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Business Operations Survey: 2007
Embargoed until 10:45am  –  28 April 2008

Business Operations Survey

The Business Operations Survey collects information from a wide cross-section of New Zealand businesses in order to build a better understanding of a range of business practices and behaviours that may have some impact on business performance.

This is the first release of Business Operations Survey 2007 statistics. A detailed report on innovation in New Zealand will be published in July 2008 and a paper covering the international engagement module will follow later in 2008.

Business operations

Future focus

The Business Operations Survey collects a range of information on activities related to the current and future focus of businesses. Investment in expansion, research and development and merger or acquisitions are some activities which may reflect future focus.

Twenty-one percent of businesses invested in expansion in the financial year ending August 2007. This is a similar result to 2006 and 2005 (23 percent and 24 percent respectively). Larger businesses are more likely to invest in expansion than smaller businesses. Forty-one percent of businesses with 100 or more employees indicated they had invested in expansion, compared with only 19 percent of businesses in the 6–19 employees group.

Research and development, and mergers or acquisitions also increased with business size although the overall rates are much lower. These rates have remained relatively consistent over the last three years. The manufacturing industry had consistently higher rates of research and development compared to other industries (17 percent compared to seven percent overall), while the communications services and finance and insurance industries showed higher rates or merger and acquisition activity (both nine percent, compared with two percent overall).

Graph, Expansion Investment,  Research and Development, and Mergers.

Finance requests

Businesses may require additional finance for a range of reasons, including expansion. Twenty-nine percent of businesses requested debt finance in 2007, compared to 11 percent for equity finance. Rates of acceptance for both were high; 93 percent of those requesting debt finance indicated it was available on acceptable terms while for equity finance the corresponding figure was 81 percent. These trends have been relatively consistent since 2005.

Debt finance was requested most by the businesses in the agriculture, forestry and fishing industry (43 percent) while equity finance was requested most by the construction industry (18 percent).


Innovation activity

Survey results indicate that 47 percent of businesses engaged in innovation activity over the past two years, a small drop from 52 percent in 2005. This result was due to slight decreases in all of the different types of innovation across most industry and size groups. The industry with the highest overall innovation rate was communication services (70 percent). The larger the business size (number of employees), the more likely they were to innovate, which is the same trend seen in the 2005 results.

Graph, Innovation Rate by Type.
The overall rate is made up of four distinct categories of innovation, although an individual business can engage in more than one of these categories, as shown below:

  • Twenty-six percent of businesses undertook innovation in goods or services.
  • Twenty-three percent of businesses undertook innovation in operational processes.
  • Twenty-seven percent of businesses undertook innovation in organisational or managerial processes.
  • Twenty-six percent of businesses undertook innovation in marketing methods.

It can be seen that results were evenly spread across the different types of innovation. The same pattern was evident in 2005. The communication services industry had the highest rates of any distinct kind of innovation activity with 55 percent of businesses in this industry developing or introducing new goods or services.

Activities supporting innovation

Employee training was the most commonly reported activity amongst innovating businesses. Ninety percent of innovating businesses had undertaken employee training in the last two financial years with 39 percent of these businesses doing this specifically for innovation purposes.

There are a number of activities that business may undertake in support of innovation. In the 2005 Business Operations Survey, this data was collected only from innovators, but in 2007 data was collected from all businesses in the survey together with an indication of whether the activity was done or not, and if so if it was done specifically to support innovation. While this means these results are not directly comparable to 2005, it gives more transparency to how and why these activities are undertaken.

Factors hampering innovation

Lack of management resources, and costs to develop or introduce were rated as the biggest constraints on innovation. Seventeen percent of businesses rated these as limiting innovation to a high degree. Results for all constraints showed similar patterns to 2005, although government regulation was reported as less of a barrier. In 2007, 60 percent of businesses indicated this was not a barrier to innovation, down from 55 percent in 2005. Access to intellectual property rights was the least commonly reported factor, with 80 percent of businesses indicating this did not hamper their innovation activities.

Graph, Factors Hampering Innovation.

International engagement

Generation of overseas income

Twenty percent of businesses generated some form of overseas income in the last financial year. Businesses that generated overseas income in previous financial years (but not in 2007) represented only three percent of businesses. This category may reflect the recent changes in trading conditions such as exchange rate level. Large-sized businesses (100 or more employees) where most likely to obtain income from offshore sources (40 percent). The manufacturing industry had the highest proportion (38 percent) of businesses generating some form of overseas income, followed by wholesale trade (35 percent).

Graph, Business Generating Overseas Income.

Source of overseas income

Businesses may generate overseas income by a variety of means. The most common was sales of processed or finished goods for use by other businesses (44 percent), while 20 percent gained income through sale of finished goods for personal or household use. Only eight percent of businesses generated their overseas income from sales of raw, unprocessed materials. Provision of services was also a significant source of overseas income, with 38 percent of businesses reporting overseas income from services.

Graph, Source of Overseas Income.

Profit margins

Differing profit margins may be obtainable in different markets. Forty-seven percent of businesses that currently generate overseas income indicated that New Zealand provided the highest profit margins for their business. This may be due to exchange rate conditions or level of competition overseas. Overseas markets provided higher profit margins for 21 percent of businesses with current overseas income. Two percent of businesses received income only from overseas sources in the last financial year. Agriculture, forestry and fishing was noticeably different, with a majority of businesses in this industry (53 percent) generating higher profit margins overseas.

Graph, Comparisons of Profit Margin Generation.

Barriers to generating overseas income

For businesses with current overseas income, the most common barriers listed were exchange rate volatility and exchange rate level, both at 38 percent, followed by distance from market at 37 percent. Language and cultural differences was a barrier to 12 percent of businesses, while 11 percent indicated their inability to rapidly increase supply was a barrier.

Reasons for not generating overseas income

Many businesses surveyed were not currently generating overseas income. This was due to a number of reasons, the most common of which was the importance of being physically close to customers (63 percent). Thirty-seven percent felt the New Zealand market was sufficient while 23 percent indicated their goods and services satisfied demand specific to New Zealand. Eleven percent of businesses were limited to the New Zealand market by business structure, and only eight percent felt that costs, risks or barriers were prohibitive.

Purchases from overseas

Businesses may participate in various forms of international engagement and New Zealand business are also active in purchasing goods or services from overseas. Raw materials were the most common type of purchases from overseas with 44 percent, followed by finished goods with 42 percent. This differs from the information presented in the source of overseas income section, where the predominant source was sales of manufactured, processed or finished goods for use by other businesses, and raw materials was one of the lower ranked sources.

Graph, Purchases from Overseas.

Reasons for sourcing goods and services from overseas

The most common reason for businesses to source goods and services from overseas was that there was no domestic supplier (54 percent), followed by a cheaper source of supply (37 percent). Existing suppliers moving overseas was only a small factor for businesses (2 percent). Larger business (100 or more employees) indicated that technology was not available domestically (30 percent), which was more than smaller businesses (21 percent).

Graph, Reasons For Sourcing Goods or Services from Overseas.

For technical information contact:
Hamish Hill
Wellington 04 931 4600

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