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Manufacturing – an overview

by Ian Hunter

Savvy design puts some New Zealand manufacturers’ products in a class of their own. Goods manufactured for export range from yachts to designer clothing to global positioning systems. Food tops the list of manufactured items, including dairy produce, beer and chocolates – one smart manufacturer exports steamed puddings to the UK.


Early manufacturing

Items made by Māori

Māori made flax and other leaves into fibre, rope, fishing nets, kete (baskets), mats and clothes. They fashioned tools and weapons from timber, stone, shell and bone and carved waka (canoes) from timber. They made houses from timber, rushes and other plants. Food was preserved in fat, dried or fermented.

Manufacturing from 1840

In the 1830s and 1840s Europeans had processed whale oil at shore-based stations, and built boats. Manufacturing developed from the 1840s onwards. European settlers demanded manufactured goods that they had enjoyed in their home countries, such as clothing, crockery, wines, beer, biscuits, bread, confectionary, newspapers, and boots and other leather goods.

Manufacture of some of these goods required sophisticated techniques. Because they were not able to be produced easily or cost-effectively in New Zealand, they had to be imported. Other manufactured goods – bread, beer, clothing and confectionary for example – could be readily made locally. They provided ready opportunities for new migrants, who set up firms to produce these goods and supply the growing community.

Factors boosting manufacturing

Factors significant in this stage of New Zealand’s manufacturing history were:

  • many industries set up in the mid-19th century did not require significant capital – a small brickworks, tannery or clothing workshop could be opened on limited funds
  • many settlers had been apprenticed in manufacturing in England and elsewhere, and they understood production practices and had the skills to make goods
  • settlers required manufactured goods in large quantities – houses, shops and factories had to be built, and required milled timber, joinery, bricks, glass and ironwork in increasing quantities.

A hard life

 

Early manufacturing wasn’t always easy. After numerous attempts to produce paper failed, two paper mills got going in 1876. One entrepreneur, who had struggled for years to establish his mill, put it on the market a month after going into production. The others persevered but found their mill did not flourish, and sold it in 1884 for £5,000, a fifth of its cost.

 

Local markets

Demand for goods grew steadily in the 1850s and early 1860s, and then rapidly from the 1870s as migrants flooded in and the population doubled.

The accelerated demand for goods, combined with New Zealand’s limited transport and communication infrastructure, meant that early manufacturers served their local area. Timber mills, joinery shops, brickworks, printers, boot and shoe factories, and coachworks were established to supply the needs of their town and its immediate neighbours. Few of these manufacturers aimed to sell further afield.

Boom in the 1860s

The 1860s gold-mining boom buoyed manufacturers. Some, like Dunedin engineering firm A & T Burt, were able to expand their businesses rapidly. The rapid increase in population also created a demand for housing and amenities.

The 1867 census showed 406 manufacturing plants. Flour mills, breweries, sawmills, brick and tile factories, and clothing and boot manufacture were the main types of operation.

To encourage greater depth of manufacturing among specific industries, the colonial government instituted bonus schemes from the late 1860s. The schemes gave a financial reward to the first company to set up a working manufacturer in a particular sector. The production of paper at Woodhaugh in Dunedin, and refined sugar on Auckland’s North Shore, both began in part because of a government bonus which, when won, provided some capital.

Railways, telegraph and migration, 1870s

Improved communication in the 1870s, promoted through Julius Vogel’s public works and immigration scheme, pumped £14 million (over $1.6 billion in 2009 terms) into the New Zealand economy. The scheme funded the construction of railroads, public buildings, schools, harbours and bridges.

The boom in activity stimulated manufacturing plants that supplied construction materials and engineering goods.


Manufacturing boom, 1880s and 1890s

Boom during depression

The 1880s has been described by some economic historians as New Zealand’s ‘long depression’. As markets, credit and purchasing power contract in a recession, manufacturing should have faltered. But instead of shrinking in number or experiencing factory closures, New Zealand manufacturing did the opposite.

Between 1881 and 1891 the number of factories in New Zealand rose more than 56%, while industrial employment increased 66% – almost three times faster than the population growth over the same period.

Why did this happen? Prices were falling, especially in property and commodities, which meant that purchasing power increased. Continuing population growth meant there was a growing market for manufactured goods. At the same time, new industries, such as hydraulic gold mining, dairy processing and meat freezing, added entirely new forms of industrial endeavour.

From import-intensive to export-led

Because of its continuing growth, manufacturing during the 1880s had a noticeable import substitution effect. Larger domestic markets and an oversupply of labour in some towns helped make local production competitive with imports. New firms began producing sugar, cement, footwear and coaches, reducing New Zealand’s need to import these and other manufactured items. Increased industrial capacity was an important element in moving New Zealand from an import-intensive economy (as it had been up to the 1880s) to an export-led economy, as it was from 1887 onwards.

Innovation

Innovation was a hallmark of early New Zealand manufacturers. In many cases, an entrepreneur manufactured a new product that broke into the existing market, resulting in a successful business. Examples include Henry Shacklock’s popular Orion stove, which burnt local lignite coal effectively, and Thomas Edmond’s baking powder.

Getting heavy

 

When imported machinery wasn’t big enough, heavy enough or loud enough, manufacturers Alfred and George Price would solve the problem. Their ‘Big Pump’ drained mines, replacing an Australian pump that was too light; their timber jack was a heavy lifter, used in preference to a Belgium import; and their firebell was not only loud but ‘of excellent tone’, and replaced one of English manufacture.

 

Value of manufacturing

By 1900 New Zealand’s manufacturing output was worth £17 million (over $2.7 billion in 2009 terms), produced from 4,228 ‘manufactories’. Of this, 24% was consumer goods (food, beverages, footwear, wood products, saddlery and light metal items), just under a third was agricultural and building equipment, and the remainder (about £4 million) was from processed agricultural products for export such as frozen meat. This compares with £3.7 million earned from exporting wool.

Size of manufacturers

The majority of New Zealand’s early manufacturing plants were small or medium-sized, staffed by the entrepreneur and a few staff. The average staff of New Zealand manufacturing plants in 1900 was 13.

There were notable exceptions. The biggest factories in New Zealand were in the woollen industry (average size 169 staff) and the clothing industry (average size 120 staff). Some individual employers had larger concerns, such as the Chelsea sugar works in Auckland with over 250 staff, and Hallensteins clothing factory in Dunedin, with over 400 staff.

In 1906 the manufacturing workforce was 56,359 strong, of which 14,657 (over a quarter) were in Auckland.


Early 20th century manufacturing

Made in New Zealand

The 20th century saw the establishment of new varieties of manufacturing in New Zealand. New consumer products such as electric lighting, electric ranges, radios, gramophones, sewing machines, motorcycles, bicycles, automobiles and ready-made clothing entered daily life.

At the beginning of the century many of these goods were imported by agents on behalf of an overseas manufacturer. As the century progressed there was a marked trend toward the domestic manufacture of these items.

First World War

The First World War contributed to the trend to local manufacture. Some businesses such as boot and shoe factories, and leather manufacturers, found their products absorbed by military contracts rather than retail markets. Other manufacturers prospered as many importers found obtaining reliable supplies from overseas difficult, and switched to local suppliers.

In the years that followed the war, a number of businesses established their own factories to avoid supply difficulties. The Farmers Trading Company, Fletcher Construction and Winstone Wallboards were amongst them.

Getting bigger

In the 1920s, as motor transport became common and roads improved, supplying remote townships from centralised production facilities became feasible. In some industries larger factories were built to take advantage of the economies of scale that resulted. The printing industry and the brewing industry were examples of this. In both cases, mergers and acquisitions saw the development of larger and larger plants, the products of which replaced goods from smaller manufacturers.

Overseas manufacturers

Until the 1920s many overseas firms used New Zealand-based agents to represent their interests. In 1921 for the first time the three biggest urban areas all had more than 100,000 inhabitants, and with larger urban areas international manufacturers began locating production in New Zealand.

In 1936, with the marked expansion in licensed radio users in New Zealand, Philips established a local manufacturing operation. British chocolate manufacturer Cadbury, in an amalgamation with Dunedin producer, R. Hudson and Co., began producing Cadbury chocolate in New Zealand in 1930. Lewis Berger and Sons, the British paint manufacturer, began production in New Zealand in 1923, and Colgate Palmolive began making toiletries in 1939.

A slippery business

 

Australian firm Felt and Textiles set up New Zealand Slippers in 1929. Slippers, then a high-priced, high-value product, had previously been imported. The new business did well. By the late 1940s Felt and Textiles had several New Zealand businesses, 21 manufacturing sites, and produced 20% of all wool products made in New Zealand. In 1969 the businesses became Feltex New Zealand, a leading carpet maker. It slipped into receivership in 2006.

 

Motor industry

The motor industry followed a similar pattern, with the arrival of overseas firms in New Zealand in the 1920s and 1930s. In 1926 General Motors opened a plant in Wellington, and in 1936 Ford Motor Company established its production facility. They did not build cars from scratch, but assembled them from semi-knocked down (SKD) or completely knocked down (CKD) components.

In 1937 NZ Motor Bodies began producing all-steel truck cabs. They were the first business to manufacture steel bus bodies in New Zealand, and provided 2,500 bodies for the army and airforce during the Second World War. By 1938 the motor building and repair industry was the second largest employer of labour in New Zealand.


Protection in the mid-20th century

Imports controlled

Faced with declining export returns and a foreign exchange crisis, a Labour-led government introduced foreign exchange controls and import licensing regulations in 1938. The regulations prohibited the import of any goods except under licence or where exempted.

Importers had to apply to government for both an import licence and the foreign exchange needed for purchases. The quota – the amount that could be imported with a licence – was set on the basis of imports the previous year.

Ongoing protection

Although the import licensing system and foreign exchange controls were supposed to be temporary, they remained in place for 50 years. Scarcity during the Second World War further restricted imports of finished consumer goods in the 1940s. While other countries introduced such measures in wartime, New Zealand was the only developed country to maintain comprehensive licence controls of manufactured imports long into peacetime.

Import controls were reduced during the 1950s, but a further balance of payments crisis in 1958 saw them reimposed. Import restrictions remained in force, in part to ensure full employment, through the 1960s, 1970s and into the 1980s.

Import substitution

As a result of protection from foreign competition, import substitution became a driving force in New Zealand manufacturing. Factories were set up to make goods that had previously been imported. For example Childswear produced children’s clothing, and HMV (NZ) and Fisher and Paykel both produced appliances and whiteware. Many of these new manufacturers had previously been importers, including Fisher and Paykel.

Post-war manufacturing

Important in the post-war period was the demand for electrical and large appliances. Disposable incomes were rising rapidly in New Zealand. Consumers demanded a range of appliances that during wartime had been difficult to come by or not affordable.

Get rich easy

 

Amongst themselves, manufacturers described possession of a licence as a licence to print money. Any reasonably useful or attractive item was virtually guaranteed a market.

 

Manufacturers, some working in collaboration with overseas concerns, filled this gap. Radios, powered lawnmowers, fridges, cookware, electric stoves and bicycles were produced in increasing numbers. Clothing manufacturers and textile firms also increased in scale.

Benefits of protection

During this period local manufacturing proliferated and broadened. Protection encouraged the development of new manufacturing technologies using synthetics and electrical technologies, as well as the expansion of existing sectors. Plastics manufacturers, toy manufacturers, textile firms, battery, rubber-compound, and electronics manufacturers, clothing producers, tobacco manufacturers, and construction component manufacturing firms all grew in number.

These products continued the pattern of import substitution, replacing imported items with locally manufactured goods. Manufacturing flourished – output rose 30% in 1949/50.

Market structure under protection

The government policed costs, profitability and pricing of manufactured and retailed goods. During and after the Second World War price rises had to be approved by a pricing tribunal, and increases in profitability were closely monitored.

Despite such measures, New Zealand consumers paid excessive prices. Though New Zealand producers could manufacture goods, often the imported version would have been cheaper if allowed in.


Manufacturing in the 1970s and 1980s

Export attempt, 1970s

In the 1970s regular trade missions overseas by leading manufacturers attempted to increase the export focus of domestic producers. Despite some success, most manufacturers continued to produce primarily for the protected domestic market.

The moves toward exporting were partly triggered by a recognition that New Zealand could not maintain its high standard of living by relying solely on overseas earnings from primary produce, such as dairy products and meat.

Recession and response

The rapid rise in oil prices in 1973 imported inflation into the New Zealand economy, sparking a recession that lasted into the 1980s. In response, the government attempted to reduce dependence on oil imports. ‘Think Big’, a series of industrial projects including manufacturing facilities, was an important element of this. The initial investment in these projects was very large, and might not have been feasible without government support.

There were considerable extensions at the Glenbrook steel manufacturing plant, the Tīwai Point aluminum smelter and the Marsden Point oil refinery. The Mobil synthetic petrol plant at Motunui, a methanol plant at Waitara, and an ammonia-urea plant at Kapuni were built. The synthetic fuel, methanol and ammonia-urea projects introduced new industries to New Zealand, while the steel, aluminium and oil refinery projects increased capacity.

In 1982 the government imposed an across-the-board wage and price freeze, in an attempt to control inflation. This reduced profitability in the manufacturing sector, which found that while some costs such as overseas inputs increased, they could not raise their prices.

CER, 1983

In the late 1970s the government had begun a cautious and limited liberalisation of the import licensing system. The 1983 the closer economic relations agreement (CER) with Australia provided for the removal of most tariffs by 1988 and the removal of import licences and quotas by 1995.

Permission for peas

 

Confronted with a free trade agreement signed by the Australian and New Zealand governments in 1965, local manufacturers read the fine print about exemptions and developed their use of trade barriers. They were so successful that Australian manufacturers joked about needing cabinet permission to get a shipment of frozen peas into New Zealand.

 

Manufacturers had opposed CER, but in 1986, three years after it came into force, Australia had replaced Japan as the largest market for New Zealand goods. The trade balance had moved from almost four to one in Australia’s favour to near equality. Manufactured goods were the most important part of that increase.

Loss of protection

By the time CER was introduced manufacturers had accepted that protection was going to be dismantled. The pace of change was not decided, but manufacturers expected it to be gradual.

The Labour party, previously the initiators of industry protection, won the 1984 election and rapidly deregulated. Manufacturing was a primary target. The CER timetable sped up, with targets reached five years early. The immediate effect of the freeing up of imports and deregulation of the financial and transport sector was that the cost of goods to New Zealand consumers was reduced.

Shrinking manufacturing

Manufacturers whose business model relied on the ability to pass costs on to the buyer faltered. Many, including clothing, electrical goods and home appliance manufacturers went out of business. Within 10 years, no cars or television sets were manufactured in New Zealand.

New Zealand also lost some manufacturing capacity through businesses moving production to Australia or elsewhere. Much of New Zealand’s clothing industry transferred its manufacturing to Asia or Fiji where labour was cheap.

Triple whammy

 

Many areas were hit by a triple whammy of recession, manufacturing withdrawal and state restructuring. The West Coast, for example, lost jobs in manufacturing, coal mining, forestry, telecommunications and roading.

 

Some regions were particularly hard hit. Between 1987 and 1990 Northland lost 18% of its manufacturing capacity, Whanganui 20%, Horowhenua 18%, Wairarapa 25%, the West Coast 19%, South Canterbury 21%, and Clutha and Central Otago 35%.

The effect of the loss of protection was compounded by a deep recession which lasted from 1987 to 1991, affecting the profitability of many firms.


Global focus

Looking outward

Spurred on by deregulation, manufacturers were increasingly focused on exporting and niche markets in order to remain competitive. In the 1990s they increasingly pursued American and Japanese management techniques, such as total quality management (where every phase of manufacture is monitored for quality) and just-in-time inventory systems (where inputs to manufactured goods are purchased only when they are needed) to improve industrial competitiveness. Alongside these initiatives was an industry-wide push to international quality systems, such as ISO 9000 series standards.

In the mid-1990s, as the sector started expanding again, these measures, coupled with wage bargaining and labour practices, boosted manufacturing.

Going elsewhere

Manufacturers continued to leave New Zealand. In a matter of months in 1996, for example, Arnotts Biscuits, S. C. Johnson Wax, Caroma Industries, Reckitt and Colman, and Johnson and Johnson all moved from Auckland; Cedenco moved from Gisborne; Helene Curtis moved from Christchurch; and Corfu Jeans left Thames. Within New Zealand Auckland remained the dominant location of manufacturing.

Manufacturing in the early 2000s

New Zealand manufacturers in the 21st century have adapted to deregulated economic structures. While most do not export – over 90% of exports come from under 5% of manufacturers – they no longer rely on protection to survive.

Manufacturing’s contribution to New Zealand’s gross domestic product grew steadily from 2000 to 2006. From 2006 growth faltered, and an international and domestic recession began to affect earnings in both export and local markets. Throughout the period the manufacturing workforce continued to decline as a percentage of the total workforce.

Exporting

In the early 2000s New Zealand manufacturing included large-scale manufacturing works in forestry, food and dairy processing, and small and medium-sized firms that traded internationally, albeit in niche or specialist markets. For example New Zealand clothing manufacturers offset high production costs with a focus on manufacture of designer clothing.

In the food-processing and beverage industries traditional larger industry producers, such as Fonterra and Frucor, flourished. Much smaller, specialty manufacturers emerged delivering products as diverse as ice cream, organic juices, cheeses and even steamed puddings into international markets.

In older industries, such as boat building, engineering and construction products, New Zealand manufactures pursued innovation or design-led business strategies. They held a point of difference against other competitors and delivered world-class products.

In the early 2000s goods ranging from power-surge protection units to vodka, global positioning systems, steam boilers, children’s chairs and superyachts were all exported.


Hononga, rauemi nō waho

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How to cite this page: Ian Hunter, 'Manufacturing – an overview', Te Ara - the Encyclopedia of New Zealand, http://www.TeAra.govt.nz/mi/manufacturing-an-overview/print (accessed 24 August 2019)

Story by Ian Hunter, published 11 Mar 2010