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The NZ Dollar is not high, nor bad!

I read an article out of Australia about their strong dollar last week. What struck me the most was how positive they are about it. The know commodity prices are up, they know they have growth and they know that they are stronger in the world market.

Compare that to the reaction in New Zealand. Exporters are screaming. Alan Bollard is driving our dollar up because of interest rates. When, oh please, will it come down?

Here are my issues with the way we view the dollar in New Zealand.

• The NZ dollar is not overly strong. The US dollar is very weak. Compare these four graphs GBP vs USD, EUR vs USD, AUD vs USD and NZD vs USD. Notice any trend? Those who want the dollar to drop want us to become worse off against the Pound, Aussie and Euro!
• We are missing all the positives. A weak USD means the US economy is weak, means we have more opportunity.
• The positives of a strong dollar is cheaper imports. Fuel is 25c a litre cheaper than it would be if the dollar was around 60c against the US. Is this the real problem for the government and Bollard. Cheaper imports equals more spending?
• The exporters (small ones) seem to be complaining about the dollar. We are never going to compete against China as a manufacture point for low value products. We need to build businesses herein NZ, that have supply chains elsewhere (like icebreaker).

I spoke to a couple of large exporters recently, they make high end, high value goods, they are hurting but for them it was part of the cycle of business and had more to do with hedging that the dollar. If you are selling to Aussie or Great Britain or Europe, even through the USD, the net result is not as bad as you would think by just looking at the NZD vs USD.

Finally, I don't claim to be an economist so don't take this all as gospel, and overall the tradeweighed index is up. But the graphs and Aussie attitude seem to speak for theselves.

Is it such a bad thing that we have a high dollar?

   

Linfox and PFL

Finally a small article appears in the NZ Herald.

Provincial Freightlines (PFL) was a successful privately owned logistics business with blue-chip customers, Linfox chief executive Michael Byrne said.

PFL served industries including logging, timber, packaging, chemicals, refined fuels and fast-moving consumer goods.

The acquisition would double the revenue base of the New Zealand arm of the Linfox business, Mr Byrne said.

It will be intresting to see if they are rebranded, merged or left alone in the medium term.

Linfox buys Provincials

Linfox as purchased Provincial Freightlines Ltd effective today. It hasn’t hit the general media as such.

While the sale of privately held companies to Aussie companies is inevitable I must admit I think it is a loss to New Zealand. It is further evidence that the Transport market is maturing in NZ, as the medium size companies either grow or are acquired.

Provincials had some really rocky years back in the 80’s and I remember well their merger with Heatons. In the last 10 years however they have developed a really strong brand.

Their silver trucks with simply the word “Provincial” on the curtains is a crisp, clean and very well recognised brand.  They have developed a strong customer focused niche business.

What will become of “Provincial”? Time will tell. They were the first customer of agóge and I appreciate their loyalty and continued support. I wish them all well in this transition.

Setting up in Australia

Mainfreight today announced that they have conditionally sold Pan Orient Project Logistics business and its 75% interest in LEP (New Zealand and Australia) to global logistics company Agility Group for A$83 million. It is the last of the non core Owens businesses to be sold. The funds released from the sale will be used by Mainfreight to fund its ongoing international expansion.

With Mainfreight, Freightways and others slowly establishing significant off shore businesses I wonder what a successful strategy would be for more NZ companies to do the same?

The road to overseas subsidiaries it would seem is littered with more stories of failure than success. Air NZ and Ansett, Telecom and AAPT (yet to see the end of this movie) are examples of huge companies struggling to make it happen. How then is it possible for a NZ company to stem the tide of Aussie investment and head into their backyard? What are the key points to consider?

#1 It is harder than you think.
Summed up well by Josef Roberts who launched Red Bull in the two countries. "Don't rush overseas. Australia might have five times the population, but it also has five times the competition, and Kiwis aren't used to dealing with Australian bureaucracy. Roberts worked out a worst-case scenario, and then doubled the cost and doubled the time. "We were about right," he says. "It took three times as long and was three times as expensive." [From Idealog "Meet the man who gave Red Bull wings"]

#2 You need to avoid the Valley of Death
Rod Drury wrote about the Valley of Death "From New Zealand, once you have saturated the local market, you then have a massive transformational change to address another market. You may need to introduce capital, add new staff, learn foreign rules - the list goes on. For us to take almost our first step of expansion, to enter only our second market - we bet our businesses. I'm calling this - the Valley of Death."

#3 You need to take your time.
This would be the key lesson I have gleamed from companies like Mainfreight, Freightways or even Michael Hill who have set-up in Australia. They seem to make slow educated decisions about their growth into other countries. They take the time to understand the markets, people, culture and regulations and they take small incremental steps. They have done this well and don't bet the NZ business on it.

I don't have much first hand experience. Hopefully one day I will, but in the meantime I am interested in your thoughts.