INTERNATIONAL ISSUESROBERT E. MARKLAND, Feature Editor, College of Business Administration, University of South Carolina From Mutton to Mungo: Revitalizing the Management of New Zealandby Andre M. Everett, University of Otago What can a pair of South Pacific islands offer the world of the decision sciences, notably the operations management community? Perhaps a case study in change management, exemplifying what can happen when a nation's people suddenly find themselves empowered, willing or not. Yesterday New Zealand was a tale of faded prosperity and lost promise; today it receives praise from the World Bank, the International Monetary Fund, and The Economist as a role model for economic reform. Formerly stagnant or retreating, it now leads the world in speed of progress on some important productivity-related factors. New Zealand is the same size and population as Colorado (within 1/2% of both), although with substantially more coastline and no neighbors for 1,000 miles. Famous for historically bearing over twenty sheep per person and a "clean, green" environment with fantastic scenery, the islands were untouched by humans until just 1,200 years ago. Sheep still outnumber people by a margin of 14 to 1, but the economic upheavals resulting from Great Britain's accession to the European Community in 1974 have ensured that bulk frozen mutton and raw wool are symbols of our past rather than the future. From Britain's erstwhile "Pacific garden," generating top-quality produce customized to the tastes of the United Kingdom, New Zealand has realigned itself economically, balancing exports around the world and across the spectrum. Success has been achieved in markets as diverse as the first foreign apples allowed into Japan, through sonar components for the U.S. Navy. The export role of non-primary manufactured goods has risen dramatically, from 2.7% in 1966 to 33.1% in 1993/4. Primary products which were once exported raw, increasingly receive further processing at home, and now constitute 26.8% of exports; raw primary goods are down to 18.7%, while services are 21.4% of exports. In 1950, New Zealand boasted the third highest standard of living in the world. By 1987, this had fallen to 23rd, with the worst employee productivity trend and one of the lowest outputs per employee in the OECD. New Zealand plunged from a "sure bet" to a credit gamble as foreign debt and trade imbalances grew to untenable levels. What had been billed as a social paradise in the Pacific deteriorated into a state-protected, inefficient, isolationist economic backwater. Rejuvenation commenced with the election of a Labour government in 1984. Reform was inevitable; the degree, however, was (and remains) hotly debated. Critical points in New Zealand's revitalization over the past decade include substantial income tax reductions (1986) to levels resembling those in the United States; the State Owned Enterprises Act (1986), which triggered privatization of government operating assets including Telecom NZ and NZ Rail (whose principal owners are now U.S. corporations); the State Sector Act (1988), which made state-sector chief executives accountable for effective and efficient management; the Public Finance Act (1989), which shifted focus from inputs to outputs and outcomes; the Reserve Bank Act (1989), which mandated price stability as the sole objective of monetary policy, with stability defined as 0-2% underlying inflation; local government reorganization (1989); and the Fiscal Responsibility Act (1994), requiring public reporting of independently audited government finances. The results? Public debt peaked at 51% of GDP in 1992 and has since been falling sharply, while the OECD average has continued to rise; underlying inflation is usually below 2%; and the national budget is in a trend of ever-increasing surpluses, always much larger than the government forecast. The World Competitiveness Report raised New Zealand's rank from 18th overall in 1991 to 9th in 1994, while its Executive Opinion Survey component ranked NZ 2nd for 1994 (behind only Singapore). Among the 24 OECD countries, New Zealand was rated first in 1992, 1993, and 1994 on the "extent to which government policies are conducive to competitiveness" (however, Singapore and Hong Kong, non-members of the OECD, rated higher). In the three most recent annual reports, New Zealand placed first among all countries on what is regarded here as the critical issue: "The domestic economy is well-adapted for long-term competitiveness." On this crucial point, NZ was far in front at 82.4%; Singapore came second, at 62.9%. Perhaps the greatest degree of reform occurred in the labor relations sector, promulgated as the Employment Contracts Act (ECA, 1991). By permitting labor-management cooperation, labor flexibility, performance-based pay, and other relaxations of the power of erstwhile dominant unions, the ECA facilitated the establishment of new international philosophies of operations management, including JIT and TQM. Praised by some as the liberator of the NZ economy, the ECA has also been cursed as the greatest inequality inducer in the country's history. Unemployment peaked at around 11% in late 1991; it is currently below 6% and still falling, given credit by The Economist as the lowest real unemployment rate in the OECD as of July 1995. Major governmental actions included the elimination of nearly all forms of state subsidy of private agricultural or industrial activity. Following a worrisome start, family farms have proved not only able to survive without protection and subsidy, but to thrive, as farmers have switched from sheep to dairy, deer, vineyards, forestry, and even exotics such as emus and llamas. Research breakthroughs include the first cultivation of black truffles outside France and development of new strains of apples targeted at specific Asian markets. New Zealand dairy producers now claim cost efficiencies, attained through both advanced technological and natural factors, of up to three to one over those in the USA and five to one over those in Europe. The March 1995 issue of Decision Line reported expected welfare benefits of the Uruguay Round of GATT by country as a whole; when examined on a per-person basis, New Zealand achieves the second highest benefit from this trade liberalization, trailing only Singapore. Industry did not escape government reforms; all export subsidies and import restrictions were abandoned, although some tariffs remain. Capital gains tax was removed, spurring an investment boom that occasionally gives NZ an unfavorable trade balance praised by local analysts. Some sectors of the economy lost nearly all of their producers and employees; those firms which survive learned to target high-quality, high-price niche markets, as the local market scale precluded head-on competition with imports from foreign mass producers. The textile industry exemplifies this trend: Tamahine, a former contract manufacturer of undershirts and generic woolen goods, reformulated its strategy to target fashion wool and tourists, switching from $2 t-shirts to $200 own-brand sweaters; in the interim, it has acquired the assets of over 30 failed competitors. The effects of a protected market should not be underestimated. In the early 1980s, quality of many local goods had deteriorated to unacceptable levels, yet import substitution guidelines decreed that no foreign competitors were allowed in. A case in point is Toyota, which has long operated an assembly plant at Thames near Auckland. In 1984, it found itself the target of a consumer rights television show, "Fair Go," with a nearly-new but rusting Corolla ignominiously paraded during prime time. The plant was given an ultimatum from Japan: shape up or be shut down. Adapting Toyota's famous production system to NZ conditions did not prove easy, but once appreciated by the workers, it was embraced wholeheartedly. The Thames plant is now Toyota's highest-quality plant outside Japan, typically matching the defect rate of the previous year in Toyota's mother plant. The aim, naturally, is to beat the main plant as soon as possible. Comparative defect rates for mid-1994 in faults per vehicle were Japan 0.9 (1.5 in 1993), NZ 1.6 (2.3), USA 4.9, Australia 6.2, and South Africa 12.5. Toyota has designated the Thames plant as the only one outside Japan allowed to provide international training for other Toyota sites. Services were also held back by protection, particularly in the communications sector. Prior to privatization, the telephone system was sluggish at best; now, service is prompt (guaranteed), competition is blatant, Telecom NZ is both highly profitable and respected, and prices are tumbling. The postal system has not yet been privatized, but some sectors have been opened for competition, resulting in an explosion in courier and package delivery services. Anticipating a promised open letter delivery market, highly profitable NZ Post recently slashed the prime letter rate, which last rose almost nine years ago. Even before the reduction, it was the only letter rate in the Western economies lower than that in the US [26 cents for up to 7 ounces nationwide]. NZ Post, Telecom NZ, and several other communications specialists now export their knowledge and technology, installing systems and providing advice from the Czech Republic to Vietnam. Knowledge-sector industries that simply did not exist a few years ago represent the vanguard of New Zealand's modern export drive. Firms based on advanced technical skills and intellectual property have succeeded in software, electronics, cinema, and consulting, among others. For example, UNISYS' Link network-management software was written by Aoraki in Christchurch; United Airline's award-winning Mileage Plus commercial featuring a membership card was crafted by Animation Research in Dunedin; and Cannes film festival winner The Piano was produced in New Zealand. NZ consultants are managing oil exploration in China, salmon farming in Chile, and port construction in the Maldives. Advanced physical goods targeted at specific niches have achieved international recognition; these include high brake lights for BMW sedans, laser chip-making equipment used by every memory chip maker in the world, and a revolutionary direct-drive plastic-motor washing machine exported to over 80 countries. The 1994 NZ Supreme Export Award went to Tait Electronics, who exported over $70 million of mobile radio equipment. Rakon, a small Auckland firm, is the world's leading maker of quartz crystals for use in global positioning equipment, including that produced by Rockwell International for the U.S. military. The universities have not fared poorly either, with numerous patents, discoveries, and international awards, particularly in medical and agri-tech research. Internet use is booming; according to the Internet Society, New Zealand experienced by far the world's highest growth rate in servers per head during 1994, at 441%, placing it third in number of installed servers per person behind Finland and the United States, tied with Australia. New Zealand perpetually looks abroad for its standards, adopting and adapting "best practice" wherever it may be found. The NZ National Quality Award is an unabashed copy of the U.S. Malcolm Baldrige award; Toyota's Thames assembly plant won the inaugural competition in 1993. Regional awards in various industries have been added, and further awards are promulgated by trade associations, government departments, and large firms. The ISO 9000 standards were adopted wholesale as the corresponding NZ standards (e.g., ISO 9001:1994 is NZS 9001:1994). Tradenz, the government's export promotion board, pushed ISO 9000 heavily, particularly in the food and beverage industry, realizing certification rates among the highest in the world. On a per-population basis, NZ rates fourth, behind the UK, where the ISO standards originated (and where about half of the world's issued certificates reside), tiny Liechtenstein, and Ireland. Recognizing the small-business nature of the local economy, the national accreditation authority Telarc developed Q-Base, an entry-level quality systems standard targeted at smaller firms; this too is being exported. Both the country and individual firms are eager to compare themselves with international benchmarks. For example, the public testing of our boat-building industry, including its advanced computer simulation capabilities, was favorably resolved in the America's Cup yacht race in San Diego this past May. Solely to demonstrate its multimedia documentation expertise, Cardinal Professional Services published two CD-ROMs in the US market (prior to release in New Zealand); one is an encyclopedia of Antarctica, included in PC Magazine's "Top 100 CD-ROMs" for 1995; the other a children's educational self-directed pirate story named Mungo (U.S. accents were used to enhance acceptability in the primary target market). Over the past four years, teams from the University of Otago alone have won seven international computer programming, marketing, and MBA case competitions. More to the point, the Australian Manufacturing Council was joined by the NZ Manufacturing Advisory Group in examining application of best manufacturing practices in the two countries. Initial findings show that firms here have heard of the leading practices, and many are implementing them; some are equivalent to "world class" or the best anywhere. Similarly positive results arose in academic research by teams investigating manufacturing strategy, manufacturing/accounting systems linkages, advanced manufacturing technology implementation, electronic data interchange adoption, and education and use of quality control statistical methods. World leaders in quality, strategy, and organization have responded to invitations to lecture in New Zealand; these include W. Edwards Deming, Michael Porter, James Brian Quinn, and numerous others. National associations such as the NZ Institute of Management and the NZ Organisation for Quality actively originate and promote courses designed to bring local standards even with or ahead of international best practice. Companies frequently send their executives for overseas training, favoring Harvard and Stanford courses along with programs in the United Kingdom. Foreign corporate role models are often emulated; for example, our largest grocery store operator sought advice from Wal-Mart and subsequently attained profitability in all of its 133 outlets within two years. New Zealand has recently undergone deep soul-searching, ranging from political reorientation through international benchmarking of manufacturing and service practices. Perhaps the realization most relevant for researchers everywhere is that in all these deliberations and studies, one factor clearly dominated: People are the one truly critical aspect of any system. Modern "best practices" will work only in an environment of cooperation, mutual benefit, and recognition that people are the real asset of any organization or nation. References Australian Manufacturing Council. Leading the Way: A Study of Best Manufacturing Practices in Australia and New Zealand, 2nd ed. Melbourne: AMC, November 1994. Crocombe, Graham T.; Enright, Michael J.; and Porter, Michael E. Upgrading New Zealand's Competitive Advantage. Auckland: Oxford University Press, 1991. Economist. "The Accidental Superhighway: A Survey of the Internet." The Economist, 336:7921, 1 July 1995, pp. S1-S20. Harrison, Glenn W. "Recent Developments in World Trade." Decision Line, 26:2, March 1995, pp. 5-7. Manufacturing Advisory Group. "Manufacturing for Growth." Wellington, NZ: MAG, 1995. Mobil. "The Mobil Survey of ISO 9000 Certificates Awarded Worldwide." Q-NewZ, February 1995, pp. 6-9. OECD. OECD Economic Surveys 1993-1994: New Zealand. Paris: OECD, 1994. Statistics New Zealand. New Zealand Official Yearbook 95 (98th ed.). Wellington: SNZ, 1995. Ulanoff, Lance. "The Top 100 CD-ROMs." PC Magazine, 27 June 1995, pp. 102-165. World Economic Forum. The World Competitiveness Report 1994 (14th ed.). Lausanne: WEF, 1994.
ANDRE M. EVERETT is a Senior Lecturer in the Advanced Business Programme at the University of Otago, Dunedin, New Zealand. He received his Ph.D. in information systems, management science, and strategy from the University of Nebraska-Lincoln, with prior studies at schools in Germany, France, Iceland, and the USA. Principally involved in graduate teaching and supervision, he instructs business and medical school students in operations strategy, international business, and survey research design. His research interests include internationalization of management methodologies (specifically JIT and TQM), cross-functional integration of management philosophies, and cultural influences on international business. Active in international conference organization, reviewing, and presentations for the Decision Sciences Institute, the Pan-Pacific Business Association, and other international societies, Dr. Everett is also a member of the Strategic Planning for International Affairs Committee of DSI.
Dr. Robert E. Markland
|