Frontier Firms: Four Industry Case Studies Working Paper 2021/02
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Frontier firms: Four industry case studies Working paper 2021/02 Authors: Geoff Lewis, Sally Garden, Hamed Shafiee, Geoff Simmons and Jo Smith Frontier firms: Four industry case studies The New Zealand Productivity Commission Te Kōmihana Whai Hua o Aotearoa1 The Commission – an independent Crown entity – completes in-depth inquiry reports on topics selected by the Government, carries out productivity-related research and promotes understanding of productivity issues. The Commission aims to provide insightful, well-formed and accessible advice that leads to the best possible improvement in the wellbeing of New Zealanders. The New Zealand Productivity Commission Act 2010 guides and binds the Commission. Information on the Commission can be found at www.productivity.govt.nz or by contacting +64 4 903 5150. How to cite this document: Lewis, G., Garden, S., Shafiee, H., Simmons, G., & Smith, J. (2021). Frontier firms: Four industry case studies [Working paper No. 2021/02]. New Zealand Productivity Commission. www.productivity.govt.nz/inquiries/frontier-firms Acknowledgements: The authors thank the external reviewers: Dr Tom Love (Sapere Research Group), Professor Keith Woodford (independent consultant) and Professor Stephen MacDonell (University of Otago). Thanks also to all interviewees (see Appendix A) for their time and perspectives that informed this paper and to our colleagues Penny Mok and Guanyu Zheng who undertook much of the data analysis. Date: April 2021 ISBN: 978-1-98-851958-6 Copyright: This copyright work is licensed under the Creative Commons Attribution 4.0 International License. In essence you are free to copy, distribute and adapt the work, as long as you attribute the source of the work to the New Zealand Productivity Commission (the Commission) and abide by the other license terms. To view a copy of this license, visit www.creativecommons.org/licenses/by/4.0/. Please note this licence does not apply to any logos, emblems and/or trademarks that may be placed on the Commission’s website or publications. Those specific items may not be reused without express permission. Disclaimer The contents of this report must not be construed as legal advice. The Commission does not accept any responsibility or liability for an action taken as a result of reading, or reliance placed because of having read any part, or all, of the information in this report. The Commission does not accept any responsibility or liability for any error, inadequacy, deficiency, flaw in or omission from this report. The opinions, findings, recommendations, and conclusions expressed in this report are those of the author(s), not the Commission or Stats NZ. The results in this report are not official statistics. They have been created for research purposes from the Integrated Data Infrastructure (IDI), managed by Stats NZ. Access to the anonymised data used in this report was provided by Stats NZ under the security and confidentiality provisions of the Statistics Act 1975. Only people authorised by the Statistics Act 1975 are allowed to see data about a particular person, household, business or organisation, and the results in this report have been confidentialised to protect these groups from identification and to keep their data safe. Careful consideration has been given to the privacy, security, and confidentiality issues associated with using administrative and survey data in the IDI. Further detail can be found in the Privacy Impact Assessment for the IDI available from www.stats.govt.nz The results are based in part on tax data supplied by Inland Revenue to Stats NZ under the Tax Administration Act 1994. This tax data must be used only for statistical purposes, and no individual information may be published or disclosed in any other form, or provided to Inland Revenue for administrative or regulatory purposes. Any person who has had access to the unit record data has certified that they have been shown, have read, and have understood section 81 of the Tax Administration Act 1994, which relates to secrecy. Any discussion of data limitations or weaknesses is in the context of using the IDI for statistical purposes, and is not related to the data’s ability to support Inland Revenue’s core operational requirements. 1 The Commission that pursues abundance for New Zealand. Contents i Contents Overview ........................................................................................................................................ 1 Four significant industries ....................................................................................................................... 1 The traditional industries have driven export growth in the past ........................................................ 1 The weightless industries illustrate future potential ............................................................................. 2 Government supports for innovation can be improved ....................................................................... 2 Part one: Setting the scene 1 Introduction ........................................................................................................................... 5 1.1 Purpose of this report ................................................................................................................... 5 1.2 How the four industries were selected ........................................................................................ 5 1.3 A mixed-methods approach ........................................................................................................ 6 1.4 Some definitions ........................................................................................................................... 6 1.5 Analytical limitations ..................................................................................................................... 6 Part two: Industry case studies 2 Dairy ...................................................................................................................................... 9 2.1 Dairy is a large and important industry ....................................................................................... 9 2.2 Dairy companies vary in type and performance ......................................................................... 9 2.3 Land conversions to dairy have hugely expanded total milk supply....................................... 11 2.4 Recent amendments to DIRA are concerning .......................................................................... 12 2.5 The dairy innovation ecosystem is complex and diverse ......................................................... 12 2.6 A new approach is needed ........................................................................................................ 16 2.7 Making progress on meeting the dairy industry’s challenges ................................................. 17 3 HealthTech........................................................................................................................... 19 3.1 A “born global” industry ............................................................................................................ 19 3.2 A complex but cohesive innovation ecosystem ....................................................................... 20 3.3 Smart regulation provides an advantage .................................................................................. 24 4 Horticulture ......................................................................................................................... 28 4.1 A growing industry ...................................................................................................................... 28 4.2 Strong growth prospects, but capacity constraints .................................................................. 30 4.3 A busy innovation ecosystem ..................................................................................................... 32 4.4 Potential for greater use of technology and automation ......................................................... 35 5 Software products and services ........................................................................................... 39 5.1 A growing weightless industry ................................................................................................... 39 5.2 The innovation ecosystem .......................................................................................................... 43 5.3 Cost, capital and skills are the key barriers to innovation ........................................................ 46 5.4 Regulation of the sector ............................................................................................................. 47 5.5 Government is an important client ............................................................................................ 48 Part three: Insights & conclusion 6 Insights ................................................................................................................................ 51 6.1 Frontier firms export more ......................................................................................................... 51 6.2 Hurdles to internationalisation vary, as do industry responses ............................................... 54 6.3 Consolidation and constraints to growth .................................................................................. 56 6.4 Innovating to create specialised, distinctive products ............................................................