Date posted: 10/06/2020 5 min read

Should New Zealand manufacture more of what we consume?

‘Buying local’ sounds great, but it would require a major structural shift for NZ producers to onshore manufacturing.

In Brief

  • High labour costs and a lack of capital markets to provide funding for process automation are hurdles for NZ manufacturers.
  • Goods made overseas are cheaper, so retain their consumer appeal despite disrupted supply chains.
  • NZ firms should invest in plotting their supply chains, so they won’t be caught blind in the next crisis.

Many factors can affect supply chains: political, social, economic, technological and/or environmental. The test of an organisation comes in the response to such factors. Can they respond in an agile way that ensures survival of the firm in the long term?

During the recent COVID-19 lockdowns, the New Zealand government continued to allow the import and export of goods internationally. This meant supply chains have still been able to operate in terms of goods, although movement has been disrupted.

Food such as meat, vegetables and dairy is generally supplied domestically in New Zealand. As a consumer, it soon became apparent at the supermarket which goods were available and replenished quickly, compared to those that weren’t. That showed which supply chains were working well in response to the extra demand.

For example, immediately prior to the strict Level 4 lockdown in late March, there was evidence that the panic buying of basic products, such as flour, depleted stock. This indicated that supply chains had not been able to keep up with demand.

In general, due to disrupted global supply chains, local companies are going to be expected to ramp up operations to meet the domestic demand.

We can’t flick a back-to-normal switch

The longer term effects for supply chains in New Zealand will depend on the easing of restrictions. There is a lot of pressure on the New Zealand government to get businesses back to full production as soon as possible. Internally, consumers are being encouraged to “buy local” and support local businesses.

But the COVID-19 lockdowns globally have caused major disruptions. Global supply chains aren’t expected to be back at pre-pandemic efficiencies until the world has found a COVID-19 vaccine.

Recent economic releases show that life under global coronavirus lockdowns has been grimmer than expected. The International Monetary Fund has forecast the biggest global recession since the Great Depression in the 1930s.

Local manufacturing hurdles

Many New Zealand manufacturers moved offshore to East Asia in the 1980s and 1990s to take advantage of lower labour costs. But with factories in some countries closing and shipping routes interrupted, some market commentators argue that it’s unwise to rely on offshore businesses and that New Zealand should manufacture more of what we consume.

However, the onshoring of manufacturing would require a major structural and costly shift for New Zealand manufacturers. They would face high labour costs and a lack of capital markets to provide funding for more competitive levels of process automation.

Consumers tend to buy whatever meets our needs at the lowest price and most goods, such as cars and electronic items, can be made a lot more cheaply overseas.

“Most goods, such as cars and electronic items, can be made a lot more cheaply overseas.”
Julie Donovan

After the COVID-19 crisis eases, New Zealand firms that heed the lessons of this emergency and make investments into plotting their supply networks will not have to operate blind when the next crisis strikes.

They should ensure they have flexible contracts so they can quickly resource up or down when disruptions occur – that will make them winners in the long term.

Read more:

How a virus shook the global supply chain

The pandemic has exposed the brittleness of supply chains and the world’s dependence on China. Where do we go from here?

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