New Zealand is a country located in the Southern Hemisphere with total area of 268,680 sq km and population which totals 4,115,770 people. The country has temperate climate and plenty of natural resources, including great amounts of natural gas and oil. New Zealand is parliamentary democracy ruled by the British Monarch and the Parliament. Currently, New Zealand demonstrates moderate but stable GDP growth (3.2% in 2007), as well as quite low levels of inflation and unemployment. Tourism and services are the main sectors contributing to GDP, the main exports are agricultural and forestry products, and the main imports are equipment, machinery and petroleum products. The country can be characterized with multiculturalism and relatively low social homogeneity, because the population consists of several dominant and a great amount of minor ethnic groups. Despite some negligible negative factors, New Zealand can be considered a promising country for investing, establishing a company or doing business with.
The Specifics of Business Environment of New Zealand
In terms of modern economic integration and globalization, a great deal of American investors is looking for opportunities to enter foreign markets and launch new international companies or enterprises. The market of New Zealand, a country located in the Southern hemisphere alongside Australian continent, is one of the most attractive options. Business environment of New Zealand can be characterized with high level of trade and financial freedom, almost total absence of corruption, developed national infrastructure, effective and transparent system of governmental regulation of national economic sectors, liberal fiscal system, as well as very high market flexibility and international competitiveness
As the result of implementation of effective economic reformations, New Zealand developed a stable and efficient economic environment oriented on international business collaboration. The country’s government supports overseas investors and offers them a series of business advantages and economic liberties for doing business in domestic market. This research studies business environment of the country from different sides and perspectives, including geographic, political, economic, social and cultural background. Also, it presents some recommendations for those businessmen who are thinking about investing their capitals in the economy of New Zealand.
Geography, Climatic and Topographic Features of New Zealand
New Zealand is an island country, located in the South Pacific Ocean in about 2,000 km southeast of Australian continent. It consists of two main islands, the North Island (about 113,000 sq km) and the South Island (about 155,000 sq km), separated by the Cook Strait (about 3,600 m), and a number of small widely scattered islands, like the Antipodes Islands, the Auckland Islands, the Bounty Islands, Stewart Island, etc. New Zealand is the largest land territory among Polynesian island countries. Total area of the country is 268,680 sq km, which is about the size of Italy or the state of Colorado. The country stretches for about 1,600 km in length and for more than 300 km in width (CIA, 2008).
Almost all the land territory of the country is made up by two main islands. The North Island is 830 km long; it is volcanic with active central plateau. There are numerous unique thermal areas, covered with natural hot springs and geysers. Mountains called Southern Alps are located on the South Island. They run along its western coast for about 500 km and have the highest point at Mount Cook (3.800 m). Landscape of this part of the island is famous for numerous glaciers and peaks, spectacular lakes and fiords in the valleys.
Therefore, mountainous areas are dominating throughout New Zealand. As the country is located on the western rim of the Pacific tectonic plate, its whole territory is under the influence of intense geothermal activity, resulting in frequent earthquakes. More than 75% of the country’s area is located 200 m above the sea level. Coastline of New Zealand totals 15,134 km. The Pacific Ocean lies to the east and north of New Zealand, and the Tasman Sea lies between New Zealand and Australia. The longest river is the Waikato (400 km) located on the North Island. The largest source of water is Lake Taupo (607 sq km).
The climate of the country can be characterized with sharp regional contrasts. It is mainly subtropical to the north and oceanic temperate to the south, with annual average 2,000 sunshine hours. Therefore, the North Island has warmer and milder climate with average winter temperature about 52F and summer temperature about 70F. The rainfall level of the west is higher then the one of the east, and its annual average is about 125-140 cm. The South Island is colder, with 43F average temperature in winter and 59F average temperature in summer. Because of the high mountains, annual rainfall level varies: it changes from 65 cm on the east to 300 cm on the west of the island (CIA, 2008).
Due to large mountainous terrains, New Zealand has relatively small percentage of arable lands, only about 7%. Other land use is approximately the following: 30% of the territory is covered with forests and 50% is high mountain lanes and meadows which are used as pastures for sheep and cattle, especially around New Plymouth and Dunedin. It is necessary to mention that despite great opportunities for farming and cattle farming, agriculture contributes only around 4.5% GDP.
The country is rich with numerous natural resources, including iron, coal, sand, timber, gold, marble and limestone, etc. That is why mining plays an important role in the county’s economy and contributes greatly to total GDP. Besides, New Zealand has substantial natural gas reserves, mainly in the Taranaki Basin, which are estimated in the beginning of 2006 as 29.67 billion cu m. At that, the country is not involved neither in exporting or importing of natural gas. Annually it produces 3.9 billion cu m and consumes 3.7 billion cu m of this resource (estimated 2006) (CIA, 2008).
In addition, New Zealand possesses great reserves of oil, which are estimated as 55.5 million bbl (2006). A great deal of the reserves are still under exploration, but the country’s government supports oil companies and offers favorable market conditions for them. The country produces 25,880 bbl/day and 15,720 bbl/day goes for the exports. 140,900 bbl/day are imported, so daily consumption of oil exceeds 156,000 bbl/day (estimated 2006). As a result of tectonic activities more and more oil and gas reserves appear, but due to hard geographical conditions it is not always profitable to continue explorations (CIA, 2008).
Population Structure and Homogeneity
According to the information dated July 2007, the population of New Zealand totaled 4,115,770 people. At that, population growth rate is estimated 0.95%. Children below 14 make up 20.8% of the country’s population and people from 15 to 64 make up 67.3% of the population. In the majority of age categories male population slightly dominates female population (sex ratio is 1.011 male(s)/female).
Ethnic composition of the country’s population is the following. About 70% of New Zealanders originate from the families of British or European immigrants. About 7.9% of total population is local indigenous population Maori. People of Asian origin make up 5.7% and Pacific Islanders make up 4.4%. Finally, mixed and unspecified people make up 11.8% population. The majority of the population is Christians, but Maori people have their own religious beliefs. Also, about 26% of New Zealanders are atheists. Therefore, social culture of the country has relatively low level of homogeneity (CIA, 2008).
Brief Historical Overview
It is supposed that indigenous population of New Zealand, the Maoris called the Tangata Whenua (people of the land), came to these islands from the Cook Islands and were led by a famous traveler Kupe. He was the first to land on modern New Zealand and called those lands Aotearoa, “Land of the Long White Cloud”. Ancient Maori tribes were savage groups of people who practiced cannibalism and different violence.
The first European who stepped on the territories of New Zealand was a Dutch voyager Abel Janszoon Tasman. In 1642 he landed his ship to the North Island and started exploring the area, which received the name Staten Landt (Nieuw Zeeland). In the second half of the eighteenth century famous captain James Cook arrived to New Zealand and also contributed greatly to exploration of the lands. In 1840 after signing the Treaty of Waitangi, the country became a British colony and a great amount of immigrants moved to New Zealand looking for alternative job opportunities and a new life.
The second half of the nineteenth century was marked by a number of clashes and serious military conflicts between the British and indigenous Maori tribes caused mostly by territorial misunderstandings and fraudulent land transactions. In the end of 1860s gold was discovered in the southern parts of the country, and due to massive gold rush the population of New Zealand increased almost twice. Mostly, immigrants from Europe and Asia arrived to work in gold mines (Beachcomber Community, n.d.).
Till the beginning of the twentieth century New Zealand remained a part of the British Empire. During the World War I, the government of New Zealand supported the United Kingdom with military forces, in particular, during the battles on Turkish territories. In 1907 the country received total independence from British domination and started developing own economy and politics. Now New Zealand is an advanced, industrialized and prosperous country, a member of many international unions and organizations, a great contributor to the development of the world’s environment protection programs.
Political System and Environment
The country’s government type is parliamentary democracy and it is based on the system which is currently practiced in the UK. The Parliament of New Zealand is unicameral and has a sole legislative body called the House of Representatives. The Parliament has 120 seats: 69 regional deputies (including 7 Maori representatives) are elected through single-member system, and 51 seats are proportionally divided between the elected parties. Parliament members are elected for a three-year term. The last elections took place in September 2005 and were dominated by two major parties: New Zealand Labor Party (received 41.1%) and National Party (received 39.1%) (Simpson Grierson, 2007).
The Executive Branch is represented by the Prime Minister (currently Helen Clark) and the Cabinet, appointed by the Prime Minister. Queen Elizabeth II is current Chief of the State, who appoints Governor General for a 5-year term to formally rule the country and represent Her interests. In turn, Governor General appoints the Prime Minister and his deputies by the recommendation of the leader of the parliamentary coalition. Governor General has the right to veto the laws passed by the Parliament. Anand Satyanand currently performs the office of Governor General of the country.
Judicial branch of the country includes the Supreme Court, High Courts and local courts. Governor General appoints the judges of the Supreme Court. The country’s constitution is based on current British laws and the British Constitutional Act adopted in 1852. The constitution includes a number of laws and regulations formulating the principles of governmental mechanisms, and the final draft of it was adopted on January 1, 1987. Political capital of the country is Wellington (0.3 mln) located on the North Island and the largest city is Auckland (1.2 mln). (Simpson Grierson, 2007).
During the last decade the efforts of the country’s government were directed on transforming agriculture-oriented economy, highly dependent on the UK market needs, to industrial free market economy, which could compete in the world. A number of changes and reformations helped to improve some economical indexes and fasten technological development in manufacturing and other industries. Lately, a new governmental program of economic development was elaborated, which is aimed on protecting the country’s highly competitive economy from possible consequences of the world’s economic recession connected with the problems in American economy and dollar crises.
According to the reports of 2007, the level of GDP is $112. 6 billion; PPP per capita is $27,300, and real growth rate is 3.2%. As the development of the country’s economy has obvious seasonal character, quarter GDP growth varies: in 2003 it was 1.6% in September and 0.3% in June, totaling 3.5% in the year 2003; in 2005 it was 2.7% in September and only 0.2 in December, totaling 3.2% in 2005 (Statistics New Zealand, 2008). Therefore, the country’s economy demonstrates quite stable moderate growth. In 2007, industrial production growth rate reached 3%. Inflation rate is 2.5% and the level of unemployment is about 3.5%. The main industries are food processing, wood and paper manufacturing, equipment and machinery, banking, tourism, etc. The main agricultural products are wheat and barley, fruit, potato, and also meat, wool, fish, etc (CIA, 2008).
Economic environment of New Zealand consists of private and public sectors. The latter comprises non-profit and profit organizations. Recent privatization of such public sectors as postage and railway transportation helped to improve the quality of public services. Private businesses are mainly small industrial or trade organizations, 80% of which is concentrated in Commonwealth city. Retail trade usually involves small companies selling new and second-hand goods for individual and household use. Large wholesale trade is less developed, but it also brings a lot of income, especially at the expense of the exports.
Labor force in the country is about 2.23 million people, 74% of which is engaged in services, %19 in industry and %7 in agriculture. The employment relations are regulated by the Employment Relations Act (ERA) effective since October 2000. In particular, ERA promotes unions as the only representative organization able to protect collective interests of the employees. According to the Act, every employee can become a member of the union and enjoy its advantages. Nevertheless, this issue requires additional attention and social promotion (Simpson Grierson, 2007).
Monetary unit of the country is New Zealand dollar (NZ$), which was introduced in 1967 instead of the system of pound and pence. National Reserve Bank implements governmental monetary policy, has sole prerogative to issue coins and banknotes and is obligated by the government to keep the inflation level between 0 and 3%. The value of governmental securities is about $28,500 million, which is a good support for monetary and economical balance. Interest rates in New Zealand vary from 8.0 to 9.1%, and mortgage rates vary from 9.3 to 10.5%. The government has quite high public payment debt, which is 18.3% of GDP. In December 2007 the account deficit totaled $13.8 billion, that is 7.9% of GDP (Statistics New Zealand, 2008).
Tourism is a key element of the country’s economy. The majority of labor force is engaged in tourism and related services. Also, these sectors attract a lot of foreign investments and help to develop the regions. It is estimated that tourism annually contributes about $ 16 billion into the economy and generates about $7 billion in foreign exchange. Annually, about 2 millions of tourists from different countries visit New Zealand.
Other important contributors to the country’s economy are fishery and forestry. New Zealand has one of the biggest water areas in the world, which is very rich with different expensive types of fish, mollusks and other sea products. New Zealand’s forestry production and forestry recourses are rapidly expanding, adding NZ$ 1.468 million as forestry export in December 2007 (Statistics New Zealand, 2008).
International Relations and Trade
International trade plays an important role in economic development of New Zealand. The country is a member of the following international unions, programs and organizations oriented on trade and economic development: Asia-Pacific Economic Cooperation, the World Trade Organization, the United Nations Conference on Trade and Development, Organization for Economic Cooperation and Development, and others.
According to the reports of the year 2007, the imports of New Zealand totaled $29.83 billion. More than 20% of the imports came to the country from Australia (estimated as 8.65 billion NZ$), 12.3% of the imports came from the People’s Republic of China (5.59 billion NZ$), 11.8% came from the United States (4.08 billion NZ$) and 9.2% came from Japan (3.95 billion NZ$). Such countries as Singapore, Germany, Thailand, Korea, the UK, and Italy are other important importers of New Zealand.
Three main imported commodities include petroleum and related products (5.98 billion NZ$), mechanical machinery and equipment (5.36 billion NZ$), and various vehicles and accessories (5.14 billion NZ$). Other valuable imported products include electrical equipment, textiles, plastic, machinery, medical and optical equipment, measuring equipment, iron and steel products, pharmaceutical equipment, and so on.
In 2007 the country’s exports totaled $28.12 billion, which is about 22% GDP. Again, Australia is the main export partner of New Zealand, which consumes 20.5% of the exports. The United States is the second largest export partner, covering 13.1% of total export market. Finally, 10.3% of the country’s exports go to Japan, the third largest export partner. Such countries as the United Kingdom, the People’s Republic of China, the Republic of Korea, Germany, Taiwan, Indonesia, Singapore, Philippines and the others purchase different commodities produced in New Zealand.
Agricultural products, such as milk, cheese and butter are the main export products of New Zealand, which in 2007 were sold abroad for 6.2 billion NZ$. Meat and meat products are the second important export products (4.67 billion NZ$) followed by wood, logs and wooden products (2.14 billion NZ$). Also, the exports include such commodities as aluminium products, fruit, mechanical equipment, fish and sea products, electrical equipment and machinery, and others.
Technology and Education
Despite cultural and geographical isolation of the country, current level of technological advancement in New Zealand is very high. The country has a highly developed market of information technology, which is represented by a large number of software and equipment companies, operating mostly for domestic customers. People of New Zealand adopt technological innovations very fast. Nowadays, more than 80% of the country’s homes have computers and about 40% are provided with Internet connection. Scientific and technological researches together with industrial innovations and modernization are considered to be important elements for economic growth and progress.
The country is internationally known as a provider of high standard education. New Zealand has a developed educational environment available both for domestic and overseas students. It includes a great deal of schools, colleges and universities, provided with advanced learning facilities for all academic levels. There are 8 governmental universities and 25 institutes, which offer a variety of academic programs and courses. Since the population of New Zealand is multinational and multicultural, foreign students always feel very comfortable and welcomed (New Zealand Education Guide, n.d.).
Development of the Country’s Infrastructure
New Zealand has very advanced systems of communication and transportation. There are about 3.53 million main telephone lines and about 2.5 million mobile lines in use. Market of Internet users is estimated as 3.2 million users, and there are about 1.4 million Internet hosting companies operating at the market. There are more than 40 TV broadcast stations. Telephone connection is excellent for both domestic and international calls (CIA, 2008).
Due to geographical specifics, the majority of rail roads and highways are located along the coasts. There are more than 4,100 km of railroads, connecting the main cities on both islands. Bus service network is well developed and offers comfortable rides. There are more than 93,000 km of main roads and highways in the country. The average price for car renting of an average type car is NZ$ 80-110 a day, with negotiable competitive prices for longer trips. Besides, rail ferries and Besa Passenger vehicles are available several times a day to travel from one island to the other.
There are 121 large and small airports in the country. Almost all big cities have own airports with domestic and international connections, which are operated by two major airlines, Ansett and Air New Zealand (dominant national operator). International flights are mostly available in the airports of Auckland and Wellington. Domestic flights between large cities like Wellington, Christchurch, Dunedin and Auckland are available every hour. For long international flights Air New Zealand uses the models of Boeing 747 or 767, for short domestic flights – Boeing 737 models.
Ethnicity, Social and Business Culture
Multiculturalism is one of the most significant features of social life in New Zealand. Within the centuries social culture of this country has been developing under the influence of various social customs and traditions of European, American, Asian and Pacific nations. Specialists define four dominant ethnic blocks represented in the population of New Zealand: immigrants of the British origin (Pakeha), indigenous groups (Maori), as well as immigrants from Asian and Pacific countries. Thus, there is hardly possible to talk about uniformity as an element of local culture (Liu, McCreanor, McIntosh & Teaiwa, 2005).
Generally, people of New Zealand are opened and friendly; they often demonstrate sincere interest in other cultures and support foreigners. Since the majority of New Zealanders have European roots, the basics of business culture and the rules of business etiquette are borrowed from European (mainly British) business traditions and can be characterized with a little bit of conservatism. You must shake hands when meeting people. Do not be surprised to see traditional greeting of the Maoris: nose to nose. It is necessary to address people with their last names and the titles until it is offered to use the first names.
For business meetings men should be dressed officially: a dark-colored suit and a tie. Women should prefer a suit or a tailored dress. But general relaxed lifestyle tends to informal dress code: casual clothes are acceptable even for restaurants after business meetings. Due to great amount of rains, one must not forget to get raincoats and umbrellas. It is essential to be always punctual since it is a part of business culture of New Zealand. It is good to be reserved and formal, not to raise the voice and speak clearly. Business meetings usually begin with talking about sports or weather. One must remember to avoid comparing or confusing New Zealand and Australia, because New Zealanders are extremely sensitive to this issue.
Usual business hours are from Monday to Friday 8:30 a.m. – 5:00 p.m. and Saturdays 9:00 a.m. – 12:30 p.m. Banks are open Monday-Friday 9.00 a.m. – 4.30 p.m., post offices are open Monday-Friday 9.00 a.m. – 5.00 p.m. It is popular to have lunch and afternoon tea for business conversations. Dinners are mostly used for social communication and it is better not to talk business at dinner. Do not speak a lot during eating. An unofficial party can be held in somebody’s house, it is better to bring some gift, like a bottle of wine or flowers. It is polite to cover the mouth when yawning and not to chew a toothpick on public. It is better to ask for permission before making a picture of someone.
Shops are usually open 9.00 a.m. – 5.30 p.m. from Monday to Friday, supermarkets and stores are generally open till 10 p.m., some of them work 24/7. Petrol and service stations are open 24/7. Taxi services are very popular and relatively cheap. Tipping is not welcomed. Buses, trains and planes usually have modified weekend schedules. Excellent quality hotel services are available throughout the country, and there are almost no seasonal price fluctuations. Public Holidays include traditional Christian holidays as well as some national ones: for example, Independence Day on September 26, and others.
New Zealanders are found of outdoors activities and participate in a wide range of leisure activities and sports, the most popular of which are golf and rugby. The other popular entertainment is cinema. There are about 340 cinema theaters around the country and an average New Zealander goes to cinema 4-5 times a year. The country’s cuisine is very similar to European and Asian ones. New Zealand is known for excellent lamb sticks and mutton chops. There are also high-quality wines and cheeses, a huge variety of superb seafood, which is plentiful year round (IBC, University of Dallas, 2003).
Therefore, the main elements of New Zealand business environment are favorable for the U.S. businessmen and companies to start operating in the market of New Zealand. Distant geographic location of the country and availability of stable and efficient export-import connections between New Zealand and Australia make the effectiveness of possible exports of the goods from the U.S questionable. However, investing the capitals or starting a company in New Zealand is a very attractive opportunity for American businessmen.
When making a decision about possible entering the market of New Zealand, such benefits as availability of inexpensive land and natural resources, stable economic growth, high level of economic and financial freedom, qualified workforce, highly developed infrastructure, etc, must be considered. Governmental support of foreign investors is a very important positive factor, too. At that, there are certain risks connected with imperfections and misbalances in financial and fiscal systems, as well as with the necessity to continue governmental reformations.
Finally, the main recommendations for those American capital owners and entrepreneurs, who want to establish own company in New Zealand, are (1) to study market opportunities thoroughly, (2) to find trustable experienced business partners or consultants in New Zealand and (3) to learn more about the specifics of business culture of this country in order to avoid possible cross-cultural difficulties.
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