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Marine Policy 30 (2006) 367–378

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New Zealand seafood firm competitiveness in export markets: Therole of the quota management system and aquaculture legislation

Randall Bess�

Ministry of Fisheries, PO Box 1020, Wellington, New Zealand

Received 28 March 2005; accepted 1 June 2005

Abstract

New Zealand’s quota management system (QMS) was implemented in 1986 to address problems caused by a regulated open entry

management system in place for the previous two decades. Excess capacity in the inshore fisheries caused several stocks to become

depleted and conflicts to intensify between fishing sectors. The allocation of individual transferable quota (ITQ) was viewed as the

best way to improve efficiency within the over-capitalised inshore fisheries and provide incentives for developing the deepwater

fisheries. The expected benefits of the QMS fit with the political climate at that time, as the government was using market forces to

address the deteriorating economy. This article outlines the results of a research project that involved four medium to large-sized,

highly vertically integrated New Zealand seafood firms. The purpose of the project was to identify these firms’ sources of

competitiveness in export markets and the process the firms used to develop sources of competitiveness, while adapting to rapid and

radical changes to the political and business environment and transformation of the fisheries management system. The project’s

results show that the basis to seafood firm competitiveness is the security of supply to the fisheries resource provided by the QMS

and aquaculture legislation. The project also outlines the role that government policies have in sustaining firm- and industry-level

competitiveness. This article contributes to the broader discussion on the application of ITQ and other types of long-term access

rights to the management of fisheries and does not express the views of the Ministry of Fisheries.

r 2005 Elsevier Ltd. All rights reserved.

Keywords: Fisheries management; Individual transferable quota; Aquaculture; Competitive advantage; New Zealand

1. Introduction

There is general recognition that New Zealand’squota management system (QMS), based on individualtransferable quota (ITQ), has played a significant role inimproving the biological status of the fisheries resourceand commercial returns to fishers [1]. The setting of totalallowable catches is an important first step in ensuringstocks remain sustainable. The allocation of ITQprovides fishers with greater certainty about futurecatch levels, which reduces their financial risk whenmaking long-term investments in fishing operations.This level of certainty lessens fishers’ incentive toovercapitalise and compete excessively for the limited

ee front matter r 2005 Elsevier Ltd. All rights reserved.

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ess: bessr@fish.govt.nz.

fisheries resource. Since ITQ is divisible and transfer-able, fishers can adjust their ITQ holdings to matchfishing operations and, therefore, improve efficiencies[2].

At the time the QMS was implemented, the govern-ment was undertaking rapid and radical economicreforms to address the deteriorating economy. Thepolitical environment’s acceptance of market forces asthe solution to economic and social problems affectedthe perceived options available for managing fisheries[3]. The mid- to-late 1980s was the optimal time forimplementing the QMS in New Zealand. The radicalnature of the QMS was its attraction during a time ofradical economic and social reforms [4]. However, therewas some risk in implementing the QMS, given that itwas an extreme departure from the previous regulatedopen entry system, and the use of ITQ for the majority

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of a nation’s commercial fisheries was a theoreticalconcept that had not yet been applied.

This article outlines the results of a research projectthat explored how selected New Zealand seafood firmshave adapted to rapid and radical changes to thepolitical and business environment and transformationof the fisheries management system. The projectinvolved four medium- to large-sized, highly verticallyintegrated firms. The purpose of the project was toidentify these firms’ sources of competitive advantage inexport markets and the process they used to developsources of competitiveness. The project broadly defineda firm-level competitive advantage as something onefirm enjoys over another in a particular market. Theproject’s primary data were interviews with firms’ seniormanagers and industry representatives. Fieldwork wascarried out at firms’ operational sites and vessels.However, restricted access to comparable types of dataacross firms and the industry prevented the project fromtracking firm-level financial performance and makingcomparisons across firms and with industry averages [5].

The article is divided into five sections. The firstsection provides an overview of seafood exports sinceimplementation of the QMS and development of themarine farming sector. The second section describes theLabour government’s economic reform process duringthe mid- to late 1980s, which was subsequentlycontinued by the National government. The thirdsection discusses the topic of national-level competitive-ness, which the government and various industries havebeen interested in since the early 1990s. This section alsodiscusses regional- and firm-level competitiveness andtheir insights for the seafood industry. The fourthsection outlines the results of the research project,

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showing that seafood firm competitiveness in exportmarkets is based on the security of supply to the fisheriesresource provided by the QMS and aquaculture legisla-tion. This section also outlines the process firms used todevelop sources of competitiveness. The final sectiondiscusses the results of the research project and the rolegovernment policies have had in firm- and industry-levelcompetitiveness. In doing so , this article contributes tothe broader discussion on the application of ITQ andother types of long-term access rights.

2. Growth in export volume and value

During the last 30 years, New Zealand’s relativelysmall seafood industry has grown from a predominatelydomestic supplier to one of the nation’s leadingexporters. The most significant growth in overall exportvolume and value, which makes up 90% of production,occurred in the first few years after implementation ofthe QMS (Refer Fig. 1). Between 1986 and 1989 thevalue of seafood exports jumped by 69.3%, increasingfrom NZ$480 million to NZ$798 million. Most of thisincrease was due to the development of deepwaterfisheries, which relied heavily on foreign joint venturepartnerships and charter arrangements, as the domesticfleet lacked deepwater fishing capability. After a slightdecline in the levels of volume and value in 1990, theseafood industry again experienced dramatic growth.Between 1990 and 1992 the value of seafood exportsincreased by 65.5%, increasing to NZ$1.22 billion. Atthis time several seafood firms invested heavily indeepwater fishing vessels, and others invested in marinefarm operations. From 1992 to 97 export value

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ARTICLE IN PRESSR. Bess / Marine Policy 30 (2006) 367–378 369

remained fairly constant due to a gradual appreciationof the New Zealand currency, which peaked at almostUS$0.69 in 1996, exacerbated by poor export tradingconditions. Beginning in late 1997 improved tradingconditions and a rapid devaluation of the New Zealandcurrency led to increased export values, peaking atNZ$1.53 billion in 2002. However, in 2003 the overallvalue of exports fell by 20% to NZ$1.21 billion largelydue to a further appreciation of the New Zealandcurrency, which peaked at over US$0.72 in late 2004.Overall export value in 2004 remained fairly constant atNZ$1.27 billion.

Since the New Zealand currency was floated in 1985 ithas tended to cycle in a range US$0.40–0.70. Most NewZealand seafood export sales are denominated in the UScurrency, regardless of the market. The six main exportdestinations for New Zealand seafood are Japan, UnitedStates, European Union, Australia, Hong Kong andChina.

Most of the increase in overall volume and value ofexports during the 1990s was due to the growth of marinefarming sector, particularly for GreenshellTM mussels, andto a far lesser extent salmon and oysters. Although thesystem for managing the marine farming sector has lackedsome of the QMS’ characteristics and incentives, it hasprovided marine farmers with adequate tenure in accessrights to warrant long-term investments in operations andtechnological improvements [6]. However, since 2001investments in GreenshellTM mussel farming have stalledlargely due to the uncertainty caused by the Ministry forthe Environment imposing a moratorium on issuingcoastal permits for aquaculture activities under theResource Management Act 1991 (the RMA). At the endof 2004 the moratorium expired, and aquaculture reformswere enacted to amend the RMA and the Fisheries Act1996 (the 1996 Act) to reconcile spatial conflicts betweenwild stock and farmed fisheries and to improve theplanning process for use of coastal space.

3. Economic and social reforms

New Zealand’s economic environment has undergonedramatic reform, which began in 1984 when the Labourgovernment took office and immediately faced a crisis inthe value of the currency. The crisis was the latestsymptom in a series of inefficiencies during the nation’slong history of centralised government control andhaving an isolated economic system [8]. The Labourgovernment took a blitzkrieg approach towards thereform process [9], and with almost evangelical fervourset about redesigning the nation’s economic structure[10], starting with a review of all policies on importquotas, subsidies and massive borrowing to sustainliving standards, all of which had recently beenintroduced by the outgoing National government [11].

The aim of the reform process was to revitalise thenation by removing subsidies and distortions whileencouraging economic growth, efficiency and competi-tion in a price stable environment [12].

Firms and industries had to adapt quickly to a market-based environment virtually free of government assistanceand protection, thus having to contend with reductions, ifnot elimination, of government-imposed duties, subsidiesand taxation, while encountering severe fluctuations ininterest rates and currency value [13]. Significant structuralchanges to the economy had affected all major industries[14]. The speed with which the radical and extensivereform process occurred caught even the most strategicallyastute firms and industries off guard, forcing them toreassess their strategic direction and sources of competi-tiveness [15]. After the first 4 years of reform, there wasevidence that New Zealand’s economy was beginning toadjust to market forces and increased exposure to internaland external competition [16]. However, only a minority offirms and their industries emerged beyond what wasconsidered the survival mode of adaptation to thederegulated environment [17].

The political environment at that time proved to beoptimal for implementing a radically new and untestedsystem for managing wild stocks based on ITQallocations. The Labour government encountered rela-tively little opposition when passing legislation toimplement the QMS [3]. ITQ’s transferability anddivisibility played a role in the seafood industry’sadaptation to the deregulated environment by consoli-dating effort and targeting investments in particularfisheries, which led to overall improvements in firm- andindustry-level performance [5].

A second wave of reforms began in 1990 when theNational government took office. The National govern-ment was prompted into action by a serious economicrecession, soaring unemployment and a projected fiscaldeficit. The Bank of New Zealand requiring a NZ$620million interjection from the government compoundedthe deficit, along with the spiralling cost of governmentprojects begun in the late 1970s and early 1980s [12]. TheNational government acted swiftly to continue themomentum behind the economic reform process, whileintroducing social reforms that had been politicallyuntenable during the previous Labour government. TheNational government was resolved to address theproblems facing the welfare state by quickly introducingreforms to employment relations, social assistance,education and healthcare and to allow the private sectorto compete directly with some government-ownedbusinesses, while other state-owned assets were sold[18]. There is quantitative evidence that by the early1990s New Zealand had perhaps become the leastinterventionist or, equivalently, the most market-basedeconomy in the Organisation for Economic Co-opera-tion and Development (OECD) [19].

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4. Perspectives on competitiveness

About the time the QMS was implemented in NewZealand the field of strategy began placing increasedemphasis on the role nations have in determining firm-,industry- and national-level competitiveness. The topicof competitiveness has been strongly debated in NewZealand since Professor Michael Porter at HarvardUniversity undertook a study in 1990 with the purposeof ‘bring[ing] a new perspective, new data and freshideas to the debate over New Zealand’s economicoptions and hopefully to serve as a basis for positiveaction by individuals, companies, unions and govern-ment’ [20, p. 12]. Porter’s study, referred to as the PorterProject, is described below, along with theoreticaldiscussion on the different levels of competitiveness.

4.1. National-level competitiveness

According to Ricardian theory, competitiveness at thenational level focuses on international trade based oncomparative advantage. Ricardian theory argues that anation’s abundance of certain resource factor endow-ments, such as labour, capital and/or natural resources,best determine its basis for competition. Those nationswell endowed with natural resources should be able tobuild natural resource-based industries that use theseresources at a lower cost and with higher productivitylevels than nations that have fewer natural resourceendowments.

However, as nations shift the basis of their competi-tiveness from dependence on natural resource endow-ments, there is increased interest in additional factorsthat a nation can offer its industries and firms, such asmarket liberalisation, taxes, savings and human capital.Positive and reinforcing interaction between thesefactors can become sources of competitive advantagefor firms and industries operating in domestic andexport markets, leading to increased levels of nationalproductivity, incomes and standards of living. Govern-ment legislation and policies on such factors influencefirms’ decisions on where to invest funds, source inputs,locate production facilities, export and build up inter-firm arrangements. Nations, therefore, compete on thebasis of their legislation and policies that promotedomestic productivity improvements, thus acting as‘strategic oligopolists’ to protect or advance theirnational economic interests [21, p. 10].

4.2. The Porter project

The New Zealand Trade Development Board (Tra-denz), established in 1989 to assist exporters to increaseNew Zealand’s foreign exchange earnings, co-ordinatedcontributions for the Porter Project from variousgovernment agencies, industries and individuals. These

contributions made it possible for the Porter Project toassess the impact New Zealand’s institutional environ-ment has had on firm- and industry-level competitive-ness and, therefore, the economy’s ability to grow andprosper. The Porter Project concluded that, as of 1990,the New Zealand economy had not upgraded itself interms of the sustained growth in productivity requiredto generate enough jobs and higher incomes to maintainthe nation’s standard of living. Instead, New Zealand’spoor productivity and compensation levels, risingunemployment, persistent inflation, increased numberof bankruptcies and insolvencies, declining terms oftrade and increased foreign debt indicated an economythat had deteriorated, making it more difficult toimprove the standard of living and firm- and industry-level competitiveness in export markets [20]. The mainreason for New Zealand’s poor economic competitive-ness and performance was attributed to its conti-nued reliance on natural resource endowment advan-tages to produce primary commodities that compete oncost efficiencies. The Porter project pointed out that, aslate as 1987, New Zealand earned 69% of exportrevenue from primary commodities while the OECDaverage was only 12%. The Porter Project proclai-med that a nation’s firms and industries must notrely heavily on advantages based on resource factorendowments, but that they must use change andinnovation to continually create and recreate newcompetitive advantages [20].

4.2.1. Implications for the seafood industry

The seafood industry, one of 20 industries analysed inthe Porter Project, was identified as one of the bestprospects for growth in the volume and value of exports[20]. At the time of the Porter Project the value ofseafood exports was only 5% of total New Zealandexports [21]. The seafood industry was interested in thePorter Project identifying requirements for economicdevelopment and change [22]. However, the Porterproject viewed the seafood industry as another exampleof New Zealand’s strong reliance on natural resourcecommodities that collectively failed to generate the highand increasing levels of income necessary to sustain ahigh national standard of living. The Porter Projectconcluded that the seafood industry was structurallyunattractive because it was made up of four large anddiverse firms, owning the majority of ITQ holdings, anda group of smaller firms [20]. On a more positive note,the Porter Project acknowledged:

�

New Zealand’s Exclusive Economic Zone (EEZ), theseventh largest in the world, as the foundation for thedevelopment of the seafood industry; � The government’s long-term protection of the fish-

eries resource by way of the QMS and control ofmarine farm sites; and

ARTICLE IN PRESSR. Bess / Marine Policy 30 (2006) 367–378 371

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The government’s investment in research and im-position of high hygiene standards, which areconsidered helpful for export marketing purposes.

4.3. Regional-level competitiveness

The Porter Project also concluded that New Zealandhad failed to develop clusters of related and supportingindustries around successful industries and national-level government policies that emphasised the role oflocal governments have in cluster development [20].Porter [23] observed that clusters succeed because theirhigh level of domestic competition, specialised infra-structure, research facilities and educational institutionsand various industry associations promote rapid com-munication of information and generation of innova-tions in products, processes and services that provideindustries with sustained international competitiveness.

The Porter Project identified the Nelson region, at thetop of the South Island, as an area where the seafoodindustry displayed some conditions of cluster develop-ment. During the 1980s Nelson had experienced rapiddevelopment of its seafood industry and had becomeNew Zealand’s leading fishing port. The Nelson regionwould attract a concentration of seafood firms and somerelated industries, since it is located between the mainoffshore fishing grounds. Nelson is also close to varioustypes of marine farm operations. At the time of thePorter Project, the Nelson area had approximately 35fish and shellfish processing plants with total annualsales of NZ$188 million, and the three largest Nelson-based seafood firms held 61.6% of total ITQ [24].

In 1991 the Nelson Seafood Cluster Committeeformed to foster development of the seafood industryin the Nelson region and supporting industries toincrease seafood export earnings and provide forregional employment. The committee envisioned thatthe cluster would foster close links within the regionalseafood industry and become a centre of excellence inindustry education, specialised research and technologyand consultancy expertise [25]. The new and enlargedcluster of core and related and supporting industrieswould have the critical mass to sustain innovation andgrowth in the range of products and services provided inthe region [24]. The Committee continues to play apivotal role in the regional seafood industry.

4.4. Firm-level competitiveness

Around the time New Zealand implemented theQMS, the field of strategy also began to build a newtheoretical perspective on firm-specific sources ofcompetitive advantage that accommodates rapidlyevolving firms and their dynamic competitive interac-tions [15]. This new theoretical perspective, referred to

as the resource-based view of the firm, had its origins ineconomic theory, particularly evolutionary economicsand industrial organisation.

4.4.1. Evolutionary economics

The main feature of evolutionary economics is thedynamic state where economic structures are continuallyrecreated as former structures are destroyed. Processesof change are analogous to the biological termsvariation, heredity and selection. Similar to populationsof organisms adapting to their environment, popula-tions of industries are subject to selection in theirenvironment. Some industries survive through geneticvariability, mutation and natural selection while othersbecome extinct and are replaced by more successfullyadapted industries [26]. Evolutionary thought applied tothe field of strategy has mostly remained focused at theindustry level. However, an example of evolutionarythought applied at the firm level is Schumpeterianeconomics.

Schumpeterian economics assumes firms must con-tinually respond to dynamic competitive forces, but thatthey are able only to imperfectly anticipate significantchanges, revolutions or creative destruction [27]. Asfirms fail to anticipate revolutions and adapt to theirenvironment they cease to exist and new, better-adaptedfirms take their place. The Schumpeterian model focuseson short timeframes, so it does not consider the prospectthat over time a firm can enhance its resourceheterogeneity, which could improve its ability to learnand adapt to revolutionary change [28,29]. One positiveaspect of the Schumpeterian model is that firms can gainfrom an unstable and uncertain environment byinstigating revolution or creative destruction, particu-larly through product innovation [30]. In some highlydynamic environments the Schumpeterian perspectivemay well prove to be most appropriate for firms [15].

4.4.2. Industrial organisation

Industrial organisation emphasises industry effects asthe primary explanation for differences in firm perfor-mance. Largely popularised by Porter [31], this perspec-tive views firm performance as determined by two mainfactors: (1) an industry’s attractiveness, and (2) itsstructure, which includes the number and relative size offirms and the level of existing entry barriers. To generatesuperior performance a firm must have the ability toalter its industry by restricting the number of competi-tors, create high entry barriers that deter new entrants,increase product differentiation, and reduce demandelasticity by restricting available substitutes. Industrialorganisation also includes joint efforts by firms to alterthe industry through strategic groups. Creating mobilitybarriers between groups then becomes a means by whichfirms can further restrict direct rivalry [15].

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The longstanding acceptance of industrial organisa-tion attests to its impact and relevance to firm-levelcompetitiveness. However, reliance on industry ormarket advantage alone is not sufficient for a firm tosustain a competitive advantage. Other sources ofadvantage must also be developed to sustain competi-tiveness. Campbell-Hunt [32, p. 21] states that ‘the life ofan industry-granted advantage can be extended bystrategic action, but that alone is not enough’. Camp-bell-Hunt concludes that industrial organisation in-volves a bit of luck, as does the Schumpeterianperspective, in that incumbents could benefit immenselyfrom a munificent industry structure while new entrants,those on the outside, might not have much chance ofsuccess.

The strategic implication of industrial organisation isthat firms should strive to alter the structure of theirindustry so that it favours oligopolistic behaviour,allowing existing firms to display superior performance.The obvious limitation, however, is that just as certainconditions have favoured a particular firm, they can alsochange in ways that erode any prior competitiveadvantage. Since the mid-1980s several New Zealandfirms have learnt this lesson as deregulation eroded somefirms’ advantages and changed the dynamics of compe-titive interaction. The limitations of industrial organisa-tion have motivated researchers to seek out new sourcesof competitive advantage [15].

4.4.3. Resource-based view of the firm

Some consider the origins of the resource-based viewof the firm to reside in Wernerfelt’s [33] claim that a firmmust possess particular resources and capabilities, atleast semi-permanently, in order to gain a competitiveadvantage. According to Wernerfelt, a resource can beseen as a strength or weakness of a given firm at a giventime. Subsequently, the theoretically ideal firm-specificresource has been endowed with imperfect factormarkets [28,34] and isolating mechanisms or impedi-ments to limitation that allow firms to secure Ricardianrents [35,36]. Grant [37] redefines the firm as consistingof a bundle of unique and idiosyncratic resources, andmanagement’s primary task is to maximise valuethrough the optimal deployment of firm-specific re-sources while developing the resource base for thefuture. Strategy then becomes the art of creating valueby reconfiguring new roles and relationships for thoseresources that really matter to a firm [38].

Firm-specific resources are typically categorised aseither tangible or intangible. Tangible resources areviewed as becoming increasingly difficult to use as abasis for competitive advantage. Very few tangibleresources have the uniqueness and supply limitationsrequired to sustain an advantage, since their origin istypically outside the firm [15]. Intangible resourcesconsist of tacit knowledge or know-how that is

culturally based, and, therefore, embedded within afirm. It follows that the focus on firm-specific resourcesas sources of competitive advantage has remainedprimarily on intangibles, particularly the knowledgeheld by individuals within the firm, interactions betweenindividuals and groups and the firm’s ability to createand integrate knowledge into its production of econom-ically viable products and services [15]. The focus hasremained predominately on a firm’s systems, or pro-cesses and routines, which typically consist of hetero-genous and immobile resources that are rare, valued andembedded within the firm, thus creating barriers thatimpede competitors’ ability to acquire, imitate andsubstitute the source of a firm’s competitive advantage[39,40].

5. Sources of competitiveness

When the resource-based view is applied to firmsoperating in natural resource-based industries, such asseafood, the fundamental basis to developing firm-specific resources that in combination can sustaincompetitiveness is security of tenure in access rights tothe natural resources. This basic tenet of the resource-based view was supported by the research projectinvolving four medium- to large-sized, highly verticallyintegrated New Zealand seafood firms. The remainderof this section outlines the five main resources that formthe basis to these firms’ competitiveness and the overallprocess the firms used to build up these resources [5].

5.1. Security of tenure in access rights

The seafood firms’ managers who participated in theresearch project consistently asserted that the basis totheir firms’ competitiveness was the tenure in access tothe fisheries resource provided by the QMS and theaquaculture legislation.

The QMS was designed to allow ITQ holdersflexibility and discretion regarding when and by whatmethod to catch their portion of the total allowablecommercial catch. The QMS allows the seafood firms toadjust their ITQ holdings to match fishing operationsand, therefore, improve efficiency and provide moresecurity when making long-term investments [2].

Those firms involved in marine farming, particularlyGreenshellTM mussels and farm-reared salmon, havebuilt up their operations based on the relative security oftenure in access rights under the joint managementsystem of the RMA and the Fisheries Act 1983 (the 1983Act). Marine farmers have had to obtain a RMA coastalpermit for occupation of space and management ofenvironmental effects, and a 1983 Act marine farmingpermit for the possession of fishstocks. Under this jointmanagement system coastal permits and marine farming

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permits can be granted for up to 35 years, but in practicethey have been granted for much less time [6].

The joint management system has provided partici-pants with sufficient security of tenure to invest ingrowth opportunities and technological improvements.These substantial investments, many of which reflectcollective efforts, have led to the development of severalinnovations in harvesting, processing and marine farmmanagement techniques. Investments in innovations,combined with relative security of tenure in accessrights, have brought about the development of a fewhighly vertically integrated firms that compete world-wide [6].

The new management system promulgated throughthe recent aquaculture reforms gives priority to existingmarine farmers when applying for new coastal permitsfor space that they already farm, which provides thesecurity of tenure in access rights necessary to sustainthe marine farming sector.

5.2. Managerial capability

The highly vertically integrated structure of thefour seafood firms that participated in the researchproject requires managers to focus on each valuechain activity, from catching or harvesting to salesand after-sales service, and the best possible linksbetween them. Focusing on the entire value chain,and determining multiple linkages between differentstages, requires highly developed coordination andintegration [41].

The importance of these firms coordinating andlinking value chain activities is embodied in the term,managerial capability. Managerial capability is definedas a quality exhibited by a highly vertically integratedseafood firm that (1) integrates various types of knowl-edge in ways that link up all value chain activities tofully exploit the competitive potential of its resourcebase and (2) responds to new opportunities and lessensthe potential impact of external environmental forces ona firm’s ability to succeed in particular markets. In thisway firms operate as open systems, coordinating andintegrating the demands and requirements of customersand knowledge about external environmental forces intovalue chain activities to ensure the delivery of high-quality products and related services that are preferredby customers. When firms operate in a rapidly changingenvironment, managers’ abilities to integrate, build andreconfigure their firms’ resources become the primarysource of competitive advantage [42].

5.2.1. Integration of external environmental forces

The research project identified several key externalenvironmental forces that continue to facilitate orimpede the structure of the seafood industry and

individual firms’ ability to succeed in export markets.Five of the key forces include:

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Foreign market access. The New Zealand govern-ment’s ongoing involvement in several bilateral,regional and international trade agreements inclineseafood firms to individually and collectively adviseand lobby the government on key market-accessinitiatives. � Lack of government assistance. As noted, the seafood

industry, like other industries, has had to adapt to anenvironment virtually free of direct governmentassistance. In the case of the seafood industry,legislative changes require seafood firms to absorbsome costs for research and fisheries managementthat are recovered by the government.

� Changes to fisheries management. The management of

New Zealand’s fisheries continues to be characterisedby ongoing changes that are at times radicaldepartures from historical practices, as was evidentwhen the QMS was implemented. A more recentexample is the Ministry of Fisheries having decided in2001 to embark on a project to introduce a further 50commercially valued species into the QMS by 2004.The purpose of this project, in part, was to create anenvironment where a moratorium on issuing com-mercial fishing permits, which had been in place since1992, could be lifted. Completion of this project hasalready begun to change the structure of somefisheries [2].

� Settlement of Treaty-based claims. Maori, New

Zealand’s indigenous people, have claimed rights tofisheries resources based on the Treaty of Waitangi1840, which is considered the founding document ofNew Zealand as a nation. The settlement ofcommercial fishing claims through the Maori Fish-eries Act 1989 and the Treaty of Waitangi (FisheriesClaims) Settlement Act 1992 (Settlement Act) led toMaori being allocated, inter alia, 10% of the ITQfrom the species introduced into the QMS in 1986and 20% of the ITQ resulting from subsequent QMSintroductions [43]. In addition, in 2003 the NewZealand Environment Court determined that pastsales or confiscation of Maori land may not haveextinguished their rights to the foreshore, the waterbelow mean high tide, and the seabed. The MaoriFisheries Act 2004 gave effect to the Crown’ssettlement of the foreshore and seabed claim byallocating to Maori an area equivalent to 20% of thetotal marine farming space that has been establishedsince 1992 and 20% of any new marine farmingspace.

� Spatial conflicts. As noted, spatial conflicts occur

between wild stock fisheries and marine farming. Thenew management system promulgated through theaquaculture reforms addresses these conflicts when

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Accessrights

Marketingcapability

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Managerial capability

Fig. 2. Pattern in the process of building firm-specific resources

(source: [5]).

R. Bess / Marine Policy 30 (2006) 367–378374

assessing applications for aquaculture marine areas.To resolve a conflict, the prospective marine farmermust get voluntary agreement with affected fishers forwild stocks. Conflicts with commercial fishing inter-ests can also occur where areas are established forMaori non-commercial, customary use and manage-ment under the Settlement Act. Further conflicts canarise through the establishment of no-take marinereserves, which are restricted to within the 12-mileterritorial sea under the Marine Reserves Act 1971.The Marine Reserves Bill, which is currently beforeParliament, allows for reserves to be established outto the 200-mile EEZ, which may conflict with pelagicand deepwater fisheries.

5.3. Marketing capability

The purpose of a firm’s marketing capability is toapply specific resources to markets in ways that providesustainable and appropriable benefits for the firm. Oncethe seafood firms attract customers with the assuranceof product supply, provided to them by security oftenure in access rights, the firms have the opportunity tobuild long-term customer relationships by putting timeand effort into thoroughly understanding customers’requirements and how best to meet them. This approachallows the firms to position their products away fromlow value, low-price commodity markets and towardshigher quality and higher valued product markets.

5.4. Catching/harvesting and processing operations

As firms have expanded their ITQ holdings andmarine farming operations to better suit their strategicdirection and customer requirements, they have madesubstantial capital investments in specialised fishingvessels and gear and processing equipment. Consistencyand flexibility in the operation of these tangibleresources are critical to firms building up their market-ing capability. The investments these firms have made intangible resources reduce their operating costs andimprove the quality of their products and overall valuefor customers.

5.5. Inter-firm cooperation

Inter-firm cooperation comprises various tangible andintangible resources brought together through firms’efforts to create shared activities or operations thatresult in mutual benefit. The research project concludedthat the seafood firms have only begun to develop inter-firm cooperation relative to the potential available. Nowthat firms have had several years to develop their accessrights into highly vertically integrated operations, theyhave begun to explore alternative ways of expanding

and complementing their operations through coopera-tive efforts. As noted, some marine farming operationshave participated in cooperative efforts to developvarious innovations that have enhanced their competi-tiveness worldwide. There are ample reasons for firms toconsider inter-firm cooperation, such as increasedcompetitive pressures, unfavourable market conditionsand the acknowledged benefits of past efforts [44,45]. Itis expected that firms will continue to pursue mutuallybeneficial cooperative efforts with both domestic andoverseas firms to further reduce costs and enhanceproduct value and delivery.

5.6. Pattern in the process

The process of building up each of the five firm-specific resources outlined above is less a series ofsequential steps and more a pattern of interrelatedactivities, events and demands placed on firms. Eventhough process is defined as a continuous interactionbetween internal and external influences over time, theprocess follows a pattern, beginning with securing accessto the fisheries resource. Fig. 2 demonstrates that oncefirms gain secure access to the fisheries resource, theyfocus on matching the level of product output withcustomer requirements and overall market conditions.Thus, firms build a strong relationship between accessrights and their marketing capability, as shown by thearrows linking these two capabilities. As customerrequirements and market conditions change, firmsreassess and alter their holdings in access rights.Investment or divestment of ITQ occurs with relativelylow transaction costs because of its transferabilitythrough established markets. Holdings in coastal andmarine farming permits, however, are more difficult toalter because they lack divisibility and ease of transfer ofownership. Holdings in coastal and marine farmingpermits are more easily altered by owners varying thelevel of direct investment in their development or bylease arrangements.

As noted, the security of tenure in access to thefisheries resource provides firms with incentives to makeongoing investments in specialised fishing/harvestingvessels and gear. Investments in processing facilities,both land based and at sea, ensure that products areprocessed efficiently and reliably, and innovations

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developed within the firm and by way of inter-firmcooperative efforts are incorporated into firms’ valuechain activities.

Although a firm’s marketing capability drives deci-sions about investments in other resources, it is themanagerial capability that strategically links all otherresources together. Managerial capability is the mostdifficult capability for firms to build up because itdepends on senior managers’ comprehension of overalloperations and the best possible links between them. Inaddition, well-developed managerial skills are requiredto comprehend how external environmental forces canfacilitate or impede firms’ efforts to succeed in particularmarkets.

Inter-firm cooperation is the last strategic capabilityto be built up and the least developed of all capabilities.The seafood firms have used inter-firm cooperationprimarily as a mechanism for expanding particular valuechain activities overseas while firms retain control overall of their operations. Although there are few examplesof domestic inter-firm cooperation to date, it should benoted that virtually all firms have demonstrated somelevel of cooperation to influence the outcome of thegovernment’s decision-making processes in relation toissues and policies on foreign market access and fisheriesmanagement.

6. Discussion

The success of the New Zealand seafood industry isbased on security of tenure in access to the fisheriesresource provided by the QMS and aquaculture legisla-tion. As long as New Zealand’s QMS remains unique inthe world, with Iceland being the only other nation withas comprehensive of a QMS-type system, New Zealandseafood firms will continue to have a level of security ofresource supply unavailable to most of their overseascompetitors. It should be noted that only 5–10% of totalcatches of fish worldwide are managed by some type ofquota system [46], and most of these systems lack suchcharacteristics of New Zealand’s ITQ as divisibility,transferability and permanence. Similarly, the aquacul-ture legislation has provided marine farmers withsufficient security of tenure to take advantage of growthopportunities and invest in technological improvements.

Secure access to the fisheries resource has providedNew Zealand seafood firms with opportunities forvertical integration. Vertical integration is a complexand costly means of creating a competitive advantage,which is generally desirable when firms can use marketimperfections to create an advantage through costsavings due to internal control and coordination andreducing uncertainty in the supply of critical inputs [31].

The seafood firms that participated in the researchproject vertically integrated their operations for these

same reasons, and their managers have expressed theview that vertical integration is critical to their firms’competitiveness. None of the seafood firms have optedto reverse their vertical integration or entirely outsourceany particular value chain activity. The seafood firms’continued commitment to highly vertically integratedactivities would be expected to continue becausetypically ‘complete and total departures from pre-existing capabilities are difficult if not impossible’ [47,p. 958].

Critical to the success of the seafood firms’ verticalintegration strategy is the development of enduringcustomer relationships, so that customers find it easierto do business with the firms than with their competi-tors. According to Hall [48], the competitive nature ofindustries requires firms to reassess how to gain andsustain competitive advantages by consistently produ-cing products and delivery systems with attributes thatcorrespond to the key buying criteria of their customers.

The research project concludes that firms need to usewhatever protection and assistance is available fromtheir industry structures and governments, while utilis-ing firm-specific resources to the fullest. The strategiccapabilities building process utilises and combinesseveral firm-specific resources to develop simultaneouslysources of competitive advantage. The linking up ofvarious tangible and intangible resources throughout thevalue chain requires heterogenous procedures, patternsof behaviour, belief systems and cultural attributes thatcollectively make up a firm’s identity and guide itsoverall operations. The managerial capability conceptdemonstrates the importance of managers’ numeroussmall decisions that develop, nurture and exploit firm-specific resources but yet remain largely unobservablebecause of their causal ambiguity and social complexity.A firm’s capabilities building process is dynamic and,therefore, changes with the acquisition and integrationof new knowledge about a firm’s operations, itsproducts and those external environmental forces thatimpact on the firm.

6.1. The role of government policies

The New Zealand government’s economic policieshave had a substantial impact on seafood firm competi-tiveness, most notably when rapid and radical economicreforms began in the mid-1980s. The government’sintent to economically revitalise the nation requiredindustries to adapt to operating with no direct govern-ment assistance while facing increased competition forthe purchase of input factors of production and accessto overseas markets. The government’s macro-economicpolicies led to extreme fluctuations in interest ratesduring the mid- to late 1980s and periodic adjustmentsin the value of the currency that continue to the present.The changing business environment has, at times, forced

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seafood firms to reassess their build up of import-dependent resources while increasing their focus on costreductions.

In light of the widespread use of national subsidiesand protectionist policies available to several overseascompetitors, it should be noted that the New Zealandgovernment’s deliberate intent not to subsidise andprotect industries has required them to take an activerole to collectively enhance their international competi-tiveness. However, there might be long lag periodsbetween development of economic reform policies andchanges in performance, due, in part, to reformsequencing, shocks to the economy and a shift ofresources as the nation learns what it is good atproducing [49].

The government has remained intent on aligningeconomic policies with the Porter Project’s recommen-dation to lessen the economy’s strong reliance onnatural resource commodities and to develop aninnovative, internationally competitive economy. Whilemuch progress has been made in particular industries,the economy remains strongly reliant on export revenuefrom primary commodities. The government’s reassess-ment of its institutional environment and its impact onfirm-, industry- and regional-level competitiveness hasled to the formation of the Ministry of EconomicDevelopment, which has taken over Tradenz’s promo-tion of regional cluster development. The Ministry hasseveral other initiatives in line with the Porter Project,which include:

�

developing partnerships between the public andprivate sectors that build on regional strengths andlocal resources to support sustainable economicdevelopment; � identifying policy areas and research that further

strengthen firm- and industry-level innovations; and

� building strategies to develop firms’ managerial

capabilities.

The question for seafood firm managers, governmentpolicy makers and industry analysts is what changes tolegislation and policies would further enhance seafoodfirm competitiveness? For the seafood industry toremain competitive, government policies must bealigned with the fact that secure tenure in access rightsto the fisheries resource plays a critical role in seafoodfirm competitiveness. The seafood industry has recog-nised for some time that fundamental to its futuresuccess is the establishment by government of betterdefined rights and responsibilities for marine farmingoperations in a way that is compatible with the rightsgranted through ITQ holdings [44]. The purpose of theaquaculture reforms was, inter alia, to improve thecompatibility of these rights by redefining the interfacebetween the RMA and the 1996 Act with respect to the

permit processes and establishment of aquaculturemanagement areas. The recent settlement of Maoriclaims to the foreshore and seabed reduces furtheruncertainty about the future of marine farming andinshore fisheries.

The Ministry of Fisheries is taking further steps tosecure the rights of ITQ holders by allowing themgreater participation in the management of the fisheriesresources to help ensure the value of fisheries ismaximised. With this intent in mind, in 2004 theMinistry began committing resources to facilitate thedevelopment of statutory fisheries plans the purpose ofwhich is to allow stakeholders to put forward specificmanagement proposals that better meet the needs ofparticular fisheries and the aspirations of the people whouse them. The Minister of Fisheries approves a fisheriesplan [50].

As the Ministry provides legitimacy to fisheries plandevelopment, seafood firms should have economicincentives to develop alternative arrangements forparticular value chain activities that improve theproduction and delivery of products and developmentof new markets. At minimum, fisheries plans shouldprovide new ways to reduce harvest and compliancecosts for commercial stakeholders, and other benefitscould arise through shared marketing initiatives. How-ever, those who develop fisheries plans must ensure theirorganisational systems not only deliver on statedobjectives for more efficient utilisation, but also sustainthe fisheries resource and reduce potential stakeholderconflicts, resolving them when they arise [44].

Facilitation of fisheries plan development is perhapsthe best example of the government’s support for inter-firm cooperation. Such support is necessary to legitimisepower-sharing and decision-making arrangements anddefend tenure in access rights [51]. Fisheries plans andother types of inter-firm cooperative efforts fit within theNew Zealand environment’s preference for market-based approaches to problem solving, which tends toset New Zealand apart from most other nations [52].

7. Conclusion

Since implementation of the QMS and developmentof the marine farming sector, the seafood industry hasexperienced dramatic growth in volume and value ofexports and generally improved fisheries resourceavailability due to developments in stock assessmentsand implementation of rebuilding strategies. The sub-stantial growth rates are directly attributable to seafoodfirms having had the security of tenure in access rightsprovided by the QMS and the aquaculture legislation.New Zealand seafood firms have greater opportunitiesto create sources of competitive advantage throughvertical integration than is provided to their overseas

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competitors that operate under different managementsystems with less security of tenure in access rights.Secure access to the fisheries resource has warrantedsubstantial capital investments in world-class fishingvessels, marine farming innovations and processingfacilities.

At the same time, the field of strategy has shifted itsfocus on sources of competitive advantage frompredominantly product-market positioning to firm-specific resources. Several New Zealand seafood firmshave used insights from the field of strategy to build uptheir managerial and marketing capabilities. The buildup of these intangible resources has in turn led toinvestments in tangible resources that allow highlyvertically integrated seafood firms to substitute relianceon low grade, low priced products sold in commoditymarkets with the production of several high-quality,high-value products.

Since the mid-1980s the seafood industry has under-gone substantial structural changes in response to thepolitical and business environment. Further structuralchanges are likely as seafood firms reposition themselvesin response to adverse trading conditions, limiteddomestic growth opportunities and the relatively highvalue of the currency. The environment appears rightfor seafood firms and the industry overall to pursueinitiatives for inter-firm cooperation, whether throughfisheries plans, joint research, export market develop-ment programmes or some other means. By unleashingfurther creative and entrepreneurial efforts seafoodfirms could enhance their individual and collectivecompetitiveness in export markets. As the field ofstrategy provides further insights, it is expected govern-ment policies will remain steadfast in their protection ofsecure access rights to the fisheries resource, which arecritical for entrepreneurial incentives and investmentsthat sustain seafood firms’ competitive advantages.

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