Posted: 14 April 2020
Ever since the World Health Organisation declared the Covid-19 outbreak a pandemic, economies the world over are being impacted. While New Zealand's agriculture and horticulture industries - declared essential - are continuing to export, there are many others that will experience negative consequences due to not being able to travel and the closure of New Zealand's borders. Already, our tourism, forestry and seafood sectors have been adversely affected.
ANZ's Chief Economist Sharon Zoller said that the impact of the virus is affecting global economies differently than other financial crises. "There is going to have to be a degree of winging it as we go along and that is going to be true of every government," she said. "How do you stimulate an economy if people aren't behaving in normal ways?"
This is particularly true of offshore industries. Many New Zealand businesses have supply chains where they outsource some or all of their manufacturing offshore, whether for components or fully finished products, to suppliers in China, Taiwan, India, Malaysia and so on. They are now having to re-evaluate how to continue production as their offshore options are restricted. "Decades of outsourcing production to Chinese factory floors has left us vulnerable," says Nick Davenport, CEO of Lanaco. "Our way forward is by re-localising and investing in our homegrown industries."
Not only that, but there's often been heavy investment in offshore manufacturing, and for some businesses, the ROI hasn't been what they'd hoped. The costs of offshore manufacturing are not as low as they once were, which means it's not the cost-effective solution businesses were aiming for.
Many businesses are left wondering how they're going to continue production, and there's a simple answer - bring it back home. When borders are closed, companies are exposed because they lose manufacturing control in whichever country they're manufacturing. In a sense, choosing to manufacture in New Zealand is like an insurance policy; if countries like China are closed, businesses can still get their manufacturing done here at home.
What this means is that now more than ever, New Zealand's economy can benefit from businesses using local manufacturers. When the lockdown is lifted, and contract manufacturers return to their facilities, they're on hand to support businesses that would normally outsource their manufacturing needs.
Another important consideration is that of employment; New Zealand will need to generate jobs for Kiwis, and work for Kiwi businesses when the crisis eases. The Government can inject capital, councils can start projects, but it's also up to businesses to do their bit by having their manufacturing done locally, in order to boost employment and the economy.
Although the pandemic may force some businesses to go with a local manufacturer, they might find that the end result is better than they'd hoped. When it comes to sheetmetal fabrication, there's a perception that outsourcing to China or other Asian countries reduces costs. However, it’s important to balance that with some significant risk factors, including:
- Loss of control – when the project you need is being manufactured overseas, it’s a lot tougher to drop by and see how it’s going. You won’t know how successful it’s been until the finished product arrives back in New Zealand. If something has gone wrong, it’s too late to fix it.
- It will take longer – the time it takes to set up the contract for a project, manufacture it and then put it on a boat back to New Zealand is significantly higher than if your sheet metal fabrication is being done locally. Not only that, but the issue of time zones is moot.
- You don’t get the whole package – China’s manufacturing industry deals mostly in components. If you want the entire item made, from ‘crate to carton’, it needs to be done locally.
- Inflexibility – sheet metal fabrication is done according to China’s processes. If the item doesn’t turn out the way you wanted, they won’t accept returns or give refunds.
- IP risks – with a different legal structure the protections around your intellectual property are not the same in China as they are with a New Zealand contract manufacturer.
Communication challenges - There’s also a risk that the project a business has in mind could be compromised through a loss in translation. Again, there are no refunds if the item you wanted isn’t the item you got, simply because of a language barrier.
As a New Zealand born-and-bred contract manufacturer, ENI offers an end-to-end process - from concept to design to manufacture to assembly - a locally-based contract manufacturing service based on the latest technology and over two decades of experience. It's at the very heart of what we do. We understand your IP, and the security around it. We can also help drive costs out of your manufacturing requirements; proving that going local is just as cost-effective as outsourcing offshore.
Do you want to understand more about contract manufacturing in New Zealand? Download our eBook to learn more.
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