How Christopher Luxon can improve on a C

I’m unsure what standard our Prime Minister, Christopher Luxon, used to define a C-lister (RNZ: Christopher Luxon gets a 'C' on Japan trade trip), but it appears to be by size. If that’s true, consider who he is talking about. 97% of businesses in New Zealand have fewer than 20 employees. Maybe these would rank even lower on Luxon's scale of business relevance. But let's have a look at some one-time C listers:

• Rod Drury started Xero at his kitchen table. I once overheard him pitching to an investor in Café Arabica in Wellington. Xero now has a market capitalisation of $20 billion.
• Sir William Gallagher pranked someone with an electric fence and built Gallagher Group from his garage. It's now worth $100 million.
• Sir Ian Taylor started Animation Research Ltd (ARL) small in Dunedin and grew it into a global leader in 3D graphics and animation. Consequently, we can watch ourselves win and then lose the America's Cup in cool 3D rendering.

If it's unclear, the laws of physics are in play here. You need to start a small business to get a medium, then a big business (I guess, an A-list business).

The A-List According to Luxon

But let's look at the A-listers as Mr Luxon defines them. One presumes Mr Luxon would put Air New Zealand on his A-list, having been a past CEO. In 2001, the New Zealand government stepped in with a NZ$885 million bailout package, taking an 82% stake in the airline to prevent its collapse. And in 2020, an additional NZ$900 million loan facility was provided to manage the pandemic. We may not begrudge Air New Zealand these interventions. Still, I don’t think the businesses referred to above, and other C-listers, enjoyed this level of support.

Similarly, Fonterra (a clear A-lister, as company representatives accompanied Mr Luxon on his recent trip) would not be the global company it is today without Government intervention. Achieving this through nothing less than legislation through Parliament: the Dairy Industry Restructuring Act 2001 (DIRA).

Again, we may not be unhappy with Fonterra. I am sure it has been a successful way to help grow NZ Inc. However, Fonterra plans to sell its Australian and New Zealand manufacturing assets and global consumer brands. It is unlikely that any New Zealand company is large enough to acquire them. This is a government-made own-goal. One of our country’s few unique advantages is our primary produce. Adding value to them through manufacturing is where we need to see our future. But thanks to an A-lister focus, that opportunity is slipping away offshore.

A-List Obsession?

I worry that our obsession with an A-list focus will be our undoing. It's only when you're in the top 2% of businesses in NZ that you have more than 50 employees. From my experience of helping run large and medium tech sector NZ companies and talking to other similar tech sector business leaders, doing business with New Zealand's top 2%, or A-list companies, is becoming increasingly difficult, if not impossible.

There is some supposed wisdom that A-list organisations must do business with other A-listers. To quote and sanitise an otherwise crude industry phrase, elephants don’t fornicate with squirrels.

Government Support for Small Businesses

To give credit where credit is due, the New Zealand Government is required to help small businesses engage with all Government (A through C) Departments through procurement rules that ensure the same opportunities are available to all, regardless of the organisation's size. The evidence is clear that this is successful. Many small businesses service large and complex government organisations successfully. This is not achieved through any favouritism but accessible and equitable opportunities to bid for work, followed by fair and reasonable commercial terms that are equally provided to large or small organisations. (For the record, government procurement has its challenges, but it is working more than it is failing.)

To demonstrate this further, we can do a roll call of failures of large A-lister tech company contracts: INCIS, the Integrated National Crime Information System for NZ Police, JBMS, the Joint Border Management System for NZ Customs, and NZ District Health Boards' NOS, National Oracle Solution (in itself a reminder to avoid hubris by not including your company name in your client’s project title). These failures cost NZ Inc $98, $75, and $100 million, respectively. I’m trying not to name names here, but these are examples of the large A-list fornications gone wrong. The point is, A-listers are not necessarily A-players.

Barriers for Smaller Companies

I know throwing stones is not helpful, but for David to show his muscle, he needs at least an opportunity to meet with Goliath.

Commercial and legal terms suitable for large Government departments, including those with complex security and compliance requirements, should be appropriate for the NZ A-list commercial companies to engage with NZ C-listers. However, we are increasingly seeing A-list companies present unbalanced and excessive terms and tactics that are difficult to navigate and negotiate for C-listers. Furthermore, Offshore A-list competitors are increasingly dominant through activity outside their core value proposition, with competitive strategies around pricing and bundling that hinder, if not prevent, C-list competition. They may offer C-listers “partnerships”, but their terms have eroded, leaving the smaller C-list partners with little options but to be in the tent rather than sitting outside.

Successful Engagement Strategies

However, we know from work in Government that it is both a successful and viable strategy for large NZ commercial organisations to engage smaller NZ companies. Furthermore, research shows New Zealand has relatively few legal cases involving business contract disputes compared to other OECD countries. We have a good legal and commercial framework and a business culture favouring mediation and arbitration over litigation.

Leveraging New Zealand's Competitive Advantage

This is an important insight. By important measures, New Zealand is one of the most trusted and successful places to do business globally. What this means is that we have a competitive advantage over other countries, which should translate into greater business productivity. That is especially the case when NZ businesses do business with each other. But we often fail to take advantage of it. Instead, many C-list companies experience excessive and unnecessary barriers that prevent otherwise savvy and successful businesses in New Zealand from doing more business directly with large companies in New Zealand. And we wonder why our business productivity is slipping backwards.

Call to Action for Government and Big Businesses

Big or small, I hope that our current coalition Government will see that the opportunity for our economic growth and long-term economic health is theirs to enable. Encourage greater direct and broad inter-business economic activity between small, medium, and large New Zealand businesses. And I hope that larger NZ businesses see this for themselves, too.?

Governments stepping in and helping a flagship airline or restructuring the entire dairy sector may seem bold and good business, but this does little for the rest of the economy if these minted A-listers do not then allow their smaller business siblings to share in their success—not through favouritism but through the real opportunity to take advantage of our special collaborative business culture and, because of it, the ability to be more productive if we are working together directly.

Let's stop fornicating around with lists and start helping each other grow a bigger economy, enabling everyone to benefit from our shared success. A+