Project Auckland: A positive vector for growth (NZ Herald)

Tim McCready sat down with Vector chief executive Simon Mackenzie to discuss the future of Auckland’s energy sector, and beyond.

“It’s almost like we’re back to the future,” explains Vector chief executive Simon Mackenzie as he discusses the energy industry’s shift towards distributed energy systems.

It’s a future Mackenzie seems relatively at ease with, despite it completely disrupting the business models of the industry in which Vector operates as a distributor.

“The whole investment focus is now turning to: how do we utilise technology in the energy sector to still deliver energy in an affordable, yet renewable, sense?” explains Mackenzie.

“We’re seeing a huge tipping point in terms of customers driving what they require from energy.”

Where energy is currently generated at a centralised location — say, a dam — and then transmitted via the national grid to distributors such as Vector, increasingly customers are gaining the ability to generate the energy themselves, within — or on top of — their homes.

This shift has been driven and accelerated by global initiatives to reduce the use of fossil fuels from transport and energy sources in response to the threat of climate change.

And while the lack of international progress on emission reduction targets is often lamented, beneath the surface there has been significant subsidies provided for the development of renewable energy generation and a reduction in the price of technologies, such as solar panels.

“The customer has choice and may send energy back out to others, but even in urban environments they still probably need to move that energy around within the urban environments.”

In this context, says Mackenzie, “transmission and generation are becoming more and more commoditised. At some point in time it will be there more for a backup, or segmented needs.”

The position of Vector as a distribution company — downstream from those increasingly commoditised sectors — appears to be enabling the company to embrace the disruption.

“There’s a desire for more physical solutions — things like solar and batteries and the like — but I think one of the other sides is that we’re now seeing the convergence of transport coming into energy with electric vehicles, and that whole infrastructure to support that,” he says.

“Essentially, an electric vehicle could also be a mobile battery that you connect into your home, so we’ve got technology that enables that.”

And to complement the physical technologies being developed and deployed, Vector is heavily invested in software and digital innovation too. Data analytics is increasingly playing a role in how the company makes decisions, for example.

“We do a huge amount of work on data analytics, and we’ve worked really well and collaboratively with Auckland Council,” says Mackenzie. “We’ve got a huge amount of data and information with them.”

That includes layering data relating to housing construction and demographic trends with behavioural economics insights to generate predictions about future energy and transport usage.

Mackenzie says this unlocks “latent capacity” in the market currently; getting more usage hours for less, without necessarily needing to construct new hardware assets.

Similarly, giving customers the ability to optimise their energy usage by controlling devices from their mobile phones is another way Vector are hoping to use technology to access efficiencies.

“That’s all centred around de-complicating,” says Mackenzie. “Because we don’t believe customers want to be computer programmers to run their energy lives.”

“That sophistication now of being able to co-ordinate and optimise everything, we can provide through technology that we’re utilising.”

“That means there will be a lot more customers with those types of solutions either in their homes or on their roofs. Or they could be connected through other community initiatives such as peer-to-peer trading, or a school might have solar and battery in it that’s not used in the weekends or holidays — so then how does that get shared with communities?”

“The way we see the overall picture is Auckland becomes more and more self-sufficient, so the remote transmission and generation becomes more of a backup in the long-run, and more of a security layer, as opposed to the primary.”

Mackenzie says this vision is one in which Auckland is also a more resilient city, no longer dependent on remote transmission.

Interestingly, Vector’s modelling predicts the primary climate change impact in Auckland to be more high wind events, meaning building resilience and continuity of supply is of heightened importance.

The company also wants to raise the awareness on how climate change will differentially impact New Zealand’s various areas — with some areas more susceptible to sea level rises, for example, than Auckland.

“From the modelling we’ve done, from the global research, we worry about the fact that things are changing a lot quicker than people think, and I think we need to raise the debate and awareness around New Zealand on that.”

A company target of net zero emissions by 2030 reflects that awareness.

Another example of how the company is looking to lead the community and shift attitudes about how energy can be generated, traded, and used is the project with Auckland Council to light the Harbour Bridge using smart energy technology.

From this coming Auckland Anniversary Weekend, the bridge will be lit by some 90,000 LED lights, utilising solar-generated energy, new battery technology, and peer-to-peer energy trading.

“We saw that as a great fit for us, because it’s really iconic,” says Mackenzie of the project.

“For us, it’s a representation of giving back to Auckland but also displaying how we see the future of energy.”

The bridge will have static ambient lighting on most nights, but can be programmed with dramatic animated displays for special events, such as Waitangi or Diwali or the America’s Cup. The intention is to have between 12 and 15 of these events over the first year.

Partnerships, collaboration, and cross-industry learnings underpin much of how Mackenzie discusses Vector’s strategy in this fast-changing industry.

The company has worked with companies such as LG Chem and Tesla to bring their energy storage products to New Zealand consumers, for example.

Though there is not a great deal that is fundamentally unique about the Auckland energy market and infrastructure, or the city from an environmental perspective, these are features that has made the city amenable to innovation.

“Auckland is of a large enough scale to be globally recognised as an international city,” explains Mackenzie. “It’s got a political and regulatory environment which is seen as pretty conducive to actually adopting these technologies.

“For some of the technology companies we work with, they see that as a real positive because it becomes a proving ground for what they want to deploy into markets which are going to be a lot slower to adopt.”

Adopting new technologies early is seen as vital given Auckland’s pace of growth.

“What we’ve found, is that using technology has enabled us to build a whole new layer of networks internationally — and it’s not all from the energy sector — a lot is from outside of the sector, or from adjacencies,” says Mackenzie.

“Although we are small on a global scale, the reality is that doing these deployments or adopting these technologies early is advantageous.

“If you’re not an early adopter, by the time technologies gain a lot of interest from other parties, you’ll end up falling right down the pecking order.”

Dynamic Business: Air New Zealand, Excellence in Governance (NZ Herald)

Air New Zealand has taken out the MinterEllisonRuddWatts Excellence in Governance award in 2017 in recognition of the company’s world-class track record and its emphasis on broad stakeholder management.

Air NZ has consistently been recognised for its excellence in governance — this is the company’s third appearance in this category at the Deloitte Top 200 awards.

Of particular note, is the seamless way in which the airline has managed board and CEO transitions through its robust succession planning processes.

Since the Government-backed recapitalisation of the national carrier in 2001, it has had just two chairmen: John Palmer (appointed in November 2001) and Tony Carter (appointed in December 2010).

In that time there have been three chief executives: Sir Ralph Norris — who came off the board in February 2002 to pilot Air NZ through a major rebuild following a near bankruptcy; Rob Fyfe — who brought marketing pizzazz to the role when he took up the CEO reins in 2005 following Norris’ move to Australia to become chief executive of Commonwealth Bank; and, Christopher Luxon, who became chief executive in early 2013 introducing a global management style to the airline.

Both Fyfe and Luxon were internal appointments who were thoroughly blooded by their predecessors before stepping up to the top job.

In September, former Prime Minister and Tourism Minister Sir John Key joined Carter and fellow members Jan Dawson (deputy chairman), Rob Jager, Linda Jenkinson, Jonathan Mason and Dame Therese Walsh on the board.

Air New Zealand was recently rated New Zealand’s most reputable company for the second year in a row.

The company has continued to sport outstanding financial results since it was named Company of the Year in the 2014 Deloitte Top 200 awards.

Both Carter (2014) and Luxon (2015) have taken out the top honours, for chairman and chief executive respectively, which is another testament to the company’s overall governance record.

It was recently nominated “Airline of the Year” by leading international aviation website AirlineRatings.com for the fifth consecutive year.

The Deloitte Top 200 judges said New Zealanders’ continued faith in Air NZ was a stellar reflection of the airline’s successful governance and the positive impact it has in the country.

They added: “Air New Zealand does the best job of broad stakeholder management. The company does an excellent job for the shareholders, but beyond that it really thinks about the country.”

Air New Zealand’s concern for its wider stakeholder group is evidenced by the airline’s annual sustainability report.

First published in 2015, this annual report tracks the company’s performance socially, economically and environmentally.

These three pillars are supported by six key focus areas — the airline’s people, the communities it operates within, carbon, nature and science, tourism, and trade and enterprise.

The judges remarked that the sustainability reports were a fantastic resource and said Air New Zealand is considered among the best in the country in this area.

The airline has formed a sustainability advisory panel, which includes British environmentalist Sir Jonathon Porritt, New Zealand entrepreneur and environmentalist Sir Rob Fenwick and US biofuels expert Suzanne Hunt.

The airline industry contributes around 2 to 4 per cent to global greenhouse gas emissions.

As part of the sustainability framework, Air NZ is committed to working closely with key regional stakeholders, collaborating and helping them to develop attractive tourism propositions.

An example of Air New Zealand’s work is in Northland where, with local tourism operators, the council and other stakeholders it created a “Summer of Safety” inflight safety video, which was complemented by other tourism marketing campaigns both in New Zealand and internationally.

The judges also noted that the airline’s board had applied best practice in a number of important areas — including its commitment to creating a diverse and inclusive workforce.

The airline says its workforce reflects its diverse customer base and helps it to better serve their needs.

The company also acknowledges that its diversity helps it to be more innovative, challenging traditional ways of thinking, and introduces fresh perspectives.

Air New Zealand has made strong progress in delivering on its diversity and inclusion objectives, focusing strongly on gender representation and growing the cultural capability and fluency of leaders.

The airline recently achieved 39 per cent female membership on its senior leadership team, and has committed to reaching 40 per cent by 2020.

It has established a women’s network around the country to coach and mentor women throughout the business.

Air New Zealand has also implemented other employee networks, including Young Professionals, Maori and Pacific Islands, Pride (LGBTQI) and an Asian employee network.

These have helped to promote a sense of community and belonging across different employee groups, and increase the visibility and awareness of its diverse workforce.

The judges commended Air New Zealand’s commitment to Maori language and culture.

The airline has placed an increased focus on making this a core part of its identify — reinforcing the company’s role as the national airline of New Zealand.

Air New Zealand provides executive coaching and intensive residential, marae-based workshops for members of the senior leadership team to help them to develop greater Maori fluency. The company has also established Maori ambassadors to promote Maori culture and language among all its employees.

Finalist: Abano Healthcare

Abano Healthcare received high praise from the judges for its successful business model and steadfast focus on growing shareholder returns while fending off disruptive hostile takeover offers.

The Abano board, led by chairman Trevor Janes is focused on growing its trans-Tasman dental group — which is benefiting from economies of scale and increasing market share.

The Top 200 judges were impressed with how the board and shareholders have backed the company, particularly in light of the hostile partial takeover bid from Healthcare Partners.

Janes is joined on the board by Pip Dunphy (deputy chair), Danny Chan, Murray Boyte, Dr Ginni Mansberg and Ted van Arkel.

“The board’s resistance to attempted takeover offers has resulted in shareholders continuing to receive growing returns,” the judges said.

In particular, they were impressed that the company has not been distracted while dealing with attempted takeovers, instead remaining focused on the business and implementing strategy.

They noted the successful transition of Richard Keys into the role of chief executive. Keys was previously the company’s chief operating officer and chief financial officer, and took up the role at the company’s 2015 annual meeting following Alan Clarke’s retirement.

The board undertook a considered process to identify the best and most capable person to fill the role. Under Keys’ leadership, Abano reported a record net profit after tax of $11.1 million for the 2017 financial year, enabling an increase in its full year dividend by 20 per cent on last year.

The judges also commended Abano Healthcare for its recent record dividend of 36 cents per share, and payment of $25 million in dividends over the past five years – an indication on why shareholders continue to back the company.

Finalist: Sanford

Sanford’s recognition as a finalist is the result of the freshness of strategy and a focus on broader considerations beyond the company’s commercial activity.

The directors are acutely aware the company’s future depends on its long-term sustainability. This commitment to rigorous management of environmental performance and sustainability across all areas of the business was commended by the Deloitte Top 200 judges.

They said: “Sanford is clearly transitioning strategy around their footprint and sustainability throughout the business to build a long-term business.”

The Sanford board chaired by independent director Paul Norling includes Liz Coutts, Bruce Goodfellow, Peter Goodfellow, Peter Kean and Rob McLeod.

Sanford has placed strong emphasis on offering meaningful opportunities for continual learning and development, setting a goal to maximise the prospects of all its people.

The company has acknowledged this is not an area that has previously been managed as effectively as it could, and has put in place management systems to make it a priority.

Sanford has made a commitment to improving the wellbeing of its employees, adopting the WorkWell programme developed by Toi Te Ora Public Health to support the development of a healthy working team.

Sanford’s annual report was referred to as “absolutely outstanding” by the judges. It includes a touching story from an employee, who credits turning her family’s health and lifestyle around following a visit to Sanford by a diabetes specialist.

The judges also commend Sanford’s very strong integrated reporting. The company has been recognised by the market for this — providing a balanced picture of their economic, environmental, and social performance; facilitating comparability, benchmarking and assessing performance; and addressing issues of concern to stakeholders

Dynamic Business: The value of seizing the moment (NZ Herald)

The forces and trends that shape the world are not always front of mind when running a business.

But in a world where trends are dramatically changing the way value is created, they form an important backdrop that all company strategy and planning should be considerate of.

Some of the most successful businesses over the past decade have prospered because they have managed to successfully navigate the challenges and opportunities these global forces bring with them.

Andrew Grant, Senior Partner (Asia-Pacific) at McKinsey and Company, says New Zealand is a small, nimble nation with an inherent ability to respond quickly to global forces.

“Over the years we have had many global trends working in our favour, but we’ve failed to respond fast enough to seize the moment and capture the opportunity,” he says.

McKinsey uses the metaphor of a crucible for these forces — “a place or situation in which concentrated forces interact to cause or influence change or development,” and segments these “crucibles” into global growth shifts, accelerating industry disruption, and a new societal deal.

Some, like cybersecurity, geopolitics, and the rapid invasion of technology are already front of mind for executives and the boardroom.

Others, though not so obvious, are just as important to consider.

No one can know for sure what the future will look like. But businesses — both old and new — that grapple with these crucibles and question the assumptions of their business model, can expect to compete more effectively in the increasingly disruptive world we have found ourselves in.

1. Beyond Globalisation

Globalisation as we have known it — and as New Zealand has greatly benefited from — is going to change.

Donald Trump, Brexit, Jeremy Corbyn, TPP: the results of recent elections and referendums worldwide can be attributed to a growing sense of disillusionment, anti-globalisation and protectionism.

Traditional measures of globalisation are also slowing. Trade growth over the past decade has been half of that in the late 1990s and early 2000s.

Following the global financial crisis in 2008-2009, global capital flows as a percentage of GDP dropped dramatically — and have not returned to pre-crisis levels.

Despite this, many argue globalisation has accelerated — but it is taking place in different forms: cross-border data flows are increasing at rates approaching 50 times of those in 2005; the McKinsey Global Institute estimates there are now 914 million social networking users with at least one foreign connection.

The world now has 429 million international travellers, 361 million cross-border e-commerce shoppers, and 244 million people that live outside their home country.

Competing with the increasing number of global players means maintaining a local touch is increasingly important for companies. Rising tension between technology firms in China and the rest of the world is creating a gulf that will be an important factor shaping the future of global tech innovation.

The New York Times’ Farhad Manjoo explains: “You can be Alibaba or you can be Amazon. You can be Uber or you can be Didi. But you can’t be both.”

2. ICASA Factor

Brazil, Russia, India and China (or the “BRIC economies”) are four major emerging national economies postulated by Goldman Sachs in 2001 to become among the four most dominant economies by the year 2050 and the biggest drivers for future global growth.

But more than 85 per cent of the growth from the BRIC economies came from China.

McKinsey proposes that ICASA — India, China, Africa and Southeast Asia — will become the dominant force, primarily because the greatest growth engine has been urbanisation.

At the same time, these regions present some of the biggest risks to global growth, as they struggle to deal with internal obstacles including sustainable urbanisation, increasing productivity, mobilising domestic resources and deepening regional integration.

3. Resources (Un)limited?

As the world’s population approaches 9 billion, there is growing urbanisation which brings with it a rapidly increasing demand for resources. This includes a dramatic increase in the demand for protein, consumption of oil and gas, fresh water, and synthetic and natural fibre.

Yet advances in analytics, automation, the Internet of Things and material science are reducing resource consumption in other areas.

McKinsey and Bloomberg have estimated advanced mobility systems — including self-driving cars, ride-sharing, and electric vehicles — could yield US$600 billion (NZ$880b) in societal benefits through to 2030, by cutting the costs of traffic congestion (about 1 per cent of GDP globally), road accidents (1.25 million deaths in 2015), and air pollution (health problems like respiratory ailments).

In other sectors, algorithms are helping optimise and predict energy use, enhanced oil recovery is transforming resource production, and innovative new materials are helping reduce resource use. Demand for resources is growing, but innovation and technology provide the opportunity for the world to be more efficient with what we have.

4. Technology Invasion

Technology change is happening continuously. But Grant believes we are underestimating the scale and the pace at which technology is evolving and will shape business. “People don’t quite understand how profound and how long the journey is going to be.

“The ubiquity of technologies and the ability to roll it out globally is making new advances far more impactful than ever before.”

We’re seeing rapid innovation in areas where families of technologies are coming together.

The smartphone brought the touchscreen, applications, CPU, LCD displays, wireless connectivity, and lithium-ion battery technology together with advances in miniaturisation.

The development of the autonomous car is combining video cameras, presence sensors, Radar, Lidar, GPS and CPU technology. Instead of linear step changes, we can expect to see combinations of technologies make the scale of change much more powerful.

5. Customer-to-Business

B2C (business to consumer) and B2B (business to business) have long been commonplace, but digitalisation and new business models are giving consumers the ability to shape goods and services, often receiving free access to what would once have been paid for.

Alibaba’s founder and executive chairman, Jack Ma, declared the start of C2B, or consumer to business, open several years ago.

Rapidly growing Chinese mobile manufacturer Xiaomi uses crowd-sourcing to engage with consumers for fast, first-hand feedback on its products. Grant says Xiaomi is becoming representative of where the business world will need to position itself for the future.

Customers are increasingly dictating the terms of what they need (and what they want) directly to companies and the Internet is providing the ability for this to occur as never before. Consumers have an ever-increasing choice, and companies must make decisions about their product offering and which business models they should use to continue to create value.

6. Ecosystem Battles

Five of the 10 largest companies in the United States are platform-oriented. Airbnb now has four million listings globally, more than the top five hotel brands combined.

The company says “on any given night, two million people are staying in other people’s homes around the world on Airbnb”. Uber might be the world’s largest taxi firm, but it doesn’t own its cars. Neither of these companies existed 10 years ago.

Alibaba — the world’s largest retailer — moved NZ$37b (US$25.3b) worth of stock during its November 11 extravaganza, but doesn’t own warehouses to store the eye-watering quantity of products sold through its platforms.

These platforms offer business models that can be enormously disruptive in the way they shape the world, and are shaking up industries that were immune from significant competition in the past.

7. Dealing with the Dark Side

Cybersecurity has become a trillion-dollar issue. Grant says boards of Fortune 500 companies are now spending about 15 per cent of their boardroom agenda on cybersecurity.

The Herald’s Mood of the Boardroom in September revealed that New Zealand’s executives are highly concerned about the threat, with 67 per cent of respondents now doing significantly more to combat cybercrime and 30 per cent doing more “in a modest way”.

Previous Mood of the Boardroom reports suggest a clear — and rapid — trend: in the 2015 survey, cyber crime rated 5.9/10 in terms of impact on business confidence. Last year it became the top issue at 7.16/10, and this year it sat head and shoulders above other issues, with an impact rating of 7.64/10.

Alongside cybersecurity, McKinsey estimates that 81 per cent of executives worldwide single out geostrategic factors as the top risk to growth.

Examples of the severity geopolitics can have on business include:

  • A 4.5 million shortfall of Russian tourists as a result of the ban on agency tours to Turkey in retaliation for shooting down a Russian warplane.
  • 120,000 tonnes of Norwegian trout and salmon have been banned from Russian markets in retaliation for EU and US sanctions over the Ukraine crisis.
  • 16 per cent of London properties listed online have had their price cut after the UK referendum to leave the European Union.
  • 500 direct daily flights were halted in the Middle East as a result of the diplomatic stand-off between Saudi Arabia, Iran and Qatar.

8. Growth Formula Experiments

There is no shared narrative on why economic growth is stuck. Is the problem in developed economies a supply problem or is it a demand issue?

Monetary easing, a universal basic income, and debt mutualisation are among the suggestions on how to restart growth. There is extraordinary experimentation going on, but no consensus.

Grant says solutions will not be singularly political. They will require business, civil society, and the political arena to come together.

“Some interesting insights are coming from Denmark, Switzerland, Finland, Israel, Singapore… I think New Zealand has a real opportunity to lead on this,” he says.

9. Middle-class Progress

The benefits of globalisation have not been distributed evenly. Alhough globally the middle-class have done well, those in advanced nations have missed out.

This has created a widening of earnings disparity, and has been blamed for the increasingly negative view towards immigration, the status quo, and trade deals that appear to favour the boardroom over the workers.

Much disillusionment has been blamed on, and exploited by, politicians, but trust has become a critical flashpoint that companies must address and build back to ensure long-term, sustainable businesses.

Sources: Presentation by Andrew Grant — A new narrative of progress? Major Macro Trends Shaping our Region — to the 2017 Infinz conference; McKinsey report — The global forces inspiring a new narrative of progress.

Infrastructure: Looking at the opportunities for asset recycling (NZ Herald)

Asset recycling enables the Government to boost its available funds by either selling or offering a long-term lease of underutilised, inefficient, or surplus public infrastructure to investors in the private sector.

In exchange for the sale or lease of those assets, the Government can receive a large up-front, lump-sum payment.

Capital received from divestment can be used to revitalise existing assets, or fund new and critical infrastructure needs that might otherwise have been unfunded or funded using more traditional methods such as raising taxes or increasing public debt.

New South Wales
Since 2012, asset recycling has been one of the core principles of Australia’s New South Wales Government property policy.

The NSW Department of Premier and Cabinet says that “real property assets are only held by Government when required, and in the form necessary, to support core government service provision.”

Australia’s asset recycling has extended to the sale or long-term lease of public assets including ports, “poles and wires” electricity assets and its land titles registry, and has reached a combined value of A$53 billion.

Former NSW premier Mike Baird campaigned at the 2015 election on a platform of infrastructure investment, of which the recycling of assets was the method to achieve this.

Baird’s re-election demonstrated that asset recycling and new infrastructure funding mechanisms can be economically effective as well as politically popular – but they take leadership and vision.

A recent report on asset recycling by Property NSW showed overwhelming support for the NSW Government’s policy of recycling property assets to fund infrastructure and better services.

Of those surveyed, 71 per cent said they favoured leasing or selling under-utilised assets over more traditional measures, such as raising taxes or increasing levels of public debt.

Interest from the US
During his visit to Australia earlier this year, United States Vice-President Mike Pence told business leaders that the Trump administration hoped to emulate the Australian model of infrastructure asset recycling as part of the President’s US$1 trillion infrastructure plan.

New York’s LaGuardia Airport was cited by Pence as one example of an asset that had the potential to be redeveloped with the injection of private funds.

LaGuardia is so badly in need of upgrades, expansion and improvements that President Trump has referred to it as “like from a third world country”, contrasting it (and other US airports) to the “incredible airports” in Dubai, Qatar and China.

Upgrading Circular Quay
It is estimated that the number of jobs in the iconic Circular Quay precinct in Sydney will increase by around 4500 in the next 30 years.

The ferry wharves and adjoining promenade were built in the 1940s and are nearing the end of their life. They are also not compliant with the Disability Standards for Accessible Public Transport.

For these reasons, they are considered long overdue for a facelift.

In order to fund the upgrade, Property NSW is divesting commercial assets that are considered not core to service delivery or of long term strategic importance.

This includes the sale of rights to the ground lease rental income at Darling Quarter for 30 years, for an upfront payment of A$192 million ($215m).

The revitalisation of Circular Quay will support new construction jobs, and the upgrades will deliver improved transport services and an enhanced retail offering for workers and visitors, boosting economic growth and tourism to the precinct.

Viewpoint: Michael Barnett, Auckland Chamber of Commerce chief executive
It would easy to be populist and label it privatisation and kill another opportunity for Auckland. The reality is, existing funding models are failing us and we either need to find an innovative response to this or pay the price of a lack of investment in our infrastructure over the last 40 years with low productivity and community frustration.

Old style asset recycling was essentially selling one lot of assets to fund other priorities – this often meant selling an income generating asset to fund another asset that didn’t.

Today it’s about maintaining ownership control and not owning – an example of this could be with Ports of Auckland where the land and the business could be separated or perhaps an environment where an investor of “like values” might take partial ownership of an asset investing say on behalf of a superfund of New Zealanders with only the intention of investment and not for selling on.

Of course, any funds released should then be invested in our infrastructure needs (transport) – the important thing here would be to have a narrative that articulated the benefit to Auckland that may not be in cash but in productivity, employment opportunities and growth.

Viewpoint: Kim Campbell, Employers and Manufacturers chief executive
If we are to have sufficient funds for the development of Auckland’s growing infrastructure needs we will need to find more innovative funding devices.

The community appears allergic to rates, and tolling the roads is consistently blocked by central government. So what’s left?

Recycling of assets is a tried and proven device overseas where city assets are identified as being underused, redundant or inappropriate, and sold. The funds are immediately put to use for items which will increase the city’s overall productivity.

There are many such assets in Auckland. They may have some amenity value, but the benefits may accrue to a small part of the community. This includes shares in airports, golf courses, quarries, forests, transport corridors, water systems and theatres – to name a few.

Their sale is quite legitimate as long as the money is put to more productive use immediately. Often the sold assets become more productive under new owners as we have discovered with the sale of our electrical generation assets. NSW has a long and successful history of this, including Barrangaroo and White Bay.

Viewpoint: Paul Blair, Head of Institutional Banking, BNZ
BNZ is open to talking about ways to solve the big issues facing New Zealand. Countries and governments around the world are facing infrastructure challenges – New Zealand is not alone.

It is important to look at and consider potential ways to solve issues and have those challenging conversations, but any single “tool in the tool box” (like asset recycling) can’t be a silver bullet – multiple approaches and great collaboration is more likely to get a good result.

Governments face ever-rising demands for new and better enabling infrastructure. Asset recycling is one of the tools that have been used successfully in NSW and other overseas jurisdictions. New Zealand has an opportunity to learn from these case studies.

There are many other tools as well (including modern regulation of infrastructure sectors, centralised and specialist procurement, integrated planning, governance and finance, the use of incentives to encourage private sector and local government investment, etc) and a combination of approaches is likely to be needed as these are complex problems.

New Zealand is an extremely open economy. New and modern business models and exponentially expanding technology mean we are highly integrated into global business flows and trends which are changing at an unprecedented rate.

Business and society change is driven by new technology such as artificial intelligence, social media, robotics, data science, 3D printing as well as big macro shifts in demographics, infrastructure pressures and geo-political changes.

All of this change, coupled with government’s relatively limited risk appetite and the complexity of legislating for and regulating this change, means that governments need to look at alternative models to deliver the infrastructure required to meet New Zealand’s social and economic needs.

Infrastructure: Could smart-tracking solve Auckland’s congestion problems? (NZ Herald)

Singapore aims to have the world’s most advanced road pricing system by 2020.

The Global Navigation Satellite System (GNSS) will make Singapore the first city in the world to include a dynamic distance, time, location, and vehicle type road pricing scheme.

The S$556 million (NZ$566m) project was won by NCS and Mitsubishi Heavy Industries Engine System Asia – a price that is less than half the S$1.2 billion submitted by the other qualified bidder, ST Electronics.

The island-wide system will use satellite navigation technology to detect and measure distance travelled, as well as provide real-time traffic for every road user. Drivers will be warned before entering a charged road, giving them the option to divert elsewhere if they prefer.

Parking information obtained from every driver and automatic streetside carparking will mean circling around for a carpark and digging around for cash to buy a parking ticket will be a relic of the past.

In areas where satellite coverage could be weak (including tunnels and beneath viaducts), it is anticipated that signal beacons will be put in place.

Though some say the new system will mean personal cars become less about freedom and more like a “private taxi”, Singapore has long been ahead of the world in road user charging.

In 1998 – when Auckland was suffering from a five-week power outage in the CBD caused by multiple power cables failing – Singapore was rolling out what was then the most sophisticated urban congestion charging system on the planet.

This gantry-based electronic road-pricing system targets roads that are heavily congested, and mostly operate at peak times, applying prices to achieve a minimum “level of service”.

Though some privacy concerns have been raised around the level of surveillance that comes with tracking all road users, there are similar issues with other forms of modern transport.

A push for alternative transport
Despite Singapore moving towards a sophisticated and expensive road pricing system, car ownership is low by global standards. This is largely due to the hefty price of a certificate of entitlement – S$36,000 (NZ$36,790) for cars up to 1600cc – which allows the certificate holder to register, own and use a vehicle in Singapore for a period of 10 years.

When you consider 12 per cent of the small country’s land area is consumed by roads, it is unsurprising that Singapore’s Minister for Infrastructure and Transport, Khaw Boon Wan, has set a target for 75 per cent of trips to take place by public transport by 2030, and 85 per cent by 2050.

Singapore is also significantly boosting its bus fleet, rail network, cycling paths, and the distance of its covered walkways.

Driverless cars are tipped to be a further game-changer. Singapore’s well-maintained roads and contained geography make it an ideal location for autonomous vehicles, expected to offer greater fuel efficiency, reduced road congestion and carbon emissions, and a significant reduction in accidents.

Last year US autonomous vehicle R&D firm nuTonomy ran a limited public trial for the world’s first driverless taxis in Singapore.

Despite one of nuTonomy’s self-driving cars hitting a truck, the trial was considered a success.

The company noted the accident was due to “an extremely rare combination of software anomalies,” and intends to launch a commercial service in Singapore in the next year.

It is therefore not unthinkable that at some point, mass use of driverless cars and public transport could remove the need for congestion charging altogether.

Capital Markets: Direct Capital spurs private equity market (NZ Herald)

Tim McCready talks to Direct Capital’s managing director, Ross George about the firm’s latest capital raising, lessons from past investments, and the state of NZ’s private equity industry
Late last year, Direct Capital raised its fifth private equity fund in New Zealand. Since it began in 1994, the firm has raised $1.2 billion, with its latest $375 million fund coming almost exclusively from existing investors in just two months.Herald: Direct Capital’s first fund was raised in 1994 — 23 years on, what has changed most in the New Zealand private equity industry?

Ross George: When Direct Capital began, private equity was a very established industry offshore, but it didn’t exist in New Zealand in a formal sense. We had to go out and explain who we were and what we wanted to do with investors, advisors, and private companies. Now Ryman Healthcare, Scales and NZ King Salmon are on the sharemarket — people know they came from private equity, and the private company market is well regarded by investors. One of the most positive changes has been the New Zealand Stock Exchange. When we started 23 years ago, you couldn’t necessarily invest in companies and then list them — the stock exchange said they were too small.

Around the world, all successful markets mirror their economies and their company stock base. The stock exchange here has now grown substantially by appealing to a broader set of companies, and it means you can keep them here in New Zealand.

Herald: You’ve just finished raising your fifth fund in the last quarter of last year. How did it go?

Ross George: We had a two-month window, and we were easily able to raise it. We wanted to cap it at $375 million, but could have raised significantly more. Over 23 years we have performed very well for investors. The feedback we receive is that we don’t take inappropriate risk, and that our performance has been consistent and very good relative to other categories. We are in the fortunate position of being able to go back to our existing investors and raise capital. That’s real recognition of our performance and just how big the private company opportunity is.Herald: What is unique about the private equity industry in New Zealand?

Ross George: In New Zealand, you can find yourself investing in the top five companies within a sector. We have managed to invest in Ryman Healthcare — the biggest in its industry, Scales — the second biggest apple producer in the country, and King Salmon — the largest salmon producer. In Australia, you’re more likely to invest in the top 15. Economically, New Zealand is doing very well, and there are a lot of good opportunities. But it’s a double-edged sword. We’re not the only ones that have noticed New Zealand is going well — the global corporates have noticed too. There is now a real desire to be here. Also, private company owners in New Zealand tend to be older than offshore. In our size bracket, that’s a real feature. As owners near retirement age, they might want to sell down but remain a 20 per cent shareholder, or change their role but stay on the board. We can work with them to understand how they want to change their life — because more often than not they don’t want to stop working abruptly.

Herald: Direct Capital’s investments have been across many different sectors — from technology and e-commerce to forestry and pharmaceuticals. Are there any particular areas you’re targeting for this fund?

Ross George: You can’t just choose an industry in New Zealand and invest in it. There are some areas such as food and primary industries that dominate in New Zealand and that we get a lot of recognition for.

These will always be a cornerstone of our funds, but we try to follow big long term trends. Food for Asia is a big trend that we think will suit us into the future. In the short term, New Zealand has done well economically over the last decade, and there has been a lot of money spent on infrastructure.

Although we’re not an infrastructure investor ourselves, we do invest in companies that provide services into the industry.

Herald: NZ King Salmon was one of your most recent exits, listing on the NZX and ASX last year. What was it that appealed to you about the company?

Ross George: NZ King Salmon is a company with good insights into how to run a primary industry. When we did due diligence on the company, we liked that it had its own hatchery, farms, processing plant, brand, and export operation. If you put that in the context of other primary industries, it has every step covered. It is a real pleasure to turn up in London and see Ora King salmon on the menu, and you think that started from the production of an egg by the one company. When we came to listing it, that was a really appealing thing. The main comment from the institutions is that this is how a lot of other primary industries should be organised.

NZ King Salmon has been a stellar performer for a long time. It produces a premium product that doesn’t have a commodity price attached to it, and can sell every kilogram of salmon it produces. The issue now is how it continues to grow. It’s a very large employer in Marlborough, and because it is a year-round employer it’s a sought-after place to work. The only problem is that it can’t grow its production enough. The government and regional councils talk about growing regional businesses that can create employment, but there has got to be enabling tools and legislation to allow them to do it.

– NZ Herald

By Tim McCready

Capital Markets: Revised NZX stance on diverse governance (NZ Herald)

Tim McCready

Some of New Zealand’s biggest businesses will now have a comprehensive, measurable diversity policy to follow.

As part of the NZX’s new Corporate Governance Code, NZX-listed companies are recommended to make their diversity policy and objectives public, and explain their attitudes and goals to achieving better diversity in the workplace.

These goals should be measurable and progress tracked. This includes reporting on the number of men and women on the board, at senior management level, and across the entire organisation.

If an organisation doesn’t have a diversity policy, the new corporate governance code requires them to explain why not.

These changes will lead directly to more listed companies establishing display metrics — including gender, but also hopefully extending to address areas such as equal pay and flexible working arrangements

Joan Withers, chair of Mighty River Power and The Warehouse, believes these changes will lead directly to more listed companies establishing diversity metrics.

“This includes gender, but also hopefully extending to areas such as equal pay and flexible working arrangements,” Withers says.

“Measurable objectives lead to greater diversity; greater diversity leads to better business outcomes — delivering to the bottom line through improved productivity, profitability and performance; better growth, innovation and customer service; and an enviable ’employer of choice’ reputational standing.”

The revised code aligns to Australia’s ASX’s diversity policy regime, which has a similar ‘if not, why not’ requirement.

Since those reporting requirements were introduced in Australia, the number of women on boards increased by 47 per cent (from 15 per cent in 2012 to 22 per cent in 2015), and the number of women in senior management positions increased by 30 per cent (from 20 per cent in 2012 to 26 per cent in 2015). Now, 99 per cent of ASX200 companies have a diversity policy in place.

A combination of reporting and voluntary target setting saw the number of women on UK’s FTSE100 boards increase by 52 per cent over four years (from 12.5 per cent in 2011 to 26 per cent in 2015).

The changes are not a quota and won’t force companies to have a specific number of women on boards.

Withers, who is also vice-chair of Global Women, is against the concept of quotas because she thinks they are demeaning.

“All of the women that I work with around the board table are there because of their all-round directorial competence. They can hack it with any of the male directors that are sitting around those same tables.

“The changes are saying that we need to be utilising — as a nation — the whole talent pool that we have got.”

Withers notes she has never been in a position where a board she is sitting on hasn’t been able to find skilled women across all areas.

Hamish Macdonald, General Counsel and Head of Policy at the NZX, says that the NZX Code sets out a series of recommendations, such as diversity, that listed companies are recommended to follow.

“Our role as a licensed market operator is to act as a standard setter but it is up to companies and the industry as a whole to progress change,” he says.

“Naturally, the aim of the NZX Code is to improve governance standards, particularly for listed companies which are smaller in size or at an earlier stage of development.

Many of New Zealand’s top listed companies will already be meeting the practices outlined in the NZX code.

“We hope the updated NZX Code leads to improved corporate governance, but ultimately it is up to shareholders to decide if they are comfortable with a company’s governance practices based on the disclosure triggered by NZX’s rules,” Macdonald says.

New rules for CEO transparency
The NZX’s Corporate Governance Code, released last week, represents a significant step forward for corporate governance reporting requirements in New Zealand.

The NZX Code has eight parts, covering principles that reflect internationally accepted corporate governance practices intended to protect the interests of and provide long term value to shareholders while also seeking to reduce the cost of capital for issuers.

Principles include ethical behaviour, board composition and performance, board committees, reporting and disclosure, remuneration, risk management, auditors, and shareholder rights and regulations.

Each principle contains specific recommendations and explanatory commentary that NZX-listed issuers are encouraged to adopt. It’s been more than 13 years since the NZX Code was reviewed.

The remuneration principle requires the pay of directors and executives to be transparent, fair, and reasonable, and includes the following recommendations:

  • An issuer should recommend director remuneration to shareholders for approval in a transparent manner. Actual director remuneration should be clearly disclosed in the issuer’s annual report.
  • An issuer should have a remuneration policy for directors and officers, which outlines the relative weightings of remuneration components and relevant performance criteria.
  • An issuer should disclose the remuneration arrangements in place for the CEO in its annual report. This should include disclosure of the base salary, short term and long term incentives, and the performance criteria used to determine performance-based payments.

Companies that do not comply with the recommendations will have to justify their decision. Currently, companies only have to report on the number of people who earn over $100,000 within salary bands of $10,000 above that threshold — and it is not always the case that the chief executive is the top earner.

Hamish Macdonald, General Counsel and Head of Policy at the NZX, says the code recommendations were designed to drive increased transparency for shareholders.

“Sound corporate governance practices can lead to a lower cost of capital and higher valuations for New Zealand listed companies. The streamlined NZX Code will result in greater transparency for investors and hopefully drive increased confidence in our capital markets.”

The NZX Code was subject to extensive market consultation — more than 80 submissions were received throughout the consultation process from major governance groups, issuers, corporate firms and investors in New Zealand and overseas.

“The extensive engagement NZX received as part of this review reflects the industry’s desire for strong corporate governance and the key leadership role NZX plays in encouraging these improved practices,” Macdonald says.

Capital Markets: Time for Prospectus NZ? (NZ Herald)

Fran O’Sullivan and Tim McCready

New Zealand is in a sweet spot.

Surely it’s time for our sharpest brains to come up with a major campaign to spruik New Zealand as an investment destination and go hard on capital markets?

“I just think the genie is out of the bottle with New Zealand,” says Nicholas Ross, country head for UBS New Zealand. “People are just going to keep coming and coming and coming.”

“If there was ever a time to be bold and to borrow a bit more this is it,” he adds. “Markets are in very good shape, they are very receptive to good proposals and interest rates are very low.”

It is a stance shared by a growing number of senior NZ capital markets players and business leaders.

New Zealand arguably remains behind the pace when it comes to applying financial leverage to fully fund the growing infrastructure gap sparked by rocketing net migration.

A Government spooked by a series of major earthquakes is wary of accruing too much debt in case it needs to use its balance sheet in the event of another costly natural disaster or recession. But this appears short-sighted when Trump’s America and Brexit have affected international perceptions and this country is increasingly viewed as a safe haven for people and capital.

Auckland Chamber of Commerce CEO Michael Barnett points out there are many options for funding the city’s growth.

But they all require capital.

Commonwealth Bank’s Andrew Woodward says the NZ debt market has shown it has the capacity to complete larger project finance transactions.

Woodward – who is general manager of CBA’s NZ operations – points to Transmission Gully and the Puhoi-to-Warkworth projects, which attracted support from domestic and offshore banks and investors and competitive outcomes for the NZ Government.

He says the continued success of this style of transaction – as well as funding of significant investment by the likes of Auckland Council and Auckland Airport – will continue to rely on domestic and increasingly international debt markets supporting growth projects, with both having targeted international debt markets to meet their growing funding requirements this year.

Says Woodward: “To aid the further development of the NZ debt market there continues to be a strong role for Government in outlining a clear pipeline of projects (across a range of asset classes including toll roads, prisons, hospitals, and rail projects), so foreign capital keeps New Zealand on the radar, as well as ensuring legislation around areas such as interest withholding tax are competitive versus other jurisdictions, and encourage investment in New Zealand.

“While the domestic debt market can meet requirements up to a certain capacity, foreign capital is expected to play an increasing role to meet the planned infrastructure spend.”
Kiwis who have collectively saved more than $40 billion in KiwiSaver – an average of just under $15,000 per person – might also question whether investment allocations are structured to deliver sufficient funding for NZ growth (and the needs of savers).

Australian research firm Strategic Insight has released figures showing total KiwiSaver balances hit $40.651 billion at the end of March; up from $38.416b at the end of December.

With KiwiSaver poised to turn 10 this year, it is worth asking whether more avenues for investment should be provided onshore.

In its report, World awash with Money, Bain & Company looked at capital trends through to 2020.

The consultancy firm predicted that for the balance of the decade, markets will generally continue to grapple with an environment of “super-abundance”.

It says there has been a power shift from the owners of capital to the growers of good ideas. “In this environment, investors’ success will be determined less by how much money they command than by their ability to spot an investment’s true creation potential and act on it nimbly.

Those that can react with speed and adaptability will be best able to identify the winners, steer clear of bubbles and generate superior returns.”

There is an abundance of innovation in New Zealand. Time for that Kiwi prospectus to fund our growth and our ideas.

Capital Markets: Venturing closer to maturity (NZ Herald)

Tim McCready

Richard Dellabarca, chief executive of the NZ Venture Investment Fund, has completed a strategic review of the industry and provided growth options to Government, reports Tim McCready
Last year, then Economic Development Minister Steven Joyce announced a review of New Zealand Venture Investment Fund’s structure, reiterating the Government’s ambition for the fund to become self-sustaining.

Soon after the announcement, Richard Dellabarca was appointed chief executive of NZVIF in mid-2016 — a move that indicated the industry was maturing.

Dellabarca, an investment banker, had spent 14 years offshore in a variety of leadership roles in venture-backed companies, capital markets, financial services and technology-related opportunities.

He brings a private sector investment perspective, but given his experience as an entrepreneur he understands what is required to build globally scalable companies.

“Really good Venture Capital funds (VCs) are looking to build businesses. Investment is an important skill to have, but their greatest skill is in building companies,” he says.

“It helps to have gone through the journey of building a global company, or a company with global aspirations, in order to understand what is needed.”

When Dellabarca joined NZVIF, he was given a blank piece of paper and the mandate to go away and undertake an independent strategic review. He has spent the last year speaking with stakeholders — around 140 organisations and 230 individuals.

Dellabarca says he is encouraged with the significant amount of investable opportunities in New Zealand, noting that founders and teams tend to be aspirational and motivated, and companies aim to be global from day one.

The review noted a growing amount of angel investment — $69 million in the last year, and more than $400 million since figures have been tracked — in addition to the significant investment into universities and Crown Research Institutes.

There is money available in New Zealand to fund proof-of-concept in early stage companies.

But a shortage of funds was identified for opportunities requiring $5-20 million in early stage growth capital.

In addition, Dellabarca noted that in the Silicon Valley or the UK, “you generally see funds syndicating with two or three investors when raising Series A & B investment.

“Yet over here, we have only Movac and Global from Day One (GD1) investing locally in growth capital, severely limiting the opportunity to syndicate investments or fully fund early stage growth companies through to maturity — and ultimately a successful realisation of the investment.”

Although eight Venture Capital funds were originally established in New Zealand, the average fund size was only NZ$45 million compared with a global average of approximately US$300 million.

Dellabarca explains there is a good reason for global fund sizes given the amount of money a company generally requires through to an investment realisation.

“They will tend to invest in, say, 15-18 companies at $5-10 million each, and then keep money aside for further follow-on investment in companies that are succeeding.

“This allows for better funds management practice, managing downside while optimising on upside opportunities,” he says.

“These historic sub-scale New Zealand funds tended to invest in a range of companies, but then either didn’t have capacity to fund them through to success and, therefore under-capitalised them, or had later stage investors dilute them down when they couldn’t follow on with the investment.

“The consequence was that many of these funds didn’t generate appropriate returns for their investors,” Dellabarca says.

While offshore corporates and financial institutions have had an interest in allocating money into New Zealand technology innovation, they have not been able to find a platform to put the money in.

As many of these institutions manage multibillion-dollar funds, the smallest investment they are willing to make is $50-$100 million.

“With an average fund size of $45 million, their mandate will often preclude them from being more than 10-20 per cent of a fund,” says Dellabarca.

“By definition you need a $300 million to $400 million fund to take these cheques.

“We just haven’t set up a fund of scale to allow foreign investors to come in and access innovation.”

NZVIF have presented a number of options to Economic Development Minister Simon Bridges that aim to make the fund self-sustainable.

Although Dellabarca is unable to divulge the details on those options, he says the fund-of-funds model with its hefty fees on fees structure is no longer viable.

The results of the strategic review provide a clue that early stage expansion capital for growth companies is New Zealand’s choke point, and is a gap NZVIF would like to address if a model that works can be established.

“There is an unmet need. You could argue about the specific number but the current deal flow suggests an annual demand of $200-$300 million,” says Dellabarca.

“If you assume our current VCs invest over five years, holding back 30 per cent for follow-on investment (the traditional venture capital investing model), then you have approximately $20-$25 million invested per year, versus a demand of up to $300 million per year.

“But whatever the number is, it is substantially larger than available capital. The aspirational goal is to have that need met in some way or another.”

Considering the future, Dellabarca says that he would like to see more money in the angel space. NZVIF is currently the second largest angel investor in New Zealand, and he hopes that in time it won’t be needed.

He has the same goal for the venture capital space.

“Hopefully in 15 years we won’t need a NZVIF in any guise, and instead there will be several self-sustaining funds of scale,” he says.

“We don’t have government intervention in private equity.

“You would hope that ultimately the same will happen in the venture capital space.”

Power of NZVIF?
The NZ Venture Investment Fund (NZVIF) was established by the Labour Government in 2002 to build a vibrant early stage investment market in New Zealand by investing alongside private venture capital funds into high-growth companies.

NZVIF currently has $245 million of funds under management which it invests through two vehicles:

  1. a $195 million venture capital fund of funds, partnering with private New Zealand venture capital funds to support the development of innovative companies from start-up through to growth (investing on a two-to-one basis).
  2. a $50 million Seed Co-Investment Fund (SCIF) established in 2005 to encourage angel investment and fill the investment gap for entrepreneurs needing capital to get their business underway (investing on a one-to-one basis).

Since its inception, NZVIF has formed 27 investment partners (16 angel and 11 venture capital partners) and invested in a portfolio of 236 companies.

NZVIF has helped stimulate $2.2 billion in leveraged capital, $1.2 billion in attracted overseas capital, employment of 6076 FTEs and $174 million in taxes.

China Business: Alibaba offers sweet deals (NZ Herald)

Tim McCready chats with Alibaba’s Australia and New Zealand director of business development John O’Loghlen about the new regional office, the work being done with New Zealand businesses, and the future of online shopping.

Moving on from the rules of the WTO and global trade will allow small businesses and developing nations to tell their stories and trade together effectively using e-commerce.

Alibaba last month opened an Australian and New Zealand office in Melbourne, demonstrating the Chinese e-commerce giant’s ambition to expand its global footprint.

“Although it is headquartered in Melbourne, New Zealand is equally important,” said John O’Loghlen, Director of Business Development – Australia and New Zealand at Alibaba Group. “The leadership team in Hangzhou look at both markets together.”

Alibaba also recently appointed Pier Smulders as Director of Business Development in New Zealand, a dedicated in-market resource and experienced client service professional for Alibaba’s key accounts and opportunities in the SME space.

At the Melbourne opening, Alibaba founder Jack Ma acknowledged Australia and New Zealand’s clean environment provides a unique selling point for its businesses and will be a “goldmine” for the region’s economy over the next 15 years.

“In the past 30 years through a lack of experience in China we have a terrible polluted environment. There’s a lot we should have learned from Australia and New Zealand,” he said. With a local office and expert team, Alibaba will help Australian and New Zealand businesses share their world-famous products with billions of customers around the world.

“Whether a large company with existing links to China, or a mum-and-dad run exporter operating out of a garage, Alibaba is here to make it easy to do business,” he said.

The opening of the Australasian office comes after a strategic alliance was established between Alibaba and the New Zealand Government last year. The memorandum of understanding (MOU) signed by New Zealand Trade and Enterprise (NZTE) formalised discussions for strengthening trade between China and New Zealand, with an aim to foster greater trade opportunities for businesses seeking to enter the Chinese consumer market.

At the time of signing, NZTE chief executive Peter Chrisp said: “New Zealand businesses are already using Alibaba’s channels to sell a wide range of products including dairy, meat, seafood, fruit, wine, beverage, cereal, skincare and health supplements. By providing dedicated services for New Zealand products, this new arrangement offers significant opportunities for New Zealand businesses to reach more consumers as well as advocating New Zealand’s reputation as a place of open spaces, open hearts and open minds.”

Since the MOU was signed, Alibaba and NZTE have run workshops across New Zealand, helping exporters to gain insights into doing business with China and Chinese consumers, evaluate their business models and provide education about Alibaba’s various platforms.

Last September, NZTE and New Zealand Winegrowers established a Wine Pavilion on Tmall, dedicated to the sale of about 100 different New Zealand wines, representing all key wine regions and wine varietals.

NZTE’s Trade Commissioner in Shanghai, Damon Paling, says that wine traffic has been growing through organic and paid advertising, with the conversion rate consistent with market expectations at around two per cent, and an average basket value around NZ$120.

In addition to wine, Paling says that Alibaba platforms Tmall and Taobao are “seeing good sales of various consumer dairy products, fruits, and small categories such as manuka honey, wine, breakfast cereals, and snack bars.”

Although New Zealand and Australia is perceived as a regional “sweet spot,” O’Loghlen said it is important for businesses to appreciate that companies in Switzerland, Japan, America, South America and Britain are all looking towards China too.

“There are a lot of great brands around the world. Many countries make good milk, honey, and merino sweaters.

“In order to be successful, you not only need the best-in-class product in New Zealand and Australia, but it has to stand on its own two feet globally.”

Alibaba is spending a lot of time helping clients understand that it is important to tell their own brand story effectively, while at the same time leverage the unique advantage and narrative that comes from being a New Zealand business.

While there are a huge number of opportunities in the region, O’Loghlen said one of the most significant areas of focus over the next three-to-five years would be produce and protein.

“Seafood, beef, lamb, dairy, and really exotic produce like avocados offer an exciting opportunity.

“The fresh food space is going to be fascinating. We are really excited about fresh milk on top of what has been the first round of extended shelf-life milk into China,” he said.

Alibaba’s platforms will allow businesses to sell direct to consumers, avoiding the layers of distributors that have been a hurdle for New Zealand companies in the past.

O’Loghlen said it is really important to recognise the power of the daigou community – especially in Australia and New Zealand.

Daigou is the Chinese term given to buying items overseas on behalf of others. Products are purchased and brought into China by professional personal shoppers – or bought through online channels – with international students often acting as the intermediary.

This grey market is a multibillion-dollar business, and it can be argued that daigou can help put innovative new products on the radar.

Many New Zealand products already have an unofficial presence in-market because an enterprising Chinese New Zealander found it, liked it, and introduced it to their networks in China, said O’Loghlen.

“Chinese in New Zealand are using their mobile phones to tell the story of the region, disseminating that information back to China in real time.

“My colleagues in Europe and North America do not have an equivalent demographic that we do here [in Australia and New Zealand], in terms of percentage of the Chinese population in the large urban centres,” he said.

Chinese consumers looking to buy something from this region are receiving an accelerated experience of the New Zealand and Australian culture, because – more often than not – they know someone here.

“As Chinese authorities tighten up on the grey channels, companies will need to take hold of their own story from that of the daigou community, moving beyond a commodity phase to a more branded presence,” said O’Loghlen.

“This shift will lead to strong brands telling wonderful stories, and that is where Alibaba can help.”

O’Loghlen has spent considerable time living and working in China, and has noticed the pace of change recently has been more rapid than ever.

“Opportunities are emerging that didn’t exist previously. A lot of new platforms are geared towards small businesses and newer brands.”

Alibaba’s Australasian presence will help to ensure Australian and New Zealand businesses have the information and support necessary to succeed in China and the rest of the world.

“The office here will help businesses in the region understand that the pace of change in China is very different to that of New Zealand – or even Hong Kong or Singapore,” O’Loghlen said.

“I think if you had spoken to people in e-commerce in China several years to premium Kiwi producers

“Now we have a number of bonded warehouse opportunities. For example, Alibaba’s Taobao Global taps into a network of daigou, who ship their products through a bonded warehouse, and are as far away from a grey channel as you can imagine.”

With people in-market, Alibaba can not only help companies in Australia and New Zealand stay on top of the emerging sales channels, but also bridge the cultural chasms and language barriers that come with doing business in China.

Alibaba has made a number of investments in offline department stores over the past 18 months, in a push to merge its online platforms Tmall and Taobao with bricks-and-mortar (offline) shopping.

A surge in mobile internet usage and the growth of big data capabilities is driving this new “omnichannel” shopping experience as a way to better meet consumer demand.

The most recent move by Alibaba was a strategic partnership with Bailian Group, one of China’s largest retail conglomerates with 4700 stores across 200 cities and autonomous regions.

The two companies plan to leverage their respective consumer data to “explore new forms of retail opportunities across each other’s ecosystem,” integrating offline stores, merchandise, logistics, and payment tools to deliver a better overall shopping experience.

By combining membership data, they will be able to introduce technologies including geo-location, facial recognition, and big-data driven sales and customer management systems.

“When we talk with people here, a lot of people ask us if this is like Amazon, or what the analogy is,” said O’Loghlen. “But it is actually something very unique to China.

“These investments in offline allow consumers to experience brands. There will be a blurring of the lines in promotion online and offline.

“People [in China] are used to scanning QR codes or buying things offline and then receiving a promotion online, or vice versa,” he said.

“We have to be able to educate people very quickly about these things, because by the time it gets reported, your competitors may be up and running on the platform.

“It doesn’t require huge marketing dollars. A huge number of these promotions rely on livestreaming, which is the communication channel of choice at the moment in China.”

Marketing via livestreaming maintains a degree of exclusivity for the consumer — if they don’t tune in, they will miss out. Companies can tell their story in a more authentic way, better connecting with buyers and consumers.

“For Singles’ Day (November 11) there were 60,000 live streams between October 21 and November 11 featuring celebrities from China and overseas.”

O’Loghlen explained that if he and I were to have this same conversation in another 12 months, China will likely have moved on from livestreaming – perhaps to augmented reality or virtual reality goggles. That is not as a far-fetched as it seems. Last year the augmented reality game Pokemon Go took the world by storm.

Alibaba’s Buy+ virtual store also made its public debut in July last year at the Taobao Maker Festival in Shanghai. Buy+ – although still in beta – allows consumers to shop and browse products in a virtual environment using a headset with 360-degree views and two hand controllers. Shoppers can even have virtual models showcase apparel and accessories on a catwalk.

Ma has spoken about his aspirations for a frictionless, borderless future for e-commerce. Central to that is the establishment of an “electronic world trade platform” (eWTP), that will use the internet to remove trade barriers and allow all manufacturers and brands – regardless of their size – to have the same opportunity to enter a consumer market.

“Australia and New Zealand are both in the driving seat to take a leadership role in the eWTP rollout,” said O’Loghlen. “Moving on from the rules of the WTO and the rules of global trade will allow small businesses and developing nations to tell their stories and trade together effectively using e-commerce.

“We want to democratise the playing field for trade. A lot of people are really excited by that vision.”

A long lasting connection
Alibaba founder Jack Ma was one of the first foreign business heavyweights to meet with Donald Trump following his election victory.

In contrast to President Trump, Ma is an advocate for global trade, and says the best advertisement for globalisation is the success of one company trading with another, and hiring more people in the process.

By expanding into Australasia, Ma said Alibaba was making it easy for our businesses “to do business anywhere”.

At the opening of Alibaba’s Australasian office, Ma described the region as one he holds a long connection with.

“Australia will always have a special place in my heart and that’s why I’m so pleased to come back to contribute to supporting Australian businesses and create opportunities and jobs in a country that has meant so much for me.”

China’s richest man electrified a luncheon for former Prime Minister John Key in Beijing last April when he thanked New Zealand “for your benefit to the whole planet”.

He revealed then that 20 of Ma’s former colleagues at China’s e-commerce giant loved New Zealand so much they have retired here.

In the 1980s when Ma was 12 years old, he introduced himself to Australian Ken Morley — who was visiting China on a family holiday — in an effort to improve his English.

Ma befriended Morley’s son, who subsequently brought him to Newcastle in Australia on his first international trip.

Ma has said the time spent in Australia when he was young changed his view of China and its relationship with the world. “I am very thankful for Australia and the time I spent there in my youth. The culture, the landscape and most importantly its people had a profound positive impact on my view of the world at that time,” he said.

Last month Ma, who according to Forbes is worth US$28.2 billion and is the second wealthiest man in China, gave A$26.4 million to establish a scholarship at the University of Newcastle.

The Ma & Morley Scholarship Programme will help establish networks between the two countries, as well as provide practical training to equip beneficiaries for leadership in the global environment.