Exporter Issue 13 by People Media Group Limited

issue 13 DECEMBER quaRter 2009

export opportunitIes on every page

Managing the credit and risk monsters in 2010 Sharpen your act or fall over

• • Tackling green packaging • • Internet payment solutions • • Middle East in a thousand and one nights • • War with the pirates

Need a low rate to ease the high dollar? Easy.

JOB CREATION LOAN FUND. Helping keep Kiwis in jobs.

ASB Bank Limited PPU30877

Strong exports are critical to our economy. But with a high dollar and tight global market, things are tough for exporters right now. So we’ve made our billion dollar Job Creation Loan Fund even more flexible by introducing new floating rate options and foreign currency facilities. While these changes are specifically designed to help exporters, we can lend at below market rates for any business initiative designed to create or retain jobs. So if you’re doing your best to keep Kiwis in jobs, call 0800 272 222 or visit asb.co.nz and we’ll do our best to help.

www.asb.co.nz Floating rate will remain at 1% p.a. below ASB’s variable housing rate for up to 2 years then revert to the market rate at that time. Rates are subject to change. ASB’s normal business lending criteria and terms and conditions apply. Minimum loan $100,000, maximum $10m. An early repayment adjustment may apply.

issue 13 DECEMBER quaRter 2009

COVER STORY FINANCE Managing the credit and risk monsters in 2010 Are your bankers with you?

FEATURES REACHING MARKETS Curse of “Hi, I’m from New Zealand” How to succeed in Australia COOL TECHNOLOGY Love at first touch: Blackberry & iphone Cool technology INSURANCE War with the pirates About piracy insurance

08 12

CUSTOMS Exporting through the ‘green lane’ Faster and faster TRAINING Exporter training for the antipodean Top courses for export training TRAVEL COST The double-edged sword: internet travel bookings Reducing travel hassle

18 20 25

MARKETING Grooming tourists as brand ambassadors Untapped brand salesforce PACKAGING The thing about sustainable packaging New ways to package exports GREEN TECHNOLOGIES Exploring the inner space of green technologies Successful green planet technologies

REACHING MARKETS Tackling business in A Thousand and One Nights What to expect in the Middle East

ECONOMIC DEVELOPMENT Petrol head heaven in NZ Motor sports as export

PAYMENT SYSTEMS Wired yet worried About credit card payments

REGULARS Publisher’s view / say it like it is Mike Taillie

Viewpoint Daniel Silva NZ’s economic myopia

Andy Hamilton See-sawing currency stops NZ’s OECD climb

PRODUCTS Global Stage Innovative NZ products seeking a worldwide audience

INSURANCE Trade credit insurers curb appetite for risks Trade credit insurance gets trickier FOREX Building a natural hedge for the swinging kiwi Coping with the high dollar LOGISTICS Heavier trucks would make cents for exporters Road transport productivity

40 44 48

Exporters’ Toolkit Products & services you should know about

Directory Useful Websites Information for travellers and exporters

Editor: Yoke Har Lee, (E) yokeharlee@exportermagazine.co.nz COPY Editor: Anthony Doesburg Advertising: Rosie Payne (M) 021-683-432 email: rosie@exportermagazine.co.nz P.O. Box 7070, Wellesley Street, Auckland, New Zealand (T) 09.366.6879 (F) 09.366.6838 www.exportermagazine.co.nz Design: Craig Haythornthwaite / URBAN_i, Phone: +64.9.631.1400 Publisher: PEOPLE PUBLISHING, www.peoplepublishing.co.nz Ground Floor, 26 Albert Street, Auckland, New Zealand. P.O.Box 7070, Wellesley Street, Auckland, New Zealand. (T) +64.9.366.6879 (F) +64.9.366.6838 Copyright©exporter

Correction Cheryl Crooks is NZTE’s general manager (strategy & capability). In our September quarter issue, we incorrectly cited her as being with Auckland Plus in our story “World Cup export opportunities”.

Cover photography: istockphoto

Member of the Audit Bureau of Circulations (ABC) New Zealand. Audit period January – June 2009: 3994 – per issue

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> PUBLISHER’S VIEW

Say it like it is mike taillie EXPORTER MAGAZINE / publisher@exportermagazine.co.nz

All I want for Christmas Prime Minister is…

ear John Before I forget all the best for Christmas. I hope you and your family have a great break. I am feeling pretty excited about the next 12 months. Dairy prices are recovering, tourism numbers are back up to record numbers (great to be that minister!) and more people are wanting to live here than leave. On top of this business confidence is up and we have had a few good discoveries under the ground (gas find, gold and some oil), perhaps New Zealand actually is the lucky country. To top it all off we have the soccer world cup to look forward to, followed by the rugby world cup – oops am I allowed to use those words? I must read the major events legislation sometime. All I want for Christmas is the following:

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For you to implement the recommendations of the Brash report – it is on the money in so many ways. Reduce tax rates and offset them by reduced government spending. Letting those that earn money keep it is a better incentive than taking it from those who earn it and giving it to those who don’t. Yep – we need to sell off state-owned entities that compete with the private sector. There is no greater disincentive for private enterprise than having to compete with a government-owned businesses. We still have plenty that compete with the private sector that include those in the tourism sector, export promotion sector, airline, data transmission, insurance, banking, transport & freight, education etc. The government should reduce its role further to being the watch dog to ensure that fair competition takes place. Reduce the amount of legislation,

both from central and local government. It’s gone crazy out there over the last 10 years. I cannot list all the examples but have you ever tried to read the FBT rules, looked at your own employment contract and tried to work out your entitlements (a few ministers seem to struggle) let alone the Resource Management Act, the Building Act and of course the OSH rules for business. My company recently purchase a café and were investigating signage rules – did you know that there are 17 pages of local bylaws regarding having signage on your own building – it’s out of control in my view. So once again to you and your family – have a great rest and come back with the strength to make those bold decisions that will allow New Zealand to attract more visitors, more investors and more people wanting to do business here. [END]

Relationships count in global markets.

Whether you’re an established exporter or branching into new territories, it helps to have a banking partner with on the ground access who can connect you to the right people and the right markets. And who better to help than New Zealand’s leading trade bank.* ANZ was recently voted “Best Trade Bank in Australasia” by readers of Trade Finance Magazine.** More importantly, with offices in 14 Asian countries, the ANZ Group has the largest Asian footprint of any Australasian bank, making it easy for us to help you connect to specialists in the regions that count.

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4 EXPORTER

> FINANCE

Managing the credit and risk monsters in 2010 Bankers have these words of wisdom for exporters going into 2010: Understand your risks and be in a position to mitigate them. By V irginia McMillan

hether the 2008/09 recession has been successfully damped down or is set to reignite and burn more incomes next year, exporters will need to be canny operators. Most will have made all the obvious efficiencies, says Ian Blair, general manager of business banking at Westpac. “In the year ahead it will be hard to pull out more savings.” He warns that more small businesses fall over when economies are heading out of a recession than going into one. “[Many companies] have been hanging on to accumulated equity, but now it is exhausted,” he says. Costs set to rise Graham Turley, ANZ’s managing director, commercial, says since the global financial crisis started hitting access to credit, terms of trade and payment flows, business practices have

KEY TAKEAWAYS Top tips from banks for 2010 >> Identify where the business needs the NZ dollar to sit in order to break even and consider some hedging so a swing can’t wipe you out. >> Can your firm import more inputs or set up an import business? >> Analyse the interest rate the business can service and consider locking it in. >> Tighten terms and try to extend your own time frame for paying. >> Reduce reliance on a single debtor. >> Consider trade finance products – open account may give away too much control. >> Bring the bank a business plan and quality, current information. >> Advise the bank as soon as problems loom.

sharpened across most firms. He’s cautiously optimistic for New Zealand’s chances of an export-led recovery but says 2010 will be a tough year, with perhaps a more comfortable 2011/12 in sight. Kiwibank’s deputy treasurer, Nigel Gaudin, says the next 12 to 18 months will be subdued. The costs of doing business

can be expected to rise and interest rates to contribute to this pressure. The Reserve Bank says it can’t see a need to withdraw monetary stimulus until the second half of 2010, so variable rates will likely remain low for a while. Fixed interest rates are already on the way up as banks’ costs rise amid competition for retail deposits and in

EXPORTER 5

The Reserve Bank says it can’t see a need to withdraw monetary stimulus until the second half of 2010, so variable rates will likely remain low for a while.

response to new liquidity requirements. At the time of writing, the Reserve Bank said the base business rate was around 10% (down from over 12% two years ago), but many SME exporters access cheaper rates via their residential properties. James Mitchell, ASB’s head of relationship banking, says only about 30% of his bank’s business customers pay the base rate. He says many are paying in the order of 6%-plus – and rising. “It would be good to retire some debt if your business can do so.” Most bankers advocate some hedging. One strategy is to fund longterm assets using long-term funding, with some amortisation in place, and short-term assets on short-term funding, says Ian Blair. Thresholds Kiwibank’s Gaudin explains if businesses identify their thresholds and lock in interest rates and currency so they are not exposed above those thresholds, they don’t have to worry

6 EXPORTER

about ups and downs. Kiwibank risk analysis on a client can reveal such thresholds – for example, the impact of a 5-cent rise in the NZ dollar against the US or a 5% rise in the cost of inputs. BNZ chief economist Tony Alexander says to mitigate exposure to exchange rate movements, an exporter can set up an import business, or source more inputs from offshore. (see “Building a natural hedge to the swinging kiwi” on page 42) “I might fund in the currency of my expected receipts,” he writes in a recent newsletter, “but [would] do this only after careful consideration of how my balance sheet would be affected if and when the NZ dollar next plunges 30 cents.” ASB’s Mitchell suggests exporters not

We got mail Exporters tell the magazine they expect interest rates to rise; several clearly feel the banks haven’t earned their trust. Exporters’ tactics include: • Keep talking to your banks; develop a relationship as opposed to a cold shoulder. • Have the information the banks are after – monthly profit and loss, cash flows. • Rather than leave your funding to the last minute, think ahead. • Go for more than you need — at least you then have the facility there. • Tighten your belt, borrow little, reduce overdraft. • Improve debt-to-equity ratio. • Increase turnover and margins and create new products. Comments sourced from 28 responses to an email questionnaire on issues affecting the export sector.

since the global financial crisis started hitting access to credit, terms of trade and payment flows, business practices have sharpened across most firms.” G ra ha m T u r ley, ANZ’s m anaging dir ecto r , co m m er cial.

already in Australia might want to consider it now, as the exchange rate relationship is “about normal”. To those seeing the US as all doom and gloom, he says it is still a huge market. Americans are still spending and there are always opportunities. Growth in Asia-Pacific, and ANZ’s presence in 14 Asian markets, combine to make Turley confident that his exporter clients get a good start there. But, he adds, “we don’t see any market as a no-go zone”. Bank executives say doing business in tight times requires understanding and mitigating risk. They say they want to see accurate, up-to-date data and be informed of problems on the horizon. They also underscore the importance of knowing one’s customers thoroughly and networking widely to get good advice. Leveraging the strength of partners Turley stresses the value of strong, wellrespected partners along the supply chain who know the market and the economy, and can guide and influence. Blair notes that businesses don’t have to grant terms to everyone. They can aim to keep debtors on a short payment cycle while, wherever possible,

the next 12 to 18 months will be subdued. The costs of doing business can be expected to rise and interest rates to contribute to this pressure.” Nige l G au din, K iwibank’s deputy tr easur er .

having an extended time frame for paying their own bills. It may be worth using an invoice-discounting service to get in any sums owed (though this comes at a cost). Cash flow questions At BNZ, Bay of Plenty managing partner Mike Frew says there has been a tendency to rely on a single debtor to solve cash flow problems. A customer may have a history of paying on time and without incident. “However, things can change rapidly and we have seen instances where failed debtor collection has had a severe impact on the business.” He says businesses should ask: • What impact will non-payment of this debt have on the sustainability of my business? • What impact will a delay in payment have? • Am I prepared to take those risks? • How can I mitigate those risks? A letter of credit is one option. “Although there is a cost involved, a

successfully executed letter of credit will guarantee payment.” ANZ’s Hurley says trade finance products accelerate delivery of cash and transfer the risk of non-payment to another party. “We take security over those receivables.” Products are set up on a debtor-by-debtor basis. Kiwibank international payments expert Reg Gray, too, says businesses are moving away from “open account” trading to products such as letters of credit. He also suggests approaching the government’s Export Credit Office (ECO). After a recent $200-million boost, ECO now has $740 million with which to cover Kiwi exporters’ deals. (see “Trade credit insurers curb appetite for risks” on page 38). [END] VIRGINIA McMILLAN / writer Virginia is a freelance journalist specialising in business and health stories. She has worked as a reporter, sub-editor and editor and as assistant editor at The Independent.

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EXPORTER 7

8 EXPORTER

> r e ac h i n g m a r k e ts

Curse of “Hi, I’m from New Zealand” Aussies are different creatures to Kiwis and exporters who will thrive across the ditch are those who can learn to spot the difference and wiggle their way into the rather closed networks with good products and services. By Val L eveson

any New Zealand exporters go into the Australian market unprepared – assuming the two markets are similar and what works at home will there. This can be an expensive mistake. As cultural differences between New Zealand and Australia are less obvious than with other countries exporters may be dealing with, many assumptions are made, says Tim Green, Regional Director, Australia Pacific, at New Zealand Trade and Enterprise (NZTE). “We have a similar look, a similar way of

KEY TAKEAWAYS >> Australia is not just a bigger version of New Zealand. >> You need to understand Australian business culture. >> Remember the five Cs: clarity, cash, connections, capability and commitment. >> Each state has different rules and bureaucracy. >> Networks mean a lot to Aussies, learn to crack them. >> Aussies are prepared to pay more for the right products.

talking, it’s easy to think they are similar in the way they do business.” Green says that when going further afield, Kiwi exporters get some mileage when they say: “Hi, I’m from New Zealand.” “This may last two seconds in Australia – the novelty factor is just not there as it is in other markets. Many New Zealanders are not quite prepared for that.” Under estimating the differences With entering most countries, exporters try to develop an understanding of the culture. “Kiwis tend to be not quite prepared for Australia because they underestimate the differences and are underprepared

We do find that our relationship with this distributor is different to ones from other markets. There’s more of a closeness – we will send products to their warehouse and they take what they need and pay for it. We adjust order quantities accordingly – this makes the situation less of a risk to them. They’re the only ones we deal with in this way.” Andre w Ba ker o f IQ ideas Ltd

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companies to crack those networks. This takes time. Even if you have the best product and plan, it will be no good unless you’ve cracked the networks.”

Tim Green, Regional Director, Australia Pacific, at New Zealand Trade and Enterprise

as far as engaging is prepared. I think the preparation exporters do is lacking in general, but it is pronounced for the Australian market.” Firstly, Green says, do your homework. Be aware that the geography is on a completely different scale to New Zealand, and the cities can differ greatly from each other. Shipping costs and time of freighting things between cities costs a lot more than in New Zealand. Australia also comprises different states and territories. It’s not one

Breaking into the networks He says one way this can be achieved is through employing Australians who already have contacts. “Or engage with the Kiwi expat community – they can be a great resource. Join networking bodies – sporting clubs, professional networking, whatever is relevant.” Green says it’s important to recognise that Australia is not as open as New Zealand. “A lot of business in NZ goes to public tender – this is not the case in Australia. Knowing the right people is vital.” In short, Green says solid research in planning your entry into the market is vital. “On the plus side, because of the differences in the two economies, Australians can be prepared to pay a lot more for products. Know the value of your product.” He says the NZTE has looked at businesses that have been successful in Australia, and have found the five Cs of success: Clarity (having a plan, vision), cash, connections, capability and

NZ or selling an NZ product in fact I have always found them to be open and interested in what we have to offer. “Unlike New Zealanders, Aussies don’t have a need to prove themselves to anybody, they are confident nation and know what they want. If you have strong offer and are open and direct you will ft into their world. I have found that on the whole they have a genuine interest and respect for what New Zealand offers in food and beverage and so you will get a good audience,” he says. “By the way don’t bother talking rugby unless they bring it up as it ranks way behind League and AFL!”

Andrew Baker of IQIdeas.

Unlike New Zealanders, Aussies don’t have a need to prove themselves to anybody, they are confident nation and know what they want. If you have strong offer and are open and direct, you will fit into their world. I have found that on the whole they have a genuine interest and respect for what New Zealand offers in food and beverage and so you will get a good audience.” Andr e w Da n i el l s , B u s i n ess De ve lop me nt Ma nage r at D B Bre we rie s

market – each state can have different consumer tastes, there are different rules and bureaucracy to go through. Be aware of what you are trying to do: “Are you trying to bite off Australia in one go or building a strong presence in one city and then another?” Then there’s the culture. “Australians have different values to us, and their tastes can be different – you need to adapt your products and services. There’s a lot more bureaucracy there than here as there are more levels of government. You can be dealing with Federal, State and local council law. There is no uniformity between states.” Green says it’s important to be aware of Australians’ way of doing business. “It’s about closed networks – there’s a lot of old school ties, sports clubs stuff going on. It’s important for Kiwi

10 EXPORTER

commitment (you need to persevere, not just set up shop and expect success straight away. And never take your eye off the ball of the market back home, he says. There were some exporters contacted for this article who said they didn’t want to comment as they were still doing business with Australians, and didn’t want to jeopardise that. Direct, confident Business Development Manager at DB Breweries, Andrew Daniells says: “We have noticed that Australians are more direct in manner and approach than New Zealanders. “They are usually very upfront and tell it like it is which means you know where you stand, which is good thing. Generally I have never been belittled or put down due to being from

Andrew Baker of IQIdeas says: “Australia is an interesting market and it’s a big mistake to assume it’s the same as here. Rather than doing it by ourselves, we’ve decided to get in to the market by using a distributor. “We do find that our relationship with this distributor is different to ones from other markets. There’s more of a closeness – we will send products to their warehouse and they take what they need and pay for it. We adjust order quantities accordingly – this makes the situation less of a risk to them. They’re the only ones we deal with in this way.” Baker says Australians do do business differently than New Zealanders. “We have chosen the distributor route because it’s an expensive market to get a foothold in, but it’s possible that we may decide to develop networks and do it ourselves at some point.” [END] VAL LEVESON / writer Val is an Auckland-land based sub-editor and freelance writer who covers career issues, technology and business trends. She has worked at the Northern Advocate in Whangarei, the Manawatu Evening Standard in Palmerston North and The New Zealand Herald in Auckland.

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12 EXPORTER

> GADGETS

Love at first touch: BlackBerry & iPhone They may be imperfect but frequent travellers can become zealots of smartphones for their connectivity, portability and ease of communication.

The users: BlackBerry v iPhone beltway! Angela Wallace, Export New Zealand Bay of Plenty executive officer

By M ary Mc kinven

eading into the second decade of the second millennium AD, humankind has cellphones that have evolved into mini computers. The fully internet-enabled thirdgeneration (3G) devices referred to as smartphones include the touch-screen iPhone and partially touch-screen BlackBerry brands — faster and with more storage and clearer pictures and sound than other cellphones. They have GPS-connected maps and more.

KEY TAKEAWAYS >> Cellphones are not ideal for emailing.

Tim Groser, Minister of Trade I love how my BlackBerry fits right inside my suit jacket pocket. I hate it when my BlackBerry locks me out. I know it’s a good security feature but it’s easy to make a password mistake with big fingers and a small keypad. My BlackBerry is everything I need in one device. It’s great for checking emails between meetings and sending short SMS messages to the PM. I have had some problems using the voice dial feature – or is it just that my BlackBerry doesn’t listen to me either?! I have never used an iPhone – BlackBerry is standard issue in the

>> Laptops are still necessary for work like writing documents and formal emails, and using attachments.

My pet love about my BlackBerry is that I can’t do without it when travelling overseas. My pet hate is the same. Within New Zealand I even use it to check in at the airport. It is my PA; there is not much it can’t do! I couldn’t live without my iPhone. I was a convert the moment I got it; it is so easy to use.

>> iPhone is simple to use and is like a personal assistant. >> Blackberry fits nicely in a suit jacket pocket.

But sometimes these clever little devices get in the way of doing business, and some people shun them. Other people have become quite attached. Frequent overseas traveller Stephen Jacobi, executive director of the New Zealand International Business Forum,

I love the freedom my BlackBerry gives me to work smart and work anywhere. The flash for every email that came in drove me crazy after a couple of days … so I worked out how to turn it off. The bad thing is roaming charges when overseas. I love the ability to find answers to questions, read the latest news and catch up on emails anywhere, anytime. I do think the iPhone is more intuitive and has clearer applications, so I would choose that if I had the choice. David Easton, managing director of New Zealand Natural Exports

LIsa Ebbing, co-director of HOTmilk iPhone coverage is great, but it is expensive to use overseas. I make and receive calls and check emails when overseas.

Simon Walter, Beca Group general manager marketing I travel regularly to Australia and sometimes to Europe and recently bought an iPhone. I am completely besotted with the thing.

EXPORTER 13

has none, “because I’m averse to having email follow me around”. He uses another brand of “flash phone with all the do-das” but checks emails on a computer remotely or takes a small laptop when he travels. “I would probably take a laptop because I also write on it, but it [a smartphone] could be useful in cabs where I spend a lot of time!” He hears from colleagues that an iPhone is simpler to use than a BlackBerry. “So maybe it’s a good idea.” Life with smartphones Also wary of the smartphone is Monique Surges, chief executive of the New Zealand German Business Association. She says, “A lot of emails I receive have large attachments I need to work on and this just does not work with a smartphone. Secondly, when communicating with contacts in Germany there is still a certain amount of formality required — even in emails we tend to follow proper letter writing etiquette, which is very painful on a smartphone keyboard, frankly.” Her solution has been to carry a small notebook that fits in her handbag. She is, however, a fanatical texter, but wouldn’t dream of using that kind of

communication in a business context. “Communication is what good business is all about, so it’s better to send one full, clear, concise response that has been well thought through.” Regular Asia traveller Graeme Roberts, general manager of Beca International, says his smartphone, a Taiwanese HTC model, has made a major positive difference to his life on the road. “Wherever I can get a phone signal I have my email and diary at my fingertips, which helps keep me connected to headquarters in Auckland, to travelling colleagues and to my family. I particularly enjoy being

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14 EXPORTER

able to access my favourite news sites. “However, on the negative side, I find that people increasingly expect instant responses to emails and phone messages, which causes the occasional twinge of nostalgia for pre-smartphone days. But on balance it has quickly become an essential business tool,” Roberts says. [END] MARY MacKINVEN / writer Mary has reported news for 20 years including as sole writer and editor of Business to Business monthly newspaper in Auckland, NZ, for six years. Now she combines freelance journalism with part-time writing at a business association in Auckland.

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> INSURANCE

War with the pirates Shippers sending cargoes across the Atlantic via the Suez Canal would do well to insure their goods against piracy rather than trying to reroute cargo as the latter may turn out to be more costly. By Val L eveson

hey are closer than you think. New Zealand exporters need to be concerned about pirates plying the coast of Somalia raiding ships and holding cargo ransom for millions of US dollars. Kevin Allen, chief executive of Tasman Insurance Consultants, says while New Zealand exporters may feel far removed from events around the

16 EXPORTER

KEY TAKEAWAYS >> Piracy in the Gulf of Aden may seem a world away – but New Zealand exports go through there. >> You can get piracy protection as part of your marine insurance policy. >> It’s advisable to check if your goods are passing through waterways that have a reputation for piracy. >> It works out cheaper to insure against piracy than to reroute your cargo. >> 2009’s looking like it will show a 10-fold increase in pirate activity.

Countries in the region, such as Syria, are also growing risks for piracy, as the Somalian pirates prove successful.” K e v i n A l l en , c h i ef ex ec u t i v e of Ta s ma n Ins u ra nc e Cons u lta nts .

Kevin Allen, chief executive of Tasman Insurance Consultants

Gulf of Aden, it’s quite likely that their goods go through that waterway en route to markets in Europe. “A marine insurance policy covers cargo – this is all-risk cover that covers the perils of the sea such as stranding, sinking, burning and pilferage.” He says in conjunction with the standard policy, you can get piracy protection. “The message is out: it’s advisable to check with insurance advisers if you are sending or receiving cargo that needs to pass through waterways that have a reputation for piracy.” Allen says other countries in the region, such as Syria, are also growing risks for piracy, as the Somalian pirates prove successful. “Piracy has been around for as long as mankind has embarked on shipping. In the early days shipping used to deal with the perils of the sea by creating shore load – 10 shifts would leave Portsmouth with 10% of cargo on each vessel. If seven managed to arrive at the destination, that would mean 70% of the cargo was saved. “This was the advent of insurance – it’s about sharing the load. It’s now, of course, a multimillion-dollar business. But insurance companies often share the load as the early shipping companies did. A company may insure a ship, and then reinsure by buying insurance protection off others. This enables them to pay out when big events, such as the huge losses of 9/11, occur.” 2008 attacks Allen suggests exporters consider the numbers: 20,000 ships go through the Suez Canal and Gulf of Aden each year.

About 500 pass through a day. Some 400km offshore, pirates wait in their motherships and disperse crews to attack unsuspecting vessels. In 2008 there were 111 attacks and 42 successful hijackings. It’s looking as if the 2009 figures could reveal a 10-fold increase in activity. “The pirates seem to be increasing their range and even attacking from the coast of Kenya, in the Indian Ocean.” So, what happens when a ship gets hijacked? The pirates board the vessel and seize it. “It is a highly sophisticated exercise,” Allen says. The vessel and crew are detained. Negotiations get under way. The insurance company employs sophisticated negotiators for the job. The insurance company finds a way to get the “dirty money” (ransom) parachuted to the pirates, who then leave the vessel and crew unharmed.

warlords take advantage of the anarchy and collapse of the state. Piracy in the region has been a problem since the early 1990s, the beginning of civil war. Allen says the motives of the pirates are survival and entrepreneurism. “The risks are high, but the rewards are high and life is cheap. These people are prepared to take the risk of financial reward versus death. “Many pirates disguise themselves as local fisherman. They have access to boats and weapons.” The Gulf of Aden is difficult to police and there’s a fear that if sailors arm themselves, there could be a significant upsurge in violence of attacks and therefore loss of life. Salvaging the cargo It’s cheaper for the insurance company to pay the ransom than to lose the cargo, vessel or crews, says Allen. “In a way the insurance companies are in a no-win situation. They are forced to meet the demands. Kidnap and ransom insurance are not uncommon for shippers to take. Insurers have offered these for decades.”

It’s cheaper for the insurance company to pay the ransom than to lose the cargo, vessel or crews when under attack.

Pirates of our time • At press time, 17 ships were held by pirates. • Of the 17, the largest was a Saudi-owned oil tanker with US$110 million of crude oil. • In 2008 there were 111 attacks and 42 successful hijackings. • Ransom payouts have ranged from US$1.5 million for a Danish cargo ship and crew, to over US$3 million for a Balinese ship, and EUR11 million for a French private yacht. “Of course what the pirates want is the cash – the loss of the ship or crew would only enflame the situation. “Of utmost importance is the safety of the crew. A multi-national task force does have a presence in the Gulf – and they have become more aggressive, meaning the deaths of pirates has become more frequent.” Tough area to police Somalia is a country where there is no real government and no laws and where

Allen says that as incidents rise, and therefore risks associated with piracy increase, insurance premiums increase. The rate for protection from piracy has increased 10 times for ships that use that stretch of water. “However, it’s been worked out that avoiding the Gulf of Aden, and going the alternative route around Africa, costs far more in time and fuel than the extra cost of insurance,” he said. Allen said that at the time of the interview for this article, 17 ships were in the hands of pirates. “The largest is a Saudi-owned oil tanker holding US$110 million in crude oil.” Ransom payouts have ranged from US$1.5 million for a Danish cargo ship and crew, to more than US$3 million for a Balinese ship with weapons on board and EUR11 million for a French private yacht. [END] VAL LEVESON / writer Val is an Auckland-land based sub-editor and freelance writer who covers career issues, technology and business trends. She has worked at the Northern Advocate in Whangarei, the Manawatu Evening Standard in Palmerston North and The New Zealand Herald in Auckland.

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> C U STO M S

Exporting through the ‘green lane’ Using the Customs Service’s “green lane” for exports can help streamline cargo, reduce missed shipments and ensure timely deliver of goods to overseas customers.

18 EXPORTER

ive years ago the New Zealand Customs Service introduced the Secure Exports Scheme (SES) to Kiwi businesses. The scheme allows exporters to partner with Customs for “green lane” exports. There are more than 100 New Zealand exporting businesses in the SES partnership, all benefiting from reduced compliance costs and higher levels of assurance and predictability across their export supply chains. SES exporters include Fonterra, Sealord and PGG Wrightson Seeds, through to smaller agricultural product and food exporters. At least half of

the annual container traffic from New Zealand to the United States is SES-approved. The SES requires exporters to voluntarily implement or enhance security measures that ensure what they pack and seal for export overseas is exactly what’s stated on their export documentation. The major benefit for exporters in the partnership is their packages are sealed using a New Zealand Customs Service approved seal, and treated as “green lane” exports – thus significantly reducing the likelihood of container inspection at the border.

Minimise delays In addition, those SES partners shipping to the United States or Japan will experience minimal delays and costs associated with security interventions by customs authorities in those countries. New Zealand meat export company Wallace Corporation is enjoying the benefits of being an SES partner. CEO Graham Shortland says the partnership with Customs has had considerable benefits for the business. “Prior to being in the SES partnership, we would have approximately 50% of our containers destined for the United States and Japanese markets held back for further checks. These checks were at a cost to us and the delay could have resulted in our orders not meeting the required shipment.” Shortland says in the initial set-up of the partnership there was a considerable amount of work, but the “day-to-day running cost is negligible”. “SES requirements are an integral part of our routine operations. Our process is more streamlined with containers being able to move directly on board a ship without having to be checked, thus reducing the risk of

Prior to being in the SES partnership, we would have approximately 50% of our containers destined for the United States and Japanese markets held back for further checks. These checks were at a cost to us and the delay could have resulted in our orders not meeting the required shipment.” G ra ha m Sho rtland, CEO, Wallace Co r po ratio n

missed shipment. It’s also less work for the documentation department staff.” Wallace has had a positive experience from the SES, whose staff Shortland says are helpful and forthcoming with information and practical advice. “Being recognised as having an SES partnership has allowed us to do business in a timely manner with business colleagues who specifically require that we have an SES partnership with New Zealand Customs.” If you’re an exporter and want to know more about how you can get your exports in the “green lane”, contact the New Zealand Customs Service on 0800 4 CUSTOMS (0800 428786) or visit www.customs.govt.nz. [END] New Zealand Customs Service approved seal.

(This article was contributed by New Zealand Customs Service)

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> TRAINING

Exporter training for the antipodean 20 EXPORTER

Exporters need more education on the complex supply chains connecting local and international businesses. By M ary Mc kinven

hen a business is doing just grand in New Zealand, the logical next step might seem to be leaping into overseas markets. “However, experienced exporters say if you expect to do business overseas like you do in New Zealand, you need to re-think,” says Ken Vesey, learning manager, exporting and international trade, at the Employers and Manufacturers’ Association (Northern), or EMA, where Export New Zealand has been a division since the organisations merged recently. Export New Zealand developed a new suite of “fundamental” courses in 2009 after researching business’ needs. Vesey says the half-day and one-day courses offer indispensable components, starting with Export Processes – Are You Ready for Export? Others topics include: Cultural Awareness – Communicating in a

KEY TAKEAWAYS >> Training helps you deal with the fact that the rest of the world does not always act according to the same principles as New Zealanders. >> “Know the culture you are dealing with or die!” >> Research and international marketing are critical. >> Understand the whole supply chain. >> Don’t always rely on interpreters.

different environment; Marketing inside another Culture; and International Trade Documentation. Practical workshops Each practical workshop caters for a range of staff roles, such as shipping department trainees and export administrators who have had no formal training in export procedures; dispatch department staff, sales and customer service staff and finance and invoicing administrators; and freight forwarders and management trainees. Besides offering short courses on the

fundamentals, from 2010 Export NZ will teach eight modules towards the Certificate of International Trade and the Diploma of International Trade at its training rooms in Auckland. These modules can be taken as standalone courses or the attendee can enrol with the New Zealand School of Export to be assessed and gain these globally recognised qualifications. International Trade Research and International Marketing are the modules in the Diploma of International Trade that students find particularly practical, says Alison Vickers, marketing director of the New Zealand School of Export. The topics follow on from the first of the eight modules, the Global Business Environment, which sets the scene for where New Zealand fits on the world stage historically, and who its key trading partners are. The next five modules add depth and the final, on International Trade Management, requires students to write a detailed plan for their business to take a product to a particular market, including planning cash flow, human resources and the works. Tuition is by phone and email. Vickers says, “That’s what exporters want. And we get calls from overseas while they are travelling – from airport lounges, or

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from hotels when they can’t sleep from jetlag; and little questions from their BlackBerries about ‘page 22’.” Zone stretching The manager of professional and executive development at Victoria University in Wellington, Jeff Ashford, has a background in shipping that helps him relate to exporters’ needs, though the university offers no specific export courses. He says apart from needing basic business skills such as project management, leading and coaching teams, communication and financial skills and marketing nous, there is one critical focus for people getting into export markets: “Know the culture you are dealing with or die!” Language expertise is more important in some cultures than others, and language teachers are readily available. “You can’t always rely on interpreters – you don’t know if things are really going well, or pick up the nuances. People might be nodding and smiling at you but you don’t really know what’s going on.” Exporters must realise their actions are affected by the rest of the supply chain, beyond their own efforts,

Professor Norman Marr, director of logistics and supply chain management at Massey University.

stresses Professor Norman Marr, director of logistics and supply chain management at Massey University. “You need a practical understanding [of how things fit together] including finance, insurance, shipping, warehousing, transport and so on.” The new concept of “value chain” includes financial and insurance institutions. Export beginners with any university degree can study the Graduate Diploma in Logistics and Supply Chain Management over two years part-time. People with that qualification or lots of

export experience can enrol in the Post Graduate Diploma of the same name, which leads to the Masters and then PhD in Supply Chain Management. “There’s a need to upskill the workforce; this is the biggest industry in New Zealand – it’s very wide - and the country lacks a high skill level in supply chains, both domestic and international,” Professor Marr says. New Zealand Trade and Enterprise (NZTE) moved out of most exporter training about 18 months ago and manager of business development, Euan Purdie, says now it leaves most of that to Export New Zealand and other providers to deliver in their local areas. NZTE still contracts about 15 people nationwide to deliver the Enterprise Training management course that includes business planning, finance, lean manufacturing, becoming investment-ready and one introductory topic for people thinking about exporting. [END] MARY MacKINVEN / writer Mary has reported news for 20 years including as sole writer and editor of Business to Business monthly newspaper in Auckland, NZ, for six years. Now she combines freelance journalism with part-time writing at a business association in Auckland.

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> GUTSY PEOPLE

Viewpoint Daniel Silva Secretary, Importers Institute

NZ’s economic myopia New Zealand needs to eliminate the mercantilist view that exports are good and imports are bad.

he government decided to break a promise made under APEC to have free trade by 2010. Tariffs will remain frozen for another five years. This decision was made against advice from Treasury. Why? In a word – mercantilism. This is a discredited economic theory that holds that exports are good, imports bad. It is much beloved of bureaucrats who make a handsome living “negotiating” with each other at plush venues all around the world. One such professional trade negotiator, Tim Groser, is now our Minister of Trade Negotiations. The evidence that the current

tariffs of 10% on clothing and shoes serve no useful purpose is compelling. There is not a single company that decided to manufacture in New Zealand because of those tariffs – they are just too low for that. All that they achieve is to make clothing and shoes, which are practically all imported, more expensive for consumers. And yes, they do keep a few bureaucrats employed, like Customs officials – and trade negotiators. The Treasury had a look at the issue from a national interest perspective and recommended against the freeze. Customs, Ministry of Agriculture and Forestry, the Ministry of Economic Development and Foreign Affairs

had a look at it from a self-interest perspective and recommended a freeze. Trade bureaucrat turned Minister Tim Groser went with his former colleagues. A survey on globalisation published in the Economist in 2003 (www. economist.com) said, “The multilateral approach to trade liberalisation [...] does have a horrible flaw. It espouses the idea that lowering trade barriers is a concession you make to your trading partners; a sacrifice for which you require compensation, or ‘reciprocity’, in the jargon. This mercantilist view of trade – exports are good, imports are bad – is an economic fallacy. Politically – and

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this is to endorse a point made by sceptics — it serves to enthrone producer interests, neglecting all others. Trade agreements go forward when exporters on all sides tell their governments that they see something in it for them; the interests of importers (that is, workers and consumers at large) are implicitly regarded as politically insignificant.” Groser decided to keep imposing tariffs on New Zealand consumers in the face of evidence that they serve no useful purpose, so he can use them as bargaining chips in future negotiations. As if other countries cared. China signed a free trade agreement with New Zealand for purely political reasons, not because it wants to push its market share of imported clothes beyond 100%. Economic myopia This degree of economic myopia is excusable in bureaucrats, but very inexcusable in a Minister. After nine years of economic lunacy and empty promises (remember

carbon neutrality in our time?), we expected much, much better from this government. It was interesting to read the Cabinet papers prepared by officials and published on www.med.govt.nz. Every passage that referred to the only possible reason for retaining tariffs — as bargaining chips in future trade negotiations — was carefully censored. Why the secrecy? The Economist had the answer in the same article: “Most governments insist that the grubby details of trade negotiations be kept secret; this is their idea, not the World Trade Organisation’s. At the end of any round of trade talks, a triumphant breakthrough backed by all sides can be announced. In the meantime, as you might expect, governments prefer to keep their negotiators’ craven submission to corporate interests under wraps.” We need to eliminate our remaining tariffs, not because we want to do other countries any favours, but because that is in the national interest. This concept is not evident to economic simpletons, but we did not expect to have to spell it out to a

Minister in a National government. This is not an isolated instance. Prime Minister John Key has said that an economy-destroying emissions trading scheme is necessary to prevent other countries from imposing trade barriers against us. The idea that we would face trade sanctions for failing to worship at the altar of green religion is simple commercial naïveté. No country could impose sanctions, because no country (other than New Zealand) will actually inflict deliberate damage on its economy to appease the global warming gods. They will just pretend to do so until the ideological assault from the Left abates in the face of science and the facts. The Wall Street Journal got it in one when it said: “To the annals of global warming lunacy, add this gem from New Zealand: According to a parliamentary committee, Kiwis should accept lower standards of living to protect the national image abroad.” This is the sort of thing that can happen when bureaucrats become policy makers.[END]

Editor’s note: The views expressed above may not necessarily reflect the view of this magazine but we are happy to provide the space for gutsy opinion.

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> T R AV E L C O S T

The double-edged sword: internet travel bookings Shopping for cheap travel deals on the internet can end up costing companies time and money. By Sangeeta A nand

any companies are being lured by travel websites promising “lowest rates” for online bookings. The option appears attractive to travellers. It seems logical that the online channel would offer cheaper deals because there aren’t the same overheads as a physical store. But is that the reality? Are there cost savings for travel websites and are these passed on to travelers? The internet has changed business travel. Many businesses are spending a growing amount of time online scouting for competitive fares in the belief that they’ll save money. But Cushla Anderson, marketing manager of Atlantic Pacific American Express, says internet fares are only occasionally cheaper. “The fares may not necessarily be the best or most suitable for corporate travel. Fares booked via the internet are usually instant purchase, inflexible and include high amendment fees.” Also, prices, deals and packages change rapidly due to fluctuations in

KEY TAKEAWAYS >> Businesses can end up spending more time online scouting for competitive travel prices. >> Online bookings may offer attractive fares but is an option best left for those whose travel itineraries are not complex. >> The internet has led to indirect cost increases. Savings could be outweighed by the cost of booking online. >> Experienced corporate travel consultants can provide added value and quick turnaround time on tailor-made trips. >> Deals that are not available on the web can help build the best value, tailor-made holidays or business trips. aviation fuel prices and taxes. Such price increases are immediately passed on to customers. The changes to New Zealand’s domestic airline offerings will impact business travel as there are several

factors that can push up the total cost of bookings, says FCm Travel Solution’s operations leader Angie Dudley. Lost productivity Dudley also argues that: “While costs associated with booking changes are the biggest factor to consider, lost employee productivity is also a potentially significant expense.” While the internet has brought many travel benefits, such as destination information, it has led to indirect cost increases. The savings are far outweighed by the cost of booking online. “The time spent making the booking and researching multiple websites increases the final price. Experienced corporate travel consultants can provide the best value, tailor-made trip in approximately two minutes, which is much less than the time spent online,” says Anderson. Specialists like FCm Travel Solutions receive new deals daily. “Often deals that are not available on the web can help build the best value, tailor-made holiday or business trip,” says Marie Pilkington, public relations manager at Flight Centre (NZ).

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Direct deals Similarly, as a global travel marketing company and American Express business travel partner, Atlantic Pacific American Express has access to worldwide global hotel consortia rates, and can offer multiple booking channels to access the best possible fares and hotel rates for customers, whether via the GDS (Global Delivery System), internet-based or negotiated direct rates with suppliers. On a broader level, online booking compromises corporate social responsibility, since the complete cost of travel is invisible. “When booking via a travel company, businesses are able to track employees at any time throughout their travel, provide comprehensive reporting including lost savings, policy compliance, C02 emissions and total expenditure by travel supplier. This level of travel management and analysis is only available through a travel company, not online,” says Anderson. While travellers and travel bookers are increasingly making domestic and trans-Tasman bookings online, longhaul or complex bookings continue to be made over the phone with experienced travel consultants. Travellers booking over the internet

26 EXPORTER

often underestimate the value and expertise of dealing with highly experienced consultants, which in the long run can bring considerable savings. In the current climate of belttightening, FCm Travel Solutions has seen evidence of small to mid-sized companies believing travel websites offered the most cost-effective solutions, says Dudley. “This may be tenable for companies whose travel plans never change. But for most this is not a realistic approach and some degree of flexibility is needed in their travel itineraries,” she adds. Reduced travel agent intervention When American Express launched Serko Online (SOL), an award-winning online booking tool (OBT), to improve efficiencies and reduce the travel costs, it scoped the project, calculating that 90% of eligible trips (a point-to-point route) could be booked online. When the tool went live the adoption level was 83% of all eligible bookings, and it now exceeds 90%. Anderson explains: “The cost savings to customers using online booking tools exceeded [assumptions]. Customer usage increases as travel marketing company involvement in the

booking process is reduced. In addition to cost savings, comprehensive reporting and transparency of booking patterns allow businesses to analyse and uncover hidden savings in their travel programme with ease.” While internet travel sites are useful resources for seeing the range of available prices, there is no one site that can guarantee the lowest fare — no matter what they might claim. “We have seen companies forfeit hundreds or thousands of dollars in lost room nights or air fares when their travel plans have changed, after booking and paying for tickets that could not be amended and were non-refundable,” says Dudley. Buying online is a useful option for those who want to get it done as quickly as possible, or for those with plenty of time on hand. While online booking can complement traditional booking channel, it is the expertise of a travel specialist that saves valuable corporate resources and money. [END] SANGEETA ANAND / writer Sangeeta Anand, is an international writer specialising in business, supply-chain and technology. She has written for several publications in New Zealand and overseas.

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Image courtesy of Taupo Bungy.

28 EXPORTER

> MARKETING

Grooming tourists as brand ambassadors Over two million tourists land in New Zealand each year. While they take time to whale watch, bungy jump and soak in hot pools, they are a largely untapped brand sales force for Kiwi products in their home countries. By Sangeeta A nand

ew Zealand exporters have yet to rise to the challenge of actively using inbound tourists to serve as brand ambassadors for Kiwi products and services. Exporters usually try to reach offshore markets through distributors, agents or the internet. Inbound tourists, however are a ready pool of people who could informally help with brand recall and indirect marketing for many companies. The greater the exposure domestic products and services have to overseas markets, the more international competitiveness and demand they enjoy. DB Breweries has adopted an effective solution for creating brand awareness in Australia, through its

KEY TAKEAWAYS >> New Zealand has yet to exploit tourists as brand ambassadors for offshore markets. >> Word-of-mouth is a very costeffective and easy way to build brand awareness internationally. >> Exporters are still heavily reliant on their appointed agents and regional distributors to reach export markets. >> Better understanding of different cultures could help New Zealand exporters maintain global relationships to gain a presence offshore. >> Advertising in in-flight magazines is a good way to target incoming tourists.

wholly owned sales and marketing company, Drinkworks, based in Sydney. Beer lovers Drinkworks has a marketing team that is responsible for the development and marketing of Monteith’s and Tui and is supported by a sales team across Australia. In other markets, local distributors carry out this function. “Currently tourists experience DB brands through a number of venues nationwide, with particular emphasis on Monteith’s through its 25 bars around the country,” says Andrew Daniells, DB’s business development manager. Most tourist hotspots feature a Monteith’s bar and they provide a great vehicle for showcasing New Zealand beer and food. “We get a lot of positive feedback from Australians who have experienced the Monteith’s

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range of craft beers while travelling through New Zealand and then look for Monteith’s in their home town. We have featured Monteith’s in the Arrivals magazine [distributed free at New Zealand airports] to further raise brand awareness. It specifically speaks to those inbound tourists and we plan to repeat that,” says Daniells. Creating brand recall is very important, given that more than 50% of all arriving international visitors (returning Kiwis are not included) have visited the country before. It provides

sampling, the product and business promotes itself to a large degree. “There’s no doubt that visitors to New Zealand gain more of an appreciation for what the brand stands for after visiting New Zealand,” he says. However, word-of-mouth promotion appears to be a very cost-effective and easy way to build brand awareness internationally. “We utilise business partners such as ticket agents, our website, franchises and word of mouth to promote business offshore,” says Andy Harvill, group marketing manager

Currently tourists experience DB brands through a number of venues nationwide, with particular emphasis on Monteith’s through its 25 bars around the country.” Andr e w Dan i e l l s , b u s ine ss developme nt ma nag er, D B Bre weries.

Andrew Daniells with Monteiths NZ Lager

New Zealand exporters an opportunity to build brand loyalty. Future customers New Zealand Natural creates such brand awareness by focusing on incoming tourists. “Every tourist is a potential business partner or future customer. So it’s important that we are seen, and that every experience is a positive one,” says Fraser Brown, New Zealand Natural’s export manager. With high visibility of its products, supported by targeted marketing campaigns, promotions and consumer

30 EXPORTER

of Zorb, a market leader in the activity of globe riding, which attracts many tourists. Harvill says tourists who come to Rotorua can be expected to tell family and friends about their experience, so there is indirect brand awareness created through them. “The only drawback being that given that there are 2.4 million visitors in New Zealand, it is not possible for all of them to come to Zorb,” says Harvill. Power of the word In a similar fashion, New Zealand’s

oldest wine maker, Napier-based Mission Estate Winery, promotes offshore business through its importers and regional distributors. Informal word-of-mouth is the preferred option. “Although we do not use incoming tourists as agents/distributors and resellers offshore, word-of-mouth is a huge asset to our business. We have 100,000 visitors a year and they are major advocates for the experience once they return home,” says Victoria Crowther, the winery’s brand manager. And it seems to work. “Numerous customers from the US and UK come here on the personal recommendation of friends,” adds Crowther. For a company like Icebreaker, which is exporting to more than 2,000 stores in 24 countries throughout Europe, Asia, Australasia and North America, word-of-mouth works well to promote products. “This helps us to work closely with our retailers. This is also the best way for visitors who come to New Zealand to find out about us. We also have Touch_Lab stores at the Wellington and Queenstown airports which create brand awareness for incoming visitors,” says Icebreaker spokesperson Lee Weinstein. While there is no hard data to suggest how many incoming tourists act as brand ambassadors offshore, companies do rely on anecdotal feedback. “We get emails from people offshore who are planning a dinner here because of a relative who visited,” says Crowther. Staying connected However, this experience is not shared by another exporter. “I sell heaps of my scarves to overseas tourists but have never to my knowledge had an export enquiry resulting from this. I was exporting to a woman in the Netherlands but anecdotal evidence from her suggested that if she cannot triple or quadruple her money it’s not worth her while,” says Loris Ives McAuslin, who runs Merino-Lace. Despite the scope to exploit incoming tourists to promote business offshore, New Zealand is still in the early stages of effectively doing so. Creating a link between the tourism and export sectors to facilitate information exchange would be a positive step. Exporters could benefit from better understanding different cultures and

Every tourist is a potential business partner or future customer. So it’s important that we are seen, and that every experience is a positive one.” F ra s e r B r own , e x p o rt m anager, Ne w Zeala nd Nat ural.

going out of their way to develop relationships. This is key to creating awareness overseas. Satisfied tourists can be expected to give positive feedback when they return home, a cheap and potentially effective way to promote the country and its products. There are a number of ways in which exporters can develop global business relationships. New Zealand exporters can establish or join industry-speciﬁc networks. Networking sites can provide a platform to interact with customers online. Incoming tourists can network with prospective exporters even before they arrive in New Zealand and after returning from their overseas trip. Also, maintaining an international client database for effective after-sales service will increase brand equity of the companies overseas. At the same time it will expand awareness exponentially by word-of-mouth publicity. [END] SANGEETA ANAND / writer Sangeeta Anand, is an international writer specialising in business, supply-chain and technology. She has written for several publications in New Zealand and overseas.

Fraser Brown, New Zealand Natural’s export manager.

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> PA C K A G I N G

The thing about sustainable packaging Sustainable business adviser Simon Harvey says exporters keen to reduce the environmental impact of packaging are best to take a “whole of system” approach, rather than to “start with what they’ve got and try to make it ‘less bad’”

32 EXPORTER

By V irginia McMillan

auranga technology exporter Blue Lab has had a change of heart on the packaging of its two most popular products. Instead of casing them in throwaway cardboard and plastic sheathing, the soil PH-meter manufacturer designed a plastic case that doubles as a durable storage container for the unit. Blue Lab sales and marketing manager Chris Winslade says this reduces packaging, is useful for the consumer and helps in the company’s quest for sustainability. A member of the Sustainable Business Network, Blue Lab has a focus on keeping plastics use low. The company has eliminated one petroleum-based packaging

KEY TAKEAWAYS Handle With Care >> Tips from the frontline of the battle with packaging >> Packaging should be necessary, efficient, fit for purpose. >> Consider customers’ and consumers’ needs and views. >> Consider the impact of packaging over its lifecycle. >> Research the pros and cons of packaging options: origin, inputs, cost, reusability, degradability, compostability. >> New biodegradable plastics may be more expensive, weaker, less long-lasting. >> New products are evolving rapidly.

product: the polystyrene foam that was ubiquitous in the industry until concerns about slow degradability turned off some customers. Instead, Blue Lab uses corrugated cardboard inserts made of recycled fibre. As much as it can, the company recycles the materials entering its offices and factories, and large cartons received are reused or sent back for the supplier to reuse or dispose of, says Winslade. Whole system approach Sustainable business adviser Simon Harvey says exporters keen to reduce the environmental impact of packaging are best to take a “whole of system” approach, rather than to “start with what they’ve got and try to make it ‘less bad’”. By this he means not assuming products must be packaged the way they currently are. Instead, he says, evaluate product design, decide whether and where packaging is needed and for what function and seek the best packaging solution with the least impact over the lifecycle of the packaging. Auckland-based Harvey is an

Despite Kiwis’ recycling efforts, cardboard production takes a lot of energy, water and chemicals, and large volumes of plastic waste are either landfilled or shipped to China.

he says, but domestic volumes aren’t yet high enough for recycle operators to separate out. Packaging manufacturers can, alternatively, put an additive into plastic, converting it into a product broken down by microbes. Ecostore may decide on containers made of this, says Cuevas. “Fully biodegradable is the ultimate goal and the science is moving very quickly.” A New Zealand company making and sourcing starch products – including bags, film, cutlery and plates – is Auckland-based FriendlyPak. Managing director Kevin Graham says of 10 products his company makes or sells, the most relevant for exporters are the “popstarch” packaging chips for use in place of polystyrene foam chips. The product can be thrown on the garden after use, he says. Demand is growing and a couple of truckloads are produced a month.

most exporters can find a fully recyclable plastic that can be easily recycled overseas. An additive can be used to create a degradable plastic but the product’s lifetime is reduced. He estimates the cost premium is at least 25-35%”. Ste v e Davi s – E l l d ex Packag i ng Ne w Z e a la nd.

adviser for sustainability organisation The Natural Step. He points to US-headquartered Interface’s move into leasing its flooring product as a way to keep guardianship of it and manage reuse and recycling over its lifetime. In Christchurch, Cyclops Yoghurt chose plastic containers that were reusable by the consumer, and encourages keeping them out of the landfill. Mitch Cuevas, ecostore’s CEO, says his company uses recyclable plastic containers and its store has “refill” stations – an idea ecostore wants to see take off. It is also considering changing to a fully biodegradable container. Options under scrutiny include cornstarch-based polyactic acid (PLA) plastic, but Cuevas says this will biodegrade only at a high temperature in an industrial facility not available in New Zealand. PLA can be recycled and reused more easily than petrol-based plastics,

At Elldex Packaging New Zealand, Steve Davis says most exporters can find a fully recyclable plastic that can be easily recycled overseas. An additive can be used to create a degradable plastic but the product’s lifetime is reduced. He estimates the cost premium is at least 25-35%. Not necessarily more expensive Cost holds back many businesses, but Tait Radio Communications group quality and environmental manager George Elder says eco-friendly products are not always more expensive. Each has its own cost and benefit profile. Elder says customers are key to packaging decisions. After dispatching components for a product that is assembled by a customer company, Tait discovered its packaging was useless and would be thrown away. Now Tait sends specially

designed packaging for the assembler to use with the components. Elder says Tait chooses cardboard over plastic wherever it can, based on the fact that New Zealand card comes from a renewable resource and includes a high proportion of recycled content. Tait phased out polystyrene foam four years ago. Packaging choice sometimes conflicts with other demands, says Elder. For example, the ability to recycle cardboard containers may be limited by the labelling required by marketing. Despite Kiwis’ recycling efforts, Graham and Cuevas point out that cardboard production takes a lot of energy, water and chemicals and large volumes of plastic waste are either landfilled or shipped to China. Innovation from the packaging industry is providing some answers, and exporters say they work closely with their suppliers. Ecostore says a plastics supplier, on request, developed a recyclable spray unit for ecostore. Alto Plastics refined its kiwifruit “pocketpacks” for Zespri, making them reusable. Alto reports that it takes part in key environmental programmes such as Environmental Choice and makes recycling bins and other goods out of recycled plastic. However, only 24% of New Zealand’s plastic consumption volume was collected in 2008. In the same year, 70% of New Zealand’s paper was collected; some goes to Australia but much of it is reprocessed by Carter Holt Harvey Packaging locally. The company’s environmental sustainability report shows that about 225,000 tonnes of recycled fibre a year is used in the production of more than 500,000 tonnes of carton and corrugated packaging materials. [END] VIRGINIA McMILLAN / writer Virginia is a freelance journalist specialising in business and health stories. She has worked as a reporter, sub-editor and editor and as assistant editor at The Independent.

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> GUTSY PEOPLE

Viewpoint Andy Hamilton CEO of Icehouse

See-sawing currency stops NZ’s OECD climb New Zealand needs to fix the extreme volatility of the local currency or risk losing companies relocating in search of a less punishing exchange rate regime.

here should be no debate in New Zealand as to how we will move back up the OECD. It will not come from our government tinkering here and there. It will not come from our domestic monopolies making more money. It will not come from productivity commissions or talk feasts. A move up the OECD will only come from Kiwi companies growing their international business, making more dollars offshore in terms of products, services, IP and repatriating some of that back.

34 EXPORTER

This is a relatively simple concept which seems to get lost in the maze of public opinion and debate. At times, I don’t think our politicians and leaders help in this regard. This is time for personal responsibility, not collective love fests. More and bigger From an ICEHOUSE perspective, we have tried to make ourselves more relevant to the business owners of New Zealand. We believe there are 750 “internationally capable and competitive” firms in New Zealand,

split between 300 exporters and 450 domestic-focused firms. To get into the top half of the OECD will not only require these 750 growing significantly but also a further 2250 firms – yes 3000 firms in total — becoming internationally significant. If we don’t do this, we will just stagnate in the OECD rankings and continue to lag behind Australia. This is not an option. We must turn the great talent we have for travelling the world into something that has a purpose beyond becoming rounded young adults. We also have fantastic

creativity in this country, a fantastic ability to make outstanding and healthy food and beverages; and an excellent problem-solving and work ethic. If we can bundle these skills repeatedly in the international market, then we will be able to get there. New Zealand therefore needs to increase the number of Kiwi firms building international businesses. Existing businesses also need to scale up rather quickly. Disastrous for exporters So what about our exchange rate – does it really matter? We have heard many opinions on this point over the past few years. Our proposition is that it is not so much the level of the exchange rate that is the issue but the high variability that occurs which is disastrous for our exporters. Looking at the facts, it is easy to recognise the problem: we are in the top three most-traded currencies in the world. Trade in our currency is often more than our own GDP. Does that sound right? I holidayed

with a friend recently in Australia who had reduced the cost of his trophy purchase on the Gold Coast by 50% by playing the NZ-US dollar cross-rate – all over nine months. Does that sound right? We made the choice as a country long ago to have an open economy, a place where we led the world. We continue to believe that was the right position to take. However, we just cannot accept the status quo. Businesses are spending more time on exchange rate protection than they are in-market and with customers. The variability is killing our exporters and is encouraging our businesses to move most of the productive parts of their business offshore and into currencies where the variability is not so high. The exchange rate variability is forcing many of our businesses to move away from New Zealand. Was that what was intended? Once and fall all I would like our government to face up to the issue and find a path forward. I don’t pretend to understand what the solution is, other than to know that currency traders

around the world are playing spoof with our currency, which in turn is playing with our future. If the solution is to fix to the aussie or the US dollar or the euro or even some of our Asian counterparts, let’s do it. Singapore, Hong Kong and others have faced this issue. It was only very recently that a sage economist from one of the big banks explained to me that it is not in the government’s interest to let the exchange rate dip. The domesticled recovery is one which is improved by having a high exchange rate and the government is prepared to trade off the pain of exporters to keep itself in power. So let’s go back to the beginning. We need to be more global. We need to help our kids have bigger global visions. We need to have our start-up companies launching into world markets and our exporters just need to get damn big. Finally, the government needs to address the volatile exchange rate issue and stop confusing us. The exchange rate conundrum needs immediate action. [END]

It doesn’t matter what you export, where you export, how big or small it is, New Zealand Post can make it happen. Call us on 0800 276 7848 or visit www.nzpost.co.nz/export

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R+R 20008

Editor’s note: The views expressed above may not necessarily reflect the view of this magazine but we are happy to provide the space for gutsy opinion.

> G R E E N T E C H N O LO G I E S

Exploring the inner space of green technologies 36 EXPORTER

By V irginia Mc Millan

rom Kazakhstan to Sichuan, Kiwi companies are cleaning up the planet using homegrown technologies and business systems. In Spain, the Christchurch-invented energy-efficient engine WhisperGen is being produced to heat the homes of Europe. In Britain, Landcare Research’s carbon methodologies are being snapped up via a licence-holder that has 44,000 customers in 24 countries. And from Wellington, eco-website Celsias has become the pre-eminent

KEY TAKEAWAYS Whisper Tech Wisdom Exporter asks Whisper Tech managing director David Moriarty for lessons learned in getting a clean technology into production in Europe: >> “Changing the world” is harder and takes longer than you ever anticipate. >> Stick to what you do well; find partners for other roles. >> Your firm’s relationships with offshore players are crucial. >> Be sure your partners have credibility. >> Don’t rely on the Kiwi way of doing business; understand the culture and behaviour expected in the new market. >> The time is right: environment awareness is high and government stimulus packages may include an emphasis on “clean, green”. >> Register and protect your IP; work to continually improve and refresh it.

global hub for actions to advance “green” business and fight climate change. And that’s not to mention Sysdoc – where the Kazakhstani connection comes in.

Sysdoc is a management and business process consulting firm with a London presence run by founder Katherine Corich. Among clients are oil joint-venture companies that have

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R+R 20008

Kiwi companies are in a global race to supply technologies that will help grow the country’s export earnings as well as keep the planet green.

Call us on 0800 276 7848 or visit www.nzpost.co.nz/export

EXPORTER 37

saved millions of dollars by undertaking a Sysdoc-led Chart, Challenge and Change programme, says Corich, who has travelled regularly to Kazakhstan to work with one of these conglomerates. Positive influence The programme identifies opportunities for improvement all along the chain from raw material to end user. Critical elements include safety and environmental impacts. Kapiti-raised Corich – one of 10 finalists for Entrepreneur of the Year at last month’s UK National Business Awards – admits people find it hard to see the “green” in the oil industry. She says: “The simple fact is, you cannot say that from tomorrow, everyone will stop using cars and flying. You need to look at ways to have a positive influence on any industry that’s a producer or consumer of [fossil fuels].” At one global client of Sysdoc, the CEO gave up the chauffeur-driven car that cost £200,000 a year and now cycles or takes the underground train to work. Corich says this leadership is prompting further carbon-reducing effort among staff and their families. Small steps such as these lie at the heart of Celsias, the website of choice for 400 companies and thousands of individuals world-wide who want to minimise the carbon emissions that warm the atmosphere. Director Nick Gerritsen says the idea is that users build Celsias and it “does good” rather than makes money, but he’s keen for the fast-growing site to reach break-even, become a leading environmental media channel and spin off sister websites in other languages. Gerritsen is where Sichuan Province, China, comes into the picture. He’s a director of Aquaflow Bionomic Corporation, which recently clinched a deal with a partner in Chengdu City, Sichuan, ensuring sites are now being investigated where Aquaflow technology will turn algae from wastewater into fuel capable of running vehicles. The technology is superior to other biofuel projects because it does not require a crop to be grown on land, and it cleans up waste, says Gerritsen. He’s also a director of Carbonscape, which has developed a pine-waste-tocharcoal microwaving process. Added to soil, the charcoal removes carbon from the atmosphere and improves soil fertility. Processing creates useful bio-oil and gas by-products.

38 EXPORTER

CarboNZero shows the way Britain’s fourth-largest company, United Utilities, chose New Zealand’s CarboNZero to guide its journey to environmental sustainability. United has measured its greenhouse gas emissions and developed a plan to monitor and reduce them, internally and through the supply chain, successfully completing the first two stages of the CarboNZero process. The utility company accessed CarboNZero’s planning tools as a customer of Achilles Information, a British procurement management giant licensed by CarboNZero in its first big export deal. CarboNZero is now negotiating licences in Australia, the Middle East, Europe and South America. A business unit within Landcare Research in Christchurch, CarboNZero decided to venture into exporting about 18 months ago. It’s ploughing all its earnings – with growth of 410% in the past three years – back into further growth. Oxford University assessed numerous carbon neutrality certification schemes and rated the Kiwi system highly, says CarboNZero business manager Mike Tournier. “We had a better product,” he says. “That’s the real key for New Zealand companies. They have to articulate why theirs is the best.” CarboNZero ensures British companies can take part in emissions trading, disclose their carbon in annual reports and be compensated by central government for their carbon reductions, says Tournier. The Kiwi methodology is recognised by an oversight body, the International Accreditation Forum, and by the government-appointed accreditation body for Australia and New Zealand, JAS-ANZ. “JAS-ANZ is recognised in 146 countries and gives us global elite status,” says Tournier. The full CarboNZero programme applies to about 7% of Kiwi companies; it would be uneconomic for most of them, Tournier says. But many can make emission reductions and improve their bottom line using the two-stage Certified Emissions Measurement and Reduction Scheme. The idea is that by watching and limiting energy use, cost savings are made – as well as reductions in the atmosphere-warming gases thought to be responsible for climate change.

Cleantech growing “The ‘cleantech’ space is building fast,” Gerritsen says. He’s confident of accessing international investment for Carbonscape. For HotRot Exports, which makes green and putrescibles wastecomposting systems, “the world is moving towards us”, says managing

director George Pottinger. While finding it tough to clinch international deals in a recession, he reckons that as composting can generate carbon credits, there’s now a business imperative for it. HotRot has been sold in seven countries including Hong Kong, Poland, Indonesia and Australia. It’s

intended that when demand for its units is sufficient, offshore players will be licensed to build them in their own backyards – to reduce transport from New Zealand. At ecostore, New Zealand’s 2009 Sustainable Business of the Year, CEO Mitch Cuevas says the licensing model would be more efficient than continuing to ship products to the US distributor. But he notes that when made in New Zealand, the products start with a lower carbon footprint because of their renewable-energy inputs. The ecostore way of doing business that potentially would be exported in a licensing arrangement includes meeting Environmental Choice, Enviro-Mark and Landcare’s CarboNZero standards. Responsible resource use is the raison d’être of Meridian Energy subsidiary Whisper Tech, holder of the patents for the gas-fired engine WhisperGen. The engine’s attraction to “green” consumers is its ability to heat water and generate electricity for the home, with excess contributing to the national grid. Small numbers of units have been produced in Christchurch, but now a joint venture with a multibillion-dollar Spanish manufacturer/distributor has geared up to supply Europe. Two years of negotiation and technical work in Tolosa, Spain, have set up the JV to roll units out the door as this magazine goes to press, says managing director David Moriarty. There is more demand than the factory can meet. Whisper Tech is a 40:60 partner so will enjoy a 40% return plus royalties. Energy Mad is another Christchurch company mad on energy savings. Established in 2004 by the inventors, the energy-saving Ecobulb has sold five million units, a fifth of them offshore (mainly in Australia). The US is an important target market where the company has a couple of people “on the ground”, says co-founder Tom Mackenzie.He says Ecobulbs don’t cause outages, which helps in building alliances with network companies and creates a point of difference for the company. Patents protect Energy Mad’s core intellectual property, while design registrations and trademarks protect the brand. Landcare Research’s CarboNZero scheme – in use by British companies to measure, reduce and offset carbon

The simple fact is you cannot say that, from tomorrow, everyone will stop using cars and flying. You need to look at ways to have a positive influence on any industry that’s a producer or consumer of [fossil fuels].” Sys doc fou nd er Kather ine Co r ich

emissions (see “The thing about sustainable packaging” on page 30) – has had trademark-protection since 2003. Protecting IP Corinne Blumsky, a trademark expert and partner at IP law firm A J Park, says in the green space branding is as important as in any other sector. Companies need to check whether they can register a particular brand in the desired markets. Fellow A J Park partner Matt Adams says if the technology, software or business methodology is a novel one and could be copied, a patent giving 20 years of exclusive rights might

be the way to go. In the UK, patent applications with a significant impact on combating climate change can get a faster track and in Australia, environment-friendly applicants may be hastened through. Having the invention covered in a newspaper article could see it deemed published and not patentable, Adams warns. [END] VIRGINIA McMILLAN / writer Virginia is a freelance journalist specialising in business and health stories. She has worked as a reporter, sub-editor and editor and as assistant editor at The Independent.

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EXPORTER 39

40 EXPORTER

> INSURANCE

Trade credit insurers curb appetite for risk Premiums have gone through the roof. While the global economy is showing signs of recovery, don’t expect global trade credit insurers to have normal appetite for trade credit risk. By Yoke H ar L ee

ver 18 months ago, global insurers were hit by exposure to trade insurance claims began tightening their risk exposure, sending premiums sky-high and starting a slow-down in the underwriting of trade credit insurance. Trade credit insurance premiums have risen by about 40% from a year ago. While the global economy seems to have stablised, trade credit insurers are not expecting a full-speed recovery for exports and remain vigilant in underwriting new risks. Exporters seeking trade credit insurance cover will continue to have to pay high premiums for cover while sectors such as wool and timber

KEY TAKEAWAYS >> Premiums for trade credit insurance have risen 40% from a year ago. >> Trade credit insurance will continue to be costly in 2010. >> Cover is being reduced under new underwriting guidelines. >> Be prepared to provide detailed financial data of your buyers. >> Wool, timber and textiles exporters will have to work hard to find cover. >> Check out the $200 million boost to the Export Credit Office’s funding.

exporters will find it hard to get cover for trade credit insurance, industry officials say. Stability, reality Burke Steel, managing director of Euler Hermes New Zealand, says trade credit insurers will not be relaxing their tight

risk management but will continue to underwrite businesses that are viable so exporters can continue trading. “There has been a stabilisation in the market following a sharp deterioration. Insurers have seen significant underwriting losses – that’s been a clear and distinct trend from 2008 until now. Exporters have to be realistic in what they can or can’t do. “Everyone’s got to get through this. With proper application of risk evaluation, and realistic expectations, we can continue trading. We are determined to offer the best scope of cover but there is no getting away – the market is still difficult,” Steel says. QBE’s New Zealand manager for Trade Credit, Michael Kayes, says there is more positive economic data in the market. “There’s no end to enquiries. From an insurer’s point of view, we have to assess if we can underwrite the risks, and at what limit. The biggest hurdle for companies is whether they have the capital base or the strength on their balance sheet.” Atradius Trade Credit Insurance’s Australia/New Zealand managing director, David Huey, says:

EXPORTER 41

Burke Steel, managing director of Euler Hermes New Zealand

“Underwriters are showing a gradual easing of the post-global financial crisis conditions as our leading indicators start to show a positive trend. New business channels are definitely more active and our quoting pipeline is growing.” He adds: “We have started to adjust our risk appetite upward to reflect the change in the recovering economic environment. The rate of that upward movement will track the respective economies in the domestic and export markets we cover.”

Out of favour Capacity (for risk) in areas such as textile and construction is still restricted although beginning to ease, Heuy says, adding business has not returned to 2008 levels, although more normal risk profiles can be expected in 2010 and 2011. Three of the world’s key trade credit insurance players have had to deal with massive trade credit claims when the global economy went into recession following the US financial crisis caused by the implosion of banks’ overwhelming exposure to mortgagerelated financial products. Atradius Credit Insurance, a global trade credit insurer, reported a fullyear loss of EUR193.4 million in the 2008 financial year due to the difficult economic environment and losses associated with trade credit claims. Euler Hermes, another global player, reported an operating loss of EUR71.1 million, compared with a profit of EUR137.5 million for the first nine months of 2008. The loss was due to net cost of claims. Its net income was EUR900,000 for the first nine months of 2009 (2008: EUR152.3 million). Across the ditch, QBE International announced a record after-tax profit for the half-year ended June 2009, of just over A1$ billion, but had claims of

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42 EXPORTER

Shot in the arm from Key’s government Under changes announced in November, the government is boosting funding for three products offered by the New Zealand Export Credit Office by $200 million: • The US Surety Bond product will be raised by $70 million to $170 million. Companies selling products to US government bodies must provide such a bond, but US insurers are reluctant to guarantee NZ firms. • The Export Credit Guarantee product will be raised by $100 million to $315 million. This allows exporters to offer overseas buyers repayment terms longer than 360 days and covers them in the event of a default. • The General Contracts Bond product will be raised by $30 million to $75 million. This is a guarantee to an exporter’s bank that enables the bank to issue a bond required as part of the exporter’s contract in a situation where they lack collateral.

A$145 million on trade credit and other credit-related insurance policies. Its annual report says the Australian (including New Zealand) operations have been extensively reviewed and the company has ceased underwriting in some segments. More financials Neil Bhikharidas, from Aon Trade Credit (Broking), says: “A lot of companies have perked up to the fact that trade credit insurance is difficult to obtain and there are certain hurdles to cross. There are lots of enquiries [for trade credit cover] but there is a certain level of auditing that goes into measuring the price, relative to the cost of the risks, to give insurers the level of comfort attached to the relative risk environment.” For exporters in need of trade credit cover, there is a need to be attentive to obtaining detailed financial information on their buyers. Exporters have to accept that over the next six to nine months insurers are not likely to soften

There’s no end to enquiries. From an insurer’s point of view, we have to assess if we can underwrite the risks, and at what limit. The biggest hurdle for companies is whether they have the capital base or the strength on their balance sheet.” M i ch a e l Kay e s , m anage r , QBE Tra d e Cre d it

their position on their risk management, Bhikharidas says. Insurers say dramatic withdrawals from the market by trade credit insurers have ceased but insurers are more vigilant and circumspect in what type of trades they want to provide cover for. Higher prices A new pricing model is now in place, one that is 40% above 2008’s level. The new pricing model is reflective of insurers’ risk cover to underwrite business. New underwriting guidelines have also been put in place, typically reducing cover from about 90% to 85%. Limits on charges for every policy assessed have also been raised among insurers. During the past 18 months, many companies have restructured, but there is no guarantee the restructuring would result in profitability. “For many companies, they would

be dipping into their reserves so in a stagnant 2010, nothing would have changed substantially that would increase profitability dramatically. This may impact the level of support from financiers,” according to Bhikharidas. Export Credit Office The Export Credit Office’s (ECO) manager, Carmen Moana, says there has been demand from overseas buyers for performance bond gurantees and new a facility will be made available to meet some of these bonds issued by exporters’ banks. In November the government announced an additional $200 million in funding for exporters in trade credit and related products. This is on top of a February revamp of the ECO’s products and processes to make them more market-friendly. The government gave exporters a shot in the arm by providing $50 million to ease trade credit cover for exporters.

The Export Credit Office’s (ECO) manager, Carmen Moana

In July, the ECO introduced co-insurance with Euler Hermes, providing top-up cover for exporters at their cover limit with Euler Hermes or in cases where the insurer has decided to withdraw cover. Moana says a similar deal is being worked out with Atradius. [END] YOKE HAR LEE / writer Yoke Har was formerly a senior Reuters correspondent, a Business Herald writer, and personal finance editor for a regional media company. Most recently she managed internet and intranet content for a global US consultancy.

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The New Zealand Export Credit Office (NZECO) provides financial guarantee products for New Zealand exporters. Our products help these exporters manage risk and capitalise on trade opportunities around the globe. As well as working directly with exporters, we work closely with commercial financiers in New Zealand and offshore to support and improve the competitiveness of exporters. NZECO is currently located in the Treasury and obligations to third parties are guaranteed by the New Zealand Government.

EXPORTER 43

> FOREX

Building a natural hedge against the swinging kiwi Building a natural hedge into your business can help limit the pain inflicted by wild kiwi dollar swings, veteran exporters say.

By Yoke H ar L ee

ou can’t fight the kiwi’s rising trend but you can certainly evolve your business to take advantage of a strong local currency. For businesses still banking on the advantage of having a cheap currency, the strength of the kiwi would make it harder to gain market advantage. But some exporters are foregoing the “we are cheap” business model to focus on gaining a hedge in their cost structure to stay competitive despite a strong currency. Even the most seasoned business person finds it hard to manage in a volatile foreign exchange environment. Consider the kiwi’s unstoppable rise. In January, the 21-day average for the kiwi was $0.5495 to the US dollar. In May, it had risen to $0.6008, and in August to $0.6763. By September, the kiwi was at $0.7384 to the US dollar and, towards the end of November, it was trading around $0.72, from a high of $0.75. For Roger Latimer, managing director of Teknatool International, the strong kiwi would have affected about 20%

44 EXPORTER

KEY TAKEAWAYS >> Forget about using a cheap currency as a competitive advantage. >> Restructure your business over time to spread your kiwi dollar operations. >> It is a good time to be buying US dollar-based assets. >> Where possible, set up foreign currency accounts to hold your dollars. in US-dollar based revenues it has to repatriate to New Zealand. Evolving the business Over the years, the company has reworked its business so that it can benefit from having a natural hedge in markets that matter. At the moment, the strong kiwi provides an opportunity for the company to increase its investment appetite. “We will be making further investments overseas — we have plans to expand in the US,” Latimer says. Teknatool, which has a plant in Qingdao, China, makes woodworking tools and DVR (digital variable reluctance) motors. For this company, the bulk of its manufacturing cost is based on the Chinese yuan (which is linked to the US dollar). Latimer

says although the yuan-dollar rate fluctuates, it is nothing like that of the kiwi dollar’s movements. “It is hard to run a business on these wild swings [in the kiwi]. A year ago, we were $0.76; this fell to $0.60, and then we went back up to $0.75. For us, our international strategy has to be one that provides growth that is not going to be stressed by the kiwi’s swing.” He says there have been instances when the kiwi has moved between 2% and 5% overnight while the yuan may move about 5% over three months. Teknatool has been exporting for 20 years. “There was a time when the kiwi was worth more than the US dollar. There was also a time when it was at $0.38. If we are going to be successful, we have to have a long-term strategy where we can take the wild swings out.” A successful long-term model for the company is one where manufacturing success does not rely on a low exchange rate, he says. Over the years, the company has been building a natural hedge into its business, by moving its costs into an overseas currency. “We started importing parts [which were paid for in US dollars] to gain more of a natural hedge.” However the best decision was manufacturing in China, where the exchange rate is less volatile while the company’s inventory cycle

EXPORTER 45

It is hard to run a business on these wild swings [in the kiwi]. A year ago, we were $0.76, this then fell to the $0.60, and then it went back up to $0.75. For us, our international strategy has to be one that provides growth that is not going to be stressed by the kiwi’s swing.” R o g e r Lat i mer, man ag i ng d i rector of T e knatool Inte rnationa l

— that of ordering, processing, and manufacturing — has been reduced from four months to between three and four weeks. This means the company can be more responsive to its customers and has a lot less money wrapped up in products, Latimer adds. Enhancing value Bruce Moller, chief executive of Howard Wright, is also thinking of taking advantage of the opportunities presented by the strong kiwi to buy more US dollar-based parts. “It is a good time to be buying.” He is, however, more in favour of focusing on what he calls “valueenhancing” products to soak up the erosion of margins caused by a strong kiwi. This is especially so for companies that cannot benefit from cheaper imports from the strong kiwi. For Howard Wright, the strong kiwi hasn’t benefited its cost structure as

global aluminium prices are driven by supply and demand. At the moment, demand is outstripping supply, so prices have been strong. Although the steel strips the company buys from its New Zealand supplier are sourced overseas, the demand for steel has also put pressure on prices, affecting the supplier’s ability to supply cheaper products or to pass on savings. Howard Wright has taken advantage of the stronger domestic currency by buying directly from offshore suppliers where it can. Moller says in some cases, his company quotes to markets in their respective local currencies and, for larger contracts, it takes forward cover. He adds, however, that for Europebased clients, although the company tries to buy and sell in euros, getting the timing right is tricky. “You can’t exactly buy and sell to exact timing, so we are looking at having a euro account where income can go into.”

Fiddling with price Premium pet food manufacture ZiwiPeak’s founder, Peter Mitchell, has been withholding any price increases for the past three years. With the strong kiwi, the company decided it was time to raise the company’s pet food prices by about 10%. “It is quite a significant price increase. If the kiwi moves up further, above $0.80, we’ll plan another increase. The price increase is our tool to protect margins,” Mitchell says, adding premium products are better placed to command price increases. His company sources inputs locally so there is no benefit from the strength of the kiwi. It exports 95% of its products, of which 65% goes to North America and the rest is spread across other countries. The company’s US sales are paid in that currency. It manages an offshore US dollar account to help mitigate the impact of extreme currency movements. [END] YOKE HAR LEE / writer Yoke Har was formerly a senior Reuters correspondent, a Business Herald writer, and personal finance editor for a regional media company. Most recently she managed internet and intranet content for a global US consultancy.

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New risk management standards, seminars for 2010 The new Risk management – principles and guidelines standard, AS/NZS ISO 31000:2009, is available from Standards New Zealand. AS/NZS ISO 31000:2009 is a joint Australia/ New Zealand adoption of ISO 31000:2009, and supersedes AS/ NZS 4360:2004. AS/NZS ISO 31000:2009 provides organisations with guiding principles, a generic framework and a process for managing risk. The standard now includes 11 risk management principles an organisation should comply with, and how to implement them. HB 436:2004 Risk management guidelines – companion to AS/ NZS 4360:2004, provides practical advice to help organisations to apply AS/NZS ISO 31000:2009. This handbook is being revised and the new edition is expected to be published early next year. AS/NZS ISO 31000:2009 seminars are planned for late February/March in Auckland, Wellington and Christchurch. To register interest, email seminars@ standards.co.nz.

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Order or download AS/NZS ISO 31000:2009 from www.standards. co.nz, email enquiries@standards. co.nz, or call 0800 782 632.

Revisit ASB’s Job Creation Loan Did you know ASB’s mega $1 billion Job Creation Loan fund has a portion dedicated to exporters? The fund has set aside $250 million for exporters who meet the bank’s lending criteria. The bank’s website https: //www.asb.co.nz/ has details. Loan options are: • Fixed interest rate for 2 years • Floating interest rate for up to 2 years* • Flexible finance facility for up to 2 year* • Foreign currency facility options To find out more about Job Creation Loans for your business, talk to your ASB business or commercial manager. Call 0800 272 222 or email business. banking@asb.co.nz. *Floating rate will remain at 1% below ASB’s variable housing loan rate for up to two years then revert to market rate at that time. > Information obtained from ASB website.

New home for NZ Customs air cargo inspection The New Zealand Customs Service’s air cargo inspection facility has been relocated to 21 Tom Pearce Drive (corner of Tom Pearce and George Bolt Memorial Drive — formerly occupied by Regency Duty Free) at Auckland Airport. This facility will include the export cargo x-ray service. The new facility places Customs alongside cargo transport operators Air New Zealand and Menzies Aviation. Drive-through capability will make the screening process more efficient, without endangering vehicle drivers, since only vehicle cargo beds will be exposed to x-rays.

Waikato Innovation Park Waikato Innovation Park has helped secure over $300,000 for 27 Waikato and Bay of Plenty companies to expand and develop new products. A year ago the Waikato Innovation Park was appointed to administer the TechNZ Research & Development Investment Programme for the Foundation for Research, Science and Technology for the Waikato and Bay of Plenty regions. In that time the park has interacted with 250 companies with respect to TechNZ funding, approved 27 applications, directly facilitated investments of up to $30,000 and supported larger investment applications at a national level. Any company in the Waikato or Bay of Plenty area engaged in research/ development or planning to change the scale of its business should contact Waikato Innovation Park to get connected to the TechNZ funding. For details contact Peter Maxwell at the Waikato Innovation Park in Hamilton on 07 857 0503 or visit www.innovationwaikato.co.nz.

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Heavier trucks would make cents for exporters Australian road transport costs are lower as their trucks are more productive due to heavier loads. Kiwi exporters may be more competitive if New Zealand trucks are allowed heavier loads.

> LO G I S T I C S

By Tony F riedlander

he Government’s proposal to allow heavier and in some instances longer trucks on New Zealand’s roads is good news for anyone involved in exporting. Road transport costs in New Zealand are on average 30% higher than they are across the Tasman in states like Tasmania and Victoria. That’s a big cost handicap for any business competing with Australian producers here, let alone in Australia or around the world. One of the main reasons why Australian road transport costs are lower is that Australian trucks are more productive because they can carry more. Allowing New Zealand trucks to haul heavier payloads should help New Zealand exporters be more competitive. The benefits of heavier trucks are indisputable. After many years of pressure from the Road Transport Forum, the previous Government set up a year-long trial of heavier trucks and trailer units in 2008. Running at a 50-tonne maximum weight rather than the current 44-tonne limit lifted per truck productivity by 10% to 20%, cut trip numbers by 16% and reduced fuel use by 20% on average among the trialists. Convincing The results were convincing. The government is moving to effectively create two new classes of vehicles on top of the existing 44-tonne gvw (gross vehicle weight), 20-metre maximums. The first would allow vehicles with the same dimensions as those currently on the road to run at a combined weight of up to 53 tonnes. In some, very limited instances these vehicles could be up to 22 metres long. The second would allow for vehicles of up to 25 metres with a total combined weight of up to 62.5 tonnes to be allowed on a few selected routes only.

Neil Weber, operations manager at Hawke’s Bay-based Pan Pac Forest Products, is a believer in the benefits of the government’s proposals. Together with local trucking ompany Emmerson Transport, Pan Pac put a 25-metre B-train on the 18 to 20 kilometre route from its Whirinaki plant to the Port of Napier, as part of the Ministry of Transport’s trial of heavier vehicles in 2008. Between October and December the experimental rig carted 85 loads of pulp and sawn timber. The results were stunning.

More load Just adding five metres to the overall vehicle length effectively enabled the unit to carry twice as much sawn timber. Running at a maximum load of around 61 tonnes meant 48% fewer trips were required to cart the same tonnage. As 48% fewer kilometres were covered, fuel use dropped by 34% with a consequent significant saving in emissions. Effectively half the number of truck trips would be needed to shift Pan Pac’s sawn timber exports annually.

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Impact of weight on roads Heavier trucks would cause some more damage to the roads, but a lot less than most people imagine. According to a 2000 Transit report, there would be about a 2% rise in road wear. However, with the steep increase in road user charges for trucks operating at these weights, any increased maintenance costs would be more than offset by the higher charges trucks would pay. Road safety would be improved with fewer truck trips being needed to deliver a given load. Modern trucks are more than capable of handling the proposed increased weights just as safely as the trucks already on the road and, as nearly three-quarters of all fatal accidents involving a truck and another vehicle are caused by the other vehicle, truckrelated deaths should be reduced. In fact with most trucks operating at heavier loads having the same dimensions as those currently on New Zealand’s highways, most other road users wouldn’t see any difference. Even the Pan Pac truck attracted no public comment on its runs between Whirinaki and the port.

Twice the truck it seems: at 25 metres long this truck produced a 67% productivity increase. In front: Neil Weber, Pan Pac operations manager, driver Peter Emmerson and Brian Pritchard, Pan Pac forestry and logistics general manager.

Overall Pan Pac calculates it could reduce its total loads of all products to the port by 39% and its fuel use by 22%. Under the government’s proposals, any unit operating over the 44-tonne limit would need a permit from the New Zealand Transport Agency. If it is to run on local roads it must also have a permit from the local

road controlling authority which has to consider the durability of the roads and bridges as well as safety and other road users. The permit can specify maximum weight, period or time of travel, number of allowable trips, speed, load type and amount and the roads or types of road that can be used.

(Tony Friedlander is chief executive of the Road Transport Forum)

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52 EXPORTER

> R E AC H I N G M A R K E TS

Tackling business in a Thousand and One Nights The Middle East is a vast and complex region that can be highly rewarding for exporters with deep pockets prepared to make multiple visits. By Yoke Har L ee

ou may have to sit around the table and stomach eating sheep’s eye, or do a quick read of the ancient Persian tale “A Thousand and One Nights”. But getting to know the Middle Eastern market cannot be done in a single trip, or in a hurry. Considered one of the most complex, strategically, economically and culturally sensitive regions of the world, the Middle East is best tackled over time, through many visits and earnest cultivation of contacts and relationships. A good place to start in the economically diverse region is The Cooperation Council for the Arab States of the Gulf, also commonly known as Gulf Cooperation Council (GCC). GCC members are United Arab Emitates (UAE), Bahrain, Qatar, Kuwait, Oman and Saudi Arabia. The GCC came into being in 1981 and is a loose political and economic market whose member countries control half of the world’s oil reserves.

KEY TAKEAWAYS >> Be prepared to take a long-term view of the market. >> Don’t expect to fly in, secure a few deals, and fly out. >> The region is complex. Begin in a place like Dubai and move from there.

This view is echoed by another Gulf old-hand, Norm Morgan, director and consultant for Tradex Exhibition, who has been helping Kiwis to exhibit in the Gulf region since the 1980s. “In the Gulf, you make friends before you do business. The best deals I have seen are those that have taken at least a year to broach,” Morgan says.

>> Price your products with a view there will be bargaining. >> Be prepared to invest to develop channels and distribution networks.

Expertise, time, money Underestimating the expertise, time and money required to gain credibility and build a business in the Middle East is one of the most common mistakes New Zealand companies make in the region, says Jo Mullins, general manager business development at education consultancy Cognition Consulting, a successful Kiwi operator in the region. Cognition has over 100 staff in Qatar and 200 in Abu Dhabi, and has done projects in Saudi Arabia, Egypt and Oman.

Jo Mullins, general manager business development at education consultancy Cognition Consulting.

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Richard Laverty, regional director for New Zealand Trade and Enterprise for Europe, the Middle East and Africa, has this advice: “Often people come through and don’t come back for a year.” He says the market is lucrative and dynamic but distribution networks are not well established. Deep pockets and regular visits are a must. “The process is not to fly to the Middle East, sign up a deal at a trade show and leave. You want to be based in Dubai,” Laverty adds. Morgan warns against using the “elevator speech” that US management schools promote when making a pitch. “That’s all rubbish. It is one of those things you do not do. It usually takes a while for the guy [you are dealing with] to decide what he wants to do.” Cultural sensitivities Be prepared to work at your relationships hard, and swot up on cultural sensitivities. In Saudi Arabia, for instance, Kiwis need to be mindful of the segregation of society, so a certain level of study is needed before tackling the market, Laverty adds. Morgan says: “In the more traditional areas, if you are a man doing business with a woman, don’t offer to shake hands unless she extends her hand first.” But if you are a woman doing business with a man, it is acceptable to be the first to extend your hand in greeting. Dressing in a culturally insensitive way is definitely unacceptable. Women and men cover their arms and legs, says Cognition’s Mullins. Saudi Arabia is the trickiest. Women are not allowed to “man” the exhibition stands, the only place in the Gulf with this practice, says Morgan. He says of all the Gulf countries, Oman is the most laid-back and friendly. Qatar is inching towards a Dubai model while Abu Dhabi is conservative although changing to be more like Dubai. Abu Dhabi is oil-rich and has one of the world’s highest per capita incomes. Costs Operating costs are high in the Middle East. Success is very much a result of having the resources to invest significant funds to get started in those countries, says Mullins, of Cognition’s progress in the region. “Upfront costs are very high. Our

54 EXPORTER

Art of negotiating in the Gulf • Before you start negotiating, look into how foreign entities are allowed to do business (including distributing exports) in your negotiating “opponent’s” country. It pays to know your ground before opening negotiations as some Gulf countries have complex (protectionist) laws around requiring local sponsorship and participation in the operation of foreign businesses. • What you may think is a simple distribution agreement with a local party may in fact be registered by it as an exclusive commercial agency agreement, which may be difficult to terminate in the event of dispute and prevent you from exporting until the matter is resolved. Local law firms will be able to provide guidance on this. If you do need local participation, ask around for suitable partners. Some will be happy to take a more proactive role in your business operations while others will be just as happy to act as a “silent” sponsor. • You will need to consider what kind of role you envisage a local partner undertaking and carefully set out your expectations in an agreement. • Confirm who has authority to agree terms with you. • A handshake is only as good as the signed contract that reflects what you (think you) have agreed. Again, check whether your agreement needs to be registered with any government department in order to be effective. Some government departments may require documents to be translated into Arabic, notarised and authenticated. This process can be timeconsuming. • Avoid litigating disputes in foreign courts. If using international arbitration, choose the place of arbitration (and its legal framework) and the rules for the arbitration carefully, and ensure your drafting is checked by an expert. • Note the existence within Dubai of the Dubai International Financial Centre (DIFC) which has set up its own judicial system (staffed by international judges) and commercial legislation, including an arbitration law. • Be aware that we have a Free Trade Agreement with the GCC. The terms of this will need to be carefully looked at next year when details of the agreement are made public. By Olivia Grainger, solicitor, Chapman Tripp

Tales from the Gulf The following comments came from responses to our survey on exporters’ experience in the Middle East. • “Tried and failed as it [business] was through an American contact.” • “One lesson is that we have a real focus on a [specific] market and set clear annual plans as to how we are to tackle and develop it over a 12-month period, and that focus has paid off.” • “They have no perception of time in our sense. Be patient and develop close personal relationships.” • “Understand their male-dominated society, cultural and religious differences as well as different social/dining expectations.” • “(They are) slow in communication. It is not very convenient visiting places like Saudi Arabia. The positive side is if they trust you, there will be repeat business on a long-term basis. “ • “Yes, the first price isn’t the final price whether buying or selling.”

staff members are generally senior educationalists who expect to be paid accordingly. Accommodation and other living expenses are very high in these countries. Other financing costs are very high, as well, so only substantial entities can manage these large contracts. “The way of doing business there is different from the New Zealand environment. You have to be prepared to learn the processes and understand the customs. It is very important to engage good local legal advice to help you through the complex and often opaque business environment and regulatory framework,” Mullins says. Pricing is important, says Tradex’s Morgan. Negotiations are not straight forward. “No matter what your offer is, you will be told it is too dear.” Locals love to bargain so build in an amount to discount so all can feel good. When asked to quote a price, spell out the terms up front rather than change the price later to avoid the perception you cannot be trusted with an initial price, Morgan says. Recently, leading Kiwi law firm Kensington Swan announced plans to set up its maiden overseas office in Abu Dhabi, UAE.

We have been working in the United Arab Emirates for more than five years on a remote fly-in, fly-out model, but our clients were constantly asking us when we would be here permanently. Eventually it became clear that to grow the business, we needed to demonstrate a real commitment to region.” Qu e ntin Lowcay, K ensingto n Swan’s UAE m anaging partner

Eventually it became clear that to grow the business, we needed to demonstrate a real commitment to region. “The authorities are naturally careful about who they allowed to set up business in the region … It was a very stringent process – even involving a very thorough interview so they could gauge whether we were truly serious about the venture,” Lowcay says. “To do business in the UAE successfully, you need to show you are prepared to be part of their community, care about their needs and have a long-term view. You can’t just fly in and expect work to be handed to you,” Lowcay adds.. [END]

Kensington Swan’s UAE managing partner, Quentin Lowcay.

Kensington Swan’s UAE managing partner, Quentin Lowcay, says the move was a demonstration of how you need to do business in the region. “We have been working in the United Arab Emirates for more than five years on a remote fly-in, fly-out model, but our clients were constantly asking us when we would be here permanently.

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EXPORTER 55

Petrol-head heaven in NZ

Development of a motorsport and related industries in the Franklin District could bring in healthy foreign exchange earnings as New Zealand gets on the world map as an international motorsport location. 56 EXPORTER

> ECONOMIC DEVELOPMENT

By M ary M acK inven

otorsport has connotations of big money, swashbuckling heroes with foreign accents and major brands like Ferrari. New Zealand has its fair share of famous petrol-heads. Auckland-born Bruce McLaren put New Zealand on the world racing map and later established the McLaren empire. Well known drivers and their teams with accents exotic to the rest of the world include Bruce, Denny Hulme, Chris Amon (who drove an F1 Ferrari), Bert Munro, Possum Bourne, Scott Dixon and Greg Murphy. Upping New Zealand’s capacity to serve the industry worldwide are historic car race drivers and motorsport businessmen Tony Roberts and Chris Watson of GP Farms - the dreamers, the funders and the operations managers behind Hampton Downs Motorsport Park and Convention/Events Centre. Hampton Downs Managing director Roberts says the plan has been to build a modern motorsport complex to complement the existing facilities and raise the profile of motorsport in New Zealand. Located half-way between Auckland and Hamilton on State Highway 1 and a stone’s throw from the Meremere drag racing circuit, the Hampton Downs complex is not quite ready for public spectators as can be seen in the photo (below) taken in late October. Completion is three to four years away. But its finished track (one of three planned) already hosts races such as targa rally laps and performance car driver training. It is booked a year ahead with 18 races including the World Rally Championship in May and the A1

The Hampton Downs Motorsport complex

KEY TAKEAWAYS >> The new Hampton Downs Motorsport Park and Convention/Events Centre will have a full calendar of international events in 2010. >> Progress on the Bruce McLaren movie is excellent, says a co-producer. >> New Zealand motorsport exports are varied: from cast iron cylinder heads to racetrack lawn mowers to racing teams with custom-built cars. >> Enterprise Franklin Development Trust actively facilitates motorsport businesses in its region. Grand Prix in November. Starting in 2011 are three years of World Superbikes to be televised to two billion people and likely to draw 10,000 international followers. The tourism implications are obvious. Contractors are racing against the

clock to ready facilities for the first public event, in January 2010 - the inaugural New Zealand Festival of Motor Racing. The two directors mailed their contacts and handed out brochures at international events to attract the 120 teams coming from around the world. “Motorsport is a very tight and supportive community,” says Hampton Downs website and business manager Claire Roberts, daughter of Tony. Moving the baby Bringing the vehicles to New Zealand for the festival is Jenner Cargo International, a company that specialises in automotive, marine and aviation freight, and special projects. New Zealand general manager Phil Gibbs says: “This cargo is always being moved to a time-frame, such as for race meetings. And clients have a lot of emotional investment in their vehicles, so we baby them the whole way to make sure they get there as planned.” Meanwhile, the first-ever Bruce McLaren bio-pic (1937-1970) is “in

EXPORTER 57

excellent shape”, which is all the Kiwi co-producer, Michael Garlick, could divulge at the time of Exporter going to print. Franklin District, straddling Auckland and Waikato, aspires to be home to a multimillion-dollar industry. It is the location of Pukekohe Race Park and a host of automotive businesses that have grown around it. Motorsport cluster Enterprise Franklin Development Trust (EFDT) is facilitating more growth, encouraged by a report from Cranleigh Strategic that it commissioned in 2005, which concluded: “From a New Zealand perspective, a motorsportrelated industry cluster that delivered innovative products and services could increase exports dramatically.” EFDT has a project manager for motorsport, Sharon McGinity, to facilitate opportunities, including in tourism. Manukau Institute of Technology offers a New Zealand-first Certificate in Motorsport Training, at a satellite site in Pukekohe. Programme leader Trevor Hennessy says this course could target overseas students with basic trade skills. Success stories include top students from the course working for race teams, including overseas.

“There are people out there willing to support and employ them. Some of the best teams in the world have Kiwi connections,” Hennessy says. Possum Bourne Motorsport (PBMS) in Pukekohe is one company employing course graduates. General manager Kevin Sanderson had been in the late Possum Bourne’s race crew for 20 years before assuming his current position six years ago. Building cars PBMS takes a Subaru Impreza WRX STI road car on contract, then comes up with a build solution and setup that will win rallies. “And we haven’t failed.” Sanderson says PBMS is useless at marketing but sensational at making race cars. Luckily, all work comes by word-of-mouth. Other cars are made for individual customers to race overseas, or when they need a replacement car in a hurry after damaging one. “We build the cars here, sell them to overseas customers and send technicians to support them and repair the vehicles at events, look after the drivers and make sure their heads are in the right space,” Sanderson says. Language barriers are overcome at overseas races by contracting English-

speaking nationals. And Sanderson takes an Australian paramedic specialising in motorsport injuries, driver diet and health – “an area where you don’t want communication problems”. Cast iron V8 cylinder heads are made at Masport Foundries (a sister company of Masport New Zealand) for jet boats and race cars in the US. General manager Wolf Schmahl says the company has sent as many as four container loads a month and is adding to the automotive range of products with alloy inlet manifolds for all types of cars. Motorsport also provides promising export markets for Trimax Mowing Systems. The company’s tractorpowered lawn mowers groom the fields at Atlanta and Florida speedways. Trimax marketing manager Tim Fanning says, “When the 100 or so million people tune into the next NASCAR series at Atlanta they will see the beautifully striped grass around the track.” [END]

Tired of the Tiredbullshit? of the bullshit?

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58 EXPORTER

global stage EXPORTER looks at innovative NZ products seeking a worldwide audience

I f yo u h a v e a n i n n o v at i v e pro d u ct yo u w a n t to take to t h e w or l d , ema i l e d i tor @ exporter M A G A Z IN E . co . n z

Senztek Holdings New Zealand company Senztek is reaping rewards by focusing on developing smart technologies for energy use measurement and management. The company, with an 18-year history of developing and making industrial instrumentation, has a range of solar, electric and gas hot water controllers. SolaStat™ is the leading brand of solar controllers in New Zealand and the devices are increasingly popular in Australia. The EcoStat™ intelligent hot water controller can be fitted to any standard electric hot water cylinder. Senztek has also developed a communication interface between sensors and control systems. The company, whose sales have risen almost 300% in the past year, will be fast-tracking expansion into Europe. It recently won the $1 millionEntrepreneurs’ Challenge organised by the University of Auckland. Senztek CEO Brian Knolles said the funding comes at a critical time, with the company making a first

sale of 100 units to distributor Apricus in Australia a year ago. With the Australian government’s $42 billion economic stimulus package, that market is set to be the company’s fastest growing. Knolles’ team has also identified the UK market as having significant potential. For more info: http://www.senztek.com/products.html

Mámor Chocolates

Growing macadamia nuts is no fly-by-night undertaking. The owners of Cathedral Cove Macadamias have taken two generations to get to where they are. Situated in Hahei, on the Coromandel Peninsula, the company makes high-quality artisan food products such as macadamia butter, macadamia muesli, macadamia oil, macadamia dukkah and sprinkles for seafood dishes. Cathedral Cove sells nationally through supermarkets and specialty food stores and exports to the UK, US and the Cook Islands. Its orchard is a sustainable eco-tourism destination in the summer, where locals and tourists can enjoy an orchard tour, local bird life and an onsite store/cafe selling macadamia products and local organic produce, and from where they can visit local attractions such as Cathedral Cove Beach.

Chocolate couturiére Dr Hanna Frederick has pushed the boundaries with her chocolate-making business. Her most recent concoction is venison chocolate truffles, served at a recent Meat Industry Association pow-wow. Frederick, who gave up the corporate chase to make chocolates, has in the past concocted beer-flavoured chocolates, recycled orange peel chocolates and a chocolate tinged with a popular Southeast Asian aphrodisiac, Tongkat Ali. She says, historically, chocolate was a savoury before becoming a sweet. Mámor Chocolates are made using a blend of 71% dark Belgian chocolate, New Zealand cream and organic fruits and herbs. Mámor means ecstasy in Hungarian, and two of its chocolates will set weightwatchers back about 99 calories. Although a New Zealandformed company, Mámor has moved operations to Melbourne to capitalise on the growth in the market for specialty chocolates. Production is on hold pending completion of the move. Sales are through the company’s online store.

For more info: http://www.cathedralcovemacadamias.co.nz/OnlineShop

For more info: http://www.mamorchocolates.com

Cathedral Cove Macadamias

EXPORTER 59

60 EXPORTER

> PAY M E N T S Y S T E M S

Wired, yet worried Internet merchants can fall into the trap of paying higher charges for defaults from the card issuers when they offer credit card payment for internet sales. By Sangeeta A nand

he internet has made it easier for buyers and sellers to reach each other across boundaries. But sending and receiving purchase consideration across economies, even across the Tasman, can be constraining rather than freeing for many of New Zealand’s small exporters. Many exporters are concerned about the risk of fraud while receiving online payments. “I just got my fingers burned with a Hong Kong card that seemed genuine and got authorised,” says Loris Ives who runs McAuslin Merino-Lace, a Geraldine-based business that mostly exports to Australia, the US and the UK. “But two months later it was reported as a stolen card; I had to refund the payment and the recipient got the goods! Now I talk first to the Fraud Department at Eftpos New Zealand before sending goods,” she says.

KEY TAKEAWAYS >> Explore various payment options and offer one most suited to your customers. >> Credit card payments are not the only form of payment solutions. >> Direct credit may be an option, but not easy for customers. >> Merchants can get landed with charges associated with fraud or return of goods. >> Internet merchants can use third-party payment processors instead of having their own accounts. >> Besides standard credit card detail, capture cardholder’s physical address/phone numbers and name of card issuer and country. (Source: EFTPOS New Zealand)

Ives has lived in Singapore, Malaysia, Sri Lanka and Indonesia, before returning to New Zealand. “I have a lovely relationship with our online buyers. All overseas payments from Australia and the UK have been fine.” EFTPOS New Zealand warns of potential risks of accepting credit card payments from high-risk markets such as Asia and Africa. “If a credit card payment turns out to be fraudulent, it may be charged back to you and could end up costing you more than the original sale was worth. High chargeback levels can also attract penalties from the Card Schemes (Visa or MasterCard) or result in the termination of your Merchant Agreement, “ says a guide issued by EFTPOS New Zealand. The company recommends steps to protect online risks including obtaining more details about the card and the cardholder; securing authorisation, and getting delivery verifications (see key takeaways).

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Direct payment However, Ives is not willing to take risks anymore. “I am changing to Direct Payment Solutions (DPS) where the money is paid immediately; so I can’t lose (money) hopefully.” DPS are certified with banks in Australia, New Zealand, Pacific Islands, Singapore, South Africa, the US and the UK. Another challenge faced by Kiwi exporters is being able to charge in a foreign currency. This is because not all acquirers have the ability to provide foreign currency, says a paymentssolutions provider. “Some merchants may wish to settle funds in New Zealand dollars but others in foreign currency since they may have invoices to pay in the country they are exporting to.” The other issues are: exchange rates, and validating cardholders to reduce possible fraud. But there is a way to address this. “Accepting payments using a variety of acquirers, each accepting their local currency can help to lower fees from the acquirer. It gives the merchant more control over exchange rates, saving the merchant money,” he says.

Igor Petchorine from Globalmediapro.com.

accepting credit card payments online is chargeback, says Petchorine, who migrated to New Zealand from Russia in 2001. Chargeback gives the payer the option to return payment in non-delivery situation. Merchants have to raise prices to compensate for chargeback fraud losses and

Ways of the internet merchant Shop around for safe, cost-effective yet easy-to-use ‘shopping cart’ or payment options for customers. Some solutions also offer additional features like built-in currency conversions, and loyalty/promotions points. Credit cards are not an indispensable method of payment. Globalmediapro.com has built $18 million in revenues, without accepting credit card payments. Bank or wire transfer is a common, safe and simple method of payment. Simply send your banking details to importer and they will pay. Create a one-page document containing wire transfer instructions. However, some customers may be wary of wire transfer because they can be expensive sometimes; are not easily traceable, and lack recourse. Wire transfers are popular with business clients and repeat customers. Available in 190 markets and 24 currencies, eBay-owned PayPal has quickly become popular with 153 million accounts worldwide. PayPal offers auction tools, a PayPal credit card, and chargeback protection. However, PayPal can be slow sometimes, and may not accept all credit cards.

No credit However, a Kiwi exporter seems set to be a trendsetter. Igor Petchorine has built a business, Globalmediapro.com, which does not accept credit cards. This has allowed his low-cost business model to flourish over nine years. In that time hundreds of thousands of orders have been processed, some with a margin as low as 2%, a model not possible with credit cards. Petchorine should know this well, since he reported revenues of $18 million last year. The major problem in

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chargeback risk management costs. “Our insurance company, for example, refused to insure the risk, though they do tailored insurance products. We believe the risk associated with chargeback and fraud is unacceptably high. It can cost the merchant its business one good day. “I don’t believe in the security of shopping online with credit cards. Millions of credit card numbers are stolen every year.” He is right. Identity theft and credit card fraud are the fastest-growing

categories of the US Federal Trade Commission complaints. One estimate puts the cost of credit card fraud at USD50 million a day in the US and CA8 million a day in Canada. Bank/wire transfers are the safest payment method, according to Globalmediapro. Bank/wire transfers are used in over 90% of all payments in the world by volume. Petchorine has gone a step further and made it easier by accepting local payments in many countries. “In Australia, our customers can deposit directly into our bank account in Sydney. We receive such payments next day. The payment cost is often zero. As a result our prices in Australia are 20 to 30% lower than our competitors,” Petchorine says. He has similar accounts in 14 other countries. “But the greatest saving comes from elimination of the chargeback risk. This is how we can make our prices significantly cheaper.” However, the main challenge with direct credit is that it is a lot harder for a buyer to pay by DC than it is by credit card. Most buyers have a credit card and can complete a form in seconds. Third party solutions With that in mind, many third-partysolutions providers are looking at developing solutions to minimise risks. VerifySmart is introducing fraud prevention and detection technologies in Asia, one of the most high-risk markets for credit card frauds. VerifySmart’s technology reduced credit/debit card fraud loss numbers to zero in initial testing, while the current fraud solution - the chip and PIN - has reduced the fraud losses (as a percentage of card turnover) from 0.14% to 0.12% last year, according to APACS report (Association of Payment Clearing Services). However, while selecting the best payment option, the last word comes from Ives who puts herself in customer’s shoes while deciding the payment options. “As a customer I find PayPal extremely annoying; so I wouldn’t inflict that on my customers.” [END]

SANGEETA ANAND / writer Sangeeta Anand, is an international writer specialising in business, supply-chain and technology. She has written for several publications in New Zealand and overseas.

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Useful Websites for Exporters Government-related Sites

CUSTOMS TARIFF AND FREIGHT CONSULTANTS

www.mfat.govt.nz Ministry of Foreign Affairs and Trade website. Trade and economic relations information. www.nzte.govt.nz New Zealand Trade and Enterprise. Agency for New Zealand economic development. www.maf.govt.nz Ministry of Agriculture and Forestry.

www.aironaut.co.nz Aironaut Customs is a highly motivated, privately owned, independant customs broker.

RECRUITMENT www.logisticsrecruit.co.nz We supply experienced export & import staff, with or without PIN numbers. Temp, contract or permanent roles. Qualified & guaranteed.

MATERIALS HANDLING

www.customs.govt.nz/exporters Customs regulations for exporters.

www.viscountplastics.co.nz Viscount – NZs leading materials handling solutions provider.

www.nzeco.govt.nz New Zealand Export Credit Office. Provides export credit guarantees to support the export activity of New Zealand businesses.

NEW ZEALAND / International Associations www.aucklandchamber.co.nz The Auckland Chamber of Commerce encourages and supports sustainable, profitable business growth. The Chamber does this by positively influencing the environment in which businesses operate and through training, advisory services and international trade support. www.uktradeinvest.gov.uk UKTI is able to help companies interested in setting up in the UK by introducing them to agencies and support programmes designed to assist them.

www.secureaload.co.nz Secureaload your cargo securement and protection specialists. www.yale.co.nz For the total materials handling solution – Yale Lift Trucks.

EDUCATION AND TRAINING www.export.ac.nz (New Zealand School of Export) New Zealand’s only Internationally accredited (IATTO) professional qualifications and business development in import/export; Export Library & Information Service. www.scm.massey.ac.nz We provide programmes for postgraduate levels and graduate levels. In addition we can provide consultancy and in-house programmes in Logistics and SCM. www.getexporting.co.nz WHK Business Growth offer practical export training to both new and experienced exporters. From international sales and tax through to market entry strategies and more – we will help you grow and expand your business offshore.

TRADE SERVICES www.jacanna.co.nz International Logistics Company www.sharkpatrol.co.nz Shark Patrol is an exciting new online credit referral network designed to protect its Members from problem payers. www.tollpriority.co.nz International Express Courier Nationwide Courier Door to Door Airfreight International. Airport to Airport Airfreight International Domestic Air cargo via Pacific Blue. www.jonesfee.com Pauline Barratt of Jones Fee solicitors, specialises in maritime, admiralty and marine insurance law including: • The international carriage and sales of goods • The law relating to freight forwarders. www.regus.co.nz Provider of serviced offices, meeting rooms, virtual offices, conference rooms, and business lounges across New Zealand, Australia and worldwide. www.redwoodcredit.co.nz Specialist trade credit insurance (cover against the failure of a buyer to pay) Broker and consultant.

FOREIGN EXCHANGE www.currencyonline.com Your online currency exchange and transfer service, making moving money easy.

TRAVEL CONSULTANTS www.voyage.co.nz / www.voyage.net.au Founded in 1987, Voyage Affaires is an innovative international travel management company with offices in both Sydney and Auckland and clients that span the globe. www.chinatravel.co.nz Asia’s 1-stop travel shop China wholesaler. www.bwt.co.nz Our website features Business Travel information, as well as an up to date list of International Trade Fairs from our Trade Fairs department.

INSURANCE BROKERS www.tasmaninsbrokers.co.nz Marine Insurance, Liability Insurance, and other commercial insurances as required.

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No member of the Westpac group accepts liability for losses suffered as a result of it converting currencies and any exchange risks from the conversion of currencies is the responsibility of the account/deposit holder. Some services may be provided by Westpac New Zealand Limited. You can get a copy of the current disclosure statement for Westpac New Zealand Limited or Westpac Banking Corporation and a copy of the investment statement for any securities for which an investment statement is required from any Westpac branch in New Zealand free of charge or visit www.westpac.co.nz. Westpac Banking Corporation ABN 33 007 457 141, incorporated in Australia (New Zealand division).