The New Zealand Productivity Commission today released the final report of its frontier firms inquiry.
The performance of New Zealand’s firms plays a vital role in the nation’s productivity and wellbeing. Our most productive or “frontier firms” set the bar for all firms. They are a key pathway by which innovation, in the form of new technologies and work practices, spreads to other firms across the economy.
Yet, the Commission found that the productivity of New Zealand’s frontier firms is on average less than half (45%) of that found in its international peers.
“New Zealand needs to change key aspects of the status quo, to lift the performance of its firms and lift national productivity,” says Commission Chair Ganesh Nana.
“Innovation is the key. With it, we have a chance to build a world-class competitive advantage in some markets. Without it, products and production processes become standardised and leaves us trying to compete against lower‑wage economies.”
“New Zealand can learn from successful small advanced economies (SAEs). They have outstanding records of world-leading firms exporting specialised, distinctive products at scale. By comparison, most of New Zealand’s larger companies are strongly oriented towards domestic sales and a mere 30 companies account for over half of our exports.”
“Successful SAEs (such as Denmark, Singapore and Sweden) focus their investments on creating world-class innovation ecosystems around their leading firms.”
“Yet small countries can’t be world class in everything. New Zealand needs to make some tough choices about where to prioritise investment on a few targeted innovation ecosystems, much like we do in sport.”
Innovation ecosystems describe the capabilities and networks of relationships between firms, researchers, workers, educators, investors, government and consumers, that drive innovation. Building a world class innovation ecosystem requires coordinating investments in infrastructure, regulation, skills, research and business support.
“Think about how New Zealand funds sport. Sophie Pascoe gets funding because she is amazing at swimming, but the bulk of New Zealand’s investments go into infrastructure, talent development and research in areas of historic strength - rowing, cycling and yachting. We need to do the same for firms.”
“Kaupapa Māori firms can help light the way because they take a long-term perspective and use innovation to manage multiple objectives”, notes Nana.
Many Māori firms are already involved in exporting and have higher rates of innovation and R&D than New Zealand firms generally. Māori values such as kaitiakitanga, manaakitanga and whanaungatanga help differentiate Māori goods and services and provide added brand value overseas.
“The Commission recommends overhauling the innovation system, including focusing significant investment in target areas of existing or emerging economic strength and competitive advantage,” says Nana.
“Execution is critical. To make this work will require a clear strategy led by senior political leadership, with durability across electoral cycles, as well as rigorous evaluation and being prepared to gather and adapt to new information. This isn’t something Government can do alone – it needs to work in a genuine partnership with industry, researchers, Māori, workers, entrepreneurs and innovators.”
Today’s report makes 30 recommendations to upgrade New Zealand’s innovation system and make investments in infrastructure, regulation, skills, research and business support to boost New Zealand’s productivity.