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    Networking: Formal or Informal?


    © International Trade Centre, International Trade Forum - Issue 1/2002

    Over the years, New Zealand has adopted or tried out a variety of formal and informal network structures for export development. On the basis of this experience, a strong case has emerged for creating a formal structure around the national trade support network.

    During the past 30 years, successive government strategies were introduced to address New Zealand's natural trade disadvantages. The initiatives included public interventions such as statutory export marketing boards, tax-funded export subsidies, and capability development support. Initially, these strategies reflected the view that private sector firms which focused on selling within protected domestic markets needed public support to motivate them to engage in exporting. During this period, the trade support network incorporated aspects of public and private sector activity in:

    • domestic capability development - fostered by state-funded specialist business development support agencies, in particular a development bank and regional business development board; and

    • offshore trade support - undertaken by the government-owned Trade New Zealand, known at the time as Tradenz.

    Links between these two arms of the trade support network were largely informal. But in one key area, a formal structure linking both domestic development and external trade support was established. In a partnership with the private sector, Tradenz established Joint Action Groups (JAGs) which supported companies working together as sector groups to export. Other initiatives were also undertaken. For example, in order to promote scale, business management disciplines and marketing strategies, Tradenz began to develop Hard Business Networks - looser arrangements of exporting companies to pursue specific export opportunities. It also encouraged the development of "clusters": groups of companies, including suppliers, clustered around specialist exporting companies.

    The network breaks down

    But from the mid-1980s, New Zealand adopted a more free-market approach. This resulted in privatization, deregulation and the dismantling of subsidies. Trade New Zealand ended its business development role and decided to focus exclusively on trade support. While a number of JAGs had successfully lifted the export performance of a sector, for others, Trade New Zealand was simply funding administrative assistance and little real export activity.

    However, in a coincidental and unrelated development, regional business development boards closed. This left a vacuum in business development services that some people thought might be filled by private sector consultancies. Unfortunately, consultancies did not fulfil this role for small firms, which still made up the bulk of New Zealand's businesses. There were no economies of scale to allow major consultancies to bring fees down to affordable levels for small and medium-sized enterprises (SMEs). And small companies found it difficult to afford consultancies, especially since returns were hit by both growing competition on the domestic market and lower export returns due to a stronger currency. The potential for developing more small and young firms into fully-fledged exporters was not fully realized, because domestic-focused firms saw it as difficult and expensive to enter exporting.

    Filling the gap

    In 2001, the Government moved to fill this gap, establishing a new development agency, Industry New Zealand, to provide domestic support for developing management skills, high-growth industries and sectors, and export clusters. The Government has also implemented and encouraged some formal coordination of strategies and activities of its business development and trade support agencies at board level. With their business clients, management has set up activity coordination forums and a technology development agency, Technology NZ, to provide an integrated service. Each member of the trade support network has a specific role or speciality, whether it be management capability development, technology development or trade support. Where there is overlap, for instance in dealing with industry sectors, or in attracting investment at different stages of the business life cycle, roles are clarified along the way, creating what might be termed a "virtual team" approach to promoting trade.

    Michael Hannah is Manager of Government Relations and Policy, Chief Executive's Office, New Zealand Trade Development Board, New Zealand. E-mail: michael.hannah@tradenz.govt.nz. The views expressed in this paper are those of the writer and not necessarily of Tradenz. A longer version of this article can be found on the ITC web site.