Theory & Application: • New Zealand• Marine industry

Clusters and Competitiveness

Nov 2, 2009

Context

• Michael Porter

• Microeconomics of Competitiveness (MOC)

• Project on NZ marine industry

• Relevance to IBW

Structure

In Brief: Cluster Theory And Competitiveness

Relevance to New Zealand

The Marine Industry

Q. Why a cluster theory? A. Traditional economics not enough...

Advanced Economies

Developing Nations

Source: Michael Porter

Endowments

Microeconomic Competitiveness

Quality of the Business

Environment

State of Cluster Development

Sophistication of Company Ops and Strategy

Macroeconomic Competitiveness

Social Infrastructure and Political

Institutions (SIPI)

Macroeconomic Policies (MP)

Determinants of Competitiveness

Q. Why a cluster theory? A. Political ideology doesn't help...

Cluster Theory

Laissez faire:‘pure market solution’

Industrial policy: ‘picking winners’

Development Strategies

• Minimal role for govt

• Market will identify and exploit opportunities… development will occur naturally

• Large role for govt, centralised

• Govt identifies ‘infant industries’ to support

• Focus is on protection and distortion to reach competitiveness

• Common policy tools:

• Subsidies, trade barriers, mandated monopolies

• Targeted role for govt, decentralised

• All existing / emerging clusters demonstrating competitiveness deserve attention

• Focus is on removing constraints to cluster upgrading, amplifying

• Common policy tools:

• Liberalise FDI, trade etc, regulate for high standards, govt spend complementary to cluster, collaboration

Emphasis is on the competitiveness of locations…not individual companies… or economies in aggregate

Still a threshold question… one

good company is not a cluster

So what is cluster theory? Productivity is the key...Microeconomic Competiveness:

The Diamond Framework

Firm Strategy and Rivalry

Factor (Input) Conditions

Demand Conditions

Related and Supporting Industries

Source: Michael Porter

‘Classic’ clusters• Silicon valley• Wall St• Japanese fax machines• Swiss watches• German automakers

• NZ Dairy• NZ Marine

Agglomeration enhances spill-over effects... hence the Diamond explains the competitiveness of locations

• Presence of capable, locally-based suppliers

• Presence of competitive related industries

• Sophisticated and demanding local customers

• Customer needs that anticipate those elsewhere

• Unusual local demand in specialised segments that can be served locally

• A local context that encourages appropriate forms of investment and sustained upgrading

• Vigorous competition among locally-based rivals

• Factor (input) quantity and cost• Human resources• Capital resources• Physical infra• Administrative infra• Information infra• Scientific and tech infra

• Factor quality• Factor specialisation

Endowments

• Important driver of clustering• But not part of the diamond

because they are a given, not created / upgradeable

Summary

• Competitiveness…

– Beyond comparative advantage

– All about spillovers in locations... productivity in clusters

• Government...

– Good macro policy… necessary but not sufficient

– Not about ‘picking winners’

– Amplifying strengths, nurturing connections, removing obstacles

• Prosperity = productivity = what we do, and how well we do it...

• The quality of the Diamond

• Ability to upgrade the Diamond

Structure

In Brief: Cluster Theory And Competitiveness

Relevance to New Zealand

The Marine Industry

Q. Why does cluster theory matter? A. NZ… not a rich nation

0

10,000

20,000

30,000

40,000

50,000

60,000

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17. S

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18. A

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20. U

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22. G

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23. J

apan

24. F

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27. I

taly

28. S

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30. S

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32. N

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33. I

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34. K

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39. P

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48. P

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50. R

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51. C

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52. A

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53. M

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54. T

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56. M

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67. B

razi

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GDP Per Capita (US$, 2008 PPP), Selected Countries

~30% < Australia

Recent gains… modest, and not productivity driven

Source: OECD; EIU

Participation Rate (%)

Labour Productivity (% chg)

%

Real GDP p/c (% chg)

Employment Growth (%)

Unemployment Rate (%)

NZ Economic Performance: Drivers

-4

-2

0

2

4

6

1986 1992 1998 2004

-4

-2

0

2

4

1986 1992 1998 2004

-2

0

2

4

1986 1992 1998 2004

62%

64%

66%

68%

70%

1986 1992 1998 2004

0%2%4%6%8%

10%12%

1986 1992 1998 2004

x

-

Average p.a. growth• ‘86-96: 1.0%• ‘97-07: 2.1%

UKAustralia

Canada

GermanyFranceJapan

GreeceNZKorea

Mexico

PolandTurkey

US

Ireland

Norway

0

10

20

30

40

50

60

10 30 50 70 90

Poor productivity… slow progress

Source: OECD

… No Sign We Are Closing The Gap

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

1983 1987 1991 1995 1999 2003 2007

Period 83-87 88-92 93-97 98-02 03-07

Average 1.2% 1.8% 1.1% 1.8% 1.0%

Ch

an

ge

in l

ab

ou

r p

rod

uc

tivi

ty (

% p

.a.)

Average (83-07)

NZ

G7Australia

GDP per hour worked (US$/hour)

GDP p/c(US$k PPP)

OECD average ($32,664)

Low Labour Productivity…

Labour Productivityvs. GDP per capita (PPP): 2007

Labour ProductivityGrowth: 1983-2007

Backup

The puzzle… competitiveness not translating into prosperity

‘Competitiveness’ vs Prosperity

‘Prosperity’:

GDP p/c, log scale

High GCI

‘Competitiveness’: GCI Ranking

Low GCI

NZ

Note: GCI = (Overall) Global Competitiveness Index; Source: Institute for Strategy and Competitiveness

Ireland

Slovenia

Where we ‘should’ be?

Singapore

Australia

First:

– Geographic isolation +

– Small home market

Second:

– Capital intensity

Three explanations

May explain up to 75% of the gap vs OECD average prosperity…

OECD Economic Surveys, New Zealand, 2009

OECD Countries

Distance from markets…

Home market size…

Third… poor MICROECONOMIC competitiveness (our Diamond)

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

Institutions (SIPI) vs …

GDP p/c,log scale

High SIPILow SIPI

NZ

Macro (MP) vs …

High MPLow MP

GDP p/c,log scale

NZ

Recall:

Endowments

Macroeconomic Competitiveness

Microeconomic Competitiveness

Quality of the Business

Environment

State of Cluster Development

Sophistication of Company Ops and Strategy

Social Infrastructure and Political

Institutions (SIPI)

Macroeconomic Policies (MP)

Advanced Economies

Developing Nations

Endowments

Macroeconomic Competitiveness

Microeconomic Competitiveness

Quality of the Business

Environment

State of Cluster Development

Sophistication of Company Ops and Strategy

Social Infrastructure and Political

Institutions (SIPI)

Macroeconomic Policies (MP)

Advanced Economies

Developing Nations

What do we mean by SIPI and MP?

Backup

Social Infrastructure / Political Institutions (SIPI)

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

122224455689

1011 12 12131314151617182021212222

Macroeconomic Policy (MP)

Government surplus/deficitInflationGovernment debt

119

New Zealand’s Strengths – SIPI and MP, Selected examples

OverallRanking = 8

Overall

Ranking = 11

Bottleneck is microeconomic competitiveness…

‘Competitiveness’ vs Prosperity

‘Prosperity’:

GDP p/c

High MICRO

‘Competitiveness’: Microeconomic

Low MICRO

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

Source: Institute for strategy and competitiveness, www.isc.hbs.edu

What Do We MeanBy This Measure?

Examples… NZ’s ranking:

• Brain drain – 106th

• Local supplier quality – 97th

• Extent of cluster policy – 92nd

• Value chain breadth – 88th

• Scientists/engineers – 77th

• Cluster development – 74th

• Competition intensity – 66th

• Electricity infra – 64th

• FDI and Tech transfer – 61st

• Transport infra – 55th

• Telco infra – 52nd

• Cluster collaboration – 52nd

Singapore

Australia

Ireland

S. Korea

Problem manifests as an undiversified/unsophisticated economy

-0.5 -0.3 -0.1 0.1 0.3

NZ, Exports Portfolio By Cluster: 1997-2007

Share Of World Exports, 2007 (%)

Change in Nation’s Share Of Exports (%, 1997-2007)

Processed Food (Dairy)

Agri Product (Meat)

Tourism

Fishing

FurnitureForestry

Three big blobs… not much else

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 NZ’s marine cluster, which focuses on boats for private use.

Communications

2.5

2.0

1.5

0.5

Gaining(2)Losing

Less sophisticated and diversified than small country peers…

‘Performance’

% Global Exp Adj For Pop(1):

• 11 sectors better than NZ dairy• 27 sectors better than NZ Forestry

(1) Share of world exports relative to nations population

(2) Change in share of world exports, 1997-2005

Singapore Ireland Slovenia

Population

GDP Ranking (NZ = 32nd)

5.0m

4th

4.5m

7th

2.0m

30th

• 1. NZ Dairy

NZ Clusters…

• 6. Forestry

Benchmarks…

• 7 sectors better than NZ dairy• 14 sectors better than NZ Forestry

• 10 sectors better than NZ ForestryComparison…

Top Export Sectors

• Information tech

• Comms equip

• Entertainment equip

• Chemicals

• Publishing

• Power gen/equip

Top Export Sectors

• Building fixtures

• Motorised products

• Prefab structures

• Power gen/equip

• Furniture

• Biotech

Top Export Sectors

• Comms services

• Financial services

• Chemicals

• Medical

• Biotech

• Food

Summary…

• Not doing well… despite good macro policy and institutions

• Ownership of the problem: isolation hurts us… but not the whole story

• Focus on the bottleneck: microeconomic competitiveness, this should:

– Lift our productivity

– Diversify and upgrade our economy

• An ideal candidate for a ‘cluster-based approach’…

– We have very few clusters... and few emerging

– Pragmatic middle ground politically

– We've tried everything else...

Structure

In Brief: Cluster Theory And Competitiveness

Relevance to New Zealand

The Marine Industry

Context

• Application of the theory, set of recommendations

• Process: Interview industry participants, collect and analyse cluster data

• Focus questions...

– What is the cluster’s current level of development?

– Which parts of the diamond are the bottlenecks?

– Who should be doing what to upgrade the cluster?

– How do these issues sit within broader agenda of national priorities?

• Synthesise findings, develop recommendations

Recall…

-0.5 -0.3 -0.1 0.1 0.3

NZ, Exports Portfolio By Cluster: 1997-2007

Share Of World Exports, 2007 (%)

Change in Nation’s Share Of Exports (%, 1997-2007)

Processed Food (Dairy)

Agri Product (Meat)

Tourism

Fishing

FurnitureForestry

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 NZ’s marine cluster, which focuses on boats for private use.

Communications

2.5

2.0

1.5

0.5

A small but important sector: ~10,000 jobs… 1,300 firms

NZ’s marine cluster... 8 key segments(1)... centred on Auckland

Major Segments In The Cluster

Superyachts Racing Yachts

Trailer BoatsLaunches

Inflatables/RHIBs

Refit/Maintenance Other Services

Equipment

(1) Segmentation and data as per the New Zealand Marine Industry Association; NZ$1.9B equivalent to US$1.1B at current exchange rate of 0.567US$ per NZ$

• Sails, masts, winches, electronics, interiors…

• Sail

• Forcompetition

• >25m

• Sail orMotor

• 8-25m

• Sail orMotor

• 3-8m

• Motor

• Inflatable

• Motor

• Repairfacilities

• Fuel, marinas, insurance, charters, retailing…

NZ Marine Industry Activity

Northland

Auckland

9%

6%

4%

5%Waikato

4%

58%

x% % of NZ Marine Industry Activity (2005)(1)

3%Taranaki

3% Otago

Wellington

Canterbury

Generates NZ$1.9B in sales annually… and continues to grow

2003 2005 2006 2008

Equipment

Superyachts

Launches

Inflatables

Other

Trailer Boats

Racing

Refit

CAGR(03-08)

6

4

17

2

15

(3)

5

101,366

1,5481,641

1,905 7Total

Cluster Performance, Total Sales (NZ$m)

Two groups within the cluster... made for export, made for local

Superyachts

Imports (%)

Exports(%)

Size: totalsales (NZ$m)

Racing Yachts

LaunchesRefit

Inflatables

Trailer Boats

Other50%

50%

Equipment

Most internationallycompetitive segments

100%

Cluster Performance, Imp/Exp (% of Sales)

Value : weight ratio key determinantof import / export competitiveness

ItalyFerretti 7%Azimt Benetti 6%Cantiere 1%Aicon 1%FIPA <1%Perini Navi <1%

FranceBeneteau 6%Rodriguez 3%Couach <1%Dufour <1%

UKSunseeker 3%Princess 2%Fairline 2%

GermanyBavaria 2%Hanse 1%Luerssen <1%

DenmarkDanish Yacht <1%

SwedenHallberg Rassy <1%

SloveniaElan Marine <1%

CroatiaElan <1%Lagoon <1%

New ZealandAlloy Yachts <1%Cookson <1%Fitzroy Yachts <1%Yachting Dev <1%

AustraliaAzzura Yachts <1%Seawind <1%Jarkan <1%

ChinaHolland Custom Yachts <1%

TaiwanHorizon Yacht <1%

TurkeyAegean <1%

NetherlandsRoyal Huisman <1%Feadship <1%

USBrunswick 14%Genmar 5%Catalina 1%Hunter 1%

• #10 in superyachts overall• #3 in sailing superyachts• ‘#1’ in racing yachts• Exclusive focus on high-end custom built market

Global Recreational Boat Building Firms –market shares

A small player on the world stage… but excellent niche positions

Source: ODDO Equity Research, June 2008; MoC team estimates

Niche positions are at the core of the cluster

The New Zealand Marine Cluster

Super Yachts

Racing Yachts

Trailer Boats

Launches& Yachts

Inflatables

Boat Building

Significant ExportsLimited Exports

Related Clusters

Tourism

Fishing/Commercial Boats

Institutions forcollaboration

GovernmentInstitutions

• Trade Promotion (NZTE)• Local Government (ARC)• Universities (Auckland)• Industrial Research Ltd

• Industry Assoc (MIA)• Export Group (NZ Marine)• Training Org (BITO)

Refit & Maintenance

Marine Events

Boating Consumables & Other Services

Marinas

Downstream

Yacht Management

Upstream

Sails & Rigging

Electronics

Interiors

Masts & Winches

Other Services (e.g. Finance)

Composites

Other Equipment

Design

All parts of the diamond contributing to success…however, key fragilities also evident

Firm Strategy and Rivalry

Factor (Input) Conditions

Demand Conditions

Related and Supporting Industries

The New Zealand Marine Cluster

Endowments+ High quality harbors+ Friendly climate for boating+ S. Hemisphere (counter cyclical for refit)

+ Skilled sailors+ Competitive sailing success+ Highest boat ownership in world+ Safety / quality standards

+ Skilled workforce

+ Commercial boats/fishing+ Tourism

+ Many firms (>1,000)+ Significant differentiation+ IFCs present+ Govt support for cluster

- Distance from major marketsx

- Weak capital markets- Cluster gaps (e.g. engines, advanced raw materials)

x

- Small # of well-known firms- Highly fragmented, sub-scale- Lack of ambition/risk-taking- Reluctance to invest- Lack of business acumen

x- Brain drain- Skills shortages- Infrastructure/zoning issues

x

x - Tiny local market overall- Negligible local mkt at high end- Loss of global marine events

Recommendations...

Issues Being Addressed More Detail On ActionsRecommendations

Consolidate & Collaborate

2 • Extreme fragmentation• Sub-scale manufacturing• Lack of business skills • Lack of investment, duplication

• Consolidate the industry (fewer, larger firms)• ‘Step-change’ in collaboration championed

by MIA and industry leaders• Address availability of financing• Actively seek out FDI

Expand on Strengths

1 • Gains to be made by sharing existing expertise

• Success stories that can be replicated

• Govt support to upgrade demand• Broader scope/mandate/ ambition for MIA• Increase MIA membership• Focus expansion on high value:freight areas

Expand into New Areas

3 • Capabilities exist that could have applications outside of marine cluster

• Leading firms encouraged to diversify activities (including offshore investments)

• Govt matching of investments that broaden scope of cluster into ‘related’ industries

• Actively seek out FDI / JVs

Move Beyond Custom Boats

4 • Cluster is relatively narrow in scope• Long-run potential of custom niche

is capped (small market)• Custom capabilities (e.g. brand) can

translate into production market

• ‘Open minds’ to the possibility of production manufacturing out of NZ

• Leading firms to leverage custom capabilities into production manufacturing

Wrap up… how/why is ‘cluster theory’ relevant?

To New Zealand…

• Because we are not a rich country…

• Because good macro policy is not enough…

• Because it has political ramifications: role of government, local/central…

• Because we can’t all be dairy farmers…

To business and MBA graduates…

• Start/grow a business that leverages an existing cluster…

• Collaborate with other firms… nurture the cluster for mutual benefit

• Focus on alleviating cluster bottlenecks…

• Take a job within a cluster… position yourself to exploit best growth bets

Resources for the future..

• Potential frameworks/approaches…

– Determinants of competitiveness

– Diamond analysis

– Bubble charts on cluster performance

– Approach: marine sector example

• Check out www.isc.hbs.edu– More examples of cluster analysis– Data and more cluster theory

• On Competition, Part II: the competitiveness of locations, Michael Porter

Endowments

Microeconomic Competitiveness

Quality of the Business

Environment

State of Cluster Development

Sophistication of Company Ops and Strategy

Microeconomic Competitiveness

Quality of the Business

Environment

State of Cluster Development

Sophistication of Company Ops and Strategy

Macroeconomic Competitiveness

Social Infrastructure and Political

Institutions (SIPI)

Macroeconomic Policies (MP)

Macroeconomic Competitiveness

Social Infrastructure and Political

Institutions (SIPI)

Macroeconomic Policies (MP)

The New Zealand Marine Cluster

Super Yachts

Racing Yachts

Trailer Boats

Launches& Yachts

Inflatables

Boat Building

Significant ExportsLimited Exports

The New Zealand Marine Cluster

Super Yachts

Racing Yachts

Trailer Boats

Launches& Yachts

Inflatables

Boat Building

Super Yachts

Racing Yachts

Trailer Boats

Launches& Yachts

Inflatables

Boat Building

Significant ExportsSignificant ExportsLimited ExportsLimited Exports

Related Clusters

Tourism

Fishing/Commercial

Boats

Related Clusters

Tourism

Fishing/Commercial

Boats

Institutions forcollaboration

GovernmentInstitutions

• Trade Promotion (NZTE)

• Local Government (ARC)

• Universities (Auckland)

• Industrial Research Ltd

• Industry Assoc (MIA)

• Export Group (NZ Marine)

• Training Org (BITO)

Institutions forcollaboration

GovernmentInstitutions

• Trade Promotion (NZTE)

• Local Government (ARC)

• Universities (Auckland)

• Industrial Research Ltd

• Industry Assoc (MIA)

• Export Group (NZ Marine)

• Training Org (BITO)

Refit & Maintenance

Marine Events

Boating Consumables & Other Services

Marinas

Downstream

Yacht Management

Refit & Maintenance

Marine Events

Boating Consumables & Other Services

Marinas

Downstream

Yacht Management

Upstream

Sails & Rigging

Electronics

Interiors

Masts & Winches

Other Services (e.g. Finance)

Composites

Other Equipment

Design

Upstream

Sails & Rigging

Electronics

Interiors

Masts & Winches

Other Services (e.g. Finance)

Composites

Other Equipment

Design

Microeconomic Competiveness:The Diamond Framework

Context for Firm Strategy and

Rivalry

Factor (Input) Conditions

Demand Conditions

Related and Supporting Industries

Microeconomic Competiveness:The Diamond Framework

Microeconomic Competiveness:The Diamond Framework

Context for Firm Strategy and

Rivalry

Factor (Input) Conditions

Demand Conditions

Related and Supporting Industries

Context for Firm Strategy and

Rivalry

Factor (Input) Conditions

Demand Conditions

Related and Supporting Industries

-0.5 -0.3 -0.1 0.1 0.3 Change in Nation’s Share Of Exports (%, 1997-2007)

Processed Food (Dairy)

Agri Product (Meat)

Tourism

Fishing

FurnitureForestry

Marine(1)

Communications

2.5

2.0

1.5

0.5

1995• Team New

Zealand win America’s Cup

2000• America’s Cup held in

Auckland, Team New Zealand successfully defend title

2003• Auckland again hosts

America’s Cup. Team New Zealand loses to Alinghi, skippered by a New Zealander

1984• NZ wins 2 gold and

1 bronze medal at Los Angeles Olympics – first medals for 20 years

1987 • NZ launches 1st

Americas Cup bid when event is hosted in Australia after Australia’s win in ‘83

1990, 1993• NZ wins

Whitbread Round the World race (and wins again in 1993)

Competitive Sailing Milestones

Cluster development

1992• Alloy Yachts

wins New Zealand’s first Show Boats International Award for Super Yachts

1991• Southern

Spars produce their first carbon fiber spar

2003• 8 out of 10

America’s Cup syndicates use Southern Spars rigs

1986 • High Modulus

instrumental in developing composites for New Zealand’s first America’s Cup challenge

2000• Millennium

Cup launched in Auckland to showcase New Zealand Super Yachts

1979• High

Modulus founded as surfboard mnfcturer

1987• Alloy

Yachts founded

2006• Southern

Spars merge with largest NZ competitor – Marten Spars

1996• MIA (est 1965)

takes out office space and employs 1st professional officers

1994• Inaugural ‘Yacht

Vision’ run by NZ Marine

Industry Milestones

Backup

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 & Enterprise

Auckland Regional Council

Institutions For Collaboration Government Institutions

• 500+ members; 50% of industry• Fees: $400-$1200 per firm• Data collection on industry• Newsletter on industry• Fosters collaboration at sub-

cluster (e.g. CPC standards scheme for trailer boats)

• Provides ‘business’ workshops

• Represents Exporters• 100 members; 85% of exports• Runs “Yacht vision”: 1st int

conference for yacht designers• Assists at global boat shows,

other exporter opportunities (e.g. Millennium Cup)

• Administers Marine Apprenticeship scheme (600 currently, ~100 graduates p.a.)

• 75% government funded

• Local government authority• Regional development strategy• Infrastructure/zoning issues• Two cluster specific initiatives(2)

• Support for NZ Exporters• Global network of offices• Formerly responsible for

overseeing NZ cluster policy

Auckland University

Industrial Research

Ltd

Closelylinked(1)

• Yacht Research Unit• Centre for Advanced Composite

Materials (CACM)

• Government funded R&D entity• collaboration with Marine firms

(e.g. in composites)

Backup

35

Detailed analysis of major segments

# of firms

% of boat building activity (by value)

Description

Employees (FTEs)

Trailer Boats Yachts & launches

Superyachts / Racing yachts

Equipment & components

Refit / services

3m-8.5m in length. Powered by outboard motors, sold with trailer

70

616

% of domestic production exported

13%

5%

Major trends

• Emerged in 50s, family rec esp fishing

• Abolition of tariffs: importers gained share

• Virtually all outboard motors imported

Major players Ramco, Huntsman, Fyran, Sea Craft

8m-25m in length. Approx 20,000 in NZ, half of them in Auckland

65

776

11%

41%

• Since 2003, several manufacturers have closed or shifted focus to racing yachts or trailer boats

Vaudrey Miller

% of domestic demand imported 22% 66%

>25m in length. Racing yachts are used for regattas

9

1,288

20%

96%

• NZ a top-10 global player

• 1.6% global market share

• #3 in sailing superyachts

Alloy Yachts, Cookson

0%

Manufacturing of components, propulsion units, spars, sails, winches etc

NA

1,172

41%

48%

• Sector includes specialist design & project mgmt ops, as well as sales of kayaks and dinghies

Southern Spars, North Sails, High Modulus

19%

Major refits for superyachts and boats >15m

NA

NA

13%

39%

• Export sales driven by international cup events (e.g. America’s Cup)

Various

0%

Backup

36

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

NZ’s participation and success in the America’s Cup from the late 80’s onward put the spotlight on the country’s strong competitive yachting talent

Key Moments in NZ Sailing

Sparc* Funding for High-Performance Sport

2008 2009

• Volvo Ocean Race (formerly Whitbread Round The World)

• Winners: 1990, 1993

• Americas Cup

• 1st competed in 1987 (following Australia’s victory in 1983)

• Winners: 1995, 1998

• Runners up: 2003, 2007

(1) Sport and Recreation New Zealand (Government funded organization directed at sport)

Backup

37

Factor conditions: spotlight on the skills shortageC

om

po

site

Yac

hts

Wo

od

en Y

ach

ts

All

oy

Yac

hts

Tra

iler

Bo

ats

Co

mm

erci

al S

teel

Bo

ats

Sp

ars/

Rig

gin

g

Cab

inet

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Pai

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En

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Skills Shortages, By Type (Nov ’08)

Boat Building & Repair

Unskilled

Skilled

If industry grows as predicted shortages will continue to hamper progress… current crisis reduces ST urgency but relief appears only temporary

52

2016

5 5

14

53

2521 19

The Problem In Context…

• Industry-wide employment: 10,000 FTEs• Total shortfall:

• July ’08: 518 FTEs (5% of industry)• Nov ’08: 238 FTEs (2% of industry)

• Hurting the cluster’s strong exporters:

Causes(?)• Only 100 apprentices graduating p.a.• Polytechnic programs have shrunk• 25% of graduates leave NZ immediately

8

0

10

20

30

Shortages By Firm

~10 firms with > 10 staff shortfall

Source: BITO

Backup

Cluster contains a number of world-class firms… with a long-tail

Alloy High ModulusSouthern Spars

Leading Firms In The Marine Cluster – Selected Examples

North Sails

Robinsons Marine Interiors Cookson

Superyachts Masts

Sails

Composites

Interiors Racing Yachts Trailer Boats

Ray Glass

Refit

Orams

??

??

Extreme fragmentation outside of leading firms… ~80% of firms within the cluster have 4 employees or fewer

Logos…

Strengths we observed: Marine cluster

Macro

Micro

Open economy, flexible labour policy• Resources focused on genuinely competitive niches,

firms can more easily hire and fire as needed

Competitive sailing expertise and success• Brand champions for NZ

Local demand conditions• Boat ownership supports cluster’s critical mass even if

product is imported and high-end demand is absent

A few world-class firms• Alloy Yachts, Southern Spars and a few other

world-class firms (superyachts, equip/components)

Pockets of real innovation

Skilled (and relatively cheap) labour force

Core Strengths Of The Cluster

1

2

3

4

5

Opportunities

• Continued support for competitive sailing; leverage this for the cluster

• Actively seek out marine events

• Lift competitiveness of sectors that serve local demand; step-change in consolidation or cooperation

• Best practice sharing• Encourage more foreign leaders in

the industry to relocate to NZ, and local firms to grow international connections

• Coordinated effort to leverage these capabilities beyond marine e.g. wind farms, aerospace

• Bolster apprenticeship training schemes (#’s, quality, consistency)

6

Backup

Issues we observed: Marine cluster

Geographic isolation

Industry fragmentation• Sub-scale manufacturing, capital access, lack of

business skills, R&D, vulnerability to business cycle

Limited to custom boats, low volume production

Skills shortages, skills retention• Management and commercial skills particularly lacking

Underdeveloped/shallow supporting industries• Capital markets

Infrastructure uncertainties• 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

• Satellite sales offices; web tech• Offshore manufacturing • Links with tourism

• More aggressive collaboration push among smaller firms; expand scope

• Consolidation

• Supplement custom with production manufacturing; e.g. utilize superyacht capabilities to enter yachts/launches market

• Step-change in apprenticeship #’s• ‘A call home’ to NZers overseas

• Dialogue with local banks• Seek FDI from foreign clusters

• Develop plan beyond Hobsonville; strong leadership and clear vision

Potential Solutions

3

Backup