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Technology export firms leaving money on the table: PwC

Tuesday 1st June 2010

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New Zealand’s technology firms have grown strongly in spite of the global financial crisis, but there appears to an army of lone Kiwi technologists travelling the world, selling primarily to Australian and American customers.

A benchmark study by Christchurch marketing and strategy development firm Concentrate along with PricewaterhouseCoopers said that while kiwi technology entrepreneurs are heroic and pioneering, they could grow faster and bigger with a more strategic approach to their sales and marketing. 

Turnover growth was just under 40% during last year, compared to 58% growth in 2008. Forty five percent of the companies interviewed said the recession had had no effect, or even a positive effect on their business. 

The 144 companies surveyed range across electronic, software, telecommunications and associated services sectors, and were concentrated mostly in Auckland and Christchurch. 

The late 2009 study reveals “brave Kiwi technology companies battling it out largely alone in tough world markets, resolutely growing sale by sale,” Concentrate’s managing director Owen Scott said.

“Even the smallest of our technology companies are trading offshore, and most of the companies surveyed are selling directly to customers rather than through a distributor.

"Typically our technology companies are very focused on the individual sales transaction, positioning their products as superior in quality to the competition, but only commanding market or below-market prices.” 

Scott said the highest performing companies are taking a more strategic approach than simply an individual sales transaction. The high fliers focus on selecting target markets, developing a strong and convincing position around their brand, invest in building brand awareness and generation of demand, and work with resellers and other partners in their chosen market. 

The survey also queries whether kiwi technology exporters are leaving money on the table, with a pricing and positioning described as “cheap but good.” 

But only 22.1% were attracting a premium price over competitors, and 33.7% were lower than others in their market. 

“The conclusion is New Zealand firms positioned themselves as offering products of similar or better quality than anything available, but could be bought at a similar or often lower price,” the report said. 

Most companies in the survey are producing a software product, providing IT consulting services or producing electronic products, with just over 41% of software companies offering software-as-a-service (SAAS).

These companies tend to be small, with more than 54% being less than $1 million turnover a year, and 70% having been in business for less than five years. 

Overall, companies tend to have very small sales and marketing teams; with 18% and 28% having no sales and marketing staff respectively.

Companies on average have 4.3 products. The numbers of products increases as companies grow initially, but decreases significantly around $5 million turnover as they focus their market activity. 

Some regional variation was seen in technology sales. Auckland is the city of entrepreneurs, with mostly business-to-business sales of products priced between $1,000 and $100,000 and an average lead time of 4.1 months. 

Wellington is the home of SAAS firms like Xero, as well as fat government contracts, and has more business-to-consumer and business-to-government sales selling $1,000 to $10,000 products with a lead time of 2.7 months.  

Christchurch is the land of the big tech companies doing large deals in predominantly business-to-business business.

Sales are often in the $10,000 to $100,000 area and lead times on average are eight months.

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