IN-Business June/July 2011

INSIGHT : TO RUSSIA WITH LOVE – OUR NEXT FREE TRADE AGREEMENT

I N T E R N AT I O N A L E D G E

UNSEEN UNHEARD

JULIA HARTLEY MOORE ON BUSINESS

LECH WALESA

REVOLUTION, VODKA AND BUSINESS SOLIDARITY

SIR ROBERT JONES CHRISTCHURCH IS OUR HIROSHIMA

TIM PANKHURST ON MEDIA SILENCE

JUNE | JULY 2011

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SECRETS AND LIES BEHIND COLLARS AND TIES

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BUSINESS CONFIDENTIAL 10

Unheard of

From horse handler to Harrods: businesswoman and private investigator Julia Hartley Moore talks career progression.

By Katie Foley

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Money’s too tight to mention The secrets and lies behind collars and ties. IN-Business looks at white collar crime in New Zealand.

By Nina Fowler

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Opportunity knocks

The Christchurch earthquake may give smaller cities a greater share of the pie – but how best to proceed?

By Maria Scott

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Business souls

Ex-ambassador Stuart Prior has seen Russia go from being a land of “vodka, oligarchs and mafia” to a commercial opportunity worthy of free trade agreements.

By Frances Cook

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The sound of money Tim Collins talked free trade and corruption with diplomats academics, businessmen and students in Moscow.

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A conversation with Lech Walesa Poland’s celebrated revolutionary leader discusses globalisation, China and New Zealand vodka.

SIMON MALPAS, CO FOUNDER OF AUCKLAND-BASED TELEMETRY RESEARCH, IS MAKING WAVES IN THE GLOBAL ANIMAL RESEARCH MARKET.

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Strategic intimacy Telemetry Research isn’t fazed by duopoly competition with a US-based giant.

By Lee Suckling

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INcite: Opinions 30 Stuart Prior

looks for ambition in Russia

54 Sir Robert Jones

wants a strong ruler

56 Ganesh Nana

takes the long view

INAsia

INRussia

17 NZ in the house of BRICS

36 The profits of perestroika

Other countries are keeping a watchful eye on New Zealand’s trade inroads with BRIC nations.

By Katie Foley

58 Pattrick Smellie

New Zealand companies are capitalising on opportunities.

By Chris Wilson

40 The Russians are coming

Putting New Zealand on the map in the leadup to the Rugby World Cup.

By Chris Wilson

IN-BUSINESS IN ASIA ACKNOWLEDGES THE SUPPORT OF HSBC

42 Moscow outlook

Marcus Scoliège describes a country of contrasts.

INprofile

IN-BUSINESS IN RUSSIA ACKNOWLEDGES THE SUPPORT OF NZTE

12 The third man

Top sleuth Ron McQuilter has some hard advice for fraud-hit chief executives.

By Andrea O’Neil

Better 44 Introducing Better 46 Courting contracts

INfographic

How Blue Star’s New Zealand division netted a $10m per year government contract.

By Nina Fowler

34 Trade routes

Infovision presents an infographic of New Zealand’s current and proposed free trade agreements.

50 Gut instinct

A Lower Hutt medical startup is turning offal into a valuable export product.

By Andrea O’Neil

insight: To Russia wiTh love – ouR nexT fRee TRade agReemenT

i n t e r n at i o n a l e d g e

unseen unheard

julia haRTley mooRe on business

lech walesa

RevoluTion, vodka and business solidaRiTy

sir robert jones chRisTchuRch is ouR hiRoshima

tim pankhurst on media silence

secrets and lies behind collars and ties

JUNE | JULY 2011

$7.80

www.in-business.co.nz

Cover photograph by Isaac de Reus.

credit MANAGING EDITOR Katie Foley ASSISTANT EDITORS Nina Fowler Andrea O’Neil JOURNALISTS Frances Cook Maria Scott Lee Suckling Chris Wilson CONTRIBUTORS THIS EDITION Stuart Prior Marcus Scoliège

LAYOUT Richard Thomson Jim Scott DESIGNER/MEDIA COORDINATOR Rebecca Walthall ADVERTISING Tim Collins PHOTOGRAPHY Kathleen Collins Isaac de Reus Sabrina Hyde Ron Lindsay PROOFREADING Sue Traveller

names his price

60 Tim Pankhurst

plays the name suppression game

62 Bruce Sheppard

is on the side of the good guys

Departments 6

INdispensable

6

The INquizitor

7

INtray

7

INfront

Contributors to IN-Business A cheeky quiz

Letters to the editor Black and white and read all over

64 INtech

Benedict Wee considers privacy breaches, hacking and hot software solutions

70 INcredulous

The last word in business from Michele A’Court

WEBSITE Crescendo Multimedia SUBSCRIPTIONS subscribe@in-business.co.nz PRINTING Format: Innovation in print CONTACT US IN-Business Media Ltd L1, 50 Manners St, Wellington PO Box 11808 Manners St 6142 DDI: 04 470 7649 PUBLISHER Tim Collins

The contents of IN-Business magazine are copyright and may not be reproduced in any form without the permission of the publisher ISSN: 1179-4860 WWW.IN-BUSINESS.CO.NZ

Published sustainably with support from

2011 JUNE|JULY

5

dispensable CONTRIBUTORS TO IN-BUSINESS

7 Did Damien O’Connor apologise to his party’s homosexual faction?

6 What is the definition of a marriage made simultaneously in heaven and hell?

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6 A cohabitation between professional gloomsters Bernard Hickey and Sue Bradford.

5 Which organisation is contracted to supply the Sunday-Star Times’ front page stories?

10 What is Don Brash’s unique political talent?

7 Yes, he bent over backwards to atone, threw a party for them and invited their members in.

4 What religion does Terry Serepisos practise?

9 Why does a giraffe have a long neck?

8 Pillow-fighting is more intellectual.

3 Does the Treaty of Waitangi require that all Maori should be provided with a full cooked breakfast in bed, paid for and delivered by the State?

8 What is the main difference between rugby league and pillow-fighting?

9 Because it’s in its genes.

10 To always start at the top and work his way downwards.

2 What is the most innovative contribution to the English language ever made by a New Zealander?

and regulars Infovision Michele A’Court Sir Robert Jones Ganesh Nana Tim Pankhurst Bruce Sheppard Pattrick Smellie Benedict Wee

ANSWERS 1 The inflicting, on a nation already reeling from the recession and the leaky homes, Pike River and first Christchurch earthquake disaster, of the greatest one-man assault in history on the English language by the Mayor of Greymouth.

1 What was the darkest event to occur in New Zealand in 2010?

Recently completing her Masters in Media Studies at Victoria University, FRANCES COOK currently studies journalism at Massey University. After realising she could no longer deny her geek status, she has now started to pursue business journalism. When not studying or writing for IN-Business she cuddles up to her adorably overweight cat and spends too much time on Twitter.

2 “A gaggle of gays” by MP Damien O’Connor, who for this outstanding effort will be awarded an Honorary Doctorate of Philosophy from Massey University later this year.

A born and bred Cantabrian, LEE SUCKLING is one of New Zealand’s most widely published young writers. A 2006 graduate from the University of Canterbury, Lee spent 18 months in product marketing and a year as a website editor before finding his feet as a freelance writer, a role that has taken him to 10 countries and seen his work published in titles such as Harper’s Bazaar and the Sydney Morning Herald. Away from his desk, Lee continues to feed his travel bug to enjoy the architecture, design and history of the world around him.

3 Absolutely. It couldn’t be clearer. Ask Hone Harawira.

INquizitor

You’ll often find Aucklandbased photographer ISAAC DE REUS finessing the minute details of a bride’s dress and searching for that perfect wedding image. Actually, sitting behind a computer screen, editing the images is a more likely habitat. So working on IN-Business assignments is something he describes as a “refreshing change” with such a variety of subjects and situations. Outside of photography, Isaac loves to surf – and can often be found in the middle of winter searching out the elusive storm swells.

4 A deep faith in Indian fakirism.

5 The Victoria University Creative Writing Department.

NINA FOWLER joined the IN-Business team this year. From Katikati in the western Bay of Plenty, via a year in South America, she has spent the last five years in Wellington working (including a nine-month stint in parliament’s press gallery) and completing a degree in politics, international relations and media studies at Victoria University. Her pursuits outside writing include music, hockey, travel and mastering the art of a good tortilla soup.

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Black and white and read all over The accepted view is that Russia is synonymous with corruption. In this issue of IN-Business, we find it’s not quite that simple – and that Russia is not the only country which needs to address the problem.

Katie Foley

editor

email> katief@in-business.co.nz

THERE IS NO GREY IN RUSSIA, ONLY BLACK and white. White snow, white fur, white palaces. Black forests, black sea, black coal.

It was another black icon of Russia, caviar, that last year brought the world’s attention to the country’s greatest contrast of all, that between grim poverty and opulent wealth.

It was a story that caused shock waves in the world media and great embarrassment to the Kremlin. Last June, Russia’s Esquire magazine revealed corruption had inflated the cost of a 50 kilometre road being built for the 2014 Winter Olympics to NZ$10 billion. For the same price, the magazine calculated, the road could have been paved a centimetre thick in top-shelf Beluga caviar, which costs $50 for a 30 gram jar.

So there really is grey in Russia: grey area, grey smoke and mirrors – business that comes in many shades of grey.

We’re told that, if successful, our free trade agreement negotiations with Russia and Customs Union partners Kazakhstan and Belarus should be concluded by 2012, just in time for a nice grand announcement at next year’s APEC meeting to be held in Vladivostok.

Our ambassador to Russia Ian Hill told IN-Business publisher Tim Collins in

IPHONE WINNER

We hope you enjoy this fourteenth edition of IN-Business, the magazine that brings you an international business edge.

IN-Business is also published in eZine format: check out www.in-business.co.nz/ezine/ jun-jul11.

IN-Business can also be viewed on iPhone. Reader Ben Price wins last month’s iPhone competition with his feedback on our last issue.

Moscow recently that New Zealanders need to get used to higher levels of corruption if we wish to trade with emerging economies.

And while this is undoubtedly true, it is not just emerging economies we should be pointing fingers at.

UK anti-bribery legislation effective from July this year will take significant steps to hold companies from around the world accountable for taking part in, facilitating, or even ignoring, bribery in business.

And to be legally liable, the Bribery Act 2010 doesn’t require companies or individuals to be based in the UK, or even for the offending to occur there.

If companies are UK incorporated, have entered into a partnership formed under UK law, are involved in a joint venture with a UK company or undertake any business in the region they could be liable.

Individuals could be held accountable if they undertake any business in the UK, are UK citizens or are ordinarily resident anywhere in the UK. It’s tough new legislation on the back of calls from the international community for a stronger international stance against bribery and corruption.

Perhaps moves in this direction could be our silver lining?

To the Editor

I was recently lucky enough to pick up the most recent edition of IN-Business in a café whilst waiting for a meeting. I couldn’t put this particular issue down. I am a keen sportsman myself and an aspiring financial consultant, so this issue was right down my alley.

I especially enjoyed the article “A tough act to follow” by Maria Scott. I see feelgood articles about ex-sportsmen who have made it all the time, so it was a refreshing breath of fresh air to read an article about sportsmen who have failed in the business world. It’s adding something of a sense of humility to all the stories of businessmen who have made it.

It is not often that you pick up a magazine to flick through and end up reading every article.

Kind regards, Ben Price

2011 JUNE|JULY

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profile WHO’S WHO IN THE WORLD OF BUSINESS

Strategic intimacy LEE SUCKLING talks strategy with Telemetry Research, one of New Zealand’s fastest-growing companies. In the beginning, staff would symbolically mark every product sale with a pin placed in a map of the world.

BUT EVENTUALLY, AS SALES AND company growth ballooned, the efficiency of the map system was somewhat diminished: certain countries started getting a bit crowded – the US in particular – and then staff started swiping the pins.

Telemetry Research’s small team of 12 staff, its compact offices at the University of Auckland and its academic beginnings contrast with what it has achieved since it first started doing business in 2004.

The company has had sales throughout the US, Europe, Australia, Asia and South America, and recorded a revenue increase of 403 per cent from 2008 to 2010.

The global market for telemetry technology in animal research – wireless devices implanted into lab animals to monitor vital stats like blood pressure and brain signals for research – is effectively a two-horse race between Auckland-based Telemetry Research and Minnesotabased Data Sciences International (DSI).

DSI is over eight times its Kiwi competitor’s size, over 12,000 kilometres away and has been in business for an extra 20 years.

Unfazed, Telemetry Research co-founder Simon Malpas says innovation in the form of a key technological point of difference has allowed his company to not just enter the global market, but to help expand it.

That key point of difference is the fact that their products’ batteries can be recharged while still inside the animal by placing it on a re-charging pad. DSI’s offerings use a non-rechargeable battery which must be sent away for refurbishment.

“In cutting that step out, we’re reducing both the cost and time of undertaking research,” Malpas says.

The technology is used in a variety of research areas, including cardiovascular disease and heart failure.

Because telemetry technology is wireless it eliminates the use of

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tethers in animals, facilitating stressfree, long-term monitoring.

Explaining the company’s growth and its stability within a duopoly, Malpas emphasises the importance of Telemetry Research’s international partnerships with data acquisitions systems provider ADInstruments and medical technology company Millar Instruments, both of which are renowned in the life sciences industry and have the resources of 120-150 staff each.

Owing to these joint efforts and partners, Telemetry Research has sold to over 30 countries. Malpas estimates his company currently holds “less than 5 per cent” of the market share but that is growing every year.

“We don’t differentiate on price – there’s no point in a two-player market,” he says.

“We differentiate ourselves by offering a technologically different product and committed customer support. Big companies like our competitor often have to ‘tell’ a customer what its product is; the customer is presented with a final piece of technology and left to take it or leave it.

“With a smaller company like ours, however, we’re able to work alongside the customer to understand their problems, and develop a solution with them.”

It is this smart partnering, and readiness to “get closer to the customer offshore, get that customer intimacy and empathy for customers” that national head of the Deloitte Fast 50 programme Matt McKendry says has helped Telemetry Research rank in their list of New Zealand’s 50 fastest growing companies for the last two years running.

Telemetry Research was also ranked in both 2009 and 2010 as one of the Deloitte Asia Pacific Technology Fast 500 companies.

“To be really close to the customer,

that whole customer intimacy, that’s almost the point where you can reduce the risk of innovation, because you are, dare I say it, co-creating and then you can go, ‘what are the other iterations?’”

McKendry says.

At which point he says companies should take what they know and “run like the clappers”.

Sometimes innovation comes in the form of great leaps forward.

More often though, it is incremental improvement.

“Like many businesses, we began with a very niche product and went on to realise that the experience it gave could be applied outside of its initial use,” Malpas says.

The initial concept grew when he enlisted the help of colleague David Budgett to help design a telemetry system for his research because what he wanted wasn’t available.

Discovering the next commercial iteration of their idea involves progression between two kingdoms: animal and human.

“While our products have been animal-specific in their settings, our concepts expand for human monitoring purposes as well,” Malpas says.

“We’re currently working with other companies to expand this – but as you can imagine, human research involves a lot more protocol than animal research.”

The most important thing to lead a start-up to success, as Malpas and partners have with Telemetry Research, is to invest in research and development and “good people” early on, for the benefits they will yield later.

“We don’t come from a business or finance background, we come from a technology background, and we know the worst thing to do would be to constrain our staff. They need to be able to share and develop ideas at many different levels – that’s when technology can become commercially feasible.” IN

TELEMETRY RESEARCH’S SIMON MALPAS ISN’T FAZED BY A US-BASED COMPETITOR EIGHT TIMES HIS COMPANY’S SIZE. PHOTOGRAPH BY ISAAC DE REUS

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profile WHO’S WHO IN THE WORLD OF BUSINESS

Unheard of There’s a lot to be said for being unseen, unknown and unheard of when you’re a private investigator, but sometimes it’s just not that great for business. Julia Hartley Moore’s high profile work has led to success investigating extortion, money laundering, kidnapping, fraud and infidelity. She spoke to KATIE FOLEY about her career.

PHOTOGRAPH BY ISAAC DE REUS

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SHE’S A VERY WELL-KNOWN FACE IN a very private industry, but Julia Hartley Moore’s 15 years as a private investigator is only her most recent incarnation. At the age of 16 she was mother to three kids under the age of one. In her 20s and married to a millionaire Waikato horse-stud owner, she, along with many of his friends and family, lost everything after money they put into his finance company was poured into his farm instead of invested.

In her 30s she worked as a “groom” – keeping jumpy young thoroughbred horses calm on the 13-hour flight from Auckland to Hong Kong, before ending up working for Mohamed Al-Fayed at Harrods of London, where she blew the whistle on a multi-million pound staff theft ring while working on the perfume counter.

Back in New Zealand in 1996, aged 42 and wondering how on earth she was going to make a buck, she decided to set up her own firm after a little extra motivation from none other than Oprah. While watching a show about turning passion into a successful home business, she decided “well, I think I will”.

At age 18, she had been turned away from the New Zealand Police for being “too feminine”, but had always had good instincts. And after the experience in London, Harrods’ head of security told her she’d make a fine private investigator. So “Arbeth and Co” was started with just a telephone and an ad in the Yellow Pages. She runs the business discreetly from her Auckland-fringe home with the help of “a very good accountant”, deliberately shunning

the big flash offices, big signage and the fleet of leased cars which was, and still is, so appealing to others.

And therein lies the contrast between keeping a low profile and having a well-known face, but it’s this combination that’s kept her in business. She’s seen many private investigation firms come and go.

“You’ve only got to look at the yellow pages now, and see what the advertising is like for us compared to when I started when every other cop had a full-page ad [saying] ’28 years ex police’, ’25 years ex police’ – big massive ads, and now how different it is and how small it’s got and yet I still tick along very nicely.”

Her high media profile, including several books and appearances on Sunday, 20/20, Fair Go, Good Morning and Radio New Zealand, means sacrificing anonymity in an industry where most prefer to remain anonymous. But that allowed her to give up surveillance work – which tends to swing between wildly exciting and excruciatingly boring – to focus on the side of the business she enjoys the most.

The good surprises her every now and then, but it’s the bad and the ugly that keep her in business. “You’ve got fraudsters, like betrayers,” she says. “They will always be there. A lot of people that do this kind of thing, it is just the way they are – they’re opportunists, they’re always looking for an easy way.”

Tracking down and dealing with schemers and scammers takes, she says, a certain kind of person. “To do this job you have to be the eternal optimist.” IN

JULIA HARTLEY MOORE HAS INVESTIGATED BOTH NEW ZEALAND AND INTERNATIONAL SCHEMERS AND SCAMMERS FOR 15 YEARS.

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profile WHO’S WHO IN THE WORLD OF BUSINESS

The third man What good is an honest sleuth if he can’t balance the books? New Zealand private investigators are remarkably incorrupt, but sorely lacking in business nous, says top PI Ron McQuilter.

BY ANDREA O’NEIL PHOTOGRAPH BY ISAAC DE REUS

SHERLOCK HOLMES. HERCULE POIROT. Taggart, Barnaby, Morse. The British love for all things sleuth is reflected in their films, television series and novels. New Zealand, however, lacks a cultural fixation on professional and amateur detectives. We don’t make films starring hard-boiled private investigators, and the few detectives to grace our TV channels are invariably foreign.

Where does the Kiwi indifference come from, when a quick glance at the yellow pages reveals the country is full of detectives? One of our top PIs, Ron McQuilter, has a theory.

We aren’t fascinated with sleuths because, unlike Britain, we haven’t experienced a history of rogue PI behaviour. “In New Zealand, private investigators are definitely different to anywhere else in the world,” McQuilter says. “When you go to court in New Zealand and you say you’re a private investigator, people tend to think that you’re a credible person. Overseas when you say you’re a private investigator, people still look at you [warily].”

McQuilter should know. He began his career in his native Glasgow as a policeman, but directing traffic was a far cry from his dreams of being an investigator. He jumped at the chance to apprentice himself to a local PI firm, where he witnessed what he calls “cowboy” tactics from his peers. “It was the wild west,” he says.

“It was a setup. You would get guys to get divorces, you would be kicking in doors and taking photographs, and doing all sorts of things. It was horrible.”

It wasn’t ethics, however, but rather love that brought McQuilter to New Zealand in 1983. He booked a two-week holiday to visit his Kiwi girlfriend – now wife – and never

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went home. Within a month he was working for Armourguard, stunning the firm by completing two weeks’ worth of work in two days. “Just because people would talk to me,” he says. “You ask them questions, and they’ll answer you. Whereas in Britain if you ask somebody a question they won’t want to answer you, or they’ll shut a door in your face, or worse.”

But working hard is typical immigrant behaviour, McQuilter says. Prejudice against his “funny accent” and not having a strong personal network only made him strive harder. “I managed to latch a couple of clients who supported me really really well. And I gave them great service.” It wasn’t long before he set up his own business, The Investigation Bureau, renamed Paragon in 2004. The business quickly emerged as an industry leader, handling fraud cases worth millions of dollars and securing top corporate and government contracts. McQuilter has become the public face of private investigation in New Zealand, chairing the New Zealand Institute of Professional Investigators and appearing regularly in the media and on television’s Missing Pieces.

Three cases stand out in McQuilter’s career. He investigated abuse claims made by former Lake Alice psychiatric patients. He nabbed a Lord of the Rings employee trying to sell the film online before its release.

And more recently, he solved a cold case concerning the disappearance in 2003 of UK-based New Zealander Lee Sheppard. Sheppard’s family, frustrated the case remained unsolved by British police, hired McQuilter, who used evidence from Sheppard’s coworkers to prove he

had been killed by machinery at his workplace.

Corporate crime makes up a large percentage of McQuilter’s work, and is as serious a problem here as back in the UK, he says. “Our dollar’s worth half the British pound, I know that, but it’s still [costing us] millions, just millions and millions.”

His advice to company managers is to call in professional investigators as soon as a problem is identified.

Businesses which try to deal with the problem internally can destroy evidence and give fraudsters time to escape, he says. “They’ll try and do it themselves, and all of a sudden it’s like ‘oh shit, we need help’.”

Anticipating fraud and creating a strategy to deal with the inevitable can save a chief executive from having to take the blame when money disappears. “I dealt with one which was a $500,000 theft in a company, and the CEO fell on his sword, and resigned,” McQuilter says. “The CEO didn’t know about it, but he didn’t know how to deal with it. He knew if he told the shareholders he’d lose his job.”

Most PI businesses do not succeed like Paragon has. Investigators, 99 per cent of them former cops, just don’t have the business know-how to strike out on their own, McQuilter says. “The police don’t teach you to run a business.”

He recently employed a full-time business mentor to help him expand into security work and improve Paragon’s online presence. “I realised that even though I’d been doing it a long time, I still need business help,” he says. “Probably I’m one of the half a dozen who want to be cops, or private investigators, but we also want to be business people. And that’s kind of the formula for success.” IN

CALLING IN PROFESSIONAL INVESTIGATORS EARLY CAN SAVE FRAUD-HIT CHIEF EXECUTIVES FROM FALLING ON THEIR SWORDS, RON MCQUILTER SAYS.

2011 JUNE|JULY

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MONEY’S TOO TIGHT TO MENTION

Y

ou’ve got it all: family, friends, a decent job and a house in Remuera or Epsom. You send your children to private schools; you have a taste for European cars and fine wine. Then you land an unlucky roll of the dice – a redundancy, perhaps, or some unexpected bills. You make a bad investment or two; the recession plunges your business into the red. As your debts grow, so does the temptation to break the rules – reroute an invoice or distort a financial statement, just enough to get a new line of credit. You decide to risk it just this once – and maybe once or twice more if you don’t get caught.

“Often with your white collar criminal, they don’t believe – at least initially – that what they’ve done is wrong,” the Serious Fraud Office’s fraud and corruption general manager Nick Paterson says. “They believe themselves to be fundamentally honest individuals who got themselves into a ‘spot’ which they didn’t really want to be in.”

As the economy tightens, so will the chances that people will find themselves in just such tight spots. But is it fair to say that fraud in general in New Zealand is on the rise? “Probably,” Paterson says, though it’s difficult to know whether the rise is actually due to an increased awareness of fraud and better efforts to detect it. “Financial pressures have given people motive for seeking more money, whether honestly or dishonestly.”

Deloitte recovery and forensics partner Barry Jordan agrees. He points to an upsurge in complex fraud in the $100,000 to million dollar range – “the SME of the fraud sector” – over the last year and suggests this can be traced back to the impact of the global financial crisis 12 to 18 months ago. As cash flows tightened, he says, people were probably stealing in order to maintain their accustomed standards of living – but are only now being caught.

Jordan says there’s a perception among some white-collar criminals – however false – that fraud is a victimless crime. “No-one physically gets hurt; no-one’s going to chase you down the street with flashing blue lights and guys with guns,” he says.

Investors who lost collective millions from collapsed finance companies where evidence of fraud has been found would disagree with the “victimless crime

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assumption” – as would National Fire & Security director Steven Mahoney, left with a $1 million debt after his employee and former neighbour Martyn Scott was jailed for stealing $1.4m from his family business. “I should be able to repay that amount [$1m] in 19 years, so I should be able to retire at 73,” Mahoney told the NZ Herald at Scott’s sentencing last January. “What he stole is my children’s inheritance and our retirement savings. It leaves a very bitter taste in my mouth.”

As well as cold hard debt, staff fraud may leave an organisation with unwelcome media attention, particularly if they operate in the financial or public sector.

ASB Bank hit headlines last year after former employee Stephen Versalko was jailed for running what was effectively a $17.7m Ponzi scheme using clients’ money.

An ASB spokeswoman declined to speak to IN-Business about the case, as did Versalko himself.

More willing to speak was Ministry of Social Development chief executive Peter Hughes. In June 2003, he faced a public sector boss’ worst nightmare: Lisa Clement, a ministry financial administrator, appeared to have stolen what turned out to be nearly $2m of taxpayer funds.

His first step was to set up a “war room” in his boardroom. For the next few weeks, officials led by Hughes and his deputies literally worked through the night to investigate the offending. During the first week, the media picked up the story. “They just had a small bit of it,” Hughes says, “but we made a decision to put everything that we knew out.”

“One of the things that happens, in government departments in particular, people get sick to death of us ducking and diving and spinning stuff and on this, because it goes to the heart of the integrity of the

TIGHT ECONOMIC TIMES CALL FOR DESPERATE MEASURES – BOTH HONEST AND DISHONEST. IN-BUSINESS ASKS IF FRAUD IN NEW ZEALAND IS ON THE RISE AND, IF SO, WHAT CAN BE DONE ABOUT IT.

BY NINA FOWLER

organisation, it’s really important to be upfront and open and accountable.”

As media coverage ballooned, the full picture gradually emerged. Creating four business entities and using multiple identities, Clement – a 36-year-old married mother of two from Wainuiomata – had filed false invoices, forged signatures and manipulated budgets, forecasts and reports to defraud the ministry of $1.9m over nearly three years. By the time she was caught, just over a million of that had been spent, including $275,000 on cars, $102,000 on travel, $60,000 on jewellery and $86,500 given to friends and family.

“It was in a different league altogether to what we would normally see,” Hughes says. “It was very sophisticated and all internally consistent and you know, gone to great lengths. This is why people are quite shocked, because usually these are very valuable employees.

They’re good at their jobs; they know what they’re doing.

They’re not the sort of people you suspect.”

There are several basic steps that organisations can take to reduce their exposure to fraud. “It sounds a wee bit like Alcoholics Anonymous,” the SFO’s Nick Paterson says – but the first step is to “acknowledge that there is a problem”.

PHOTOGRAPH BY ISAAC DE REUS

How common is fraud in New Zealand?

Of the 85 New Zealand organisations in the last PricewaterhouseCoopers global economic crime survey, 42 per cent said they experienced some form of economic crime in the year to November 2009. Types of reported crime included asset misappropriation, financial statement fraud, bribery and corruption, IP infringement, money laundering and tax fraud.

The average cost of fraud to an organisation in that time was $491,596 – a figure skewed by one unlucky unnamed respondent who suffered over $7m worth of fraud that year.

More recently, a KPMG survey of fraud in Australia and New Zealand found that 53 per cent of respondents experienced at least one incident of fraud in the two years to February 2010.

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“

The zero tolerance policy was one of the turning points.

”

“

Often they believe themselves to be fundamentally honest individuals.

”

MINISTRY OF SOCIAL DEVELOPMENT CHIEF EXECUTIVE PETER HUGHES

SERIOUS FRAUD OFFICE FRAUD AND CORRUPTION GENERAL MANAGER NICK PATERSON

Second, check what internal controls are in place to prevent fraud, define who has responsibility for looking for fraud, and check what is actually being done to detect it. “If you run through those three or four things and do them well, it probably puts you – and I’ll make the numbers up at this point – but in the top 20-odd per cent of organisations in New Zealand,” Paterson says. “Most people aren’t doing them well enough.”

Since taking on his role, MSD’s Peter Hughes has made tackling staff fraud one of his top priorities – apparently with some success. Ministry data shows that staff fraud cases as a percentage of total staff numbers have declined relatively steadily since 2001, from 0.28 per cent in the 2001–02 financial year to 0.15 per cent in 2009–10.

“We probably have comparatively quite low levels of internal fraud,” Hughes says. “If we were running this as a commercial enterprise in the private sector, there’s a level at which we’d just say ‘well, we’re going to live with that because the cost of reducing it further is uneconomic’.” But when it comes to taxpayer funds, he says, any level is unacceptable.

Hughes says while good, tight internal controls are essential, there are limits to what can be achieved with internal controls and audit processes alone. “If you just focus on internal controls, it’s impossible to have an internal controlled environment tight enough to prevent all internal fraud, especially if somebody is IT-enabled, IT-literate and colluding with other people.

“You absolutely need to do all that but I’m strongly of the view that one of the primary ways of controlling for this is the cultural stuff that you do in your organisation.”

For Hughes, head of an organisation with 10,000

staff and responsible for handling about $21 billion of taxpayers’ money each year, this means a zero tolerance approach to fraud – every case will lead to dismissal, prosecution and all possible steps will be taken to recover funds. “The zero tolerance policy was one of the turning points,” he says. “From when we started to do that and socialise it within our organisation, our numbers started coming down.”

DELOITTE PARTNER BARRY JORDAN

“

It used to be like looking for a needle in a haystack. Now the haystack is as big as a large building.

”

T

hose spoken to by IN-Business agreed monitoring overseas trends and working closely with sister organisations offshore is an important part of fraud prevention, staff fraud or otherwise.

The SFO works with its counterparts in the UK, Australia, Singapore and Hong Kong to stay informed on trends and activities, and tools used to support investigations – whether that’s legal tools or electronic and IT tools, such as specialist forensic and data analysis software.

For Paterson, the only trend that might be worth a mention is new bribery and corruption legislation in the UK to make it easier to arrest and charge nationals who pay bribes to overseas officials. The SFO is largely unaware of similar bribes being paid by New Zealand nationals offshore but Paterson says he’d “be surprised if it wasn’t happening at all”.

While surveys currently carried out by the “big four” accounting firms are a good start, Paterson says the true levels of fraud in New Zealand remain unknown. “I’m not sure that there’s yet been a survey carried out in New Zealand specifically relating to fraud which has got a statistically relevant number of samples – or a statistically meaningful number of respondents.”

The SFO hopes to carry out a national fraud mapping exercise to put some solid numbers around the problem – which can then be used to drive targeted prevention in different industries.

Deloitte’s Barry Jordan says that, at a basic level, fraud in New Zealand will remain the same as it ever was.

“Fraud is fraud,” he says. Computers, internet banking and modern complicated accounting systems may have made it easier for fraudsters to hide their tracks in a mire of data but the types of perpetrators, motives and basic business of investigation remain the same.

“It used to be like looking for a needle in a haystack,” he says, “but the needle was red and it was a relatively small pile. Now the haystack is as big as a large building and the needle is no longer red.” The good news? “We’ve now got much better tools for looking for needles.” IN

Asia DOING BUSINESS IN ASIA

NZ ENTERS THE HOUSE OF BRICS IT’S BEEN A DECADE SINCE THE POPULARISATION OF THE TERM ‘BRIC’ TO DESCRIBE THOSE THAT WILL HOLD THE BALANCE OF ECONOMIC POWER IN THE LATTER PART OF THE 21ST CENTURY: BRAZIL, RUSSIA, INDIA AND CHINA. KATIE FOLEY LOOKS AT NEW ZEALAND’S TRADE STRATEGY WITH BRIC NATIONS AND WHAT COMING DECADES COULD LOOK LIKE WITH OUR FIRST BRIC TRADING PARTNER, CHINA, AND OUR LIKELY SECOND, RUSSIA. ILLUSTRATION BY REBECCA WALTHALL 2011 JUNE|JULY

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> BRICS In economics, BRICS is a grouping acronym that refers to member countries Brazil, Russia, India, China and South Africa.

The acronym (originally BRIC) was coined by Jim O’Neill in a 2001 paper entitled “Building Better Global Economic BRICs”.

BRICS has come into widespread use as a symbol of the shift in global economic power away from the developed G8 economies towards the developing world.

In April this year South Africa was admitted into the union and BRIC became BRICS. In a paper published in 2005, Mexico and South Korea were the only other countries comparable to the BRICs but as they were already members of the Organisation for Economic Co-operation and Development (OECD) their economies were excluded.

According to Rong Ying, a senior research fellow at China Institute of International Studies, the 2011 BRICS summit was a milestone which showed for the first time in modern history “that developing countries and those five emerging economies in particular, are thinking big and doing big”.

He said the BRICS demonstrate that the five economies are emerging as a defining force to shape the new international political and economic order.

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I

t’s true the worlds of trade and politics foster an innate, burning desire to create acronyms. The ‘group of eight’ major world economies, made up of France, Germany, Italy, Japan, the United Kingdom, United States, Canada and Russia are the ‘G8’.

In 2001, commentators would say ‘BRIC’ was better than using ‘emerging economies’ because after all the reform, after seeing the skylines of showcase cities like Sao Paulo, Moscow, Mumbai and Shanghai – bastions of light, energy and freshly-minted money – it seemed a bit condescending to still refer to them as ‘emerging’.

The next 11 coming up, the supposed inheritors of the BRIC mantle, are the ‘N11’: Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines, South Korea, Turkey and Vietnam.

The acronym BRIC was designed to give an exciting glimpse of where fortunes would be won, lost and built over coming decades. It was originally coined

by Goldman Sachs economist Jim O’Neill as a way of grouping high-growth countries together. Early this year the heads of state invited South Africa to join them, turning BRIC into BRICS. Where New Zealand fits into this crowd of acronyms is around our current trade positioning, and around our need to move from an internal-consumption model of growth towards an export-led one.

One country makes a notable presence across both the G8 and the BRICS: Russia. It is also the country looking set to soon be our second BRIC free trade partner.

For the BRICS countries, who have largely lifted themselves up in the last decades through export, there is now a need to move to a model where economic growth is fuelled by internal consumption – growing a middle class with purchasing power and disposable income.

The crossover would seem to be the very definition of trade, like an economist’s dream market: we need to sell and they need to buy, but instead we have an impasse on a grand scale.

The World Trade Organisation’s Doha Development Round, kicked off in 2001 to negotiate increased worldwide trade liberalisation, has been limping on, in circles, for a decade.

Senior lecturer in political science and international relations at Victoria University Marc Lanteigne says many of the BRICS countries have been trying, unsuccessfully, to act as intermediaries between the European Union, the US and the lesser developed countries to reach a consensus in the talks.

“You have China, to a lesser degree India, to a degree Brazil, trying to act as mediators back and forth, all of these countries are trying to put themselves as the gobetweens and in the end we haven’t seen much in the way of solid progress,” he says.

Because of the start of electoral cycles, particularly in the US, experts have called for December 2011 to be a deadline for the final make or break of the Doha gridlock.

Not many hold out hope of any success.

SENIOR LECTURER IN POLITICAL SCIENCE AND INTERNATIONAL RELATIONS AT VICTORIA UNIVERSITY MARC LANTEIGNE

In the absence of success in WTO trade liberalisation, what many countries will fall back on is the agreements they’ve already negotiated.

“New Zealand is aware of this,” Lanteigne says.

“New Zealand is certainly aware of the value of creating as many bilateral and multi-lateral [agreements] as possible.”

New Zealand’s regional, bilateral and multi-lateral trade agreements in force include with Australia, Hong Kong, Malaysia, Thailand and Singapore.

Agreements currently being negotiated include with Korea and the Gulf Co-operation Council (Bahrain, Oman, Kuwait, Saudi Arabia, the UAE and Qatar).

“ ”

It’s almost like training wheels.

In terms of agreements with the high-growth, highpotential BRICS’ countries, the last four years has seen fast movement.

The New Zealand-China free trade agreement (FTA) was signed in 2008. Many credit the huge resultant increase in trade with getting us through the recession.

In May 2011, Indian Minister of Commerce and Industry Anand Sharma said he hoped the New Zealand-India FTA would be in place by the first quarter of 2012.

Negotiations for the Russia-New Zealand FTA were announced in 2010 and are due to be completed late this year.

Lanteigne puts our popularity as a free trade partner down to our experience and the fact that our number of sectors open to preferential trade is small enough that the negotiation process is much shorter compared to European states.

We also have a history of jumping at opportunities to declare things first. In 1997, New Zealand was the first Western country to conclude a bilateral agreement with China on its accession to the WTO and, in 2004, the first developed country to recognise China as a market economy.

“Those other countries wanting a stronger economic role in that region will very likely see New Zealand as a very good way of getting started; it’s almost like training wheels,” Lanteigne says.

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“

We curry them some favour and as a consequence we hopefully get to be alongside them when they really start to grow rapidly.

”

T

he BRICS have a common story: inflation is a short-term risk across the board, and all of them have a certain amount of political risk, but the long-term fundamentals are there: increasing population, burgeoning consumer consumption, low debt relative to GDP, increasing household saving and increasing spend on infrastructure.

China and India are seen as the stronger two for manufacturing. Russia and Brazil have advantages in the supply of natural resources.

HSBC New Zealand Head of Wealth Glen Tonks says he sees the BRICS countries’ massive investment in infrastructure as particularly exciting for business, typified by construction to host world sporting events.

The BRICS together will spend in the region of US$8 trillion over the next 10 years on infrastructure, which is around about 80 per cent of the world’s infrastructure spend over that period, he says.

“That is a story we are seeing with developing nations hosting the world’s major sporting events – the Beijing Olympics, the Indian Commonwealths and the Russian winter games – it’s really interesting to see how the relative success of those events – what message that sends to the world.”

China is leading the BRICS with respect to moving rapidly from an export-invest model, to an internalconsumption model, with last year 70 per cent of China’s GDP growth coming from consumer consumption.

“Really these four nations that have 40 per cent of the world’s population are the future growth engines,” Tonks says. “[It] is a shift from West to East, and we see that accelerating out of the financial crisis. Particularly because of the hangover of debt in the developed world, so really it is game on the BRIC nations, really led by China.”

New Zealand’s long-term BRICS strategy has been accelerating in recent years. More than anything, our free trade agreement negotiations with China, India and Russia represent a fundamental shift towards a more long-term, strategic view of our place in the world and our friends in high-growth places.

Deputy chief executive of New Zealand Institute of Economic Research (NZIER) John Ballingall says the developments show a movement away from focusing on tariff reduction alone towards building long term political and economic relationships, as well as freeing

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up the way for enhanced services and investment trade, or put simply: “We curry them some favour and as a consequence we hopefully get to be alongside them when they really start to grow rapidly.”

Because of the focus on high-quality agreements, New Zealand now finds itself well-placed to act as a go-between country HSBC NEW ZEALAND HEAD OF with others who want to WEALTH GLEN TONKS trade with our free trade partners.

“We’ve got these great links to China and Russia and soon India and South-East Asia and lots of other countries,” he says. “[International companies can] invest in us and use us as a base from which to export or invest into these countries so it’s about getting this first-mover advantage really.”

In terms of the agreement we have most recently started to negotiate, Russia occupies a strategically important geographic position as a bridge between Europe and Asia, he says. “[Russia has] got the extremely fast-growing Asia Pacific region on one side and a much more muted growth profile of mainland Europe on the other side and therefore potentially Russia could play a really important role of acting as a link between the two.

“If we’re then tapped into that supply chain as well, then that allows us to try and benefit from the growth that might happen in that supply chain as well.”

“

They’ve been oscillating back and forth a bit towards greater free market, but there’s still a huge amount of state dominance in several sectors and still a lot of bureaucracy involved in setting up any kind of business in the country.

”

F

or grouping and vernacular purposes the BRICS are lumped together under one acronym – but they are also closely watching the success of each other’s state-guided economics, which has profound impacts for foreign businesses working under complex political, bureaucratic, financial and regulatory environments.

Perceptions of the Chinese model of state-guided economics, also called the ‘Beijing consensus’, have gone from abstract concept to “they may have something here” among other BRIC countries, Lanteigne says.

“Russia has definitely adapted that [Chinese] model, the state is now hyper present in so many parts of the country’s economy, especially in the energy sector.

“You’ve got the same thing in Brazil, you’ve got the same thing in South Africa, India; they’ve been oscillating back and forth a bit towards greater free market, but there’s still a huge amount of state dominance in several sectors and still a lot of bureaucracy involved in setting up any kind of business in the country.”

Lessons learnt from doing business within China’s state-guided economic sphere could help us do business in Russia, Lanteigne says, but the Sanlu scandal with Fonterra in 2008 will continue to be a cautionary tale.

A common communist government history in both China and Russia, countries where private property laws have traditionally been weak, will also have some relevance, as we’ve seen with New Zealand company Pacific Hovercraft NZ’s continuing fight over intellectual property with Chinese company Lianyungang Supreme Hovercraft.

“I think New Zealand’s experiences with China will

help [in Russia] quite a bit, but there’s still a lot of caution that’s needed.

When you’re in a country where the state has such a strong advisory role in so many sectors, including raw materials and agriculture and so forth, keeping that in mind is very important.”

With increased trade liberalisation brokered by the World Trade DEPUTY CHIEF EXECUTIVE OF NEW ZEALAND INSTITUTE OF Organisation looking ECONOMIC RESEARCH (NZIER) increasingly like a pipe JOHN BALLINGALL dream, a ‘hub and spoke’ model of free trade agreements with BRICS countries in particular looks set to be what takes New Zealand through.

And if there happens to be some progress in the Doha talks, New Zealand will be in a much stronger position, and much better informed, to play an active role in the negotiations.

“Because a lot of it is also about information,” Lanteigne says. “In order to successfully complete a deal you really have to understand the concerns of the state, what the other states wants out of various deals, their economic situation.

“Setting up bilateral [agreements] is in some cases not a perfect method, but it does create a lot of windows into what your potential trade partners are thinking.” IN

After 145 years, we’ve learned a thing or two about doing business in China We’ve been doing business in China since 1865, and today HSBC has the largest network of corporate customers among foreign banks in this region. With over 5,000 local staff working in over 100 offices across 30 cities and territories, we have the local knowledge and expertise you need to do business in this emerging market.

From opening RMB accounts for you in New Zealand to facilitating trade transactions, no bank knows China better than HSBC. To find out more, contact our Corporate Banking team on corporatebanking@hsbc.co.nz or visit hsbc.co.nz/corporatebanking.

2011 JUNE|JULY

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Terms and conditions apply to the products and services mentioned. Fees and charges may also apply. HSBC’s Quarterly Disclosure Statement is available on request, free of charge from any HSBC office. Issued by The Hongkong and Shanghai Banking Corporation Limited, incorporated in the Hong Kong SAR with limited liability, acting through its New Zealand branch.

WHEN THE GROUND SHOOK IN FEBRUARY, KIWIS COLLECTIVELY TOOK STOCK OF LIVES AND LIVELIHOODS. FROM CHRISTCHURCH, MARIA SCOTT LOOKS AT PROJECTED POPULATION MOVEMENTS AND WHETHER DECREASING THE CENTRALISATION OF RESOURCES IN OUR MAIN CENTRES MAY BE A BETTER APPROACH TO RECONSTRUCTION.

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t is the sort of boost any population-conscious provincial town or city can normally only dream of; an influx of thousands of people virtually overnight.

No marketing campaign required, no complex district council plan or ratepayer-funded economic strategy. Just the tragic consequence of a major natural disaster in your nearest city.

In the hours and days after the February earthquake in Christchurch, thousands of people were suddenly looking for refuge. The earthquake in September last year did not send people fleeing in the same way. But for a variety of reasons, not least being the knowledge that people had died in the central city, many Christchurch residents grabbed essential possessions, climbed into their cars and drove to somewhere that felt safe. The South Island town of Timaru, a two-hour drive from Christchurch, saw its usual population of about 27,000 rise by an estimated 7000 to 8000 in the days after the earthquake.

There were suggestions that as many as 60,000 to 70,000 people left Christchurch in the days after the earthquake – about 17 per cent of the population – and the impact on Timaru and other smaller centres in Canterbury and elsewhere in the South Island was obvious. Janie Annear, the mayor of Timaru, told a radio interviewer shortly after the Christchurch earthquake that the town was “absolutely buzzing” with the influx of people from Christchurch. She also speculated that Timaru might have regained its status as a city had the government not cancelled the 2011 Census as a result of the earthquake.

Displaced Christchurch businesses also looked for new homes. In an interview with Radio New Zealand last month, Canterbury Employers’ Chamber of Commerce chief executive Peter Townsend said that about 200 businesses in the central city had left for other towns.

The question for these centres now – especially those that have been struggling to maintain their populations – is whether the newcomers become permanent residents.

Planners and economists have already started researching the likely population movements to flow from the Christchurch disaster, looking to experiences overseas for clues. Researchers are concluding there will indeed be a change but that the permanent flow will be only a fraction of the numbers estimated to have left the city in the immediate aftermath of the earthquake. Many, it seems, have already returned and there is a campaign underway in Christchurch to encourage people to stay; a local lawyer launched The Pledge, a project inviting

people to put their signatures to a commitment to stay and rebuild.

Nevertheless, economists at ANZ Bank predicted in a report published in March that Christchurch could lose 4 per cent of its population permanently in the first year after the earthquake as a result of emigration to other parts of New Zealand and overseas and a reduction in immigration. ANZ looked at longer-term population changes in cities and areas affected by natural disasters in several other countries including Kobe in Japan where 2.5 per cent of the population left permanently after the earthquake in 1995. “We think it is possible that Christchurch city could see a loss of around 15,000 residents in the first year, equivalent to almost 4 per cent of the population,” the ANZ report said. “This consists of around 9500 residents deciding to leave permanently, 4000 fewer migrants from overseas than otherwise would be the case, and 1500 fewer internal migrants.”

However, ANZ cautioned its estimates might fall short of what actually happens, noting that the extended period of shaking in Christchurch has “changed the situation completely, relative to offshore norms”.

The Canterbury District Health Board commissioned a report by consultancy Sapere Research Group on possible population trends post-earthquake. This concluded that about 8000 people might leave in the year after the disaster, the equivalent of 2 per cent of the pre-earthquake population.

ANZ said given past migration patterns, Christchurch residents would move to Wellington and Auckland.

“However, relocating from one quake-prone area to another does not feel right, so we suspect you can rule out Wellington as a major beneficiary. On a net basis, the largest gains are likely to be in Dunedin, followed

by Invercargill. Areas on the Christchurch periphery – Timaru, Ashburton, Blenheim, Greymouth and part of the wider Canterbury area – have also seen a large big city drift in the past. We will likely see this drift reverse sharply.”

Even if the de-population of Christchurch is on a much lower scale, long term, than the figures suggested in the immediate aftermath, the ANZ and health board research shows there will still be a significant number of people looking to relocate.

Two months after the earthquake when IN-Business spoke to community leaders and business advocates in Timaru and other centres, they were indeed aware that they might gain from Christchurch’s loss. Some have been working on strategies for years to maintain their populations, particularly young people, and to attract businesses.

Interviewed a few weeks later by IN-Business, Timaru mayor Annear says many businesses have relocated to the Timaru district and others have contacted the district council’s economic development arm for support.

“It is impossible to know if they will stay permanently.

However we believe it is vital for the economic well being of Canterbury that we support those businesses to get up and running quickly and not lose them to the North Island.”

Annear’s comment about the economic well being of Canterbury as a whole is echoed by other provincial civic leaders. They are cautious about appearing to want to cash in on Christchurch’s misfortune. They do not think it would be in their interests, or the region’s, to suck businesses out of Christchurch.

Wendy Smith, chief executive of South Canterbury Chamber of Commerce, says: “The key is to keep Canterbury strong. What we are doing is, rather than 2011 JUNE|JULY

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Rural restoration Fashion designer and retailer Annah Stretton is delighted with the decision she made to open a store in Rangiora, a rural service town 25 kilometres to the north of Christchurch.

Stretton’s Christchurch store, in the city’s High Street, was her flagship store, responsible for the largest turnover within her 30-strong chain. The Rangiora store has taken its place.

“Rangiora, without traffic, is a 10 to 15 minute drive [from Christchurch]. We have a loyal customer base in Christchurch who are happy to drive out.

There are still a lot of women in Christchurch

Ron Lindsay

ANNAH STRETTON: “A RURAL AREA THAT HAS A DEMOGRAPHIC THAT CAN AFFORD THE CLOTHING YOU ARE SELLING CAN ACHIEVE SOME VERY GOOD OUTCOMES.”

ALEX CABRERA: A YOUNG PERSON IN TWIZEL SHOULD HAVE THE SAME OPPORTUNITIES AS A YOUNG PERSON IN AUCKLAND.

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who need and want fashion. They need that part of their lives restored, and quickly.”

Stretton says when she was forced to close her Christchurch store she needed to make quick decisions about how to keep her business going in or near the city. She had built up a good sales team. “I am a strong advocate that people are not just going for the site but the whole retail experience. That was put together by the team we had.”

She is surprised that many Christchurch businesses are still trying to decide where to relocate. She does not foresee the

wooing businesses away [from Christchurch], is to say ‘if you are going to move, consider South Canterbury rather than the North Island or offshore’.” It is vital to Timaru, she argues, that Christchurch remains a strong economic centre for the region.

Smith believes, however, that the earthquake has underlined the risks inherent in policies that encourage too much centralisation of resources. Her message is that the risk of disruption is increased if key services and resources are too heavily concentrated in a few areas.

New Zealand, known to be at risk from earthquakes, needs to look at the Christchurch experience to consider the consequences if vital infrastructure such as ports are disabled. “As a district and a country we are hoping this is a key message.”

Smith says she has fought against centralisation of resources, particularly in education, which is now seen as a key factor pulling young people away from provincial towns.

The earthquake appears to have provided Timaru’s Aoraki Polytechnic with an unexpected opportunity to show how smaller educational organisations can work together to provide competitive alternatives to large education providers in main centres.

Organisations like Aoraki see themselves as vital contributors to the economic health of the towns

central business district being restored to its pre-earthquake shape for three to four years.

Stretton is in the process of looking for sites in suitable rural towns and on the edge of cities elsewhere in New Zealand. She has had success recently with a store opened in Feilding.

It has been open for only three months but is already producing the fourth largest turnover in the Stretton chain.

“Cities are overcrowded.

A rural area that has a demographic that can afford the clothing you are selling can achieve some very good outcomes.”

and regions they serve, not just because they help attract and retain young people, but because they tend to be closely linked to the agricultural sector and other core local industries. fter the earthquake, Aoraki and Christchurch polytechnics moved some of their courses to the Southern Institute of Technology (SIT) campus in the western Christchurch suburb of Hei Hei, which was relatively untouched by the earthquake.

Alex Cabrera, deputy chief executive at Aoraki Polytechnic, believes this is a living, working example of a new model for how regional-based educational institutions could develop. Normally it might take years to achieve agreement to share resources in this way, Cabrera says, but the earthquake proved constructive in bringing institutions together to maintain services.

Cabrera sees many advantages in the co-operative effort, not least the influx of new students from a variety of disciplines to the site.

“I strongly believe this will give these students a much better student experience. And, from a governance point of view, you get a better utilisation of assets.”

He believes this could be a model for an education “hub” where a

variety of courses from different institutions are available from one location. Taking the idea further, he foresees students being able, with assistance from modern technology and co-operation agreements between institutions, to access courses from institutes and universities overseas. The aim would be to allow young people to take advantage of a wide variety of courses without leaving their home towns. Cabrera, who has worked in education management in several countries, argues a young person in Twizel should have the same opportunities as a young person in Auckland – which would remove at least one driver of centralisation in the main centres.

In another earthquake-response initiative for Aoraki, Cabrera has also been working on the development of short courses for unemployed people to train them to work in construction and other industries that will require labour for the rebuilding of Christchurch.

DAVID AYERS: RANGIORA IS READY FOR NEW BUSINESS.

he Waimakariri region to the north of Christchurch has had mixed experiences in the earthquakes. The town of Kaiapoi was badly damaged in the September earthquake but became something of a refuge after the February event. Waimakariri District Mayor David Ayers jokes he had heard that McDonald’s in Kaiapoi was the closest branch of the burger chain for residents of eastern Christchurch after all local branches

were put out of action by the earthquake. The town of Rangiora meanwhile started to experience traffic jams.

Ayers says the region’s population had been growing before the earthquake and he expects that growth to accelerate. “We are certainly able to accommodate any increase in business.”

Rangiora may not spring to mind as a centre for high fashion but Ayers notes that designer Annah Stretton has opened a shop in the town.

Paul Davey, chief executive of Selwyn District Council thinks his region, to the south west of Christchurch, which was experiencing a rapid growth in population before the earthquake, may become even more popular given that it was relatively unaffected by the earthquakes. There has been some discussion, he says, about the possibility that the gravel and stone ground structure of Selwyn may be preferable for building than the sandy geography of parts of Christchurch.

The Izone industrial park in the town of Rolleston has attracted business interest since the February earthquake. But Davey sees Selwyn as being in a partnership with Christchurch. “We all have a role to play in the rebuild.”

Further down the coast between Christchurch and Timaru is the town of Ashburton, about an hour’s drive from its city neighbour.

Rob Brawley, chief executive of local economic development agency Grow Mid Canterbury says that woodworkers, photographers and jewellery manufacturers are among the businesses that have moved to Ashburton since the Christchurch earthquake. “Also, employers have been inundated with skilled staff looking for work.”

Located in an area at the centre of the dairy boom, Ashburton employers had been experiencing some skill shortages and the influx of workers is welcome, Brawley says.

Tourism and conference-related businesses have also done well as visitors and organisations have been forced out of Christchurch for accommodation and venues.

But Brawley says while Ashburton is pleased to welcome workers, businesses and visitors, “at the end of the day we are part of the Canterbury dynamic”.

“We don’t for ethical reasons want to be playing on [Christchurch’s] misfortune. We want a major city on our doorstep.” IN

Window on

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www.newzealandstocklibrary.co.nz

россия

Photos: Kathleen Collins and Issac de Reus

DOING BUSINESS IN RUSSIA

TAKING THE TIME TO UNDERSTAND RUSSIA’S CULTURE AND PEOPLE IS CRUCIAL, SAYS EX-AMBASSADOR STUART PRIOR.

BUSINESS SOULS

RUSSIA WAS “LIKE A PRISON CAMP” WHEN EX-NEW ZEALAND AMBASSADOR TO RUSSIA, STUART PRIOR, FIRST VISITED IN 1978. BUT OVER HIS EXTENSIVE DIPLOMATIC CAREER HE HAS WITNESSED A SEA-CHANGE IN THE WAY RUSSIA IS VIEWED BY NEW ZEALANDERS: FROM POLITICAL THREAT TO COMMERCIAL OPPORTUNITY. BY FRANCES COOK.

S

tuart Prior is well-read and well-informed, quick to counsel and even quicker to quip. “A fool and his money are easily parted” is his advice to New Zealand companies considering doing business in Russia. It’s frank advice from a man who’s served his equivalent of “two life terms” – a total of 30 years in the New Zealand diplomatic service, including four as Russian Ambassador.

At 61, he speaks English, French and Russian and now runs his own company, Prior Group, specialising in promoting business between New Zealand and Russia.

Prior’s life has been influenced by Russia from the outset. His family moved from London to New Zealand after his father, discharged from the British army in 1945, received a letter summoning him for duty in response to Stalin’s World War Three scare in the early 1950s. What started as a boyhood interest sparked by the exoticness of the Russian alphabet grew into a degree in Russian language and literature and has been Prior’s livelihood through his diverse career.

From 1976 until 1991 he took part in New Zealand diplomatic missions to Canberra, London and Moscow.

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When the Cold War ended, his occupation as a Soviet expert was no longer needed and he was moved “from one cold war to another” and put in charge of New Zealand’s Antarctic policy throughout the 1990s. From 1999 until 2002 he worked as deputy manager of New Zealand’s international aid programme, before returning to Moscow as the New Zealand Ambassador from 2003 to 2006. He married his Russian wife in 2004 and they have recently welcomed their first child. His father came to New Zealand to give him opportunities, he says. “And I think I’ve had a pretty good series of opportunities.”

Prior is irked by the fact names like Lenin and Stalin dominate most people’s lists of Russian thinkers and politicians. During his studies at Otago University he discovered Russian writers such as Tolstoy, Pushkin and Gogol, who influence his business practices to this day.

“I use them when I am, if you like, screening Russian business people . . . because Russian society has been late to develop, these 19th century writings are a very good guide.”

Gogol’s Dead Souls is described by Prior as his “business bible” because of its descriptions of some of

DON’T BE FOOLED: RUSSIA TODAY IS FILLED WITH SLICK AND MODERN CITIES.

“

You’re trying to elevate New Zealand from a little, isolated, irrelevant country to somebody who’s worth talking to.

”

the earliest examples of leveraged debt and mortgages.

In 19th century Russia, peasants, termed “souls”, were counted as part of a landowner’s wealth. The book’s main character, Chichikov, bought the names of dead peasants and used his list of souls to secure mortgages from banks by appearing to be a substantial land owner. Throughout this tale, Prior says, Gogol describes a business mentality that is highly contemporary; Chichikov represents an archetypal snake oil salesman that could easily be encountered today. “Essentially it’s a very practical business deal . . . It was super modern. It would not be looked at sideways by many of our modern businessmen or financiers.”

Prior’s diplomatic presence in Russia allowed him to witness many historical events, including the New Zealand boycott of the 1980 Moscow Olympics and political demonstrations in the early 1990s. While his first trips to Russia left him with the impression of a “dour and grey” country, he was also a bystander for Russia’s eventual transformation. “I was actually seeing Russians throw away communism,” he says. “Very seldom, wherever you are, are you in a place where you see history being made. Being on the sidewalk, watching a demonstration of half a million people walking towards the Kremlin in absolute silence, was just stunning.”

When he returned for his final stint as a New Zealand representative to Russia in 2003, he found himself gobsmacked at the changes: cafes and shops lined the streets, and the Russian orthodox church had reappeared.

Yet this radical transformation is what he says can fool New Zealand business people – while Russia is often imagined as a place of “vodka, oligarchs and mafia”,

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Parallel development >> Stuart Prior finds surprising similarities between Russia and New Zealand There are as many myths about Russia as there are about New Zealand. Only, the New Zealand myths tend to be bright, warm, cuddly and friendly, while the Russian myths are dark, cold, scary and unfriendly. Literally and figuratively we are polar opposites. But there are broad similarities.

Our recent histories move in parallel: New Zealand’s “crash-bang” Chicago-style revolution produced wonderful examples of privatisation and not-so-wonderful examples.

Russia’s revolution produced the collapse of the USSR in 1991 and “smash-and-grab” capitalism, followed by wholesale pillage of state assets.

We are susceptible to foreign ideologies: we both had revolutions at more or less the same time: New Zealand in 1984–85, Russia in 1985.

In both countries public assets suddenly transferred to the ownership of wide-boys who proved adept at privatising profits and socialising losses.

Both of us came to love public servants: the more liberal both our economies became, the greater the number of public servants and the role of the state.

Both our empires fought back in the sense that public servants came to rule the roost, increasing the burden on taxpayers and business. In Russia we refer to this as “blatant corruption”. In New Zealand we refer to it as “increased transaction costs”.

Both countries have remained overly dependent on the export of commodities. Value-adding jobs and products are thin on the ground. Investment capital comes knocking at neither door (unless we really tart ourselves up), and our siren calls to capital are rather thin and reedy.

It is SMEs which will be the saviour of each economy but only if they can be nurtured, supported and encouraged to grow.

In both countries today there is evidence that governments are taking a leadership role again. Of course, the Russians get the bad press. The Kremlin’s reassertion of central authority is taken as a return to the Soviet past.

The same is true for New Zealand. The idea of active government is a shock and a novelty – but it is now the new reality, for the next generation at least.

Both Russia and New Zealand are young countries, and it is brilliant young people who will be taking charge in this next generation.

■■ Overleaf: Stuart Prior assesses New Zealand’s prospects of benefitting from a Free Trade Agreement with Russia.

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people arrive to find slick and modern cities. He says the difference can lead people to throw their defences out the window, which is foolish in any business scenario.

Taking the time to understand Russia and how its culture and people work is what Prior advises to parties interested in the New Zealand–Russia Free Trade Agreement currently being negotiated.

“If we take the same look that we’ve taken at China, where it’s a long-term project, then we say ‘right, as in China, we have to start building relationships, getting to know each other’. And you have to be careful, because at the end of the day we’re 4.4 million people and there is an opportunity for some rich guy in Russia to come and buy us in ways we might not like.”

Prior points out that the FTA with China has revealed difficulties that businesses cannot respond to alone.

Because New Zealand is dominated by small family companies, he warns that foreign capital is not always a friendly giant – but still brings opportunities. Businesses and politicians should prepare, and have plans in place for situations such as the recent Crafar farms controversy.

“How are we going to react if under the FTA some rich Russian madly comes to New Zealand and says ‘I want to buy lots of dairy farms’? You need to be thinking through what it’s going to mean in practice.”

He says an FTA between New Zealand and Russia is only the starting point of a relationship between the two countries. Russian interest is particularly directed at using New Zealand to help them approach the modern, global trading world. “So that’s what you’re trying to do in this, you’re trying to elevate New Zealand from a little, isolated, irrelevant country to somebody who’s worth talking to,” he says. “And then you translate that into money.” IN

NEW ZEALAND BUSINESSES AND POLITICIANS MUST PLAN FOR SITUATIONS SUCH AS THE RECENT CRAFAR FARMS CONTROVERSY.

россия

Bear hug New Zealand is currently negotiating a Free Trade Agreement (FTA) with Russia and its customs union partners, Belarus and Kazakhstan.

Astonishingly, we are first cab off the rank with a serious Russian FTA. Ex-Russian ambassador STUART PRIOR looks to his experience and says, if our imagination does not fail us, we have a remarkable chance to build important new business.

M

y experience of working with Russia has been that it is most easily consigned to the “too hard basket”. To make trade with Russia work we have to look ahead and be bold and strategic in our thinking: not qualities which have necessarily distinguished New Zealand over the past few years of bureaucratic socialism.

If we look at the Russian version of “Russia”, “Rossiya”, the first two letters sum it all up: “Risk” comes before “Opportunity”. See through and manage risk and you have unique opportunity. I work around the idea of “OURS for the taking”: Opportunity, Understanding, Relationships, and Step-by-Step.

The starting point with Russia is: what is the opportunity, what’s in it for us? Can we use Russia to help us achieve our national goals as “New Zealand Incorporated”?

Business is not a one-way street.

Why on earth would big bear Russia want to work with little kiwi New Zealand? Isn’t this just a recipe for kiwi-feathers-in-bear’smouth stuff? To interest Russia, we have to envisage some sort of partnership, at every level of business, to show that both of us can benefit from paying some time and attention to the other.

My view is that yes, Russia can help New Zealand – in major ways.

First, it can help us become an agricultural player in the northern hemisphere and overcome the tyranny of distance which has plagued us for 130 years. Russia, compared to New Zealand, has land in abundance. Animal farming can be revived based on pasture and no subsidisation.

What’s in it for Russia? The world needs Russia to become a major food exporter. Products

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“

STUART PRIOR

from its animal farming could feed Russia’s impoverished rural regions, increase national security and make a major contribution to global food supplies.

As the Russians and their economy catch up with the world, Russia will become a value-added market for New Zealand – wine, food, clothing, wool, interior design, container- and cargohandling equipment, abattoirs, meat plants, jet boat engines, luxury yachts, engineering goods and services, IT solutions, medical technologies, education services, tourism – the list goes on. The Moscow-St Petersburg corridor has a population bigger than Australia’s. Its consumers are sophisticated, ambitious, aspirational and have greater disposable incomes than most New Zealanders and Aussies. There are niche opportunities for New Zealand pretty well everywhere I look.

We just don’t seem to get how

There is a surprising similarity about the way business works in both our countries: ratbags and snake oil merchants are found in both places, as are people of the highest professional standards and integrity.

”

much Russia has advanced in so short a space of time. Not only is the average middle-class Russian wealthier than we give them credit for, they are not shackled by mortgage debt, by and large.

The people with money to spend in Russia today are the young rather than the old. Get consumers used to New Zealand products, goods and services today – and you can build a lifetime of loyalty to Brand New Zealand.

Why are we missing out? We were starting to show some “get up and go” with the New Zealand Dairy Board and entrepreneurial business activities in Russia in the 1990s, at a time of stress and change. Then we corporatised our thinking, put on suits and mental straitjackets and ran away. It’s a market going begging. It’s great to find our meat and seafood on sale in Moscow but not so great to find that it’s Aussies selling them because we haven’t bothered to, our view of Moscow being dull grey

cite

with lines of poor people queuing up for cabbage.

What we lack at the moment are insight and ambition and, perhaps most of all, the means of connecting small, clever but underfunded and risk-averse New Zealand companies with their Russian smallish (by Russian standards) clever, underfunded, but ambitious and rapidly growing counterparts.

The human factor cannot be ignored. Russia has ambitious people, brilliant minds and original thinking (as well as gorgeous women). Russians are extraordinary reverse engineers. If we in New Zealand are serious about adding value within its economy, then science and technology-based connections with Russia could prove invaluable.

Equally, New Zealand, with our open economy and attitudes and network of links with the Asia-Pacific region, can help Russia enter the Asia-Pacific mainstream as a true Asia-Pacific power.

In many areas of social activity – sport, the arts, culture – we can learn from Russia and also contribute, in some way, to Russia.

We have no need to be bashful about our contribution. After all, our Ernest Rutherford launched the global nuclear age, changing the prospects of humankind forever and incidentally helped the USSR become a twin super power.

In return, we got ballet and the pavlova, helping make us cute and soft-centred as a country.

Remembering OURS, understanding comes before relationships. A little fellow-feeling and humility on our part will not go amiss.

The good thing is that if you

think about how successful business relationships are built in New Zealand, you have some of the keys to what is required to working successfully in Russia.

So, just as you need to be clear about what you are looking for as a business and do your homework on Russia, you need to be prepared to invest the necessary time and effort to find Russians with whom you can work and build up links which bring fair benefit to you and them. Russians have their genetic equivalent of ground-penetrating radar – they can work out quicker than you can believe just who you are and what is behind your façade. They work with head and heart. They will do business because they like you, and will have a vested interest in success once they decide to go with you.

You do have to be fair, and determined, patient and persistent, of course, and trust is essential.

Break that trust and you will rapidly find yourself in a “win-lose” or “lose-lose” game, and you will be the loser.

This is pretty well the exact advice I would give to Russians wanting to work with New Zealand.

There is a surprising similarity about the way business works in both our countries: ratbags and snake oil merchants are found in both places, as are people of the

BIG BEAR RUSSIA WILL NEED TO BE CONVINCED THAT THERE’S VALUE IN WORKING WITH LITTLE KIWI NEW ZEALAND. ILLUSTRATION BY REBECCA WALTHALL

highest professional standards and integrity. Discovering who is who is a commonplace challenge.

Somebody who can act as a bridge or referee or personal guarantor can be helpful in a match-making sense.

Finally, you need to take a stepby-step approach. Start slowly. A small deal is a test for both sides – if you cannot honour every detail of a small deal, how can you be trusted with a big deal?

The human element is a major potential advantage for us as New Zealanders. Don’t underestimate the quality of personal experience we can offer to a Russian partner in New Zealand – such as down-toearth decency, genuine and warm personal relations. Recreational activities such as trout fishing can cement a business relationship.

It works the other way too. Once you get to know Russians, they can offer you experiences in their own country about which you can only dream.

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Photograph by flickr.com user backpack photography used under a Creative Commons licence

россия

The sound of money IN-Business publisher TIM COLLINS met with diplomats, businessmen, academics and students in Moscow to talk Russian economic growth, free trade with New Zealand and corruption.

R

ussia is a country where money talks louder than words. What could this mean for the New Zealand-Russia Free Trade Agreement currently being negotiated?

In 2010, Russia ranked near bottom in the “Corruption Perceptions Index” compiled annually by Transparency International, coming 154th out of 178. At the honest end of the scale, New Zealand ranked second, pipped only by Denmark for the top spot.

Corruption is a part of everyday life for Russians, says Andrey Rozanov, general director of Fonterra Russia. Rozanov was born in St Petersburg but is now based in Moscow, heading up the Kiwi

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dairy giant’s Russian trade operations. “Corruption is a fundamental part of Russia and will not change in the short or medium term. To change it needs to be from the very top, to the very down below.”

In terms of the FTA, Rozanov is sceptical about the likelihood of it being signed at all. “There is no economic benefit for Russia whatsoever,” he says. “Russia does not export anything – except oil and gas – it doesn’t need international markets.”

He doubts the political will exists in Russia to complete an FTA with New Zealand. With a national population of 143 million and capital city population of over 14 million, it’s hard to dispute the insignificance to Russians of our

small and far-removed market.

New Zealand, of course, has more to gain from an agreement.

Exports to Russia last year were worth less than $200 million. I can see an agreement being a case of history repeating – within two years of signing the Chinese Free Trade Agreement, our exports to China increased by $70m.

But if the FTA does go ahead, according to Rozanov, Fonterra doesn’t have plans to leverage it. He says they are focused on growing premium Asian markets expected to generate a greater return to New Zealand farmers.

Russia houses the third highest number of billionaires in the world, alongside a growing middle class prepared to pay

cite top dollar for quality. According to PricewaterhouseCoopers’ Doing Business in Russia report published in April 2011, strong growth in Russians’ consumption is expected to increase in coming years.

PwC partner Michael Hurle explains that following mass privatisation after the collapse of the Soviet Union, the large majority of Russians now own their own homes. “Seventy-five per cent of them [are] without mortgages and as a result they have high disposable incomes, which is driving demand across sectors such as retail, fast moving consumer goods and automotive,” he says.

N

ew Zealand’s ambassador to Russia, Ian Hill, is upbeat about the FTA’s prospects, insisting not only that negotiations are well underway, but that both governments are equally keen.

“It’s under way now. Both governments have said that they would like to get the negotiations done as expeditiously as possible.”

New Zealand may have to wait longer than expected for signatures on paper, however. “We are hoping that it can be done over the course of the next year or so, but sometimes issues come up and it can take a little bit longer,” Hill says. “But at the moment it’s going as well as can be expected.”

While optimistic about the FTA, Hill is also realistic about the potential drawbacks to increased trade with Russia. “Corruption is a problem here. I think Russian authorities would admit that.

“

Russia does not export anything – except oil and gas – it doesn’t need international markets.

”

“I’d say Russia is similar to other developing nations. Yes, it needs to continue to tackle corruption, but the same is true in countries like Brazil and China,” he says.

This comparison may be a little tough on Brazil and China, ranking 69th and 76th respectively in the Corruption Perceptions Index, well above Russia.

Ambassador Hill hopes the FTA will help improve the situation.

“It seems to me that as Russian companies become globalised and international, if they are going to secure outside investment, which is what they really need – they desperately need foreign investment – people are only going to put their money in if they’re satisfied it’s going to be put into a safe depository, so to speak.”

Former Wellingtonian Simon Liddell believes you have to take Russia as it comes. A geologist and engineer with international consulting company AECOM, Liddell has moved away from wanting to change this aspect of his adopted home. “I learnt to simply let Russia be Russia. It will deal with this in its own time.”

When we later mentioned the number of corruption-related

stories we had heard to Andrey Ivanov, a lecturer at Moscow State University, he was not surprised, saying there’s little political incentive to change the status quo.

“It is here to stay, for years and years, for good.

“Police are particularly prone to bribery. The corruption is 100 per cent there. It’s the road police, the police, the court system.”

That said, a Moscow-based Kiwi business consultant insists change is happening, especially in larger businesses. Matthew Cook of KPMG estimates 75 per cent of Russian corporates are now audited by the “big four” firms.

“The other 25 per cent don’t want to be and probably wouldn’t be invited to be,” he says.

All parties I spoke to agree having a local business partner is essential – not necessarily to avoid corruption, but rather to help understand and deal with Russia’s unique bureaucratic complexities.

It is a matter of knowing when to argue, when to go to court and when to pay up.

New Zealand products are valued for their high quality.

Quality is closely related to integrity and honesty. Let’s hope our new friends improve theirs and avoid damaging ours.

Tim Collins flew to Russia with Cathay Pacific on its direct Hong Kong to Moscow route, recently launched to meet growing demand from business travellers. Thanks also to the Ministry of Foreign Affairs and Trade for its generosity and local expertise.

“

They desperately need foreign investment – people are only going to put their money in if they’re satisfied it’s going to be put into a safe depository, so to speak.

Kathleen Collins

”

IN-BUSINESS PUBLISHER TIM COLLINS (SECOND FROM LEFT) MEETS KEY PLAYERS ON THE GROUND IN MOSCOW.

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Free trade agreements – those much heralded harbingers of prosperity.

The negotiation and success of these deals is often described as a key component of New Zealand’s future position in global trade and politics.

While our economy is strongly dependent on a small number of tourism factors and agricultural exports, we have been labelled by some as the most business-friendly country in the world.

KEY

Proposed Agreements

Year Signed

Year Announced

Agreement

Number of Other Trade Value Trade Agreements m = million Held By Partner b = billion

Focus of Agreement Investment Flows

Travel

Agreement

Goods Quota/Tariff Reduction

Chile

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Trade Value m = million b = billion

Focus of Agreement

NZ-HK CEP - New Zealand-Hong Kong Closer Economic Partnership Agreement MNZFTA - Malaysia-New Zealand Free Trade Agreement AANZFTA - ASEAN-Australia-New Zealand Free Trade Agreement NZ-China FTA - New Zealand-China Free Trade Agreement TPSEPA - Trans-Pacific Strategic Economic Partnership Agreement NZSCEP - New Zealand-Singapore Closer Economic Partnership Agreement NZTCEP - New Zealand-Thailand Closer Economic Partnership Agreement ANZCERTA - Australia-New Zealand Closer Economic Relations Trade Agreement NZ-GCC FTA - New Zealand-Gulf Cooperation Council Free Trade Agreement NZ-Korea FTA - New Zealand-Korea Free Trade Agreement NZ-India FTA - New Zealand-India Free Trade Agreement NZ-RBK - New Zealand-Russia-Belarus-Kazakhstan Free Trade Agreement

34

In doing so, this infographic provides an illustration of the focus of these ‘deals’, the proximity of those we have entered into agreements with (and those we have not), and the number of other trade agreements held by our new or potential trade partners.

Established Agreements

Number of Other Trade Agreements Held By Partner

$

What deserves such praise? Is it through the quality of our agreements, their potential value, or perhaps purely the number of agreements we have and/or are negotiating? Infovision take a look at who we’ve signed up, who we are negotiating with, as well as the need-to-know details of each of these agreements.

Services Access

2010

$3.85b

t an

khs Ka za

Saudi Arabia Kuwait Bahrain United A Qatar Omanrab Emirates

rea

Ko

Ch

ia

ailand Th $2b

2001

NZSCEP

NZ-HK CEP

$832m

ng o K

Myanmar

Laos Thailand Vietnam

2010

$2.6b

2009

$

$1b

$9.82b

tralia

MNZFTA

3

lia a r t s u A

AANZFTA

Aus

$

2

ore

Brunei ore ap g n i S $2.77b

2010

Philippines Cambodia Brunei Malaysia Singapore

gap

TPSEPA

$

ng o H

Sin

2005

$2.6b

$2.7b

NZ-Korea FTA

ASEAN

NZTCEP

$

NZ-China FTA

Ind

2004 18

NZ-India FTA $985m

7

ina

10

9

2010

ia

$

2008

Malaysia

NZ-GCC FTA

2009

Russ

rus a l e B

2007

$187.1m

NZ-RBK

1983/2011

Sources: Ministry of Foreign Affairs and Trade: http://www.mfat.govt.nz/ ANZCERTA $15b 6 Singapore Free Trade Network: http://www.fta.gov.sg/ European Commission: http://ec.europa.eu/ C.I.A World Factbook: https://www.cia.gov/ DTN: http://www.thaifta.com/ NZ Free Trade Agreements: http://en.wikipedia.org/wiki/New_Zealand_free_trade_agreements/ Ministry of Economic Development: http://www.med.govt.nz/ Malaysia’s Trade and Industry Portal: http://www.miti.gov.my/ ASEAN FTA Guide: http://www.asean.fta.govt.nz/ New Zealand-China FTA Guide: http://www.chinafta.govt.nz/ For reproduction enquiries contact info@greaterthanwords.co.nz Austrade: http: //www.austrade.gov.au/

$

2011 JUNE|JULY

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THE PROFITS OF PERESTROIKA

BY CHRIS WILSON

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flickr.com users Archer10 (Dennis) and wwarby

W

FROM POSSUM MERINO TO “LARGE FORMAT” WINE BOTTLES, NEW ZEALAND COMPANIES ARE WORKING TO TAILOR THEIR PRODUCTS – AND BUSINESS PRACTICES – TO THE GROWING RUSSIAN MARKET.

hen the Soviet Union broke up almost 20 years ago, hundreds of thousands of clothing and carpet workers were laid off in Russia and the factories closed.

Cheap clothing became the second largest import after food. Russia still farmed a large flock of sheep bred for the quality of their wool but in the economic crisis of 2009, and a food shortage, the Russians were forced to eat them.

Now, as Russia has bounced back from that crisis with a growing middle class, there is a demand for warm quality clothing. Enter New Zealand.

In June last year, Textiles New Zealand CEO Elizabeth Tennet led a delegation of seven clothing and textile companies to Moscow. They met with potential buyers through introductions arranged by former New Zealand Ambassador to Russia, Stuart Prior.

As a result, each of those seven companies obtained business in Russia. One of the Russian companies they met visited New Zealand companies in May to buy warm quality clothing it can sell in the larger cities of Russia.

Elizabeth Tennet says it is important that New Zealand textile companies work closely with the wool industry to make the most of these opportunities.

“Russia is a greenfields market and, because of the opportunities, companies that get in now are guaranteed a great future,” she says.

“Russia is very keen to buy New Zealand wool products which they view as being of top quality. They also have no objection to using fur and are very interested in possum merino which is a whole new product for them, light and wonderful to wear.”

New Zealand will need to tailor designs to Russian fashion but other export arrangements in this industry appear surprisingly straightforward. In what is generally regarded as a difficult country to trade in, Tennet says Russian textile partners are used to paying up front and will take care of regulations and paperwork themselves.

By chance, the delegation was in Moscow with Trade Minister Tim Groser when he announced New Zealand’s wish to enter into Free Trade Agreement (FTA) negotiations with Russia. Both countries confirmed in November their intention to commence negotiations this year, along with Kazakhstan and Belarus which are forming a customs union with Russia.

In announcing the FTA with Russia President Dmitry Medvedev, Prime Minister John Key highlighted that Russia is one of the world’s emerging powerhouses alongside Brazil, India and China. It is the world’s 12th largest economy and the fifth largest food importer. Key foresaw opportunities for New Zealand particularly in its food and beverage, agritech, specialised manufacturing and clothing industries.

The Textiles NZ delegation told Groser firsthand that they and their Russian partners would benefit from a reduction in tariffs, duties and levies. These can add up to 150 per cent on the price of New Zealand textile products sold in Russia. Formal submissions for the New Zealand FTA negotiating team closed in December last year.

The submissions highlighted that Russian tariffs are considered to be very high. Submitters requested they be phased back to zero and also identified regulations as needing attention, along with communications between Russian authorities. Customs procedures were identified as complicated and time-consuming.

The FTA negotiations have now progressed to their second round, held in Astana, Kazakhstan, on April 14-16. Catherine Graham, deputy director with the

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NZTE’S KARI WHITE SAYS NEW ZEALAND NEEDS TO BE CAREFUL ABOUT CREATING EXPECTATIONS IN RUSSIA.

EVGENIY SUKHOV EXAMINES POSSUM/ MERINO PRODUCTS PRODUCED BY TEXTILES NZ. SUKHOV RECENTLY SPENT 10 DAYS IN NEW ZEALAND, VISITING 17 TEXTILE COMPANIES AND PURCHASING NEW ZEALAND WOOL AND POSSUM/MERINO PRODUCTS.

Ministry of Foreign Affairs and Trade, says negotiations are still on track to conclude the agreement in 2011. “The atmosphere between the parties continues to be positive and focused.”

Up until the FTA announcement, Russia was not a priority market for the New Zealand government’s economic development agency, New Zealand Trade and Enterprise (NZTE). It responded reactively to requests for assistance by exporters and most of these were referred to the New Zealand Embassy in Moscow.

“

We need to be careful about creating expectations we can’t meet. We need to be very strategic.

It may come down to supplying smaller niche products rather than making big hits.

”

But now Kari White – NZTE’s international market manager for Europe, Middle East and Africa – says the agency will take a more proactive approach, working closely with the embassy.

“We are having conversations with some of our contacts there. We need to understand what the Russian market is looking for – do a lot more research and scoping strategies. We need to have a more professional approach to the market.

“We’re such a small country. We see Russia as a bright opportunity but look at its size – do we have the manufacturing capability to meet demand? We need to be careful

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about creating expectations we can’t meet. We need to be very strategic. It may come down to supplying smaller niche products rather than making big hits.”

Russia has a population of 142 million. It has 11 cities with a population over one million. Moscow is Europe’s largest city and said to be home to the largest number of billionaires in the world.

Russia’s GDP growth is expected to remain above 4 per cent each year until at least 2015. In 2009, it contracted 7.8 per cent.

OECD indicators show that while the impact of the economic crisis in 2009 was larger in Russia than in Europe, China and India, Russia’s recovery has been stronger.

Foreign investment in Russia reached US$115 billion in 2010, up 40 per cent on 2009. The two largest areas for investment were financial services and manufacturing.

In 2010, Russian exports totalled US$400b and imports totalled US$248b – a positive trade balance of US$152b.

Russia has embarked on a programme of diversification and modernisation. It is still the world’s second largest exporter of oil but wants to innovate its industry base. It aims to modernise its energy, IT, space and medical industries particularly.

Russia will be hosting the 2014 Winter Olympics and the FIFA World Cup in 2018. It also wants to develop Moscow as a world financial centre, aligning Russian financial law with international rules.

Russia does have some rankings it could do without.

It ranks 120th in the world in ease of doing business and 154th on the Corruptions Perceptions Index 2010. As New Zealand is regularly placed at the top of these two lists, these cultural differences create challenges for trade between the two countries.

Perestroika Perestroika was a political movement within the Communist Party of the USSR during the 1980s, widely associated with then Soviet leader Mikhail Gorbachev. Its literal meaning is “restructuring”, referring to the restructuring of the Soviet political and economic system.

Perestroika is often argued to be a cause of the dissolution of the Soviet Union, the revolutions of 1989 in Eastern Europe, and the end of the Cold War.

P

ip Austin, general manager sales and marketing of Sileni Estates Limited, says New Zealanders considering trade should insist on payment upfront or at least a letter of credit.

“They should do really good due diligence. If they don’t have contacts in Russia, NZTE is really helpful or they should ask around in their own industry.”

Sileni Estates first entered Russia in 2002. The Hawke’s Bay vineyard was represented first by a marketing agency and then by a top-end distributor, Whitehall, which initially sold the wine in their Moscow and St Petersburg wine stores.

New Zealand wine was an unknown with consumers.

“If Whitehall says something is good, the consumers follow their advice,” Austin says.

“

As a New Zealander, I came from the furthest country in the world from them. You get a lot of kudos from doing these things.

”

The wine sold well in the first few years in a pattern that echoed Asian markets. “Most of the wine was sold to wealthy people who considered wine as very Western and very luxurious. Price was no object.”

But with the economic shock of 2009, the market went flat for Sileni. To kick-start it again, they encouraged their distributor to begin targeting the middle class with Sileni’s more competitively-priced Tahuna brand, sold through hypermarkets and supermarkets. The market is now starting to pick up.

NEW ZEALAND’S SILENI ESTATES IS SELLING WINE SUCCESSFULLY IN MOSCOW.

For the last four years, Sileni has also done its own direct marketing in Russia. Austin spends up to two weeks every September in the country and visits a new region each time.

“When things tighten up, more companies travel a lot less. We’ve travelled a lot more and that has paid off in sustainable growth year-on-year.

“Last year I went to St Petersburg and Novosibirsk. As a New Zealander, I came from the furthest country in the world from them. They couldn’t believe I would spend time in their country. You get a lot of kudos from doing these things. When I’m there, I’m not only selling Sileni, I’m selling New Zealand.”

The Russians buy wine right across Sileni’s portfolio.

There is demand for large format bottles – 1.5, 3.0 litre and upwards – which are presented hand-labelled in wooden boxes.

Sileni produces 600,000 cases of wine a year and exports over 90 per cent of its production to 50 countries.

Russia represents just under 2 per cent of total sales but the dollar-per-litre return would be one of Sileni’s highest. It is this potential for high returns from a growing middle class that kicked off the FTA process, because New Zealand’s trade with Russia is still relatively low. New Zealand’s exports to Russia grew from NZ$51 million in 2000 to NZ$187.1m in 2009. Both the government and exporters intend that this upwards trend will continue. IN New Zealand Trade and Enterprise is the government’s economic development agency. Its job is to lift the country’s economic performance by helping more New Zealand businesses to grow and compete in international markets. For more information about NZTE’s programmes and services see www.nzte.govt.nz.

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THE RUSSIANS ARE

COMING

BY CHRIS WILSON

LORD OF THE RINGS DIDN’T MAKE A SPLASH IN RUSSIA. WHILE THOUSANDS OF THE FILM’S INTERNATIONAL FANS TRAVELLED TO ITS KIWI LOCATIONS, RUSSIANS ARE STILL UNAWARE OF NEW ZEALAND AS A TRAVEL DESTINATION. IN THE LEADUP TO THE RUGBY WORLD CUP, TOURISM OPERATORS ARE DETERMINED TO PUT MIDDLE EARTH ON THE MAP.

R

ussian visitors to New Zealand have trebled over the last decade to 4000 annually. This year, with Russia qualifying for the Rugby World Cup for the first time, the numbers are expected to go even

higher.

Leon Grice, director of New Zealand 2011, the Ministry of Economic Development’s world cup promotional arm, says the cup represents a great opportunity for businesses to build relationships with Russians and capitalise on the closer economic relationship being negotiated by the two countries.

Rob Young, who founded Exclusively New Zealand – a luxury, tailored travel service for visitors to New Zealand – knows full well the link between travel and business. He says his customers regularly look for business interests in New Zealand and also consider buying property here.

“We make introductions for them.”

New Zealand is still relatively unknown to Russians as a travel destination, Young says. “They usually holiday in Europe, the Caribbean, the Indian Ocean, Africa or Asia. But they are looking for new destinations and New Zealand is on their radar.”

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His company offers a travel experience. “People don’t generally travel to New Zealand only to stay at one of the luxury lodges. They come for everything else. We tailor unique experiences – we create a journey and a story.”

Two-thirds of the company’s visitors come from the US, the rest from Europe and Australia. He has had about six Russian groups in the past two years. One family stayed five months. He says Russians, like all his clients, like to travel in style but they are always looking for value.

In the middle of this year, he is bringing out a group of eight Russian travel journalists to give them an experience of New Zealand. He has appointed a wellconnected partner in Moscow, Vasily Pasetchnik, to promote the destination and visits there at least once a year.

Tourism New Zealand has also recognised the potential of the Russian market. While visitor numbers are small compared with, say, the 65,000 annual visitors from Germany, their high yield and growth potential has spurred Tourism New Zealand to establish key relationships with airlines and tour operators in Russia over the last year. As a result, Tourism New Zealand is now

Exclusively New Zealand

EXCLUSIVELY NEW ZEALAND’S RUSSIAN BUSINESS PARTNERS VASILY PASETCHNIK, LEFT, AND SEMION CHOBANIAN, TAKE A BREAK ON A GLACIER NEAR MT ASPIRING.

offering regular training events for travel sellers in Moscow.

Russia will play at least four World Cup games in New Zealand. Our embassy in Moscow has been able to leverage the event to increase New Zealand’s profile through special TV programmes and interviews with former All Black Sean Fitzpatrick, who attended an embassy function late last year. Now the embassy is working to encourage Russian business people to travel with their team to New Zealand and explore business opportunities.

“

They are looking for new destinations and New Zealand is on their radar.

”

The Russians’ first game on September 15 will be against the USA in New Plymouth. Then they play Italy at Nelson on September 20, Ireland at Rotorua on September 25 and Australia at Nelson on October 1.

The Nelson Tasman Chamber of Commerce is organising three special business activities to coincide with two Russian games in Nelson. On the day before the match with Italy, it will host a Russian-themed business event.

The chamber will also hold a forest industry tour and a

tour to showcase Nelson’s wine, craft, sheep milk and olive industries. This tour will also be aimed at Italian visitors.

The Russian team’s host region will be Marlborough.

On September 30, the region will host Indulge Marlborough – a showcase of fashion, wine, food and music. On September 28, the region will organise a tour to vineyards to demonstrate New Zealand’s viticulture technology.

As a tribute to the Russian team, the Omaka Aviation Heritage Centre’s Knights of the Sky exhibition will feature a replica of an early Morane monoplane flown by Russian Ace Alexander Kozakov. The centre’s Hurricane replica aircraft will also be repainted to commemorate the 1941 Murmansk mission led by a New Zealander, Wing Commander Henry Ramsbottom-Isherwood. He was one of only four non-Russians to be awarded the Order of Lenin.

There is also a New Zealand angle to the Russian team.

New Zealander Henry Paul, the New Zealand rugby league and English rugby union representative player, is the team’s backs coach. IN New Zealand Trade and Enterprise is the government’s economic development agency. Its job is to lift the country’s economic performance by helping more New Zealand businesses to grow and compete in international markets. For more information about NZTE’s programmes and services see www.nzte.govt.nz.

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flickr.com user Pnaromas

A TRAIN JOURNEY THROUGH MOSCOW REVEALS HOW RUSSIANS LIVE ON THE OTHER SIDE OF THE TRACKS. NZTE’S MARCUS SCOLIÈGE DESCRIBES A COUNTRY OF CONTRASTS.

MOSCOW OUTLOOK

T

flickr.com user Vokabre

aking the aeroexpress from Domodedovo airport to Paveletskaya Railway Station on a cold mid-April afternoon doesn’t necessarily fulfil travellers’ expectations in regards to fast travel. In fact there is an element of stepping back in time which seems both incredible and astonishing in today’s modern world of high speed everything. Housing and commercial developments you pass on the way to the city of Moscow don’t match the picture of a superpower of old, or indeed a re-emerging one. Seemingly abandoned, dilapidated, agricultural machinery clutters the embankments; mounds of rubbish lie exposed in the snow and on the platforms people push their way through the wind to board shabby, old buses.

There is another side to Moscow however. On the wide car-choked avenues, latest model Audis and Mercedes outnumber Ladas and Volgas 10 to one. Behind the old fashioned, rundown buildings there are many highly modern shopping malls, wonderfully decorated supermarkets with fine foodstuffs and fancy restaurants increasingly packed with a growing middle class. There are initiatives outside of Moscow to speed up agricultural development and modernise the infrastructure as well as invest in the long-overdue upgrading of the healthcare system.

After experiencing a decade of unprecedented growth, the crisis of 2009 brought the country to a standstill. Consumer confidence fell and unemployment skyrocketed. Since then though, Russia’s GDP has stabilised and is expected to stay above 4 per cent per annum for the foreseeable future. Of Russia’s 142 million inhabitants, around 60 per cent already have a growing disposable income of around US$350 per month, thanks in part to a flat income tax rate of 13 per cent.

The appetite for Western brands, lifestyle and

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know-how across all areas of business remains high, and this creates great opportunities for New Zealand companies. Some, like the agricultural company Milfos and Hamilton-based Dairy Goat Cooperative, have already been successful and we predict further potential in the areas of agritech and livestock, a sector in which New Zealand has excellent capabilities.

The respected Institute of Grocery Distribution (IGD) predicts Russia’s grocery retail market is due to double over the next five years from €200 billion in 2010 to €400b by 2015, making it the fourth largest retail market in the world. By that time the Russian grocery market will be larger than the United Kingdom and Germany’s combined.

The proposed Free Trade Agreement will simplify New Zealand doing business with Russia. With a focused strategy and solution-driven products, companies can expect great returns. Nevertheless, it is a huge and complex market requiring thorough research and long-term commitment. Generally, it’s not a market where you can expect a quick return nor can it be conquered without a reliable Russian partner or a multinational with an established presence in Russia.

The Russian government is trying to cut the amount of red tape involved in trade, but there is still a high level of bureaucracy, ambiguity, corruption and, of course huge regional differences.

Just like the short train ride to Moscow makes you aware of contrasts, challenges and differences, this applies also to doing business in Russia. However, by keeping this in mind, the outlook for New Zealand goods and services is positive and business can be rewarding if approached strategically.

Marcus Scoliège is NZTE’s trade commissioner in Hamburg.

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BETTER

In a scene from the 1971 original film of Willy Wonka and the Chocolate Factory, we find a group of adults and children tinkering with the famous chocolatier in the invention room.

Mixing a mysterious drink, Wonka explains his formula: “Invention, my dear friends, is 93 per cent perspiration, 6 per cent electricity, 4 per cent evaporation, and 2 per cent butterscotch ripple.”

Q Katie Foley Editor katief@in-business.co.nz

Better is proudly supported by:

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uite rightly, Mrs Teevee points out Wonka’s formula actually adds up to 105 per cent. He ignores her and drinks.

She asks if it’s any good.

He smacks his lips, thinks about it.

“Yes.” In business, the secret ingredient isn’t usually butterscotch ripple, but what I like about that quote is it might as well be. It could be anything, something unidentifiable.

You’ll have an idea of what it is.

Perhaps it’s down to perspiration – you’ve toiled over winning a crucial piece of business for your company. Perhaps it’s down to inspiration – you’ve quietly invented something groundbreaking.

They say necessity is the mother of invention. And from there it is only a hop, skip and a jump to what we keep hearing so much about from industry experts, insiders, government and talking heads – innovation.

And to me, innovation is the ability to think in terms of 105 per cent. But the idea is just the beginning. The practical execution is what will make or break you.

It is a combination of both perspiration and inspiration.

A basic definition of innovation is to make or do something new. But a definition of business innovation should embrace the idea of improvement: making or doing something better than it was before.

So business innovation involves different combinations of both the new and the improved. Business innovation is improving or developing new products, services, technologies, processes, designs or marketing to solve problems (the familiar ones and the upcoming ones), to reach new customers or to reach existing ones better.

Thanks to the fantastic feedback we get from IN-Business magazine, we have designed this new section of the magazine to reflect how readers have told us they want to receive information about innovation. The stories are short, sharp profiles about real people and companies involved in a variety of different industry and areas of innovation.

Through our use of images we are showing there are always new angles and fresh approaches. Sometimes innovation is great leaps forward. Most of the time though, it is incremental shifts, small improvements that go a long way to changing the look and feel of the overall picture.

So welcome to this, the first instalment of IN-Business magazine’s “Better” section.

We look forward to hearing what you think. p46 Blue Star: Courting Contracts p50 Mesynthes: Gut Instinct

Wellington’s business epicentre is still here

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When competing for a contract worth tens of millions, the pressure is on to come up with something different, something better, to set your company apart.

But an all-new solution isn’t always the right answer. As print group Blue Star discovered, sometimes what it takes is a fresh approach to talking about what you’ve already got.

Story by Nina Fowler Photographs by Isaac de Reus

R

esponding to a tender can be a bit like speeddating. Solid attributes are important: abilities, track record and reputation – but so are first impressions and the personalities of those involved.

When a cluster of government agencies led by the Ministry of Social Development (MSD) went to market for a single print services provider last year, it was a tender process with a difference: eight targets to win over instead of one, all with different ideas for what they wanted in a partner.

For Blue Star’s New Zealand CEO David Jupe, it was a game-changing opportunity for his business. As the

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long-term provider to MSD, a major part of the cluster, “we were either going to win it or we were going to lose everything we had,” he says.

Jupe wasn’t daunted by the size of the over $10 million per year contract. Blue Star has provided print management solutions since 1997 and “implemented more large print contracts than anyone,” he says.

Rather, the challenge was the range of agencies involved: MSD, NZ Police, NZ Defence Force, Statistics NZ, Department of Building and Housing, Land and Information New Zealand (LINZ), Ministry of Pacific Island Affairs, and Te Puni Kokiri. This translates to a vast range of products

and services: anything from producing and mailing defence publications or agency statements of intent to rapid-fire emergency relief communications for people in Christchurch.

“They all fronted up with their individual needs and had to all be convinced,” Jupe says. “For some people, what was important to them was getting business cards urgently. For other people it was, ‘we might have ten copies of a document that we need run off really quickly from time to time, how are you going to make that work?’”

For the cluster, the decision to seek tailored solutions rather than a blanket service was important. The tender process began in late 2009 when MSD,

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Innovation needs to be an everyday part of your workplace, according to Blue Star’s David Jupe – and this includes making sure you communicate this to your clients.

its own print contract coming to an end, decided to explore options to cut costs by partnering with other government agencies for print services.

Over 20 government departments put up their hands to say they could be interested, recalls Mike Shatford, MSD’s communications general manager, who sponsored the process. “We went through a process of about three or four months where we needed to weed out the ones that were serious.”

Mid-last year, the candidates were refined to a small and relatively committed group. With MSD dwarfing agencies like LINZ and Te Puni Kokiri, Shatford says there was a real fear that the needs of the smaller agencies would

BLUE STAR GROUP in six questions...

WHO: Blue Star’s New Zealand

WHERE: Wellington and

division and eight government agencies, led by the Ministry of Social Development (MSD)

throughout New Zealand

WHAT: A three-year print services contract worth over $10 million per year, plus two years’ right of renewal.

WHY: MSD, which makes up roughly half the cluster, expects to cut its print costs by 15 per cent year-onyear; some other agencies expect to save more

WHEN: Contract ratified January 2011

HOW: A fresh approach to communication and a commitment to tailored solutions for each agency

2011 JUNE|JULY

47

perspiration

get lost. To address this, “what we said was that everyone had equal say at the table,” he says. “It’s not like a one-sizefits-all approach.”

One or two other agencies were concerned that their requirements for mailhousing couldn’t be met.

Mailhousing, unlike print on demand, involves large amounts of pre-printed stock stored in warehouses and dispatched as needed. “They wanted it and they thought that in order to be included in this process, because it was different to the other participants, it wasn’t going to work,” Shatford says. “We just kept at it; we kept working through the processes.”

After months of discussion and research, the cluster agreed to try to find a single preferred supplier who was agile and innovative enough to meet their diverse needs, came up with “good, tight” assessment criteria and timeframes, and released a request for proposal to market.

Blue Star’s David Jupe and his team knew they’d have to do something special to secure a win. The agencies they hadn’t worked with would need to be won over; MSD, despite a good existing relationship, would need to see proof of an ongoing commitment to innovation.

Coming up with an all-new solution wasn’t necessarily the right answer.

“When you’re an incumbent for a long time and the client goes to market, it’s too easy to come up with all these really cool ideas of what you’re going to do for them,” Jupe says. “That leaves you exposed to them asking why you haven’t offered this before. We felt really comfortable by saying ‘well, we don’t have to do that’ because everything we’re offering is something we’re already doing for our clients.”

After spending days poring over the request for proposal and brief documents, Jupe and his team decided that what they needed to do was present their existing solution in a new way, with additional ideas.

“We weren’t having to invent technologies and innovative ideas that weren’t in play; the innovation was more about thinking differently about how to communicate, how to present our 48

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David Jupe, Blue Star’s New Zealand CEO, prefers plain English to industry jargon.

business.”

The new approach: a response written in plain English, no jargon, with accompanying images, photography and oral presentation in a complementary down-to-earth and “everyday” style.

It might sound like a small decision.

But, as Jupe points out, even switching to everyday language and imagery is a big punt when you’re dealing with a $10m per year contract opportunity, as you risk being downgraded by those who think you’re not professional enough.

He saw the new approach as a chance to take what they were doing and help their customers understand it better.

The new agencies needed to feel comfortable switching to Blue Star and this would only happen if the concepts and measurements used were easy to understand.

“One of the challenges we threw back at the cluster was ‘don’t think about it as

offset or digital or industry jargon, just think about it as the document you need and when you need it, at the right price point and the right quantity and the right quality’,” he says.

To complement this, Blue Star put together a new pricing model based on price points between quality and quantity, rather than digital versus offset.

The new pricing model was also designed to help the cluster manage and forecast demand across agencies.

Armed with their fresh approach, a plan to roll out services across the cluster and a commitment to invest in new tools to automate document compilation, Jupe and his team were ready to pitch.

The cluster reached a unanimous decision in Blue Star’s favour. “The style of our document, our presentation, the whole thing, might have been a little bit informal for a government pitch but actually it made it easier for everyone to

BETTER

understand,” Jupe says.

MSD’s Shatford agrees that the quality and style of the response was a deciding factor. “It was very clear in every part of their response that they understood the brief, that they understood our requirements to service the big and the small,” he says. “No jargon, very clear… what we were able to see was the personality that Blue Star had.”

The cluster contract, which is open for

Mike Shatford, general manager of communications at MSD, says the ability to provide tailored solutions for each agency was a key requirement for winning the $10 million per year contract.

other agencies to ask to join, is proving popular. So far, 12 other agencies, from central government to Crown entities and local government, have expressed an active interest and are at “varying stages of joining,” Shatford says.

According to Jupe, the pitch experience led to a wider overhaul of the way Blue Star presents itself as a business. “When it’s win or lose, then you’ve got to make some big calls. If they’re the right ones, if they’re successful, then you roll those out across the rest of the things you’re doing,” he says.

“Innovation has got to be something that you do every day; it’s got to be the way you work.”

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Innovation is often born of thrift, turning excess product into profit. And what does New Zealand have in excess if not sheep, as a thousand smart alecks will readily point out? “Better” talks to Mesynthes, a medical export business turning our much-maligned woolly inhabitants into a multi-million dollar success story.

Story by Andrea O’Neil Photographs by Sabrina Hyde

I

t’s a timeworn criticism directed at life’s enterprising dreamers, toolshed inventors and pub philosophers: you can’t make a silk purse out of a sow’s ear. While pigs’ ears might remain an unexploitable resource, Lower Hutt bio-medical startup Mesynthes is on track to make $50 million out of sheep stomachs, a cheap-as-chips byproduct of our meat industry.

Mesynthes processes the sheep tissue in its labs, extracts the cells and uses the remaining tissue to make wound repair bandages. The absence of cells in the material means a patient’s own cells don’t reject the foreign tissue, but rather use it like a scaffold, growing onto the framework and eventually replacing it completely.

The bandages are used for traumatic injuries and burns, making skin grafting

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a thing of the past, says Mesynthes’ chief executive Dr Brian Ward. “It means you don’t have to put a hole in someone and essentially cut and paste tissue from one part of the body to another,” he says. “You can use this as an off-the-shelf tissue substitute.”

The medical use of animal tissue is not a new idea – take collagen, which is extracted from cattle. But Ward, a vet and MBA with a background in the animal pharmaceutical industry, saw a gap in the market for ovine-based wound repair. The benefits of sheep tissue had been overlooked, he says. Sheep tissue is uniquely good at encouraging blood vessel growth in wounds. “That’s really important because it affects the quality of tissue regeneration and the susceptibility to infection, and even implant failure.”

New Zealand sheep have the advantage of being largely free from disease, an issue which plagues other tissue sources, such as mad cow disease in bovines. The cultural neutrality of sheep is also a huge benefit. “One of the advantages with ovine material is that there’s no religious or cultural objection to the use of ovine material. Whereas obviously porcine material or bovine material has – there’s some sensitivities,” Ward says.

The company’s first product, the Endoform bandage, is about to go on sale in North America. Since starting Mesynthes in 2008, Ward always intended to target the US healthcare market, the largest in the world by value.

Selling domestically was not an option.

BETTER

Above:

Mesynthes’ sheep tissue bandages replace the need for skin grafts.

Pictured are technician Stan Lun, development scientist Dr Leonardo Negron, and CEO Dr Brian Ward.

“We were never going to sell the product here and succeed,” Ward says. “The market’s too small. We thought that if we tried to incrementally go from market to market we’d just go nuts.”

Ward regards Endoform as a foot in the door to the American market, an unthreatening way to gain attention and trust from the market’s key players.

“We’ve done the dermal product because it was the easiest. [We plan to] succeed with that and go on to something that little bit harder,” he says. Future products waiting in the wings include an implantable bandage for internal injuries such as hernias, and a bandage which delivers antimicrobial drugs to wounds.

Ward hopes Mesynthes will net $50

million in five years from the full product range. “That would be great. Big target,” he laughs. “It’s dependent on a lot of factors but yeah, that’s not an unrealistic number.”

The obvious question is why Ward would set up shop in Lower Hutt when his sole focus was the American market. Lifestyle plays a part, of course – Ward returned to New Zealand from Britain 16 years ago to give his son a Kiwi upbringing. But he also believes New Zealand is a capital-efficient environment for biotech development.

“You can do quite a lot with the relatively limited resources here,” he says. “You’ve got good scientists, good people, lab space, the infrastructure – you’ve got

good first-world infrastructure.” Savings have also been made by renting space and equipment at Lower Hutt’s Industrial Research Limited, a Crown research institute.

An unexpected advantage of trying to crack the US from afar is that Americans are favourably inclined towards New Zealanders. “You’re kind of a curiosity,” Ward says. “It’s just something that’s a point of difference I guess, in getting a meeting perhaps. And then after that, obviously, it depends on the merits of what you’re doing.”

However, being based in New Zealand is in many ways a handicap. “From the investment side it’s incredibly challenging, because the pool of potential 2011 JUNE|JULY

51

inspiration

MESYNTHES in six questions...

WHO: Mesynthes WHAT: A 15-person medical startup making wound repair bandages from sheep tissue WHEN: Founded in 2008, set to launch in US this year WHERE: Based in Lower Hutt.

North America is sole market for product WHY: Potential $50 million market for ovine-sourced medical devices.

HOW: Early US Food and Drug Administration and patent applications ensured first-mover advantage

investors is incredibly small,” Ward says.

Mesynthes have slogged to gain $4m from investors and $1m of funding from New Zealand Trade and Enterprise and the former Foundation for Research, Science and Technology.

Mesynthes’ physical distance from the US is not ideal – “you spend a lot of money on plane rides” – but Ward insists it is not a real challenge to the business. “You’re obviously a long way from the major markets, but that’s more of a mental barrier I think than an actual barrier,” he says. He overcame the problem by spending a lot of time on the ground in America, at medical meetings, educating potential partners about the technology. “We really focused on large companies that had the resources and expertise – and the sales force – essentially to be able to commercialise the product successfully.” It was an uphill battle, he says. “It’s not like everyone’s just sort of waiting for stuff to come along and they’ll immediately embrace you.”

The key to success in America has been anticipating red tape problems early on. Ward employed patent 52

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The company registered its patents in America to ease entry into the US market.

attorneys both here and in America from day one to ensure ease of commercialisation. Gaining US Food and Drug Administration approval in January 2010 was vital in proving Endoform’s credibility stateside. Four or five other companies are developing similar products right now, so Ward is counting on his thorough preparation to land him in the market before his competitors.

Mesynthes’ patents expert, Caryn DeHoratius from Baldwins Intellectual Property, commends Ward for registering Endoform’s US patent early on.

DeHoratius, an American expat, says in her experience most New Zealand firms aren’t as savvy about the importance of patents. “There’s a bit more hesitation here, I think, in terms of, ‘well do we want to spend our resources on patent protection or could we use them for something else?’” she says. In the United States there is more of a history of inventorship, of people developing ideas and making money out of them.

“The mindset is entirely different. You would just automatically file a patent application for any new idea you thought might be a profitable invention,”

DeHoratius says.

Kiwi businesses wanting to launch a product in America need to be aware that the patent process is much more demanding there than it is here. “A typical patent application might get through quite easily in jurisdictions like New Zealand but would have a much harder time in the United States where there’s examination for obviousness,” DeHoratius says. New Zealanders merely have to prove a product is a new idea domestically, she says, but in the US an applicant needs to demonstrate a product is a globally unique improvement on what already exists.

The mountains of paperwork required to prove an invention is unique is well worth the trouble however – Mesynthes can expect to attract a lot of interest from investors who keep an eye on patent registrations, DeHoratius says. “It was such a unique and entirely innovative idea,” she says. “I can only imagine that will help him for getting investors on board.”

You can’t build a reputation on what you’re going to do.

Innovating today, for tomorrow

Blue Star Group New Zealand provides print management services for many of the largest organisations in the country. Its strength as a print manager is underpinned by its print production capabilities while also providing creative services, print production, mailhouse and logistics operations in Auckland, Wellington, Masterton and Christchurch.

CITE

IT’S HOW WELL YOU MAKE THE ARGUMENT

A LONG LUNCH

Our continuing horror story SIR ROBERT JONES

Christchurch could take inspiration for its rebuild from similarly knocked-back cities like Hiroshima, Kobe and Beirut. But SIR ROBERT JONES says success may require authoritarian leadership.

I

gnoring the lives-costing foreign wars New Zealand has opted to participate in, notably the First and Second World Wars (only the latter being justified), our 170 years of nationhood have by world standards been an awfully easy ride. Only the 1930s depression was momentous and left its scars for decades to come, far more so than the late 19th century recession.

Of course there have been occasional loss-of-life events; the civil war of the 1860s between the settlers and some Maori tribes, the Napier earthquake 80 years ago, then Tangiwai in 1953 and Erebus 30 years back. Spread over 170 years these are a mere flea-bite when compared with most other nations’ misfortunes.

As far as we New Zealanders were concerned, like traffic accidents, bad things happened to other people. We might be boring but at least we are safe. Well, no longer.

Now it would seem we’ve endured a massive misery catch-up and the last three years have been a continuing horror story.

First came the recession, inflicted on us (and the rest of the world) by shocking banker

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negligence. Then followed the loss of billions of dollars of mainly old folks’ savings in the finance companies debacle, meaningful in our small population. And last year came the full realisation of the leaky homes crisis with estimates up to $25 billion in costs, a huge amount in the New Zealand context.

But looking back it now seems that all of that was a mere warm-up for what was to come.

The Pike River disaster traumatised the nation and then came Christchurch.

Where to start? Our second city lies in ruins. Was it not for the city’s circa 70 per cent home ownership, doubtless all of its inhabitants would by now have fled to Auckland and Australia.

“

No sensible owner will want to rebuild as tenanting will be an impossibility.

”

For that private ownership reason the houses will be fixed or rebuilt, but what of the CBD, a lovely city now destroyed? Thanks to massive suburban malls the CBD was already in big trouble with numerous empty shops and too many old buildings, rightly dismissed by Gerry Brownlee as old dungers. But such is the destruction, no sensible owner will want to rebuild as tenanting will be an impossibility. Many owners will take their insurance money, pay off any mortgage and write off the land, an ominous prospect for the council’s rating revenues. Add to all of that the continuing traumatic

after-shocks and the outlook looks grim.

So is all lost? Well actually no.

First let’s get some perspective.

If New Zealand was a person the situation is analogous to being in an accident and lying in hospital with a broken leg and a bad concussion. Time will heal both.

Our extensive, highly developed agriculture industry and our industrial and service activities remain unaffected. We will come through all of this.

Harvard professor Edward Glaeser, in his acclaimed recent book Triumph Of The City, made the point that great things happen in the evolvement of great cities when there are authoritarian governments. Democracy impedes rapid or major progress which is the unfortunate consequence of people-power with all of its necessary checks and balances and competing interests. That’s all quite logical and is arguably the biggest problem facing the rebuilding of Christchurch, as so many major decisions will be made by committees and we all know the unhappy consequences of that.

Nevertheless, consider Europe and Japan lying in ruins in 1945 and look at them now. Consider also Beirut which a decade back lay devastated following a prolonged civil war. Look at it today.

As the Economist pointed out a year or so back, Lebanon is the only nation other than the Abu Dhabi-type special cases which missed the recession. And why?

Because of its booming tourist industry. Lebanon is a lovely country with much to offer tourists but the fabulous Roman ruins of Baalbek aside, it’s the splendid

Richard Scott

cite

CHRISTCHURCH: MARCH 2011

new rebuilt city centre which pulls them in.

Today Beirut’s CBD foreshadows the future for all cities with its wide pedestrianised avenues and plazas, fountains and other features, something incidentally that mayor Bob Parker had envisaged a couple of years back for Christchurch.

How did Lebanon pay for this wonderful outcome? It took a visionary, the subsequent president, who mindful of the Lebanese world-wide diaspora, called on them to support a massive rebuilding exercise through a multi-billion dollar fund structured as a shareholding commercial venture.

We do not have an authoritarian system although we certainly have the diaspora, so such an exercise would be difficult although not impossible with a visionary government. But our democratic political processes are not amendable to vision.

Perhaps an even better example is Hiroshima which was totally destroyed by the bomb in 1945. But old Hiroshima was a terrible place,

HIROSHIMA, 1945

HIROSHIMA TODAY

“

With a blank canvas, a lovely new modern city has been built in Hiroshima.

”

essentially medieval in design and, as such, an anachronism. With a blank canvas, a lovely new modern city has been built to replace it.

I think the solution lies with Bob Parker’s original vision, namely to largely pedestrianise the CBD, starting from the centre, and bring back bicycles for which, up to 50 years ago, the city was famous.

In other words, emulate the rip-roaring success of Amsterdam which is essentially a low-rise pedestrianised cycling city and one of the world’s tourism hot spots.

But for bicycles to work the government needs to scrap our infantile helmet law, at least in no-motorised-traffic CBDs. The new Christchurch could be a massive improvement on what was there before which is always the case elsewhere in such devastation

circumstances.

One final but salient point.

About 20 years ago I bought in Wales a complete set of The Times newspapers up to about 1980.

Opening them at random over 150 years proved revealing. There was a consistent theme on the British economy, namely that the game is now up and all is lost. Yet despite that continuing despair those 150 years have marked the most progressive era in human history.

So all is indeed not lost for Christchurch. Far from it in fact.

It now has the opportunity to build what could be our finest city, unblemished by redundant, unused, unwanted and unloved buildings, despite the bleatings from bearded bastards wanting to list everything.

As Christchurch’s most famous architect, Sir Miles Warren, despairingly complained to me once about the listing excesses, if people loved these buildings as much as the bearded dullards profess then why are they not asking us to design new buildings like them?

Postscript: Peace punch Talking of Hiroshima brings to mind a cheery tale to amuse readers in these glum times. As Mike Moore is fond of pointing out, I’m the only bugger in history who could manage to get into a fist-fight in the Hiroshima Peace Museum. Here’s what happened.

I was standing in there studying the large relief model of the pre-1945 city under glass when a Japanese woman loomed up beside me and began discussing it with me.

Then suddenly I was pushed violently from behind. I turned around

to find a crowd of TV cameras and photographers and then one of them tried to shove me away.

I pushed him back, he swung a punch and I dropped him with the old faithful left hook. All hell broke out.

It transpired the woman talking to me who was the reason for this media scrum was Yoko Ono.

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MONEY TALKS

Discounting the children GANESH NANA

Pursuing short-term benefits can leave future generations stuck by the roadside. Dr GANESH NANA argues that New Zealand needs speed limits.

I

t is now folklore that “big is good”. But what about “faster is better”? Let’s admit that most of us like speed, even though we know that in some contexts it could be counter-productive. Of course, in the worst case scenario we all (should) know that “speed kills”.

But, away from the steering wheel, most of us still compete in the race to be the fastest. After all, not many of us like coming second. I know, because I’ve been a Hurricanes supporter for 16 long, long years (more on that another time).

So, what about in the world of economics and business? Is the quest for speed a plus for business and national economic prosperity, or does it get in the way? The answer, I suggest, depends on what we expect to gain from more and more speed.

The benefits of doing things faster can be around delivering early; being a first-mover with new technology or into a new market.

This capability and capacity to better meet the needs of clients and customers should presumably provide benefits in improved profitability, and ultimately a more sustainable business.

But, arguably, the “need for speed” in many organisations may well be a metaphor for larger and faster profits. End of story.

This is where I part company with that quest for speed. For not only is there a push to do things faster, it seems this is translated in many quarters to mean that we need to gain from what we do even

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more quickly. If we don’t get gains quickly, then we are not interested.

And it is this aspect where, in my mind, an unrestrained quest for speed can hinder the development of national economic prosperity.

Yes, it may be appropriate for (some) individual businesses to press for speedier processes to translate into larger and faster profits. But from a national perspective there is a clear need to encourage a more informed balance between safeguarding (and indeed improving) longer-term gains, and the appetite for the fast buck. To justify this call for balance, I reach for my economics textbook and bring to the fore a concept dear to my heart. It is called market failure.

I am a devoted disciple of the market mechanism in its ability to organise and trade-off (balance) an economy’s competing wants and needs. However, I am also fully aware of where the market fails to succeed in these balancing acts. And the one core failure in the prescribed textbook is its discounting of future generations’ wants and needs.

These can be devalued long before they even get a say through the workings of today’s market mechanism. There is a clear role, I argue, for an organisation to rectify this market failure by representing the wants and needs of future generations.

This role clearly falls to our elected leaders. Admittedly, this is contentious. Some believe in the here and now and feel little responsibility to future generations. But others do. I do not argue that the former view is any more or less (economically) valid than the latter. But I do argue that those with the latter view do not have a voice in the textbook marketplace.

And speed, where it is a metaphor for quick returns, amplifies this market failure.

Let me illustrate by way of an example. A local authority is about to spend a few million dollars upgrading its waste-water

treatment and disposal facility.

The benefits or gains in terms of the improved quality and amenity value of the nearby river will not be significant for a decade or more.

Such improvements could see a re-vitalised business and community centre as the area becomes increasingly attractive to new, well-heeled and highly skilled entrepreneurs, workers, and families. But again, these benefits are at least a decade away.

A conventional benefit-cost analysis would immediately discount these future benefits to a shadow of their actual value. At the promulgated Treasury discount rate of 8 per cent per annum, benefits that are a decade away are counted in the calculation at only 46 per cent of their value. If the benefits were a whole generation away (say 20 years) then the benefits would be counted at only 21 per cent of their value.

Competing options for such spending (eg. a few million dollars on upgrading a central city’s retail and car parking complex) may provide a similar quantum of benefits. But as these benefits will appear far faster, say next year, they would be counted in the calculation at 92 per cent of their value. Clearly, the wants and needs of future generations don’t stand a chance in the face of such competition.

The market is not great at weighing the balances between inter-generational spending and benefits. This is why leaders and institutions need to tweak market mechanisms accordingly.

It is important that the need for speed is appropriately limited so those that could be harmed are not rendered totally silent in their absence. Speed should be limited so that immediate needs are balanced by insightful leadership that is committed to building a prosperous economy for tomorrow’s Kiwis, as well as today’s.

Dr Ganesh Nana is chief economist at BERL.

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SNIFF THE BREEZE

Name the price, set the price PATTRICK SMELLIE

When it comes to pricing your wares, it might pay to lose the logic.

The youthful science of psychology and the elderly science of economics go hand in hand when it comes to pricing.

W

hen buying a house or a second-hand car, there comes a moment after you’ve crawled under to check the piles or taken it for a test-drive, when you reveal your price.

Likewise, for anyone who’s ever had to sell goods or services to keep food on the table, the moment of price discovery is at the heart of the business.

You may have had coffee or lunch together, batted ideas back and forth, taken flights and invested time in presentations and brain-storming. If there’s real opportunity, there will probably have been lots of warm smiles and hand-waving about all that you’ll do together to conquer your mutual special corners of the world.

Only with great care, however, is a number ever placed on the table.

If we were in a Western, this would be the shoot-out.

And the reason for that, most of the time, is that when it comes to price-setting, there was never a right answer to start with. The answer is the answer, and your business lives or dies by the outcome.

Professionals who negotiate prices daily may disagree, and they’d be right to say you’ll never sell matches for a million dollars each. But if it’s a question of whether matches might sell at $1.50 instead of 20 cents a box, the

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rules of engagement are far less clear than an economist would have you believe.

In fact, a wave of research by behavioural psychologists in the last three decades has established that we are far less logical about prices than we realise.

This is the secret of pricing as revealed in a marvellous book, Priceless by William Poundstone, that boils down to the following sales tenet: whoever sets the first price has the greatest influence on the final price.

In explaining this, Poundstone shows how the relatively youthful science of psychology has informed the somewhat more elderly science of economics on the question of pricing in the last 30 years.

“

Trust is the thing which, if lost, makes people stop buying your product for a long time, and which no accountant can reliably value in dollars until the loss occurs.

”

Previously known for their plodding application of rational markets theory to human behaviour, economists were forced to take notice when behavioural psychologists started to prove, in controlled experiments using modern computing power, that human biases exist in attitudes to pricing, often linked to valuesbased judgements rather than perceptions of monetary worth.

Amongst the widest findings: a sense of fairness is crucial, but the definition of fairness is defined by naked self-interest.

From these findings came

greater concentration on branding, offer-testing, and the rise of metricated sales channels and reward structures. This was long before the growth of the internet as a sales and marketing tool.

At the same time, some of the same behavioural psychologists were influencing theories of human reaction to risks – perceived and real. They found non-rational human nature had a lot to teach the scientists and rational policymakers who saw risks as maths equations rather than personal threats of often unknown and perhaps catastrophic proportions.

This in turn sparked the public relations industry’s interest in the public phenomenon of “trust”, the thing which, if lost, makes people stop buying your product for a long time, and which no accountant can reliably value in dollars until the loss occurs.

I

nevitably, from these insights, there also came some fantastically simple guidance for the advertising industry about how to pitch things to make sure not only that they sold, but with higher margins than a simpler approach might produce.

Take restaurant menus, a place where price-setting is an acute business issue. Every restaurant is different, and must find its place in the market. There is no Warehouse-style monolithic pricing here, unless you’re McDonalds.

Even then you’re offering clever combos of short-term specials to raise sales and margins past normal levels.

A typical Priceless example is a US restaurant whose whole pitch was that it served a $72 steak, and if you could eat the whole thing, they’d wipe your bill. They didn’t expect to cash out many $72 steaks, but created an atmosphere for the diner where $72 was an extravagant gamble, perhaps $60 was okay for a meal – and there was

cite

some damn fine eating there too, my friend, of which they sold a lot at high margins.

The $72 steak became the “anchor” price for the rest of the menu.

Priceless devotes a whole chapter to the theory of menu layout, dividing dishes into “stars”, “puzzles”, “plough-horses” and “dogs”. A star is high-profit and popular, while a puzzle is high-profit but unpopular. A plough-horse is popular but unprofitable, and a dog is neither profitable nor popular.

“Consultants try to turn puzzles into stars, nudge customers away from plough-horses, and convince everyone that the prices on the menu are more reasonable than they look,” Poundstone writes.

A key finding: don’t list prices in a straight line down the edge of the page. That encourages price comparison. Make customers

consider the food, and be upsold by the layout, not look first at the price.

What emerges is simply this: whoever names the price, sets the price. Not absolutely, but relatively, and in business everything’s relative.

Of course, you won’t stay in business if you take prices that don’t let you pay yourself or your staff. But from there, it’s a bit of a mystical tour, informed by the pricing of competitors, the state of the economy, the level of need or commitment from the buyer, and a myriad of other factors that make “the price” the price.

But the anchor is the first price, and it sets the tone. It’s worth remembering.

Pattrick Smellie is an editor and founder at BusinessDesk, New Zealand’s independent business news service.

flickr.com user Esther Gibbons, used under a Creative Commons licence

YOU’LL NEVER SELL MATCHES FOR A MILLION DOLLARS EACH.

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NEWS INC.

The name game TIM PANKHURST

New Zealand’s name suppression laws are a mess, as TIM PANKHURST learned the hard way.

P

arliament is currently considering a reform of this country’s suppression laws – and not before time.

An extensive review of the court system embodied in the Criminal Procedure (Reform and Modernisation) Bill includes raising the bar on defence arguments for suppression of names and evidence.

“Extreme hardship” and “real risk of prejudice” will become the tests for suppression, rather than current oft-used excuses such as that granny is sick and could not cope with the shock of family fallout.

In future, white collar criminals may have to think twice about public humiliation before putting their hand in the till and investors might just be better protected from shysters.

The Media Freedom Committee – administered by the New Zealand Newspaper Publishers’ Association and representing all mainstream media including print, radio and television – is among those trying to ensure the justice system becomes more open.

Its submission to the Justice and Electoral Select Committee argued suppression orders are far too readily applied in this country and this undermines the principle of public access to the courts. It is acknowledged this is a contentious area, even more so

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in the internet age, that requires a balance between the judiciary’s need to ensure a fair trial and the media’s role as public surrogates in a courtroom.

But to the protest that it is not fair to single anyone out, the response is they are invariably people who are either held up as role models and trade on that, or they have built their reputations by courting publicity. They cannot expect to turn it off when it doesn’t suit them. Blue Chip and Hanover spring to mind here.

Sometimes, good reason exists for evidence or identities to be suppressed during a court case.

However, judges should use their power to suppress sparingly, impose orders for as short a time as possible, ensure that they are narrow in scope, and be precise as to their ambit.

Too often this is not the case.

As the Law Commission said in its review of suppression, on which the Bill is largely based: “Open justice has been regarded as an important safeguard against judicial bias, unfairness and incompetence, ensuring that judges are accountable in the performance of their judicial duties.” In a separate but related move the Law Commission has embarked on a year-long review of regulatory gaps in new media.

This is an attempt to find a model suited to the new publishing environment that incorporates codes of ethics and independent complaints bodies that the mainstream media are subject to.

The mainstream media, anxious to see that its credibility is not undermined, supports such moves and does not want to see open slather.

Free speech is precious but it is not absolute, it comes with responsibilities.

Attention seekers like Cameron Slater and Vince Siemer, who flout suppression orders and directly challenge the courts, deserve

what they get – a $750 fine and $130 costs on each of eight charges of breaching suppression orders and one of naming a victim in a sex abuse trial in the case of the former and imprisonment on three occasions in the latter over an unwise and ongoing feud with Auckland accountant Michael Stiassny.

But how to deal with those using social media to communicate with an often wide group of friends?

In speculating on the identity of the latest sports “star” who has slapped his girlfriend or whacked a stranger without cause in a bar fight, they may well be in contempt of court. Most doing so would probably have no idea they are breaking the law and do not regard themselves as publishers. But that is what they are.

This behaviour is not confined to witless teenagers.

The corporate sector is just as likely to be similarly buzzing over the latest anonymous property developer or director in the gun, or lawyer trying to escape drink drive publicity.

The solicitor-general, Dr David Collins QC, has also entered the debate with the release of a discussion paper on the law of contempt of court written by professor Tony Smith, dean of Victoria University’s law school.

Encouragingly, Prof Smith acknowledges the contempt law and its applicability are uncertain in too many aspects. “In an area of the law where freedom of expression is often intimately concerned, there is a danger that the law will exercise a chilling effect.” Too true.

T

he dog’s breakfast that is the current contempt law was well illustrated in the 2008 contempt case brought by the solicitor-general against Fairfax and myself as then-Dominion Post editor over publication of

cite Flikr user gmcmullen

is required to be taken down, assuming an international service provider will co-operate or even engage, until a trial is completed.

However, being well connected or extravagantly wealthy or well-known or good at kicking a ball will no longer provide protection denied to the average Joe. And that is no bad thing, provided the fundamental tenet of our legal system is maintained and protected – that a defendant is innocent until proven guilty.

flickr.com user gmcmullen, used under a Creative Commons licence

extracts of police communications on covert surveillance of alleged terrorism activity in the Ureweras. (In referring to this case Prof Smith names the Pankhurst concerned in the first instance as Panckhurst, the same spelling as that of the High Court Judge. He is hereby acquitted of any penalty in confusing defendant and the judiciary, who may be equally well intentioned, but is given a finger wagging.)

Dr Collins’ case was dismissed but the respondents were criticised for “reckless failure” to ascertain the extent of suppression orders.

But as late as day four of the trial, the Crown was still trying to establish just exactly what confused suppression orders across several courts in different cities related to.

And the fact the defendants on Arms Act charges have still to come to court, nearly four years after the alleged events and three years after the Dominion Post publication, makes a mockery of any notion of publicity prejudicing a fair trial.

The law is struggling to cope with the explosion in instant electronic communication and it may well have to concede defeat.

Just as defamation is being rendered obsolete in an age when any reasonably wellknown person may find content they object to fixed forever on their profile on Google and people are free to blog and Twitter on whatever halfformed thoughts come into their heads, suppressions will become harder to impose and maintain.

The best that might be achieved is an uneasy compromise where any problematic online material

Tim Pankhurst is chief executive of the Newspaper Publishers’ Association.

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WHAT THE FLOCK?

The blur of secrets and lies BRUCE SHEPPARD

There are no secrets in business, just good guys and shysters, writes BRUCE SHEPPARD.

I

t has never been truer that you can run, but you can’t hide.

It is interesting that the more we have become concerned about privacy, the less privacy we in fact have. New Zealand enacted the Privacy Act in 1993 and established a Privacy Commissioner, but it seems this act actually started with the base assumption that we all had a right to privacy. Is that a valid assumption? Perhaps we actually have no right to privacy at all and perhaps that is a better state of affairs.

I would argue privacy is only the prerogative of those who have something to hide. The internet and modern surveillance equipment effectively mean nothing is private. Anything you put on a computer anywhere can be hacked, if you have an internet connection, and can be published.

If you do have something that is secret and it is important (and by the way, not much that we do is that important), the only way to keep that secret is never to record it on a computer that is ever connected to the internet, with or without all your snugglerug firewalls. Never speak about it or mention it to anyone on any electronic equipment, never talk to anyone about what you know, and never exhibit any product that can be reverse engineered. Talk very quietly and only to people who share the benefits of your secret.

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Hell, join the Freemasons.

Or alternatively talk so much, about so much, that no one knows what the hell you’re talking about, and the secret can safely be buried in the slag heap of irrelevancies.

There is truth in the saying that the best place to hide is in a crowd.

In business, we sometimes work too hard to protect our trade secrets, and sometimes the harder we try to protect something, the more determined people are to look at them.

Does KFC really believe that no-one knows what their secret herbs and spices are? Of course not: what protects their business is great distribution, speed to market, critical mass and buying power.

“

Mostly the things that are really secret are completely dopey.

”

How often do “bright idea” people debate the issue of raising capital to secure their intellectual property with global patents?

Has Coca-Cola got a patent, or has it ever had one? No. The whole premise behind a patent is documenting and publishing your innovation and encouraging challenges to it which, if there are none, gives you a title to your invention for a period of time. In short, the exact opposite of secrecy.

Speed to market and a strategy around noise or silence is often the better approach. If, however, you intend to use external distribution via a licensing model, the large international distributors will not pay you a dime without a patent.

All you who have sought capital or looked at investing capital will have been confronted by the Non Disclosure Agreement (NDA) farce.

Having sold a few businesses and

having insisted on the intending purchasers signing these things, it is almost impossible to actually make these work.

The reviewer always gains knowledge of the competition or market place and will always be able to apply that knowledge.

The worst example I ever saw of this was when a major chain retailer did due diligence on a smaller chain of specialty stores.

They did not end up buying it but the concept was in effect copied to create a store-within-a-store concept in selected stores in the chain. As part of their due diligence they got to understand an alternative retailing concept, and they also understood the demographics that enabled this to work. The little guy is still in business, simply because big guys, even with lots of knowledge, are still tortoises, and their efforts simply increased overall segment awareness.

As an investor I have signed these things too. Mostly the things that are really secret are completely dopey. There is an inverse correlation with the magnitude of the secret and magnitude of the opportunity.

One example where I was asked to sign such a document involved a software project. The idea was robust, but when they finished I said simply that with a couple of twists I had seen a project with different architecture that was better advanced, which was attempting to satisfy the same perceived need. I told them that, regardless of this, they had a particular approach to commercialisation that had merit, but that it would make sense for these two companies to talk and deliver one exceptional product rather than two competing products.

The first one had not signed me up to confidentiality, so I called him and asked if I could give these other people his name, he said

cite

WOLVES DRESSED AS SHEEP: INTEGRITY IN BUSINESS IS REWARDED IN KIND.

sure. They talked briefly but the first group tried to sign this other guy into confidentiality (a bit hard since he was in their space) and they both went on their way to do the same thing. Neither, to my knowledge, got anywhere.

This month’s publication is supposedly about when to speak honestly and when to shut up. That is easy – always shut up if you do not know who you are talking to and what their ethics are. Always

speak honestly and openly with those who, having nothing to hide, speak honestly in return to you.

And if you like this way of doing things, give up on the secrecy. If you crave privacy and secrecy, no-one can judge who you are and no-one will engage with you other than in reliance on documents produced by endless lawyers, and you will have to trust your secrets to the courts rather than to good people who you can judge.

So the short answer is always know who you are dealing with.

If they cross you, publish it on the internet, and buy a whole bunch of search engines, so that the wolves dressed up as sheep cannot hide.

The answer to good business is not secrecy – it is honesty and good ethics and integrity.

Bruce Sheppard is an accountant and founder of the New Zealand Shareholders’ Association

“We now use 50% less paper for our statements.”

Stefano Fulgoni, Credit Manager at DéLonghi, says “the company has halved their paper usage for statements and saves nearly a day of staff time every month.”

How did DéLonghi improve their efficiency so dramatically? t was mutually beneficial for some of DéLonghi’s trade customers to receive statements sent electronically; others preferred paper. However, DéLonghi’s old printers were slow and did not allow the electronic statements to be excluded from the print-run, which had to be done manually.

Stefano Fulgoni Credit Manager DéLonghi NZ Ltd

format of the statements and automatically determines which statements need to be printed, and which need to be emailed.

And all this happens when the user selects ’Print’.

To find out how Ricoh can help your business, call 0800 2 RICOH (0800 274 264).

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I

Now, the print solution from Ricoh has improved the

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tech TAKING CARE OF BUSINESS ON AND OFF LINE

Private life drama

crescendo.net.nz

INTERNET VIGILANTES ANONYMOUS HAVE WAGED CYBER WAR ON GOVERNMENTS AND GLOBAL CORPORATIONS ALIKE

Apple: Big Brother The undisclosed tracking of iPhone and iPad 3G users running iOS 4 and above is the latest in a litany of privacy issues for Apple.

Alasdair Allan, a senior research fellow in astronomy at the University of Exeter and writer Pete Warden have found both devices gather location-based information such as latitude, longitude and time stamps and store them in a file named “consolidated.db”. Though not entirely accurate, the data contains tens of thousands of location points, believed to have been collected via cell-tower triangulation.

To top off this serious act of privacy invasion, the location data collected is unencrypted, unprotected and on any computer you’ve synced your device to. So your office computer – or your mate’s notebook that you used to charge your iPhone that one time – contains all the data of the places you’ve been to since purchasing the gadget and is readily accessible.

If you’re curious about whether your Apple device is being tracked, you can download an application released by Allan and Warden called iPhone Tracker (Google “iPhone Tracker” and “GitHub” together) which maps all the location points saved in your iPhone or iPad 3G. Skype for Android: even the genuine ones fail sometimes Google’s mobile operating system is not free from vulnerability either.

One of the downsides of being an open-sourced OS is hackers can create applications which contain malicious viruses that collect

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flickr.com user Stian Eikeland

advanced content management membership systems e-commerce custom development social media integration mobile web development

With the heavy reliance we have on technology today, it isn’t surprising that personal information often isn’t as private or secure as we’d like.

BENEDICT WEE looks at examples of privacy breaches – and how vulnerable our current technology is.

personal information as well.

Recently, Google had to remove over 50 apps from the Android Market which contained malware, suspend developer accounts of those who created them, and pass on their identities to the authorities.

You’re probably thinking that your Android phone/tablet is safe because you don’t download apps named “Super Free Anime Wallpapers” and instead use the official ones of programs you use on your computer. You’re probably wrong.

The official Skype app for Android has just been found to not have any kind of security protecting your profile information since its release last year. That means your phone number, chat logs, Skype credit balance, full name, date of birth, email address, biography and more (with the exception of your credit card information) was just hanging around in some file, waiting for someone to procure it. Skype has since fixed this issue and user information on Android devices is now encrypted.

Anonymous: Internet vigilantes Originally conceived as an internet meme, Anonymous is a concept of various online communities banding together to coordinate virtual attacks against certain organisations, commercial entities and sometimes governments who, in their opinion, have infringed on human rights such as freedom of speech and internet freedom.

These attacks usually come in the form of a distributed denial of service (DDoS) which causes the

affected group’s website bandwidth to overload and become inaccessible to your average user.

Other tactics employed by Anonymous include the hijacking of email accounts and uploading inappropriate images or videos to the victim’s website.

One notable attack occurred during the 2009 Iranian elections where they helped set up a Green Party Support site which allowed for the exchanging of news between Iran and the world, despite efforts by the Iranian government at censorship.

Another attack took the form of DDoS hacks on Australian

government websites to protest internet filtering legislation.

The latest crusade taken on

by Anonymous is against Sony Computer Entertainment America, which sued a 21-year-old hacker for creating a tool that allowed homebrew software to run on his personal PlayStation 3. The PlayStation Network, an internet service that connects PlayStation 3s for online gaming and shopping, has since experienced outages that prevent users worldwide to go online with their consoles. The potential cost: millions of dollars of losses in online purchases and civil lawsuits.

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Users can turn on geo-tracking to pinpoint the device’s location device as well as the journey it has made, based on the internet networks it uses. You can also take a picture of the perpetrator by turning on your webcam remotely.

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A conversation with . . .

LECH WALESA EASTERN EUROPE WOULD BE QUITE DIFFERENT WITHOUT THE LEGACY OF LECH WALESA. AS LEADER OF POLAND’S SOLIDARITY TRADE UNION, WALESA NEGOTIATED HIS COUNTRY’S BLOODLESS TRANSITION OF POWER FROM 40 YEARS OF SOVIET-DOMINATED TOTALITARIAN RULE TO DEMOCRATIC ELECTIONS IN 1989. AT 67, THE FORMER PRESIDENT AND NOBEL PEACE PRIZE WINNER HAS LOST NONE OF HIS FIRE, AS TIM COLLINS DISCOVERED.

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“WE SHOOK GOD ALMIGHTY. We are not afraid of our neighbours any more. We had to rearrange life and so it happened . Sometimes I’m afraid I awoke the demons, the demons of freedom. Where is the responsibility? So, it’s a huge chance and we have many things to discuss, but also there are threats.

WE STARTED AS THE FIGHT FOR FREEDOM, with workers against the system, and suddenly it’s turned out that we have the whole of Europe, and now we have the whole world. It is a global world. So here are new programmes, new democracies.

If somebody told me that I would live to see such changes in Poland, I wouldn’t believe it. But now when I think how after all those years, how much better things could have been done, I am not satisfied.

T

oday, Lech Walesa runs the Lech Walesa Institute, founded in 1995, whose mission is to support democracy and local governments in Poland and throughout the world. The institute is committed to solidarity with pro-democracy movements worldwide. Walesa recently led a delegation to assist with transition of power following the revolution in Tunisia. He plans to visit New Zealand for the first time within the next 12 months.

Walesa’s current offices on the top floor of Gdansk’s historic Green Gate residence are far removed from the docks where he rose to fame. But his commitment to peaceful democratic change is as strong as ever.

He met with IN-Business publisher Tim Collins in Gdansk, Poland, to discuss globalisation, China and New Zealand vodka.

I CHOSE ANOTHER WAY, NOT LIKE LENIN OR CASTRO. The problem is whether I won or lost. Many say I lost.

I’m saying I won. New processes started. Because the revolution was not for me; the revolution was for democracy, freedom.

My fight and the fight of Poland opened the subject of globalisation. I would like to focus on building the programme and structures of globalisation. Everybody sees that. There are a lot of ideas – and everybody sees that in a different way.

The present programmes, political and economical, do not fit globalisation. We have been competing within the countries – continents even – and globalisation does not allow that anymore. It’s a different philosophy.

We have to take a system for globalisation from the “law of the road”. Anybody – the Arab, the black, the white, whoever, can drive on the road, and it is okay. We would like to make such regulations for other subjects and other ways of living so that we can drive like that.

Economics, politics, science, healthcare . . .

NOT TOO FAR HOWEVER. I will never agree that my wife will be globalised! So there are some subjects that we don’t want globalised. That is why we have to choose, definitely, those things that everyone will agree.

Everybody has different values... so there is a lot to talk about, to speak about, and to quarrel about too, and this generation will have to do it. I am discussing this during my visits to every continent.

I KNOW NEW ZEALAND ONLY FROM THE MAP. I would like to see it by being there. Maybe I will find something important which will be good for my fight.

I have been invited as a revolutionary to help transition power in Tunisia, to share my point of view.

I have been talking about how technology will focus people on the changes, and force people to change their point of view and way of living. I have spoken to the elites of the nations to get prepared so that there will be no

2011 JUNE|JULY

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CONTINUED FROM PAGE 67

fighting, no shooting, and no aiming at one another – so that the solutions will be less painful. When I go there I will see how possible it is.

I AM TRYING TO HELP CUBA BECAUSE IT IS A WONDERFUL COUNTRY. We are trying to change so much in Cuba, as much as possible, so that other people can go and cherish what Cuba has to give. It is very dangerous there and too near the United States. Those who are most active are emigrating and therefore they are weakening the fight.

Sooner or later Cuba is going to be free, finally, because mankind is focusing on Cuba. And there are huge businesses that can be done there. At the same time those businesses are giving a lot of health for the people.

WE ARE ALSO TRYING TO FOCUS ON WHAT IS HAPPENING IN CHINA – but from the other perspective. As I said before, the world has to become globalised and there is no globalisation without China. They have a different way, different road to the future, different structures.

I am for globalisation but I don’t like the Chinese solutions. It should be that all of Europe, together with the United States, should press on China to change. If not, China will press on us. This is the choice we have.

I have connections with revolutionaries in China but have to be very careful because I know what pressures

they are under. I don’t want to endanger them. They cannot change so fast in China. Because it is like I always give the example of Poland and the road system – we can drive 200 kilometres per hour. China, on the other hand, is like a huge truck so he can’t do 200 km per hour because there would be accidents. Maybe we should speed that truck up more but maybe not too much... I like them very much, their culture is splendid, and I am thinking of them the best I can but it has to be done slowly.

THE PROBLEM IS THAT WE DON’T SPEAK SERIOUSLY ABOUT GLOBALISATION. My suggestion is that within the United Nations there could be a very small office established with a small sign: ‘Here we are seeking ideas for globalisation’. Three rooms: in one room, we seek the global parliament; the second room, we seek global ruling; and the third – defence, global defence against terrorism for example. And a few people – not many – should sit, think, and propose.

[PRESENTED WITH A BOTTLE OF 42 BELOW VODKA AS A GIFT FROM NEW ZEALAND] DO YOU THINK THAT IT WILL HELP THINKING? If it will be good, and I will like it, I will tell you when I come to New Zealand.”

Tim Collins travelled to Gdansk, Poland with the generous help of Cathay Pacific and the Polish Embassy in Wellington.

>>Say you want a revolution A shipyard electrician by trade with no tertiary education, Walesa changed the course of history through charisma, street smarts and a revolutionary spirit – which he still has today.

Born in 1943, Walesa entered trade union activism soon after starting work at the then-Lenin Shipyard in Gdansk. He led the 1980 landmark strike at the shipyard, leading to strikes throughout Poland and the formation of the Solidarity trade union, which grew to claim millions of members across the country.

In 1983, Walesa was awarded the Nobel Peace Prize for his efforts towards the universal freedom of organisation and his commitment to non-violence. Fearful that the Soviet government wouldn’t let him back into the country, he was unable to travel to Norway to receive the award.

After a fresh wave of strikes and social unrest, the communist government in Poland eventually agreed to semi-free parliamentary elections, held in 1989. The following year, Walesa became the first democratically elected Polish president in the first non-communist government on the eastern side of the “Iron Curtain”.

It was a landmark moment. Poland’s transformation spurred similar revolutions in Hungary, East Germany, Czechoslovakia, and beyond. The Berlin Wall came down; in Moscow, the Soviet Communist Party agreed to give up its monopoly of power, leading to elections in over a dozen former republics of the USSR; and Eastern Europe changed forever.

Walesa’s contribution was pivotal. As Oxford historian and author Timothy Garton Ash wrote for Time magazine, “without the Polish icebreaking, Eastern Europe might still be frozen in a Soviet sphere of influence, and the world would be a very different place”.

Despite his high profile, Walesa kept a down-to-earth and offbeat sense of humour – reportedly quipping after a stay at Windsor Castle in 1991 that his “bed was so big that I couldn’t find my wife”. After losing the presidency in 1995, he returned to live in Gdansk.

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LECH WALESA IN 1980, LEADING THE POLISH WORKERS’ SHIPYARD STRIKE.

Congratulations to the 2011 Gold Awards Winners!

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THE LAST WORD IN BUSINESS

’ SOMETIMES THE MOST IMPORTANT DEALS ARE MADE OVER COCKTAILS AND CANAPES.

My lips are sealed

I Your secrets are safe with me, claims MICHELE A’COURT

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f you have any juicy secrets, they are perfectly safe with me. This is because I am, in possibly equal parts, both savvy and stupid.

The savvy part comes from my childhood.

Our neighbours way back then were what might be termed “movers and shakers” in the worlds of business and politics.

When special guests arrived for cocktails and dinner – the environment where the most important deals are done and later rubber-stamped in a boardroom – I was asked to pop on my best frock and climb the fence to hand around the nuts.

So between the ages of 10 and 17, I was privy to many a conversation about the business, political (and occasionally marital) machinations that kept our little part of the world turning. I understood without ever really being told that what happened over pink gin and canapés wasn’t to be broadcast beyond the garden fence.

From time to time, our delightful neighbour might say to my mother, “I suppose Michele mentioned that so-and-so is running for parliament/selling the company/having it away with her doctor”, and my mother would first look blank, then proud, then possibly a little irritated and say, “No, she didn’t mention it”. I continued to be invited to hand around the nuts.

I loved knowing stuff – occasionally my parents would mention some bit of local

“

news and I’d say smugly, “I know”. I still like knowing stuff – TV and film auditions, voice work for advertising campaigns and being a judge for funding applications and awards events often come with non-disclosure agreements. There is always a small frisson of excitement about being handed an NDA – it suggests you’re part of a select group who have been told a special secret and I enjoy the chill of reading legal-speak for the kinds of ramifications you are threatened with if cats are let out of bags.

But really, I don’t need an NDA because I have also, over the years, become a bit thick. Thick or forgetful, it’s hard to be sure.

Fairly often, I’ve heard something on the radio or TV and thought, “Whose voice is that? She sounds familiar...” before realising it was some secret campaign for a fancy new product I’d recorded months ago and forgotten about the moment I left the studio.

If my brain is a computer, I seem to defrag and wipe my hard-drive on a fairly regular basis and completely fail to backup my archives. I’d make a weird spy – excellent intelligence gathering but nothing to report, sir. You’d have to water-board me to make me remember what I did last week.

So really, if you have something you desperately need to tell someone and don’t want it to go any further, talk to me. I make an excellent pink gin and I’ll pass you the nuts. IN

If my brain is a computer, I seem to defrag and wipe my hard drive on a regular basis.

”

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