It wasn’t what everyone was expecting. Speaking at the Export New Zealand-organised Go Global conference in Auckland, Fletcher Building (FBU) supremo Jonathan Ling (pictured) didn’t talk about exports.

Instead, the head of our biggest listed company talked about investment – us investing over there. Ling didn’t mince his words. Unless New Zealand gets its lamentable levels of outward-bound overseas direct investment up, how can we solve the productivity and income gap between New Zealand Australia?


Photo: Angela Wylie - FDC

More importantly, from a company perspective, having 50 per cent of its revenues offshore has provided Fletcher Building with an invaluable automatic hedge against the New Zealand dollar swings decimating profits elsewhere, Ling said, and owning businesses in the United States and Europe helped insulate Fletcher Building from the global financial crisis.

The company was caught with its pants down in the US after buying Formica Corporation for US$700 million (NZ$977m) only months before the global financial crisis hit, and then losing 50 per cent of sales almost overnight.
But the experience meant FBU was well prepared by the time the recession hit Australasia’s shores three or four months later, Ling says, and lessons in cost-cutting that the company learnt from Formica have been applied on this side of the world.

Many in the audience, you can bet, went to sleep when Ling mentioned FBU’s acquisition criteria for overseas businesses. No 1: only buy a business which is No 1 or No 2 in the marketplace.

‘‘Yeah right,’’ you could hear the small and medium enterprise (SME) bosses thinking. ‘‘Fletcher Building is a company with market capitalization of $5 billion. How likely is it that I’m going to have the money to buy an overseas market leader?’’

So consider Zee Tags, an Auckland-based SME selling identification tags for farm animals. Zee Tags just bought its US distributor. Two years ago it did the same thing in Australia.

Some of the money for the acquisition came from the bank, says general manager Todd Howell, but the company had also ‘‘been saving its pennies for a number of years’’ and the time was right. After 17 years in the American market, investing was a natural progression, Howell says. While it might not match FBU’s strict acquisition rules, there were definite benefits for Zee Tags: control over its supply chain; some protection against the exchange rate; and a far greater flow of market information. These have all been invaluable since the recession hit.

You don’t hear much talk about overseas direct investments these days. Maybe because our history in this area is pretty abysmal. Fletcher Building predecessor Fletcher Challenge had its fair share of more or less disastrous overseas forays, as did a heap of other high-profile companies, from Brierleys to Lion Nathan to The Warehouse.

For other companies, the easiest way to get growth has been to sell out to a bigger foreign player. Let’s hope that attitude is changing. There are some optimistic signs. Instead of receiving a thrashing for abandoning New Zealand manufacturing, Fisher & Paykel Appliances has been castigated (by investors and the media as well as in its bottom line) for not moving plants to Thailand and Mexico soon enough.

And the Government’s new mega-tax reform legislation includes a measure exempting Kiwi companies with operations overseas from paying New Zealand tax on their foreign business. This at last brings us in line with the rules in Australia and should encourage companies to invest overseas.

There have also been a number of lower-profile Kiwi investment successes, such as engineering consultants Beca International, fencing companies Tru-Test and Gallaghers, and icecream maker Emerald Foods.
Graham Matthews, director of Investment New Zealand, part of New Zealand Trade and Enterprise, agrees with Ling that foreign direct investment is ‘‘an essential step in growing our economy’’.

Matthews is optimistic that ‘‘pathfinder’’ companies will encourage others to be more adventurous. He says with prices for overseas assets as low as they are likely to be in a generation because of the recession, some New Zealand firms are already sniffing around, and more should be.

Obviously every sector and every market is different. Fletcher Building needed overseas operations because its products are big and heavy, so exporting from New Zealand doesn’t make sense. Fisher & Paykel Appliances found it couldn’t be competitive unless it was manufacturing in a low-cost country. Zee-Tags wanted control over its supply chain.

Matthews believes there are obvious areas where New Zealand companies should be looking at overseas investment: agriculture, aquaculture, clean technology, and food and beverage, for example.

Now is the time to be starting to get your ducks in a row, he says, because by the time companies have planned and executed their investment strategies, the world’s markets will be very different. And that is pretty much the same message as Jonathan Ling’s: Wake up New Zealand.