Buying local is more than just a hip phrase used by ethical consumers getting their spray-free kale from the Grey Lynn market. It’s an idea that is increasingly being adopted by New Zealand companies frustrated by the complications of manufacturing overseas.
Sam Fulton, the chief executive of Auckland company Fero, says he has noticed a steady stream of local businesses bringing their high-tech manufacturing needs back to New Zealand after becoming fed up with delays and minimum run sizes dictated by their Chinese counterparts.
“They’ve gone over there looking for more cost-effective options and found that New Zealand manufacturing’s actually not a bad option when you look at the overall cost of doing business.
“A lot of business from New Zealand is too small for the Chinese to want to deal with.”
Fero, based in Mt Wellington, is a high-tech wiring loom manufacturer that makes wiring products used in everything from parking meters to police cars.
Fulton says the return to New Zealand has been a continuous trend and he estimates his business has picked up by 15 per cent in the past two years as customers have come back from China.
The trend is reflected in the wider manufacturing sector, which Business NZ figures show has been expanding for almost three years.
“I think ever since people have been going [to China], they’ve found it’s not quite so easy to do business and when you look at the overall cost of doing business – it doesn’t really stack up against the unit cost.
“A lot of it’s manufacturers in New Zealand wanting to get more lean and understanding that to have smaller run sizes and much smaller lead times, it’s much better – for the business with products that are changing quite regularly – to be able to talk to us about it and work through issues instead of bouncing around different time zones and different languages.”
Companies with fewer products in the supply chain also demand shorter run times, and by working locally, he says, it is easier to make changes when products are upgraded.
Fulton says he has talked to customers who have expressed their frustration at having nine months’ worth of stock held up in overseas supply chains.
There’s a lot of intricacies in dealing with China. It’s not just as simple as getting it made and shipping it out.
“Also, we’ve got a much higher quality level, so there’s not that cost that comes with having issues with quality and having to change products or recall [them].”
New Zealand companies tend to experiment with manufacturing in China when they reach a certain size, Fulton says.
“But they’ll often come back after learning that lesson that the cost savings aren’t quite as obvious as just reducing your unit costs.
“Quality’s a big one. When you’re looking at reducing the unit cost of an item, often the cheapest way to do that is to reduce the quality of the raw materials going into it.”
Obtaining materials overseas can also be difficult, Fulton says.
“There’s a lot of intricacies in dealing with China. It’s not just as simple as getting it made and shipping it out.” Dealing with overseas authorities can be another hurdle, he says.
“We sent some samples up to China recently to have them look at making [it] and it spent four or five weeks in customs, which held the project up significantly.
“We just couldn’t get it back out again, and that was just because some paperwork wasn’t filled out correctly by the freight forwarder.”
Labour costs in Asia have also been rising, diminishing another competitive edge.
“We work very hard at automating our processes,” Fulton says. “We use robotic cutting machines and automatic crimping and a lot of automatic processes which do a number of things.
“It reduces the labour content [and] it also increases the repeatability of a product which means that its quality is much more standardised.”
The chief executive of the Manufacturers and Exporters Association, Dieter Adam, says members have benefited not only from businesses coming back from China, but also from businesses choosing not to take their manufacturing overseas in the first place, because of increased competitiveness locally.
“I don’t think it’s a new trend, but we’ve seen instances of that and I think that’s simply a reflection of the fact that more people have gone to China.”
Frustration stems from not understanding the total cost of outsourcing and also from the complications of foreign supply chains, he says.
Manufacturing’s gone through a huge change over the last few years, simply because people have more and more become exposed to the global manufacturing, either directly or indirectly.
Another trend the association is noticing is the improvement of New Zealand manufacturers responding to their global competition, Adam says. “Manufacturing’s gone through a huge change over the last few years, simply because people have more and more become exposed to the global manufacturing, either directly or indirectly.
“We’ve had one example recently from one of our members who has a piece of aluminium that they use as the backbone of an electrical device they’re producing.
“They’ve had that manufactured in China, but there’s a manufacturer in Auckland who can do the same piece, same specs, at the same cost and with less hassle.
“That’s simply because the guys who make that have upped their game and are now able to compete.” Labour costs have also been increasing in China in recent years, resulting in increases in minimum run sizes, Adam says. “That’s simply because for them to keep prices down, they have to do longer runs.
“That opens opportunities for our manufacturers who are more and more going into niche [manufacturing] anyway.”
The attractiveness of short-run options is seen a lot among the association’s members, Adam says. “They’re more and more going into highly customised and highly responsive niche manufacturing and in a way the more mass manufacturing is pushed into cost reduction, the more of an opportunity there is for niche manufacturing.
“The other thing that I was interested to see is how much manufacturers, even smaller ones, are really part of global supply chains, so you find that some companies that may only have 15 employees are still part of an international supply chain.”
New Zealand’s manufacturing sector has been expanding for 33 months, according to Business NZ’s Performance of Manufacturing Index, and that expansion is continuing.
At Lower Hutt company Fraser Engineering, general manager and part-owner Martin Simpson says the business has been expanding steadily for 25 years.
“We have 120 staff, we’re looking for up to another 20 or 30 at the present moment.”
Each year, about 150 fire engines roll off the company’s production line – and it is hoping to increase that figure to 200.
“That is really down to us being good at what we do. Obviously now we’ve got our own [niche] product, which is servicing the fire industry, and now we’re recognised as being the best builders in the world and we have a continuously growing market.
“But what we’re working on is that we’re more efficient and we’ve got a huge amount of design horsepower.”
Simpson says Fraser Engineering also has competitors in China, but “the cost of manufacturing is the same worldwide”.
“You’ve still got to have smart designers, the costs are static worldwide, you may have some opportunity for cheap labour, but at the end of the day you can go to robots and remove the labour content.
“Smart manufacturing can be done in any country in the world.” Fraser Engineering retains its competitive edge by keeping such a large proportion of its production in-house, Simpson says.
“We’re an engineering shop, we can quickly adapt and re-model and make it smarter and we get our ideas and our products to market quicker than anybody else.
“We manufacture more of a fire engine than any other company in the world.”