Paradise postponed

By Rod Oram

Tuesday 1st October 2002

You pull off the jammed freeway and start the laptop Googling for great places to live and work. But the results aren't pleasant - there's a nasty correlation between quality of life and cost of living.

But wait, here's one: ranked sixth on quality of life and ninth least expensive of 215 contender cities, according to big US human resources firm Mercer.

But what if it's a banana republic, only fit for retirees with offshore funds? Actually, 126 of Fortune magazine's Global 500 companies have offices there, compared with 130 in Singapore and 156 in Sydney. And the Organisation for Economic Cooperation and Development says the city has the lowest compliance cost per company of 11 countries surveyed, and the third-lowest cost per employee. Skilled wage rates are 50% less than in the US and 40% less than in Europe. Same for research and development costs. Smart kids, too: 15-year-olds rank third in the world for maths and literacy, and sixth in science. There are also cheap office and factory rents; a low level of strikes; the port has scheduled cargo services to 73 countries; only Finland and Denmark are less corrupt; and, heck, it doesn't snow in winter or roast in summer.

Could you ever start a business there? Yes: the city has a high proportion of business owner-operators, and - according to the Harvard/World Economic Forum's Global Competitiveness Report - it only takes 10 days to start a firm, compared with 21 in Singapore and a month in Australia and the US.

This place you gotta see. No problem - its airport has 69 international flights a day from 28 airlines. The flight there is a bit pricey but worth every cent if the place is as good as its numbers.

Wouldn't you want to live and work in such a great place? Well, lucky old you. If you're a New Zealander, one in three of you already live there. Welcome to Auckland, one of the world's best-kept secrets as a great place to live and work.

"Everything you want to run a business is there," says John Rohan, a former Vodafone New Zealand chief executive, now based in Sydney but remaining on the Kiwi company's board. "You've got a lot of good, qualified technical specialists in telecommunications and IT, so we're intending to do a lot more of our research and development in New Zealand. The cost of doing business is cheap, it's an easy place to live and you can attract good ex-pats who don't want to go to an Asian city."

"Auckland is a good place to do business," agrees Geoff Hunt, managing director of Alstom New Zealand, a subsidiary of the French engineering company. "The support services we buy - lawyers, accountants, engineers - are good and they're generally more customer-focused than Australians. There's nothing fundamentally wrong with Auckland, apart from the time it takes to get to the airport, or the need to get out of bed earlier to get across the harbour bridge."

Hunt goes against the flow: he runs Australian subsidiaries from Auckland, rather than vice versa. He has 1730 employees working here in power generation, electricity distribution, telecommunications and railways. Over the ditch, he has 340 employees servicing telecommunications and electricity distribution. Even if the Australian business outgrows the New Zealand one, Hunt still hopes to keep his small head office in Auckland.

New Zealand's ability to test and grow executives is recognised by many multinationals. Their reward for a successful New Zealand service is a bigger job in a bigger market. A few months back, Peter Schweikert, Auckland-based managing director of GlaxoSmithKline New Zealand, took up a senior Asia-Pacific role in Singapore. Part of his new job is to introduce to the region some best practice developed in New Zealand. His successor here, Lisa Bright, was a GSK vice-president in Britain responsible for 1200 reps and $US2 billion of sales. She was offered the pick of several overseas postings but, she says, she came here for the experience of running a lively, innovative business.

New Zealand has a tough commercial environment for drug companies, partly due to its small size and the government's tight drug-buying policies, she says. "But that makes people extremely resilient, massively creative, hugely resourceful and up for taking risks, because they have to find ways to grow the business. There's a high level of energy, and best practice is easily exported."

Why, then, has Auckland been getting poorer for years compared with its big rival, Sydney? The data is damning. Auckland's per capita income over the past 10 years has stagnated - Sydney's current gross domestic product per capita is 30% higher than Auckland's. Living in Sydney is only 21% more expensive than living in Auckland, according to Mercer, and it's one place higher on Mercer's quality of life index.

Sydney succeeds even though its business environment is less attractive in many ways. Office and industrial rents are more than double Auckland's, according to global real estate brokers Cushman & Wakefield. Labour relations are worse, too. Australia ranked 24th in terms of labour market flexibility in the World Economic Forum's 2000 competitiveness report, against New Zealand's 10th place. The Australian strike rate is four times ours, and their skilled labour rates average $US15.31 an hour against our $US9.08.

So if Auckland has so much going for it, why does it have so much difficulty getting things going? Here's our view of Auckland's top four problems:

Size matters

Sydney is large enough to qualify as a tier-one city in the Asia-Pacific region, according to Takapuna consultancy Market Economics. Auckland, one-quarter the size, is tier two because it offers less breadth and depth to business residents. Some sectors gravitate to bigger centres. Sydney, for example, is home to more than 30% of Australasian telecommunications and financial services - even though its metropolitan region accounts for only 19% of Australasian employment. It also punches above its weight in science, technical skills, computers, the legal profession, marketing, sports, media and some manufacturing sectors. So it's no surprise some of our largest companies, such as Lion Nathan and Baycorp Advantage, have migrated there.

Warwick Bryan, Lion's investor relations director, says the brewer didn't shift because it thought Sydney was a nicer town than Auckland. "We moved because 75% of our business is in Australia. Running the business there is not a lot different from running it here." In fact, Lion's head office still uses some of its old Auckland-based suppliers. Design company Insight Creative, for example, is still involved in preparing the brewer's annual report. But Insight is a rare bird. The general trend with big Auckland companies has been a loss of critical mass.

The survivors are relishing the challenge. Take the investment banking scene, where global players such as Goldman Sachs, Morgan Stanley and Merrill Lynch have quit the country, taking their databanks of global best practice, clients and contacts with them. Simon Allen, chief executive of ABN-Amro New Zealand, says that has created an opportunity for firms like his to do more innovative deals, such as the Contact Energy float. "In many fields the expertise is still here, both in industrial sectors and in corporate finance," says Allen, who's also chairman of the New Zealand Stock Exchange.

Auckland's role has shrunk

The main reason for Auckland's relatively weak performance is that it largely earns its living from the small New Zealand economy, as opposed to bigger Australasian or global markets. As the country's service and distribution centre, it's dependent on economic activity in other regions, population growth and domestic consumer demand.

"What has Auckland done for itself other than rely on other parts of the country?" asks David McConnell, a developer of high-quality commercial property such as the Highbrook business park in Manukau City. "I don't see a lot." What's worse, this domestic role has shrunk since tariffs were largely swept away in the 1980s, sparking an onslaught of imports and forcing many Auckland manufacturers to close.

Aucklanders lack ambition

The region is stacked with tiny, inward-looking companies. According to last year's Global Entrepreneurship Monitor research of 29 countries, only 6% of Auckland's workforce are true entrepreneurs compared with 18% nationally. Worse, only 15% of those Auckland entrepreneurs said they wanted to build big businesses. Given the small size of the New Zealand market, Auckland has to look abroad yet only 17% of its manufacturers and 4.7% of its service companies export, according to Competitive Auckland, a think tank set up last year by local business leaders. The figures are better for bigger companies - 82% of businesses employing 50 to 99 people export and some 75% employing more than 100 people export. Trouble is, there are few large companies.

Selling to the world is hardly Auckland's strong suit. It can't even muster a presence on the web. Search for "Auckland + business" on Google and the first page of results is taken up with entries from the University of Auckland Business School - with the exception of the third entry, the Gay Auckland Business Association. Search for "Vancouver + business" and the first pages turns up lots of useful portals and contact points for people wanting to engage with the local business community.

But marketing alone won't do the job. Aucklanders have to learn to walk the talk. "New Zealand workers enjoy their free time. There's an exodus from their offices Friday lunchtimes," says the former chief executive of a multinational's local subsidiary who did not wish to be named. "To survive as a small economy at the far end of the world, you have to work twice as hard and twice as long. By comparison, Australian managers are tougher and harder-nosed with a real purpose to what they do. To be successful, you have to change the culture in most New Zealand companies to make them a little more worldly."

Auckland lacks leadership

Name a passionate Auckland businessperson. Stephen Tindall? Yes, but he's high on the whole country, not just his native city. Few business leaders are Auckland evangelists and the politicians haven't been much better. "Auckland is a city really plagued by lack of leadership and by being messed about by government in Wellington," says one frustrated local business leader. Auckland City Mayor John Banks says he is out to change things by driving a $6 billion regional transportation strategy, for example, and a $5 billion waste and storm water upgrade. But leadership on transport and other issues was coming from the Auckland Regional Council before the former Police minister and talk show host won office. Better cooperation among the region's local authorities over the past few years is a huge relief after decades of delays, which often came down to parochial politics. Central government has also taken more interest in the region's future.

Solving Auckland's underperformance

First, get real. Awareness that Auckland was running an excellent model for getting poorer led to the formation of Competitive Auckland. The group's rescue plan focused on six sectors - IT, food and beverage, boat building, education for overseas students, biotechnology and tourism - and included ways to improve the business environment.

Local and regional councils responded by collectively drafting their own blueprint for development, known as the Auckland Regional Economic Development Strategy (AREDS). In a sense, AREDS was an attempt by the Auckland Regional Council to grab back the initiative, one insider says, because it believed Competitive Auckland's agenda was too narrowly focused on business. The upshot is that AREDS is a broader document that attempts to generate support from environmental, social and ethnic groups, as well as councils and business.

While Auckland is still trying to decide what its role should be, its friends and neighbours around the country have a very clear idea. "Without Auckland, we'd be a bloody third world economy," says Morrin Hardy, president of the Gisborne Chamber of Commerce and head of software company Sage Analytics. "We need it as the centre for expertise, and we need its population base to create an economic horsepower."

In Taranaki, Richard Shearer has a similar view. "You need a business powerhouse to give momentum to the economy. It's an economic flywheel," says the general manager of internet service companies Web Farm and Free Parking. His top reasons for the existence of Auckland? It is a source of computer hardware distributors, customers, five-star hotels and all-hours pie carts and is a hub for international air travel. Oh, and the social life is handy. "It's a place to hear the Red Hot Chilli Peppers and for regional folk to misbehave and get away with it." But it is not all sweetness and light. Auckland "needs to improve the way it operates transport", he says. "The things that will fix Auckland's problems will fix our problems with Auckland."

If being big in New Zealand was the answer, Auckland would have it made. It already outweighs the next three regions - Wellington, Canterbury and the Waikato - combined. By 2030, it could be home to 1.8 million New Zealanders, a 30% increase from today. But would even that be a big enough base to turn Auckland into a tier-one Asia-Pacific city? Sorry, no. Sydney will be bigger still. "If half the population ends up living in Auckland and Auckland is not competitive, that's a problem," says Bryan Mogridge, chairman of Competitive Auckland. "But if it is competitive, that's an opportunity."

A solution is to build on Auckland's strengths so it can play an Australasian role, taking on Sydney in some aspects of its own game. Auckland companies have to learn how to be Australasian businesses, Market Economics concludes. Most aren't, some are, and a few are brilliant. Deane Apparel, for example, says it is the only work uniform company capable of Australasian distribution. "Being a New Zealand company is a positive," says Deane Apparel chief executive Richard Thumath. Australian companies are less interested in operating here, so they lose out on customers like Mobil Oil that want one supplier in both countries, he told a recent Manukau City e-commerce conference.

Deane Apparel employs 240 staff in Christchurch manufacturing clothes, 70 in Manukau City distributing to the two countries and 15 in Australia handling customers. Every time the company weighs up the best place for a distribution centre, Manukau beats any Australian location thanks to lower costs and excellent air-freight connections - crucial when a third of your business is in Australia. Sophistication also counts. Many Deane Apparel customers use its e-commerce services for the whole relationship, from design and order to despatch and payment. Such easy, low-cost systems are vital when the average order is only eight garments but the company ships some 1.3 million garments a year.

Becoming an Australasian powerhouse is difficult, as people who run call centres will tell you. The cost per seat of a call centre in Auckland is 37% lower than in Sydney and 22% lower than Perth, according to a KPMG survey done for Investment New Zealand. That's attracted firms like US household goods distributor Amway, which last year handed over its Australasian call centre operations to TelstraClear's Auckland facility.

Investment New Zealand has had only limited success in attracting other call centres, however, admits a staffer at the government foreign investment agency. "The hardest thing is to get on the radar of potential clients," he adds. "They see Australian costs are high by Asia-Pacific standards, so they assume New Zealand is as expensive or even more so." And when our numbers show up the Australians, state governments often fight back by offering grants.

The best attack, Investment New Zealand reckons, is not to stress the low costs but the high value that Kiwi call centres can deliver. Well-educated, articulate, multilingual staff can troubleshoot, give tech support and transact for customers around the world, rather than simply take orders. But still success is elusive.

Tackling such problems is the everyday work of metropolitan regions around the world. The common characteristics of success are a crystal-clear vision that is turned into reality by a powerful economic development agency. Although there were decades of resistance to such a regionwide body for Auckland, the tide has turned over the past year. Thanks to support generated by the AREDS process, local councils are starting to stump up some money for a "soft start": the hiring of a manager to run some modest "go now" projects which have yet to be picked.

The reservations of some local government politicians might still throw a spanner in the works, however. Banks says he supports AREDS "but not if it is being driven out of the ARC. I'm too old to spend time talking about processes. I don't have hope for the ARC. I see it as only an environmental protection organisation." But despite these political machinations, it is still progress of sorts.

"We've started but it's fragile," says commercial property developer McConnell, who's involved in AREDS and Competitive Auckland. "We've got to keep up the momentum."

That said, Competitive Auckland's had to put its own idea for creating a Kiwi Silicon Valley on the backburner. Innovation Harbour was to have been a cluster of sophisticated, innovative sectors - such as biotechnology, yacht-building and IT - around the Waitemata Harbour. The group caught too much flak from people who were dead set against branding the region as innovative or giving so much emphasis to the Waitemata Harbour. Moreover, Competitive Auckland didn't have the mandate or organisation to deliver on the dream. Instead, it is settling for a very modest interim step. During the America's Cup it will promote local business attractions to visitors in the hope they will get excited about the region's attributes.

It would be grand if they did and better still if they invested here. Because reinvigorating the region is some challenge. Even if Auckland grew at 5% a year - double its historic rate - for the next decade, it would still only be as wealthy as Sydney was last year.

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