A new report from the government’s Productivity Commission says frontier firms are key to lifting small, advanced economies (SAEs) such as New Zealand, with many of these innovators located in Auckland and ready for overseas investment.
Frontier firms boost national productivity by pushing beyond traditional frontiers – they disrupt traditional economic pathways through agility, innovation and scalable growth. By acting as exemplars for other firms in innovative new technologies and practices, they lift the whole ecosystem.
Tāmaki Makaurau Auckland is ahead of the curve, with investment-ready companies located in a region known for its nimble economy, as evidenced by its quick rebound from the pandemic. Māori enterprises have also led the charge, with strengths in innovation and sustainability.
What is a frontier firm?
The Productivity Commission defines frontier firms as among ‘the most productive firms in the economy within their industry’. Its new report calls for more frontier firms, to help boost New Zealand’s economic performance, with innovation the key to producing ‘specialised and distinctive internationally tradeable goods and services’.
As a country, we have long relied on increasing the volume of products made from our natural resources – think beef, milk and kiwifruit. Today, given new environmental (i.e., carbon) concerns, that path to growth is challenging.
Primary industries and ‘weightless’ industries, such as software, health technology and creative industries, are seen as the logical place for effectively lifting productivity as they reflect existing and emerging strengths and capabilities.
In their working paper Benchmarking New Zealand's Frontier Firms (2021) Guanyu Zheng, Hoang Minh Duy and Gail Pacheco assert that ‘improving both technology diffusion from abroad toward New Zealand’s frontier firms, and labour allocation across firms within New Zealand will see sizable productivity gains in New Zealand’.
International investors who can bring global connections, foreign direct investment, participation in global value chains, and mobile skilled labour from offshore will be able to attract higher skilled labour locally. Coupled with implementing new technology, this shift will see sizable productivity gains.
Frontier firm characteristics
Frontier firms exhibit four key characteristics.
They export more right from the start, facing geographical challenges and therefore avoiding the traditional route of transporting physical commodities long distances.
They invest heavily in innovation, through harnessing government support or forming R&D partnerships.
They have the scale needed to invest in innovation and exporting, through being large ‘anchor firms’ or through collaboration with smaller firms.
They exhibit ‘dynamic capabilities’, such as sensing areas of competitive advantage, then seizing the opportunities in these areas by innovating, while also managing risk.
The indigenous advantage
Māori frontier firms are outpacing some of their non-Māori counterparts because they are more likely to export and have higher rates of innovation and R&D than New Zealand firms generally.
Māori values also help to differentiate Māori goods and services and add brand value overseas. Further, common values and features help bring Māori firms together, creating networks for diffusing knowledge, exploring innovations and enabling collaboration that fosters growth.
Māori frontier firms have long investment horizons, which support experimentation and innovation and long-term value creation. The fact that they have multiple bottom-line objectives for solving financial, environmental, social, cultural and political challenges makes them more innovative than their non-Māori counterparts.
The values, principles and concepts identified as relevant and beneficial to Māori businesses are:
- Kaitiakitanga, guardianship
- Rangatiratanga, leadership/ownership
- Manaakitanga, hospitality
- Whanaungatanga, relationship/kinship
Local examples
As part of its inquiry into frontier firms, the Productivity Commission tasked Deloitte Access Economics with analysing the characteristics of New Zealand’s top 200 firms and top 10 Māori businesses. Here are two examples of those businesses located in Auckland:
Moana New Zealand
The largest Māori-owned fisheries company in Aotearoa New Zealand, Moana brings kaimoana (seafood) – including shellfish, lobster and fin fish – to market. It exports 50.5 per cent of its seafood to Australia, Asia, North America and China.
"Forty per cent of profits we make are returned to Māori in the form of dividends, with the balance retained to fund long-term growth initiatives of Moana New Zealand. Iwi (a large group of people descended from a common ancestor and associated with a distinct territory) use these dividends to fund their own community-based projects and initiatives like health and education or to support investment in their own businesses which in turn generates more employment and profits. Moana New Zealand profits can never be used for personal gain." Source: Moana New Zealand, Our Sustainability Journey Strategy 2.0.
As well as modelling core Māori values, this approach embodies the key frontier firm characteristic of investing heavily in innovation. Moana is transitioning to more sustainable ways to harvest fish, believing in ‘courageous innovation and in carefully testing best practice in order to understand the deeper implications of future proofing our fisheries.’
Moana and Sanford are involved in a pilot project, led by World Wildlife Fund (WWF), using an unmanned aerial vehicle (UAV) to track Māui dolphin – a rare, endemic New Zealand dolphin – using artificial intelligence. This pilot is exploring how to translate drone technology into action on fishing boats, to reduce the risk of dolphins coming into contact with fishing nets.
Fisher & Paykel Healthcare
Fisher & Paykel Healthcare develops and manufactures high-flow oxygen systems and respiratory humidification systems as well as sleep apnoea treatment systems. COVID-19 led to a huge influx of orders for this Auckland-based business.
‘At the start of the pandemic, healthcare providers leaned toward early mechanical ventilation for the most severe patients. However, a few months in, evidence suggested high mortality rates for COVID-19 patients on mechanical ventilators. With Optiflow, warm, humidified air and oxygen is administered through the patient’s nostrils. Patients can remain awake while receiving Optiflow, so they can talk, eat and drink. They also can be treated outside the intensive care unit, which lightens the burden on healthcare providers.’ Source: Fisher & Paykel Healthcare Annual Report 2021.
The company has seen its share price rise 95 per cent in the last twelve months; it employed 800 more employees in the last half of 2020, and its net profit after tax year end 2021 was 95 per cent higher than it was in 2020. It earned $1.263 billion revenue for the year ending March 2021, 99 per cent from exports.
Fisher & Paykel Healthcare exhibits the frontier firm characteristics of being export led and innovative, with scale and dynamic capabilities. The company bases its competitive advantage on building clinician-informed hardware devices that become the preferred clinical treatment equipment in hospitals worldwide.
‘Our fundamental objective is to grow our business in a sustainable, profitable way by creating better products, extending our global reach and changing clinical practice.’ Source: Fisher & Paykel Healthcare Annual Report 2021.
Why Auckland?
New Zealand’s largest city is a proven choice for conducting Asia–Pacific business and has a favourable time zone for multinationals to operate around the clock. Auckland is also home to 170 R&D institutes, three universities and two satellite campuses, providing the ultimate scope for innovative partnerships.
Find out more
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This article provides general information on potential investment opportunities in Auckland and is not intended to be used as a substitute for financial advice. The views and opinions expressed are those of the relevant author and do not necessarily reflect the views of Tātaki Auckland Unlimited. Tātaki Auckland Unlimited disclaims all liability in connection with any action that may be taken in reliance on this article, and for any error, deficiency, flaw or omission contained in it.