Making hay in a headwind

Backbone talks to the guys at ANZ about this year’s ANZ Privately Owned Business Barometer – New Zealand’s most comprehensive annual survey of business sentiment, taking in commercial, farming and Maori Business.

2015 was the year in which the tailwinds of New Zealand’s economic recovery slowed, or in the case of some sectors, swung to the front. The dairy sector, in particular, came off record prices for milk solids with a thump as global production ramped up, and global demand slowed. As one of New Zealand’s flagship export industries, the fortunes of dairy might have given the impression that the entire economy was beginning to slide. But the weaker dollar and stellar performances in industries such as kiwifruit and wine, suggested the story wasn’t so clear cut. The Global Financial Crisis turned the focus of many business owners to how to achieve sustainable growth. “Business owners are expecting things to get a bit harder in the future, and they’re looking at ways to lift the bar in their business in terms of governance, efficiency and profitability to future proof themselves against downturns in the economic cycle,” says Graham Turley, ANZ’s Managing Director Commercial & Agri. “They’re looking to smart growth through clarity and focus around strategy, being proactive about identifying and mitigating risks, smart use of technology and being agile when it comes to new opportunities.” Big themes that emerged from the 2015 survey were the importance of considering the environment, skilled staff, regulation and succession.

The environment

Not surprisingly, environmental issues continued to be a major focus for the dairy sector. More than half of dairy respondents had plans in place to manage the environmental impacts of their business, while just under half said environmental management was a key factor in their business decision-making. Much of the investment in environmental improvements was driven by regulatory compliance, but there was also an understanding that customers were increasingly making choices based on a business’s green credentials. However, this sentiment varied between sectors. Only 20% of road transport respondents felt that being proactive about environmental considerations was good for their business, with 18% believing that it brought significant extra cost. Furthermore, only 6% said environmental management was a key factor in their business decision-making.

In the construction industry 20% said environmental considerations brought significant extra costs (compared to 9% for all businesses) and the return on those costs was questioned. It was evident that many felt environmental regulations were just another burden they had to carry. Construction owners were vocal about the difficulty in passing those costs on to customers. While there was a lot of talk about the benefits of sustainable building, customers tended to vote with their wallets.

Finding the right people

Privately owned businesses across the board said finding skilled staff was, or was likely to be, an impediment to their growth. From the shop floor to the boardroom, there was recognition that as New Zealand’s businesses became more efficient, specialised and complex, the demand for skilled staff would grow. While the construction industry has been enjoying a building boom – particularly in Auckland and Christchurch – it has brought the industry’s staffing issues into sharper focus. A third of respondents said lack of staff had impacted their business, compared with 18% of all survey respondents. Lack of apprentices coming through was a major concern. Some businesses were addressing this by identifying suitable people and training apprentices. Others noted that employing school leavers presented its own set of challenges because employers did not fully understand what NCEA results told them about a candidate’s strengths. A shortage of staff was impacting the road transport industry as well. Almost half of companies reported that trucks were underutilised because companies didn’t have enough drivers. While investment in education and training has lifted qualification levels among young Maori, staffing issues were more acute for Maori businesses than non-Maori. This may again reflect the developing life stage of Maori business and the expansion mode they are in compared with the mainstream economy.

Working with red tape

Environment, health and safety compliance was identified as a challenge and a risk by a wide range of businesses. There were concerns that compliance was continually becoming more complex and the time and cost required to comply caused delays and financial impacts. New health and safety legislation was one of the top five biggest challenges mentioned by those in the construction industry. Respondents acknowledged that the safety of customers and employees is paramount to any business. But the effort needed to work through the complexity of building regulations was onerous for smaller businesses with limited staff and resources, and contributed to costly delays for larger businesses. Red Meat farmers faced a range of increased compliance requirements in areas such as the environment, health and safety, staff conditions and livestock welfare. All of these required farmers to take a more formal business management approach and, usually, greater use of technology.

Most from the road transport industry felt that the compliance regime and regulations had resulted in an industry that was safer and more professional. The size of road transport businesses had a direct correlation to their ability to manage the implementation of new health and safety regulations.

Smaller companies struggled, compared with larger ones that viewed a strengthened compliance regime as a good thing for the industry.

The art of future proofing

Across many sectors, business owners were getting older and grappling with succession. Nowhere was this more of an issue than in the red meat sector where the average age of business owners is close to 60.

The rising cost of farms was locking out younger farmers who were armed with new ideas, new approaches and were otherwise well placed to carry the sector into the future.

The age of business owners also impacted on investment in the performance of the business. It was noted that investment with a seven-year payback looks very different to a 60-year-old than a 40-year-old.

The road transport industry was also facing an older average age, highlighting the need to bring more young people into the road transport industry.

"This forecast for the year ahead is for continuing headwinds, but also conditions for businesses that are prepared to identify and capitalise on new opportunities, and continually explore ways to improve business efficiency."

New participants faced a range of barriers including the length of time (and cost) to get a licence, long and irregular hours of work, truck driving not being seen as a career option in schools, and introduction of larger, more expensive rigs where a lot of companies were reluctant to entrust them to inexperienced drivers.

Over 60% of those in the dairy industry were also worried about succession – more than any other agri sector except red meat. The Barometer showed that, while more traditional methods such as the sale of all or some farm assets to family members or the open market remain options, the continuing, multi-generational family business is emerging as the predominant succession model.

The year ahead

The forecast for the year ahead is for continuing headwinds, but also good conditions for businesses that are prepared to identify and capitalise on new opportunities, and continually explore ways to improve business efficiency.

Looking back on ANZ Barometer findings over the past five years, it’s clear there has been a change in mindset of many Kiwi businesses. The GFC was a reminder that short-term thinking results in short-term businesses. Today, business owners see planning for long-term sustainability through improved governance and profitability as critical to surviving whatever economic weather is thrown at them.

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