Download - Ben Mayson (BCG) on Cluster Competitiveness
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
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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
hile
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
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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
Mak
ing
Ele
ctri
cal/
tro
nic
Pai
nti
ng
/Fin
ish
ing
En
gin
eers
Oth
er
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