Doing business at the edge of the world:Die Wirtschaftskrise aus Sicht von Kleinunternehmen in Neuseeland

Dr Martina Battisti & Prof David Deakins

New Zealand Centre for SME ResearchMassey University, New Zealand

m.battisti@massey.ac.nz

University of Applied Sciences Vorarlberg25 Maerz 2010

within approx. 900 km. radius of Wellington, you will meet:

4 million people andno other country

With approx. 900km. radius of Dornbirn, you will meet:

340 million peopleand about 20 countries

Besides the 4 million people you will meet:

- 45 million sheep - 10 million cattle &- 68,000 pairs of penguins

New Zealand’s economy

- NZ is one of the most geographically isolated countries in the world.

- NZ is a small economy with a small domestic market.

- NZ economy relies heavily on - Agriculture &- Tourism

- Consistently ranked as one of the world’s most liberalised countries.

SMEs in numbers

Number of New Zealand Number of Austria

Employees No. % Employees No. %0 to 5 412,579 90% 0 to 9 267,910 90%

6 to 49 43,597 10% 10 to 49 25,300 8%50 to 99 2,178 1% 50 to 248 4,914 2%

Total SMEs 458,354 99.% Total SMEs 298,124 99%source: NZ Ministry of Economic Development, 2008 & WKO, 2008

A research programmeThe aim of BusinesSMEasure is to examine how SMEs in NZ develop over time:

longitudinal research that allows to undertake in-depth analysis of a large

number of firms, through a mixed method approach:Module I: site visits & interviews with the firm’s

owner-managersModule II: longitudinal survey

and be responsive to emerging issues

Module I: Site visits & interviews

To date we have visited and interviewed 400 firms in NZ in 8 studies with 50 interviews each. The interviews covered the following topics:

- Access to finance- Business growth- Business assistance- Employee learning- Management development- Export- Sustainability

Module II: Longitudinal survey

The longitudinal survey was launched in 2007- annual survey- approx 1400 SMEs in the panel- aim is to explore the factors that influence SME

development - Focus is on firm characteristics and on owner-manager

characteristics- topics covered so far:

- Collaboration, Succession, Innovation, Research & Development, Sustainability, Finance, Management Development, Managing under Recession

Survey 2009

Stratified sampling frame 4,165

Usable respondents 1,447

Response rate 35%

Micro (0-5)

768 58%

Small (6-49)

534 40%

Medium (50 – 99)

26 2.0%

Total 1328 100%

Firm Size by employees (FTEs) Firm size by turnover

< $500k 522 42%

$500k< $1m 238 19%

$1m plus 485 39%

1245 100%

Selected Business Demographics

Male 1097 78%

Female 307 22%

Total 1404 100%

Gender

Services 496 39%

Manuf. 263 20%

Other sectors 527 41%

Total 1286 100%

Sector Location1

Main urban 977 69.7%

Satellite urban 61 4.4%

Independent urban (rural)

302 21.6%

Rural 61 4.4%

Total 1401 100%

1. Definitions as per Statistics New Zealand categories

The context 2008-9 was the deepest recession facing the world economy

since the 1930s (World Bank, 2009), affecting both demand & the availability of credit.

NZ was the first country to be hit by the recession, but due to domestic factors rather than global impact. Overall recession was the longest, but also the shallowest, because of relatively sound financial system and commodity exports.

Crisis has impacted on companies of all sizes Conventional wisdom is that SMEs are particularly vulnerable

Key Questions

How has the economic crisis impacted on small firms?

How have firms responded?

Managing under recessionLittle literature directly related to strategic adaptation under recession conditions

3 broad types of strategic adaptation: retrenchment investment ‘ambidextrous’

Vulnerability hypothesis:

Small firms’ limited resources affects ability to scan, analyse

& respond to environmental shocks

Resilience hypothesis:

Small size may enable a flexible approach – permitting rapid

adjustment of resource inputs, processes, prices & products

Impact of The Recession: Timing

Not felt the recession 367 27%

First felt recession during:

2007 44 4%

2008 429 43%

2009 518 52%

Total 991 100%

Note: significant effect re timing and location, urban firms felt it earlier in 2007 and 2008, rural firms felt it stronger in 2009

Timing of Recession Impact

The Impact of the Recession

Change in Firm Performance 2007-09

2007 2008 2009

Per cent of firms reporting growth in t/over and profitability

37% 24% 16%

Totals 1208 1481 1416

0 10 20 30 40 50 60 70

Late payment by customers

Level of cash at bank

Bad debts or uncertainty over …

Credit periods and credit terms

Availability of bank finance

Per cent

Type of Recession ImpactsFinance related effects Respondents indicating negative effect

SME Strategies – Top 10Selected reported actions to increase or maintain performance

Action taken Per cent of firms

Introduced new or improved products 54%

Personally worked longer hours 48%

Increased sales effort 44%

Reduced numbers employed 40%

Selling to new types of customers 38%

Selling more to existing customers 31%

Used new suppliers 30%

Increased advertising/promotional exp 30%

Cancelled personal holidays 28%

Invested personal savings 27%

Strategies differ by performance

Firms with growth in sales turnover and profitability were more likely to have/be:

Firms with no growth in sales turnover and profitability were more likely to have/be:

Introduced new or improved products/services

Reduced selling prices

Selling more to existing customers Reduced numbers employedSelling more to new types of customers Introduced wage/salary freezeInvested in new equipment Invested personal savingsMade changes to the mgt team Reduced investment expenditureIncreased numbers employed Extended payment periods to suppliersTaken greater care in recruitment of staff Sold personal assets to compensate for

poor business performanceIncreased employee training Cancelled personal holidaysOpened new branches and outlets

Conclusions I• Despite overall deteriorating firm performance over the last

three years, not all firms were equally affected by the recession. The silver lining is that roughly one quarter of firms reported increased turnover and increased profitability.

• Negative finance related effects were less pronounced than expected especially with regard to availability of bank loans/overdrafts.

• We even found positive effects that were related to the changes in labour market.

Conclusions II• Diversity of experiences were mirrored in the actions small

firm owner-managers took to maintain or increase their firm’s performance.

• Small firms per se are neither vulnerable nor resilient, it is the decisions of the owner-managers and the actions they set that influence a firm’s performance.

• Majority of respondents increased personal finances, instead of using external finance. But firms become more vulnerable the fewer resources they are able to mobilise. As such we expect to see an increased effect of the global recession in 2010 as firms exhaust personal resources or exhaust cost cutting measures.

Thank you!

Time for questions ....