Institutions
bull Trade Promotion (NZTE)bull Local Government (ARC)bull Universities (Auckland)bull Industrial Research Ltd
bull Industry Assoc (MIA)bull Export Group (NZ Marine)bull Training Org (BITO)
Yacht Management
Sails amp Rigging
Electronics
Interiors
Masts amp Winches
Other Services (eg Finance)
Composites
Other Equipment
Design
Support provided by public and private institutions for collaboration
(1) BITO is a division of the Marine Industry Association NZ Marine is a separate organization but shares facilities with the MIA
(2) AucklandPlus the economic development arm of the ARC is overseeing the Hobsonville marine precinct and the marine sector feasibility study
Key Institutions NZ Marine Cluster
Marine Industry
Association
NZ Marine
Boating Industry
Training Org
NZ Trade amp Enterprise
Auckland Regional Council
Institutions For Collaboration Government Institutions
bull 500+ members 50 of industrybull Fees $400-$1200 per firmbull Data collection on industrybull Newsletter on industrybull Fosters collaboration at sub-
cluster (eg CPC standards scheme for trailer boats)
bull Provides lsquobusinessrsquo workshops
bull Represents Exportersbull 100 members 85 of exportsbull Runs ldquoYacht visionrdquo 1st int
conference for yacht designersbull Assists at global boat shows
other exporter opportunities (eg Millennium Cup)
bull Administers Marine Apprenticeship scheme (600 currently ~100 graduates pa)
bull 75 government funded
bull Local government authoritybull Regional development strategybull Infrastructurezoning issuesbull Two cluster specific initiatives(2)
bull Support for NZ Exportersbull Global network of officesbull Formerly responsible for
overseeing NZ cluster policy
Auckland University
Industrial Research
Ltd
Closely linked(1)
bull Yacht Research Unitbull Centre for Advanced Composite
Materials (CACM)
bull Government funded RampD entitybull collaboration with Marine firms
(eg in composites)
1995bull Team New
Zealand win Americarsquos Cup
2000bull Americarsquos Cup held in
Auckland Team New Zealand successfully defend title
2003bull Auckland again hosts
Americarsquos Cup Team New Zealand loses to Alinghi skippered by a New Zealander
1984bull NZ wins 2 gold and
1 bronze medal at Los Angeles Olympics ndash first medals for 20 years
1987 bull NZ launches 1st
Americas Cup bid when event is hosted in Australia after Australiarsquos win in lsquo83
1990 1993bull NZ wins
Whitbread Round the World race (and wins again in 1993)
Competitive Sailing Milestones
History of cluster closely aligned with competitive sailing achievements and major yachting events
1992bull Alloy Yachts
wins New Zealandrsquos first Show Boats International Award for Super Yachts
1991bull Southern
Spars produce their first carbon fiber spar
2003bull 8 out of 10
Americarsquos Cup syndicates use Southern Spars rigs
1986 bull High Modulus
instrumental in developing composites for New Zealandrsquos first Americarsquos Cup challenge
2000bull Millennium
Cup launched in Auckland to showcase New Zealand Super Yachts
1979bull High
Modulus founded as surfboard mnfcturer
1987bull Alloy
Yachts founded
2006bull Southern
Spars merge with largest NZ competitor ndash Marten Spars
1996bull MIA (est 1965)
takes out office space and employs 1st
professional officers
1994bull Inaugural lsquoYacht
Visionrsquo run by NZ Marine
Industry Milestones
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
NZrsquos marine cluster generates NZ$19B(1) in sales annuallyhellip
Major Segments In The Cluster Recent Cluster Performance
2003 2005 2006 2008
Superyachts
Total Sales (NZ$m)
Imports ()
Exports ()
Size total sales (NZ$m)
ImpExp ( of Sales)
Superyachts Racing Yachts
Trailer BoatsLaunches
InflatablesRHIBs
RefitMaintenance Other Services
Equipment
(1) Segmentation and data as per the New Zealand Marine Industry Association NZ$19B equivalent to US$11B at current exchange rate of 0567US$ per NZ$
bull Sails masts winches electronics interiorshellip
bull Sail
bull For competition
bull gt25m
bull Sail or Motor
bull 8-25m
bull Sail or Motor
bull 3-8m
bull Motor
bull Inflatable
bull Motor
bull Repair facilities
bull Fuel marinas insurance charters retailinghellip
Equipment
SuperyachtsLaunches
Inflatables
Other
Trailer Boats
Racing
Refit
CAGR (03-08)
6
417
2
15
(3)
5
101366
1548 16411905
Racing Yachts
LaunchesRefit
Inflatables
Trailer BoatsOther
50
50
Equipment
Most internationally competitive segments
100
7Total
75 of marine activity is located in Auckland or nearby regions
NZ Marine Industry Activity
West Park Marina (3 in Auckland)
Gulf Harbour Marina (2 in Auckland)
Hobsonville
Westhaven Marina (1 in Auckland)Alloy
Yachts
Wynyard Point
Evidence of other Marine ActivitySuperYacht Mfg Marinas
Auckland Cluster (examples)
(1) Remaining 8 of activity not marked occurs across a variety of smaller regions
Source New Zealand Marine Industry Survey 2005 Googlemaps
Christchurch
Wellington
Bay of Plenty
Northland
Auckland
9
6
4
5Waikato
4
58
x of NZ Marine Industry Activity (2005)(1) Evidence of agglomeration even within parts of Auckland
3Taranaki
3 Otago
Long-term outlook looks goodhellip although current economic conditions obviously taking a toll (lsquo09 forecast to be down 50)
bull US and Europe are largest end-markets (an estimated 90 of end-market demand) US market more penetrated and lower growth
bull Market is fragmented largest player (Brunswick US) has 14 global share in boat building
bull Bifurcated market cost price increasingly important for lowermid segment (increased standardization) but less so for higher end (custom yachts)
Global Market Size and Growth Global Market Key Features
bull The global pleasure craft market = US$18B
bull Growth of around 5 per annum on a value basis between 1997 and 2007
ndash Superyachts fastest growing
bull Volume growth has been steady since 1970 with some cyclicality Real value growth driven by increasing average boat size
The cluster competes in a global market that has recorded solid growthhellip strongest gains at the top-end
ItalyFerretti 7Azimt Benetti 6Cantiere 1Aicon 1FIPA lt1Perini Navi lt1
FranceBeneteau 6Rodriguez 3Couach lt1Dufour lt1
UKSunseeker 3Princess 2Fairline 2
GermanyBavaria 2Hanse 1Luerssen lt1
DenmarkDanish Yacht lt1
SwedenHallberg Rassy lt1
SloveniaElan Marine lt1
CroatiaElan lt1Lagoon lt1
New ZealandAlloy Yachts lt1Cookson lt1Fitzroy Yachts lt1Yachting Dev lt1
AustraliaAzzura Yachts lt1Seawind lt1Jarkan lt1
ChinaHolland Custom Yachts lt1
TaiwanHorizon Yacht lt1
TurkeyAegean lt1
NetherlandsRoyal Huisman lt1Feadship lt1
USBrunswick 14Genmar 5Catalina 1Hunter 1
NZ is very much a niche player on the global stage
Global Recreational Boat Building Firms ndashmarket shares
Largest firms located in Italy France and US
Source ODDO Equity Research June 2008 MoC team estimates
Superyacht Market Data
(1) Of orders made in top 10 manufacturing countries Note of the 916 superyachts ordered in 2008 60 were sailing yachts
Source Showboats International
bull Superyacht orders have grown each year for last 10 years ndash although for 2009 global order intake down about 50
bull Largest categories (61m+) have seen the rapid growth (gtUS$1m per meter to build)
bull Italy dominates the sectorbull Growing share for Taiwan Turkey China
bull NZ is 10th largest superyacht builder bull 3 in sailing superyachts (estimate 15 global
market share)ndash Particularly strong in racing yachts
bull NZ focuses almost exclusively on custom-built yachts very little activity in lsquoproduction yachtsrsquo
bull World-renowned for qualityndash NZrsquos largest superyacht manufacturer Alloy
Yachts has won 19 international awards since 1991
2003 2004 2005 2006 2007 2008
24-27m
27-30m30-37m
61-76m
37-46m
76m+
46-61m
CAGR (03-08)
14
18
2612
16
16
14
9
480
of Orders By Size
507652 688
777916
of Orders By Location(1)
The Global Superyacht Market
New Zealandrsquos Position
46
121096
11
Italy
US
NetherlandsGermanyTaiwanUKOtherNew Zealand (16)
NZ highly ranked within lucrative superyacht segment
Institutions for collaboration
The NZ cluster centres on boat building
The New Zealand Marine Cluster
Super Yachts
Racing Yachts
Trailer Boats
Launches amp Yachts
Inflatables
Refit amp Maintenance
Marine Events
Boating Consumables amp Other Services
Marinas
Boat Building
Downstream
Upstream
Significant ExportsLimited Exports
Related Clusters
Tourism
Fishing Commercial
Boats
Government Institutions
bull Trade Promotion (NZTE)bull Local Government (ARC)bull Universities (Auckland)bull Industrial Research Ltd
bull Industry Assoc (MIA)bull Export Group (NZ Marine)bull Training Org (BITO)
Yacht Management
Sails amp Rigging
Electronics
Interiors
Masts amp Winches
Other Services (eg Finance)
Composites
Other Equipment
Design
Support provided by public and private institutions for collaboration
(1) BITO is a division of the Marine Industry Association NZ Marine is a separate organization but shares facilities with the MIA
(2) AucklandPlus the economic development arm of the ARC is overseeing the Hobsonville marine precinct and the marine sector feasibility study
Key Institutions NZ Marine Cluster
Marine Industry
Association
NZ Marine
Boating Industry
Training Org
NZ Trade amp Enterprise
Auckland Regional Council
Institutions For Collaboration Government Institutions
bull 500+ members 50 of industrybull Fees $400-$1200 per firmbull Data collection on industrybull Newsletter on industrybull Fosters collaboration at sub-
cluster (eg CPC standards scheme for trailer boats)
bull Provides lsquobusinessrsquo workshops
bull Represents Exportersbull 100 members 85 of exportsbull Runs ldquoYacht visionrdquo 1st int
conference for yacht designersbull Assists at global boat shows
other exporter opportunities (eg Millennium Cup)
bull Administers Marine Apprenticeship scheme (600 currently ~100 graduates pa)
bull 75 government funded
bull Local government authoritybull Regional development strategybull Infrastructurezoning issuesbull Two cluster specific initiatives(2)
bull Support for NZ Exportersbull Global network of officesbull Formerly responsible for
overseeing NZ cluster policy
Auckland University
Industrial Research
Ltd
Closely linked(1)
bull Yacht Research Unitbull Centre for Advanced Composite
Materials (CACM)
bull Government funded RampD entitybull collaboration with Marine firms
(eg in composites)
1995bull Team New
Zealand win Americarsquos Cup
2000bull Americarsquos Cup held in
Auckland Team New Zealand successfully defend title
2003bull Auckland again hosts
Americarsquos Cup Team New Zealand loses to Alinghi skippered by a New Zealander
1984bull NZ wins 2 gold and
1 bronze medal at Los Angeles Olympics ndash first medals for 20 years
1987 bull NZ launches 1st
Americas Cup bid when event is hosted in Australia after Australiarsquos win in lsquo83
1990 1993bull NZ wins
Whitbread Round the World race (and wins again in 1993)
Competitive Sailing Milestones
History of cluster closely aligned with competitive sailing achievements and major yachting events
1992bull Alloy Yachts
wins New Zealandrsquos first Show Boats International Award for Super Yachts
1991bull Southern
Spars produce their first carbon fiber spar
2003bull 8 out of 10
Americarsquos Cup syndicates use Southern Spars rigs
1986 bull High Modulus
instrumental in developing composites for New Zealandrsquos first Americarsquos Cup challenge
2000bull Millennium
Cup launched in Auckland to showcase New Zealand Super Yachts
1979bull High
Modulus founded as surfboard mnfcturer
1987bull Alloy
Yachts founded
2006bull Southern
Spars merge with largest NZ competitor ndash Marten Spars
1996bull MIA (est 1965)
takes out office space and employs 1st
professional officers
1994bull Inaugural lsquoYacht
Visionrsquo run by NZ Marine
Industry Milestones
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
75 of marine activity is located in Auckland or nearby regions
NZ Marine Industry Activity
West Park Marina (3 in Auckland)
Gulf Harbour Marina (2 in Auckland)
Hobsonville
Westhaven Marina (1 in Auckland)Alloy
Yachts
Wynyard Point
Evidence of other Marine ActivitySuperYacht Mfg Marinas
Auckland Cluster (examples)
(1) Remaining 8 of activity not marked occurs across a variety of smaller regions
Source New Zealand Marine Industry Survey 2005 Googlemaps
Christchurch
Wellington
Bay of Plenty
Northland
Auckland
9
6
4
5Waikato
4
58
x of NZ Marine Industry Activity (2005)(1) Evidence of agglomeration even within parts of Auckland
3Taranaki
3 Otago
Long-term outlook looks goodhellip although current economic conditions obviously taking a toll (lsquo09 forecast to be down 50)
bull US and Europe are largest end-markets (an estimated 90 of end-market demand) US market more penetrated and lower growth
bull Market is fragmented largest player (Brunswick US) has 14 global share in boat building
bull Bifurcated market cost price increasingly important for lowermid segment (increased standardization) but less so for higher end (custom yachts)
Global Market Size and Growth Global Market Key Features
bull The global pleasure craft market = US$18B
bull Growth of around 5 per annum on a value basis between 1997 and 2007
ndash Superyachts fastest growing
bull Volume growth has been steady since 1970 with some cyclicality Real value growth driven by increasing average boat size
The cluster competes in a global market that has recorded solid growthhellip strongest gains at the top-end
ItalyFerretti 7Azimt Benetti 6Cantiere 1Aicon 1FIPA lt1Perini Navi lt1
FranceBeneteau 6Rodriguez 3Couach lt1Dufour lt1
UKSunseeker 3Princess 2Fairline 2
GermanyBavaria 2Hanse 1Luerssen lt1
DenmarkDanish Yacht lt1
SwedenHallberg Rassy lt1
SloveniaElan Marine lt1
CroatiaElan lt1Lagoon lt1
New ZealandAlloy Yachts lt1Cookson lt1Fitzroy Yachts lt1Yachting Dev lt1
AustraliaAzzura Yachts lt1Seawind lt1Jarkan lt1
ChinaHolland Custom Yachts lt1
TaiwanHorizon Yacht lt1
TurkeyAegean lt1
NetherlandsRoyal Huisman lt1Feadship lt1
USBrunswick 14Genmar 5Catalina 1Hunter 1
NZ is very much a niche player on the global stage
Global Recreational Boat Building Firms ndashmarket shares
Largest firms located in Italy France and US
Source ODDO Equity Research June 2008 MoC team estimates
Superyacht Market Data
(1) Of orders made in top 10 manufacturing countries Note of the 916 superyachts ordered in 2008 60 were sailing yachts
Source Showboats International
bull Superyacht orders have grown each year for last 10 years ndash although for 2009 global order intake down about 50
bull Largest categories (61m+) have seen the rapid growth (gtUS$1m per meter to build)
bull Italy dominates the sectorbull Growing share for Taiwan Turkey China
bull NZ is 10th largest superyacht builder bull 3 in sailing superyachts (estimate 15 global
market share)ndash Particularly strong in racing yachts
bull NZ focuses almost exclusively on custom-built yachts very little activity in lsquoproduction yachtsrsquo
bull World-renowned for qualityndash NZrsquos largest superyacht manufacturer Alloy
Yachts has won 19 international awards since 1991
2003 2004 2005 2006 2007 2008
24-27m
27-30m30-37m
61-76m
37-46m
76m+
46-61m
CAGR (03-08)
14
18
2612
16
16
14
9
480
of Orders By Size
507652 688
777916
of Orders By Location(1)
The Global Superyacht Market
New Zealandrsquos Position
46
121096
11
Italy
US
NetherlandsGermanyTaiwanUKOtherNew Zealand (16)
NZ highly ranked within lucrative superyacht segment
Institutions for collaboration
The NZ cluster centres on boat building
The New Zealand Marine Cluster
Super Yachts
Racing Yachts
Trailer Boats
Launches amp Yachts
Inflatables
Refit amp Maintenance
Marine Events
Boating Consumables amp Other Services
Marinas
Boat Building
Downstream
Upstream
Significant ExportsLimited Exports
Related Clusters
Tourism
Fishing Commercial
Boats
Government Institutions
bull Trade Promotion (NZTE)bull Local Government (ARC)bull Universities (Auckland)bull Industrial Research Ltd
bull Industry Assoc (MIA)bull Export Group (NZ Marine)bull Training Org (BITO)
Yacht Management
Sails amp Rigging
Electronics
Interiors
Masts amp Winches
Other Services (eg Finance)
Composites
Other Equipment
Design
Support provided by public and private institutions for collaboration
(1) BITO is a division of the Marine Industry Association NZ Marine is a separate organization but shares facilities with the MIA
(2) AucklandPlus the economic development arm of the ARC is overseeing the Hobsonville marine precinct and the marine sector feasibility study
Key Institutions NZ Marine Cluster
Marine Industry
Association
NZ Marine
Boating Industry
Training Org
NZ Trade amp Enterprise
Auckland Regional Council
Institutions For Collaboration Government Institutions
bull 500+ members 50 of industrybull Fees $400-$1200 per firmbull Data collection on industrybull Newsletter on industrybull Fosters collaboration at sub-
cluster (eg CPC standards scheme for trailer boats)
bull Provides lsquobusinessrsquo workshops
bull Represents Exportersbull 100 members 85 of exportsbull Runs ldquoYacht visionrdquo 1st int
conference for yacht designersbull Assists at global boat shows
other exporter opportunities (eg Millennium Cup)
bull Administers Marine Apprenticeship scheme (600 currently ~100 graduates pa)
bull 75 government funded
bull Local government authoritybull Regional development strategybull Infrastructurezoning issuesbull Two cluster specific initiatives(2)
bull Support for NZ Exportersbull Global network of officesbull Formerly responsible for
overseeing NZ cluster policy
Auckland University
Industrial Research
Ltd
Closely linked(1)
bull Yacht Research Unitbull Centre for Advanced Composite
Materials (CACM)
bull Government funded RampD entitybull collaboration with Marine firms
(eg in composites)
1995bull Team New
Zealand win Americarsquos Cup
2000bull Americarsquos Cup held in
Auckland Team New Zealand successfully defend title
2003bull Auckland again hosts
Americarsquos Cup Team New Zealand loses to Alinghi skippered by a New Zealander
1984bull NZ wins 2 gold and
1 bronze medal at Los Angeles Olympics ndash first medals for 20 years
1987 bull NZ launches 1st
Americas Cup bid when event is hosted in Australia after Australiarsquos win in lsquo83
1990 1993bull NZ wins
Whitbread Round the World race (and wins again in 1993)
Competitive Sailing Milestones
History of cluster closely aligned with competitive sailing achievements and major yachting events
1992bull Alloy Yachts
wins New Zealandrsquos first Show Boats International Award for Super Yachts
1991bull Southern
Spars produce their first carbon fiber spar
2003bull 8 out of 10
Americarsquos Cup syndicates use Southern Spars rigs
1986 bull High Modulus
instrumental in developing composites for New Zealandrsquos first Americarsquos Cup challenge
2000bull Millennium
Cup launched in Auckland to showcase New Zealand Super Yachts
1979bull High
Modulus founded as surfboard mnfcturer
1987bull Alloy
Yachts founded
2006bull Southern
Spars merge with largest NZ competitor ndash Marten Spars
1996bull MIA (est 1965)
takes out office space and employs 1st
professional officers
1994bull Inaugural lsquoYacht
Visionrsquo run by NZ Marine
Industry Milestones
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
Long-term outlook looks goodhellip although current economic conditions obviously taking a toll (lsquo09 forecast to be down 50)
bull US and Europe are largest end-markets (an estimated 90 of end-market demand) US market more penetrated and lower growth
bull Market is fragmented largest player (Brunswick US) has 14 global share in boat building
bull Bifurcated market cost price increasingly important for lowermid segment (increased standardization) but less so for higher end (custom yachts)
Global Market Size and Growth Global Market Key Features
bull The global pleasure craft market = US$18B
bull Growth of around 5 per annum on a value basis between 1997 and 2007
ndash Superyachts fastest growing
bull Volume growth has been steady since 1970 with some cyclicality Real value growth driven by increasing average boat size
The cluster competes in a global market that has recorded solid growthhellip strongest gains at the top-end
ItalyFerretti 7Azimt Benetti 6Cantiere 1Aicon 1FIPA lt1Perini Navi lt1
FranceBeneteau 6Rodriguez 3Couach lt1Dufour lt1
UKSunseeker 3Princess 2Fairline 2
GermanyBavaria 2Hanse 1Luerssen lt1
DenmarkDanish Yacht lt1
SwedenHallberg Rassy lt1
SloveniaElan Marine lt1
CroatiaElan lt1Lagoon lt1
New ZealandAlloy Yachts lt1Cookson lt1Fitzroy Yachts lt1Yachting Dev lt1
AustraliaAzzura Yachts lt1Seawind lt1Jarkan lt1
ChinaHolland Custom Yachts lt1
TaiwanHorizon Yacht lt1
TurkeyAegean lt1
NetherlandsRoyal Huisman lt1Feadship lt1
USBrunswick 14Genmar 5Catalina 1Hunter 1
NZ is very much a niche player on the global stage
Global Recreational Boat Building Firms ndashmarket shares
Largest firms located in Italy France and US
Source ODDO Equity Research June 2008 MoC team estimates
Superyacht Market Data
(1) Of orders made in top 10 manufacturing countries Note of the 916 superyachts ordered in 2008 60 were sailing yachts
Source Showboats International
bull Superyacht orders have grown each year for last 10 years ndash although for 2009 global order intake down about 50
bull Largest categories (61m+) have seen the rapid growth (gtUS$1m per meter to build)
bull Italy dominates the sectorbull Growing share for Taiwan Turkey China
bull NZ is 10th largest superyacht builder bull 3 in sailing superyachts (estimate 15 global
market share)ndash Particularly strong in racing yachts
bull NZ focuses almost exclusively on custom-built yachts very little activity in lsquoproduction yachtsrsquo
bull World-renowned for qualityndash NZrsquos largest superyacht manufacturer Alloy
Yachts has won 19 international awards since 1991
2003 2004 2005 2006 2007 2008
24-27m
27-30m30-37m
61-76m
37-46m
76m+
46-61m
CAGR (03-08)
14
18
2612
16
16
14
9
480
of Orders By Size
507652 688
777916
of Orders By Location(1)
The Global Superyacht Market
New Zealandrsquos Position
46
121096
11
Italy
US
NetherlandsGermanyTaiwanUKOtherNew Zealand (16)
NZ highly ranked within lucrative superyacht segment
Institutions for collaboration
The NZ cluster centres on boat building
The New Zealand Marine Cluster
Super Yachts
Racing Yachts
Trailer Boats
Launches amp Yachts
Inflatables
Refit amp Maintenance
Marine Events
Boating Consumables amp Other Services
Marinas
Boat Building
Downstream
Upstream
Significant ExportsLimited Exports
Related Clusters
Tourism
Fishing Commercial
Boats
Government Institutions
bull Trade Promotion (NZTE)bull Local Government (ARC)bull Universities (Auckland)bull Industrial Research Ltd
bull Industry Assoc (MIA)bull Export Group (NZ Marine)bull Training Org (BITO)
Yacht Management
Sails amp Rigging
Electronics
Interiors
Masts amp Winches
Other Services (eg Finance)
Composites
Other Equipment
Design
Support provided by public and private institutions for collaboration
(1) BITO is a division of the Marine Industry Association NZ Marine is a separate organization but shares facilities with the MIA
(2) AucklandPlus the economic development arm of the ARC is overseeing the Hobsonville marine precinct and the marine sector feasibility study
Key Institutions NZ Marine Cluster
Marine Industry
Association
NZ Marine
Boating Industry
Training Org
NZ Trade amp Enterprise
Auckland Regional Council
Institutions For Collaboration Government Institutions
bull 500+ members 50 of industrybull Fees $400-$1200 per firmbull Data collection on industrybull Newsletter on industrybull Fosters collaboration at sub-
cluster (eg CPC standards scheme for trailer boats)
bull Provides lsquobusinessrsquo workshops
bull Represents Exportersbull 100 members 85 of exportsbull Runs ldquoYacht visionrdquo 1st int
conference for yacht designersbull Assists at global boat shows
other exporter opportunities (eg Millennium Cup)
bull Administers Marine Apprenticeship scheme (600 currently ~100 graduates pa)
bull 75 government funded
bull Local government authoritybull Regional development strategybull Infrastructurezoning issuesbull Two cluster specific initiatives(2)
bull Support for NZ Exportersbull Global network of officesbull Formerly responsible for
overseeing NZ cluster policy
Auckland University
Industrial Research
Ltd
Closely linked(1)
bull Yacht Research Unitbull Centre for Advanced Composite
Materials (CACM)
bull Government funded RampD entitybull collaboration with Marine firms
(eg in composites)
1995bull Team New
Zealand win Americarsquos Cup
2000bull Americarsquos Cup held in
Auckland Team New Zealand successfully defend title
2003bull Auckland again hosts
Americarsquos Cup Team New Zealand loses to Alinghi skippered by a New Zealander
1984bull NZ wins 2 gold and
1 bronze medal at Los Angeles Olympics ndash first medals for 20 years
1987 bull NZ launches 1st
Americas Cup bid when event is hosted in Australia after Australiarsquos win in lsquo83
1990 1993bull NZ wins
Whitbread Round the World race (and wins again in 1993)
Competitive Sailing Milestones
History of cluster closely aligned with competitive sailing achievements and major yachting events
1992bull Alloy Yachts
wins New Zealandrsquos first Show Boats International Award for Super Yachts
1991bull Southern
Spars produce their first carbon fiber spar
2003bull 8 out of 10
Americarsquos Cup syndicates use Southern Spars rigs
1986 bull High Modulus
instrumental in developing composites for New Zealandrsquos first Americarsquos Cup challenge
2000bull Millennium
Cup launched in Auckland to showcase New Zealand Super Yachts
1979bull High
Modulus founded as surfboard mnfcturer
1987bull Alloy
Yachts founded
2006bull Southern
Spars merge with largest NZ competitor ndash Marten Spars
1996bull MIA (est 1965)
takes out office space and employs 1st
professional officers
1994bull Inaugural lsquoYacht
Visionrsquo run by NZ Marine
Industry Milestones
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
ItalyFerretti 7Azimt Benetti 6Cantiere 1Aicon 1FIPA lt1Perini Navi lt1
FranceBeneteau 6Rodriguez 3Couach lt1Dufour lt1
UKSunseeker 3Princess 2Fairline 2
GermanyBavaria 2Hanse 1Luerssen lt1
DenmarkDanish Yacht lt1
SwedenHallberg Rassy lt1
SloveniaElan Marine lt1
CroatiaElan lt1Lagoon lt1
New ZealandAlloy Yachts lt1Cookson lt1Fitzroy Yachts lt1Yachting Dev lt1
AustraliaAzzura Yachts lt1Seawind lt1Jarkan lt1
ChinaHolland Custom Yachts lt1
TaiwanHorizon Yacht lt1
TurkeyAegean lt1
NetherlandsRoyal Huisman lt1Feadship lt1
USBrunswick 14Genmar 5Catalina 1Hunter 1
NZ is very much a niche player on the global stage
Global Recreational Boat Building Firms ndashmarket shares
Largest firms located in Italy France and US
Source ODDO Equity Research June 2008 MoC team estimates
Superyacht Market Data
(1) Of orders made in top 10 manufacturing countries Note of the 916 superyachts ordered in 2008 60 were sailing yachts
Source Showboats International
bull Superyacht orders have grown each year for last 10 years ndash although for 2009 global order intake down about 50
bull Largest categories (61m+) have seen the rapid growth (gtUS$1m per meter to build)
bull Italy dominates the sectorbull Growing share for Taiwan Turkey China
bull NZ is 10th largest superyacht builder bull 3 in sailing superyachts (estimate 15 global
market share)ndash Particularly strong in racing yachts
bull NZ focuses almost exclusively on custom-built yachts very little activity in lsquoproduction yachtsrsquo
bull World-renowned for qualityndash NZrsquos largest superyacht manufacturer Alloy
Yachts has won 19 international awards since 1991
2003 2004 2005 2006 2007 2008
24-27m
27-30m30-37m
61-76m
37-46m
76m+
46-61m
CAGR (03-08)
14
18
2612
16
16
14
9
480
of Orders By Size
507652 688
777916
of Orders By Location(1)
The Global Superyacht Market
New Zealandrsquos Position
46
121096
11
Italy
US
NetherlandsGermanyTaiwanUKOtherNew Zealand (16)
NZ highly ranked within lucrative superyacht segment
Institutions for collaboration
The NZ cluster centres on boat building
The New Zealand Marine Cluster
Super Yachts
Racing Yachts
Trailer Boats
Launches amp Yachts
Inflatables
Refit amp Maintenance
Marine Events
Boating Consumables amp Other Services
Marinas
Boat Building
Downstream
Upstream
Significant ExportsLimited Exports
Related Clusters
Tourism
Fishing Commercial
Boats
Government Institutions
bull Trade Promotion (NZTE)bull Local Government (ARC)bull Universities (Auckland)bull Industrial Research Ltd
bull Industry Assoc (MIA)bull Export Group (NZ Marine)bull Training Org (BITO)
Yacht Management
Sails amp Rigging
Electronics
Interiors
Masts amp Winches
Other Services (eg Finance)
Composites
Other Equipment
Design
Support provided by public and private institutions for collaboration
(1) BITO is a division of the Marine Industry Association NZ Marine is a separate organization but shares facilities with the MIA
(2) AucklandPlus the economic development arm of the ARC is overseeing the Hobsonville marine precinct and the marine sector feasibility study
Key Institutions NZ Marine Cluster
Marine Industry
Association
NZ Marine
Boating Industry
Training Org
NZ Trade amp Enterprise
Auckland Regional Council
Institutions For Collaboration Government Institutions
bull 500+ members 50 of industrybull Fees $400-$1200 per firmbull Data collection on industrybull Newsletter on industrybull Fosters collaboration at sub-
cluster (eg CPC standards scheme for trailer boats)
bull Provides lsquobusinessrsquo workshops
bull Represents Exportersbull 100 members 85 of exportsbull Runs ldquoYacht visionrdquo 1st int
conference for yacht designersbull Assists at global boat shows
other exporter opportunities (eg Millennium Cup)
bull Administers Marine Apprenticeship scheme (600 currently ~100 graduates pa)
bull 75 government funded
bull Local government authoritybull Regional development strategybull Infrastructurezoning issuesbull Two cluster specific initiatives(2)
bull Support for NZ Exportersbull Global network of officesbull Formerly responsible for
overseeing NZ cluster policy
Auckland University
Industrial Research
Ltd
Closely linked(1)
bull Yacht Research Unitbull Centre for Advanced Composite
Materials (CACM)
bull Government funded RampD entitybull collaboration with Marine firms
(eg in composites)
1995bull Team New
Zealand win Americarsquos Cup
2000bull Americarsquos Cup held in
Auckland Team New Zealand successfully defend title
2003bull Auckland again hosts
Americarsquos Cup Team New Zealand loses to Alinghi skippered by a New Zealander
1984bull NZ wins 2 gold and
1 bronze medal at Los Angeles Olympics ndash first medals for 20 years
1987 bull NZ launches 1st
Americas Cup bid when event is hosted in Australia after Australiarsquos win in lsquo83
1990 1993bull NZ wins
Whitbread Round the World race (and wins again in 1993)
Competitive Sailing Milestones
History of cluster closely aligned with competitive sailing achievements and major yachting events
1992bull Alloy Yachts
wins New Zealandrsquos first Show Boats International Award for Super Yachts
1991bull Southern
Spars produce their first carbon fiber spar
2003bull 8 out of 10
Americarsquos Cup syndicates use Southern Spars rigs
1986 bull High Modulus
instrumental in developing composites for New Zealandrsquos first Americarsquos Cup challenge
2000bull Millennium
Cup launched in Auckland to showcase New Zealand Super Yachts
1979bull High
Modulus founded as surfboard mnfcturer
1987bull Alloy
Yachts founded
2006bull Southern
Spars merge with largest NZ competitor ndash Marten Spars
1996bull MIA (est 1965)
takes out office space and employs 1st
professional officers
1994bull Inaugural lsquoYacht
Visionrsquo run by NZ Marine
Industry Milestones
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
Superyacht Market Data
(1) Of orders made in top 10 manufacturing countries Note of the 916 superyachts ordered in 2008 60 were sailing yachts
Source Showboats International
bull Superyacht orders have grown each year for last 10 years ndash although for 2009 global order intake down about 50
bull Largest categories (61m+) have seen the rapid growth (gtUS$1m per meter to build)
bull Italy dominates the sectorbull Growing share for Taiwan Turkey China
bull NZ is 10th largest superyacht builder bull 3 in sailing superyachts (estimate 15 global
market share)ndash Particularly strong in racing yachts
bull NZ focuses almost exclusively on custom-built yachts very little activity in lsquoproduction yachtsrsquo
bull World-renowned for qualityndash NZrsquos largest superyacht manufacturer Alloy
Yachts has won 19 international awards since 1991
2003 2004 2005 2006 2007 2008
24-27m
27-30m30-37m
61-76m
37-46m
76m+
46-61m
CAGR (03-08)
14
18
2612
16
16
14
9
480
of Orders By Size
507652 688
777916
of Orders By Location(1)
The Global Superyacht Market
New Zealandrsquos Position
46
121096
11
Italy
US
NetherlandsGermanyTaiwanUKOtherNew Zealand (16)
NZ highly ranked within lucrative superyacht segment
Institutions for collaboration
The NZ cluster centres on boat building
The New Zealand Marine Cluster
Super Yachts
Racing Yachts
Trailer Boats
Launches amp Yachts
Inflatables
Refit amp Maintenance
Marine Events
Boating Consumables amp Other Services
Marinas
Boat Building
Downstream
Upstream
Significant ExportsLimited Exports
Related Clusters
Tourism
Fishing Commercial
Boats
Government Institutions
bull Trade Promotion (NZTE)bull Local Government (ARC)bull Universities (Auckland)bull Industrial Research Ltd
bull Industry Assoc (MIA)bull Export Group (NZ Marine)bull Training Org (BITO)
Yacht Management
Sails amp Rigging
Electronics
Interiors
Masts amp Winches
Other Services (eg Finance)
Composites
Other Equipment
Design
Support provided by public and private institutions for collaboration
(1) BITO is a division of the Marine Industry Association NZ Marine is a separate organization but shares facilities with the MIA
(2) AucklandPlus the economic development arm of the ARC is overseeing the Hobsonville marine precinct and the marine sector feasibility study
Key Institutions NZ Marine Cluster
Marine Industry
Association
NZ Marine
Boating Industry
Training Org
NZ Trade amp Enterprise
Auckland Regional Council
Institutions For Collaboration Government Institutions
bull 500+ members 50 of industrybull Fees $400-$1200 per firmbull Data collection on industrybull Newsletter on industrybull Fosters collaboration at sub-
cluster (eg CPC standards scheme for trailer boats)
bull Provides lsquobusinessrsquo workshops
bull Represents Exportersbull 100 members 85 of exportsbull Runs ldquoYacht visionrdquo 1st int
conference for yacht designersbull Assists at global boat shows
other exporter opportunities (eg Millennium Cup)
bull Administers Marine Apprenticeship scheme (600 currently ~100 graduates pa)
bull 75 government funded
bull Local government authoritybull Regional development strategybull Infrastructurezoning issuesbull Two cluster specific initiatives(2)
bull Support for NZ Exportersbull Global network of officesbull Formerly responsible for
overseeing NZ cluster policy
Auckland University
Industrial Research
Ltd
Closely linked(1)
bull Yacht Research Unitbull Centre for Advanced Composite
Materials (CACM)
bull Government funded RampD entitybull collaboration with Marine firms
(eg in composites)
1995bull Team New
Zealand win Americarsquos Cup
2000bull Americarsquos Cup held in
Auckland Team New Zealand successfully defend title
2003bull Auckland again hosts
Americarsquos Cup Team New Zealand loses to Alinghi skippered by a New Zealander
1984bull NZ wins 2 gold and
1 bronze medal at Los Angeles Olympics ndash first medals for 20 years
1987 bull NZ launches 1st
Americas Cup bid when event is hosted in Australia after Australiarsquos win in lsquo83
1990 1993bull NZ wins
Whitbread Round the World race (and wins again in 1993)
Competitive Sailing Milestones
History of cluster closely aligned with competitive sailing achievements and major yachting events
1992bull Alloy Yachts
wins New Zealandrsquos first Show Boats International Award for Super Yachts
1991bull Southern
Spars produce their first carbon fiber spar
2003bull 8 out of 10
Americarsquos Cup syndicates use Southern Spars rigs
1986 bull High Modulus
instrumental in developing composites for New Zealandrsquos first Americarsquos Cup challenge
2000bull Millennium
Cup launched in Auckland to showcase New Zealand Super Yachts
1979bull High
Modulus founded as surfboard mnfcturer
1987bull Alloy
Yachts founded
2006bull Southern
Spars merge with largest NZ competitor ndash Marten Spars
1996bull MIA (est 1965)
takes out office space and employs 1st
professional officers
1994bull Inaugural lsquoYacht
Visionrsquo run by NZ Marine
Industry Milestones
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
Institutions for collaboration
The NZ cluster centres on boat building
The New Zealand Marine Cluster
Super Yachts
Racing Yachts
Trailer Boats
Launches amp Yachts
Inflatables
Refit amp Maintenance
Marine Events
Boating Consumables amp Other Services
Marinas
Boat Building
Downstream
Upstream
Significant ExportsLimited Exports
Related Clusters
Tourism
Fishing Commercial
Boats
Government Institutions
bull Trade Promotion (NZTE)bull Local Government (ARC)bull Universities (Auckland)bull Industrial Research Ltd
bull Industry Assoc (MIA)bull Export Group (NZ Marine)bull Training Org (BITO)
Yacht Management
Sails amp Rigging
Electronics
Interiors
Masts amp Winches
Other Services (eg Finance)
Composites
Other Equipment
Design
Support provided by public and private institutions for collaboration
(1) BITO is a division of the Marine Industry Association NZ Marine is a separate organization but shares facilities with the MIA
(2) AucklandPlus the economic development arm of the ARC is overseeing the Hobsonville marine precinct and the marine sector feasibility study
Key Institutions NZ Marine Cluster
Marine Industry
Association
NZ Marine
Boating Industry
Training Org
NZ Trade amp Enterprise
Auckland Regional Council
Institutions For Collaboration Government Institutions
bull 500+ members 50 of industrybull Fees $400-$1200 per firmbull Data collection on industrybull Newsletter on industrybull Fosters collaboration at sub-
cluster (eg CPC standards scheme for trailer boats)
bull Provides lsquobusinessrsquo workshops
bull Represents Exportersbull 100 members 85 of exportsbull Runs ldquoYacht visionrdquo 1st int
conference for yacht designersbull Assists at global boat shows
other exporter opportunities (eg Millennium Cup)
bull Administers Marine Apprenticeship scheme (600 currently ~100 graduates pa)
bull 75 government funded
bull Local government authoritybull Regional development strategybull Infrastructurezoning issuesbull Two cluster specific initiatives(2)
bull Support for NZ Exportersbull Global network of officesbull Formerly responsible for
overseeing NZ cluster policy
Auckland University
Industrial Research
Ltd
Closely linked(1)
bull Yacht Research Unitbull Centre for Advanced Composite
Materials (CACM)
bull Government funded RampD entitybull collaboration with Marine firms
(eg in composites)
1995bull Team New
Zealand win Americarsquos Cup
2000bull Americarsquos Cup held in
Auckland Team New Zealand successfully defend title
2003bull Auckland again hosts
Americarsquos Cup Team New Zealand loses to Alinghi skippered by a New Zealander
1984bull NZ wins 2 gold and
1 bronze medal at Los Angeles Olympics ndash first medals for 20 years
1987 bull NZ launches 1st
Americas Cup bid when event is hosted in Australia after Australiarsquos win in lsquo83
1990 1993bull NZ wins
Whitbread Round the World race (and wins again in 1993)
Competitive Sailing Milestones
History of cluster closely aligned with competitive sailing achievements and major yachting events
1992bull Alloy Yachts
wins New Zealandrsquos first Show Boats International Award for Super Yachts
1991bull Southern
Spars produce their first carbon fiber spar
2003bull 8 out of 10
Americarsquos Cup syndicates use Southern Spars rigs
1986 bull High Modulus
instrumental in developing composites for New Zealandrsquos first Americarsquos Cup challenge
2000bull Millennium
Cup launched in Auckland to showcase New Zealand Super Yachts
1979bull High
Modulus founded as surfboard mnfcturer
1987bull Alloy
Yachts founded
2006bull Southern
Spars merge with largest NZ competitor ndash Marten Spars
1996bull MIA (est 1965)
takes out office space and employs 1st
professional officers
1994bull Inaugural lsquoYacht
Visionrsquo run by NZ Marine
Industry Milestones
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
Support provided by public and private institutions for collaboration
(1) BITO is a division of the Marine Industry Association NZ Marine is a separate organization but shares facilities with the MIA
(2) AucklandPlus the economic development arm of the ARC is overseeing the Hobsonville marine precinct and the marine sector feasibility study
Key Institutions NZ Marine Cluster
Marine Industry
Association
NZ Marine
Boating Industry
Training Org
NZ Trade amp Enterprise
Auckland Regional Council
Institutions For Collaboration Government Institutions
bull 500+ members 50 of industrybull Fees $400-$1200 per firmbull Data collection on industrybull Newsletter on industrybull Fosters collaboration at sub-
cluster (eg CPC standards scheme for trailer boats)
bull Provides lsquobusinessrsquo workshops
bull Represents Exportersbull 100 members 85 of exportsbull Runs ldquoYacht visionrdquo 1st int
conference for yacht designersbull Assists at global boat shows
other exporter opportunities (eg Millennium Cup)
bull Administers Marine Apprenticeship scheme (600 currently ~100 graduates pa)
bull 75 government funded
bull Local government authoritybull Regional development strategybull Infrastructurezoning issuesbull Two cluster specific initiatives(2)
bull Support for NZ Exportersbull Global network of officesbull Formerly responsible for
overseeing NZ cluster policy
Auckland University
Industrial Research
Ltd
Closely linked(1)
bull Yacht Research Unitbull Centre for Advanced Composite
Materials (CACM)
bull Government funded RampD entitybull collaboration with Marine firms
(eg in composites)
1995bull Team New
Zealand win Americarsquos Cup
2000bull Americarsquos Cup held in
Auckland Team New Zealand successfully defend title
2003bull Auckland again hosts
Americarsquos Cup Team New Zealand loses to Alinghi skippered by a New Zealander
1984bull NZ wins 2 gold and
1 bronze medal at Los Angeles Olympics ndash first medals for 20 years
1987 bull NZ launches 1st
Americas Cup bid when event is hosted in Australia after Australiarsquos win in lsquo83
1990 1993bull NZ wins
Whitbread Round the World race (and wins again in 1993)
Competitive Sailing Milestones
History of cluster closely aligned with competitive sailing achievements and major yachting events
1992bull Alloy Yachts
wins New Zealandrsquos first Show Boats International Award for Super Yachts
1991bull Southern
Spars produce their first carbon fiber spar
2003bull 8 out of 10
Americarsquos Cup syndicates use Southern Spars rigs
1986 bull High Modulus
instrumental in developing composites for New Zealandrsquos first Americarsquos Cup challenge
2000bull Millennium
Cup launched in Auckland to showcase New Zealand Super Yachts
1979bull High
Modulus founded as surfboard mnfcturer
1987bull Alloy
Yachts founded
2006bull Southern
Spars merge with largest NZ competitor ndash Marten Spars
1996bull MIA (est 1965)
takes out office space and employs 1st
professional officers
1994bull Inaugural lsquoYacht
Visionrsquo run by NZ Marine
Industry Milestones
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
1995bull Team New
Zealand win Americarsquos Cup
2000bull Americarsquos Cup held in
Auckland Team New Zealand successfully defend title
2003bull Auckland again hosts
Americarsquos Cup Team New Zealand loses to Alinghi skippered by a New Zealander
1984bull NZ wins 2 gold and
1 bronze medal at Los Angeles Olympics ndash first medals for 20 years
1987 bull NZ launches 1st
Americas Cup bid when event is hosted in Australia after Australiarsquos win in lsquo83
1990 1993bull NZ wins
Whitbread Round the World race (and wins again in 1993)
Competitive Sailing Milestones
History of cluster closely aligned with competitive sailing achievements and major yachting events
1992bull Alloy Yachts
wins New Zealandrsquos first Show Boats International Award for Super Yachts
1991bull Southern
Spars produce their first carbon fiber spar
2003bull 8 out of 10
Americarsquos Cup syndicates use Southern Spars rigs
1986 bull High Modulus
instrumental in developing composites for New Zealandrsquos first Americarsquos Cup challenge
2000bull Millennium
Cup launched in Auckland to showcase New Zealand Super Yachts
1979bull High
Modulus founded as surfboard mnfcturer
1987bull Alloy
Yachts founded
2006bull Southern
Spars merge with largest NZ competitor ndash Marten Spars
1996bull MIA (est 1965)
takes out office space and employs 1st
professional officers
1994bull Inaugural lsquoYacht
Visionrsquo run by NZ Marine
Industry Milestones
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
All parts of the diamond contributing to successhellip however key fragilities also evident
Context for Firm Strategy and
Rivalry
Factor (Input) Conditions
Demand Conditions
Related and Supporting Industries
The New Zealand Marine Cluster
+ Many firms (gt1000)+ Significant differentiation+ IFCs present+ Govt support for cluster
- Small of well-known firms- Highly fragmented sub-scale- Lack of ambitionrisk-taking- Reluctance to invest- Lack of business acumen
+ Skilled workforce
- Brain drain- Skills shortages- Infrastructurezoning issues
+ Commercial boatsfishing+ Tourism
- Weak capital markets- Cluster gaps (eg engines advanced raw materials)
+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety quality standards
- Tiny local market overall- Negligible local mkt at high end- Loss of global marine events
x
x
x
x
Endowments - Distance from major European markets+ High quality harbors+ Friendly climate for boating+ S Hemisphere (counter cyclical for refit)
x
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
Four main recommendations to help upgrade the clusterIssues Being Addressed More Detail On Actions
Move Beyond Custom Boats
Expand into New Areas
Consolidate amp Collaborate
Expand on Strengths
Recommendations
1
2
3
4
bull Gains to be made by sharing existing expertise
bull Success stories that can be replicated
bull Extreme fragmentationbull Sub-scale manufacturingbull Lack of business skills bull Lack of investment duplication
bull Capabilities exist that could have applications outside of marine cluster
bull Cluster is relatively narrow in scopebull Long-run potential of custom niche is
capped (small market)bull Custom capabilities (eg brand) can
translate into production market
bull Govt support to upgrade demandbull Broader scopemandate ambition for MIAbull Increase MIA membershipbull Focus expansion on high valuefreight areas
bull Consolidate the industry (fewer larger firms)bull lsquoStep-changersquo in collaboration championed
by MIA and industry leadersbull Address availability of financingbull Actively seek out FDI
For a more comprehensive understanding of all the major issues and recommendations please see the full written report
bull Leading firms encouraged to diversify activities (including offshore investments)
bull Govt matching of investments that broaden scope of cluster into lsquorelatedrsquo industries
bull Actively seek out FDI JVs
bull lsquoOpen mindsrsquo to the possibility of production manufacturing out of NZ
bull Leading firms to leverage custom capabilities into production manufacturing
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
Howeverhellipbull Key macro weaknesses and major
deficiencies within the national diamond are inhibiting the growth of New Zealandrsquos marine cluster and the wider economy ndash many of these problems are too large for individual actorshellip strong leadership and collaboration will be necessary if they are to be overcome
Main Conclusions
bull The New Zealand marine cluster has overcome geographic distance from key markets to become world-class within some niche high value-add sectors
bull These successes need to be leveraged to build competitiveness across the entire cluster and further develop supporting supplier industries
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
26
Supporting Analysis
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
27
Extensive consultation with the industry
Interviews Conducted
bull NZ Macro Data (lsquo85-rsquo09)
bull Marine Industry Data (lsquo03-rsquo08)
bull Global Data (various)
bull Other varioushellip
Data Collected
bull Seventeen interviews conducted
bull To promote free and frank dialogue we opted to keep the identity of our interviewees anonymous
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
Issues we observed New Zealand
Geographic isolation
Currency (NZ$) volatility
Lagging labour productivity
Underdeveloped private sector cluster policy
Underdeveloped capital markets
Attracting FDI promoting outward investment
Brain drain
Weak basic infrastructure
Key Challenges Facing New Zealand
1
2
3
4
5
6
Macro
Micro
Endowment
Potential Solutions
7
8
bull More aggressive creative efforts to bridge the gap
bull Focus on diversifying economy
bull More vocational training linked to cluster policies
bull Launch a new cluster policy correcting for previous failures
bull Bolster Kiwisaver schemebull Eliminate tax distortions property
bull Remove tax disincentivesbull Lift managerial talent bull Link with cluster policy
bull Lift skilled immigrationbull Leverage skilled diaspora
bull Upgrade roads rail telco
Backup
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
Strengths we observed Marine cluster
Macro
Micro
Open economy flexible labour policybull Resources focused on genuinely competitive niches
firms can more easily hire and fire as needed
Competitive sailing expertise and successbull Brand champions for NZ
Local demand conditionsbull Boat ownership supports clusterrsquos critical mass even if
product is imported and high-end demand is absent
A few world-class firmsbull Alloy Yachts Southern Spars and a few other
world-class firms (superyachts equipcomponents)
Pockets of real innovation
Skilled (and relatively cheap) labour force
Core Strengths Of The Cluster
1
2
3
4
5
Opportunities
bull Continued support for competitive sailing leverage this for the cluster
bull Actively seek out marine events
bull Lift competitiveness of sectors that serve local demand step-change in consolidation or cooperation
bull Best practice sharingbull Encourage more foreign leaders in
the industry to relocate to NZ and local firms to grow international connections
bull Coordinated effort to leverage these capabilities beyond marine eg wind farms aerospace
bull Bolster apprenticeship training schemes (rsquos quality consistency)
6
Backup
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
Issues we observed Marine cluster
Geographic isolation
Industry fragmentationbull Sub-scale manufacturing capital access lack of
business skills RampD vulnerability to business cycle
Limited to custom boats low volume production
Skills shortages skills retentionbull Management and commercial skills particularly lacking
Underdevelopedshallow supporting industriesbull Capital markets
Infrastructure uncertaintiesbull Debates about zoning and competing land use have
delayed development in key industry locations
Key Challenges Facing The Cluster
1
2
4
5
6
Micro
Endowment
Coordinated response required led by industry and strongest firms supported by government at all levels
bull Satellite sales offices web techbull Offshore manufacturing bull Links with tourism
bull More aggressive collaboration push among smaller firms expand scope
bull Consolidation
bull Supplement custom with production manufacturing eg utilize superyacht capabilities to enter yachtslaunches market
bull Step-change in apprenticeship rsquosbull lsquoA call homersquo to NZers overseas
bull Dialogue with local banksbull Seek FDI from foreign clusters
bull Develop plan beyond Hobsonville strong leadership and clear vision
Potential Solutions
3
Backup
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
31
Overall Ranking = 19
Factor (Input) Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Number of procedures required to start a business Protection of minority shareholdersrsquo interests Doing Business Getting Credit Legal rights index (WB ) Internet users per 100 population Ease of starting a new business (Low) Burden of customs procedures Doing Business Paying Taxes (Low) Payments number (WB) Soundness of banks Tertiary enrollment Regulation of securities exchanges Domestic credit to private sector Quality of math and science education (Low) Time required to start a business Quality of air transport infrastructure Personal computers per 100 population Quality of port infrastructure Internet access in schools Ease of access to loans Quality of the educational system Venture capital availability (Low) Burden of government regulation Quality of scientific research institutions
Competitive DisadvantagesRelative to GDP per Capita
(Low) Brain drain Availability of scientists and engineers Quality of electricity supply Quality of domestic transport network businessQuality of telephone infrastructure Quality of railroad infrastructure Quality of roads Mobile telephone subscribers per 100 population Financial market sophistication Financing through local equity market
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
11 3 4 6 7 7 7 8 1313151718181919191922 23 23
6650 4439 39 35 33 31 27 26
Factor conditions not badhellip some notable gaps in human capital infrastructure and finance
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
32
SupportingRelated amp Demand Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quality Local availability of specialized research and training services
Demand ConditionsStringency of environmental regulationsLaws relating to ICT
Presence of demanding regulatory standards Buyer sophistication
Competitive DisadvantagesRelative to GDP per Capita
Supporting and Related Industry ConditionsLocal supplier quantity Extent of cluster policy State of cluster development Local availability of process machinery Extent of collaboration in clusters Availability of latest technologies
Demand ConditionsGovernment procurement of advanced technology productsGovernment success in ICT promotion
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
2122
7202027
65 56 51 44 42 28
45
55
Some big problems when you look at industryhellip shallow or non-existent clustering a particular issue Overall
Ranking = 4026
x
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
33
Context for Strategy and Rivalry Conditions NZrsquos Position 2009
Competitive AdvantagesRelative to GDP per Capita
Strength of investor protection Prevalence of trade barriers Strength of auditing and reporting standards (Low) Distortive effect of taxes and subsidies on competition (Low) Rigidity of employment Regulatory quality Effectiveness of antitrust policy Efficacy of corporate boards Low market disruption from state-owned enterprises Intellectual property protection Restrictions on capital flows Cooperation in labour-employer relations
Competitive DisadvantagesRelative to GDP per Capita
Quality of competition in the ISP sector (Low) Impact of taxation on incentives to work and investBusiness impact of rules on FDI Intensity of local competition FDI and technology transfer (Low) Extent of market dominance (by business groups) (Low) Tariff rate Prevalence of foreign ownership Pay and productivity
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 3 56778812131322
6456 53 50 43 34 34 32 26
Overall good context for rivalryhellip things to work on competitive intensity FDI investment incentives Overall
Ranking = 13
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
34
Company Operations and Strategy Conditions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Reliance on professional management Willingness to delegate authority Prevalence of foreign technology licensing Extent of marketing
Competitive DisadvantagesRelative to GDP per Capita
Value chain breadth Extent of incentive compensation Nature of competitive advantage Company spending on RampD Control of international distribution Firm-level technology absorption Breadth of international markets Capacity for innovation Production process sophistication Extent of staff training Extent of regional sales
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
4 11 16 24
6149413332292927272626
Context for rivalry may be finehellip NZ firms coming up short in practice however Overall
Ranking = 25
-
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
35
Macroeconomic Policy (MP) NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
Government surplusdeficit Inflation Government debt
Competitive DisadvantagesRelative to GDP per Capita
Interest rate spread
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
1 1 9
45
Impressive macroeconomic policyhellip spoilt by worsening interest rate spread Overall
Ranking = 8
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
36
Social Infrastructure and Political Institutions NZs Position 2009
Competitive AdvantagesRelative to GDP per Capita
(Low) Malaria incidence Secondary enrollment Judicial independence (Low occurrence of) Diversion of public funds (Low occurrence of) Irregular payments by firms Ethical behavior of firms (Low impact of) Organized crime (Low) Business costs of corruption Control of Corruption (WB) Rule of Law (WB) Voice and Accountability (WB)Primary enrollment Freedom of the press (Low) Favoritism in decisions of government officials Public trust of politicians Life expectancy Transparency of government policymaking Efficiency of legal framework Property rights Effectiveness of law-making bodies Quality of primary education Health expenditure (Low) Tuberculosis incidence Government effectiveness in reducing poverty and inequality Reliability of police services Accessibility of healthcare services (Low) Business costs of crime and violence Quality of healthcare services (Low) Infant mortality
Competitive DisadvantagesRelative to GDP per Capita
Decentralization of economic policymaking(Low) Wastefulness of government spending
Change updown of more than 510 ranks since 2001
Note Rank versus 74 countries overall New Zealand ranks 25th in 2008 PPP adjusted GDP per capita and 15th in Global CompetitivenessSource Institute For Strategy and Competitiveness Harvard University (2009)
112222445568910111212131314151617182021212222
5630
Majority of SIPI world-classhellip centralization of economic policymaking has to be addressed Overall
Ranking = 11
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
37
NZ Marine Cluster ndash analysis of major market segments
of firms
of boat building activity (by value)
Description
Employees (FTEs)
Trailer Boats Yachts amp launches
Superyachts Racing yachts
Equipment amp components
Refit services
3m-85m in length Powered by outboard motors sold with trailer
70
616
of domestic production exported
13
5
Major trends
bull Emerged in 50s family rec esp fishing
bull Abolition of tariffs importers gained share
bull Virtually all outboard motors imported
Major players Ramco Huntsman Fyran Sea Craft
8m-25m in length Approx 20000 in NZ half of them in Auckland
65
776
11
41
bull Since 2003 several manufacturers have closed or shifted focus to racing yachts or trailer boats
Vaudrey Miller
of domestic demand imported 22 66
gt25m in length Racing yachts are used for regattas
9
1288
20
96
bull NZ a top-10 global player
bull 16 global market share
bull 3 in sailing superyachts
Alloy Yachts Cookson
0
Manufacturing of components propulsion units spars sails winches etc
NA
1172
41
48
bull Sector includes specialist design amp project mgmt ops as well as sales of kayaks and dinghies
Southern Spars North Sails High Modulus
19
Major refits for superyachts and boats gt15m
NA
NA
13
39
bull Export sales driven by international cup events (eg Americarsquos Cup)
Various
0
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
38
Supporting Industries spotlight on NZ competitive sailing
New Zealand Competitive Sailing Expertise History19
56
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
NZ Olympic Medals Sailing
NZrsquos participation and success in the Americarsquos Cup from the late 80rsquos onward put the spotlight on the countryrsquos strong competitive yachting talent
Key Moments in NZ Sailing
Sparc Funding for High-Performance Sport2008 2009
bull Volvo Ocean Race (formerly Whitbread Round The World)
bull Winners 1990 1993
bull Americas Cup
bull 1st competed in 1987 (following Australiarsquos victory in 1983)
bull Winners 1995 1998
bull Runners up 2003 2007
(1) Sport and Recreation New Zealand (Government funded organization directed at sport)
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
39
Factor conditions spotlight on the skills shortageCo
mpo
site
Yac
hts
Woo
den
Yach
ts
Allo
y Ya
chts
Trai
ler B
oats
Com
mer
cial
Ste
elBo
ats
Spar
sRi
ggin
g
Cabi
net M
akin
g
Elec
trica
ltro
nic
Pai
ntin
gFi
nish
ing
Eng
inee
rs
Oth
er
Skills Shortages By Type (Nov rsquo08)
Boat Building amp Repair
Unskilled
Skilled
If industry grows as predicted shortages will continue to hamper progresshellip current crisis reduces ST urgency but relief appears only temporary
52
2016
5 5
14
53
2521 19
The Problem In Contexthellip
bull Industry-wide employment 10000 FTEsbull Total shortfall
bull July rsquo08 518 FTEs (5 of industry)bull Nov rsquo08 238 FTEs (2 of industry)
bull Hurting the clusterrsquos strong exporters
Causes()bull Only 100 apprentices graduating pabull Polytechnic programs have shrunkbull 25 of graduates leave NZ immediately
8
0
10
20
30Shortages By Firm
~10 firms with gt 10 staff shortfall
Source BITO
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
40
We have identified three factors that act as significant deterrents to private sector investment in NZ
Low domestic savings rates and overinvestmentin housing strong contributors to high interest rates
Volatile Currency High Interest Rates Brain Drain
030
040
050
060
070
080
090
95 97 99 01 03 05 07
Currency range over economic cycle
(40c to 80c US)
NZ$US$ Real Long-Term Interest Rates
(Country Comparison)
New Zealand
OECDUS
92 94 96 98 00 02 04 06
of College Educated Population Living OSeas
(Select Countries Rank)
Source wwwoandacom (currency) OECD (Interest rates Brain Drain)
1 US
2 Japan
9 Spain
16 Australia
27 Italy
42 Singapore
55 UK
hellip
65 New Zealand
78 Ireland
07
10
25
37
57
80
122
hellip
170
267
Q Why invest in people if they will leave
Australia
Q How to invest when cost of capital is so high
Q Why invest in anything this changeable
