NZ Tech

Written By: - Date published: 9:01 am, October 21st, 2016 - 45 comments
Categories: business, Economy, exports, farming, trade - Tags: , ,

Yesterday, the twelfth annual TIN100 (Technology Investment Network top 100 NZ Tech companies) report was released. Press release here.

I’ve worked exclusively in the sector as an ancient coder for decades, so as usual I was vaguely interested. Of course I’m far more interested in getting projects actually out of the door rather than inflating the value of the resulting products and services. So I usually can’t be arsed noticing or attending the ego splattering that invariably accompanies such announcements.

But my interest gets piqued when it gets into the economics and my tertiary interest in politics. This report was interesting.

Essentially the top 200 tech “exporters” (and basically you have to be an exporter in this industry – NZ is a teeny market) are now turning over NZD 9.4 billion, and this year increased by more that NZD 1 billion in revenue. Financially they grew by 12% this year which is pretty phenomenal bearing in mind the sluggish world economy is these days of an ageing world population and reducing population increases. It meant that they grew an additional 3000 odd jobs just in the top 200 sector companies.

Well ok, so there are some economic caveats on that ‘growth’ that simply aren’t mentioned in the press release. The NZD exchange rate has been way more favourable since the goddamn commodity dairy price dropped like a rock in a more competitive international market – as commodity products usually do. But in light of that obvious fact, you have to laugh at the pontificating of this rank drivel I (through my laughter) now just have to quote..

“In no previous year since the launch of the TIN100 Report 12 years ago, has change been so dramativ or widespread”, said TIN Managing Director, Greg Shanahan. “This year’s data signals that an inflexion point has been passed as the industry hits critical momentum, reflecting longer term acceleration of technology growth and a significiant closure of the export earnings gap between dairy and tech”.

Leaving aside that ‘Greg’ appears to have recently drunk the KoolAid from some terminal religious experience in a piss poor managerial course. A significiant proportion of the “closure” is from the crap prices for dairy and the consequent short-term (ie less than a few years) fall in the NZ dollar. However the tech industry is still providing a significiant boost to our economy as they keep winding up the exports.

Exports were about NZD 7 billion of that 9.4 billion. These exports are in worldwide market niches and across a wide variety of industries. The economic implication is that these overall exports tend to be rather robust. NZ tech companies kept growing through the GFC despite some rather painful capital constraints.

These days the top 200 tech companies employ about 40k highly paid employees across mainly urban NZ. They also tend to spread that revenue wealth widely amongst the local economy rather than leaking it directly into the hands of aussie bankers as mortgage and overdraft interest payments. Just the the revenue from coffee cups must be immensely useful in the local economy 🙂

Just to give an idea, just this small proportion of larger tech companies is now about the number employed in the whole anaemic dairy industry that this government likes to subsidise in its multitudinous ways.

But this isn’t the whole story. Most of my working life over the last few decades has been in startups and smaller companies that won’t be in the TIN200 companies. The top 200 companies are just the tip of the iceberg in terms of numbers of total revenue and number of employees. While it is kind of enjoyable to be in a larger company these days, there are a hell of a lot of companies and skills sitting behind wanting to get out there and to sell their exports to a world market. I tend to met them when I wander off looking for another interesting project.

Even the daft industry policies of this intellectually bereft government are merely constraining small tech companies growth. Damn good thing too as NZ becomes steadily more urbanised.

45 comments on “NZ Tech”

  1. save nz 1

    Great news. The government needs to put more investment in the Tech sector – this is the growth industry of the future and a way to diversify from Dairy and Tourism both very cyclical commodity industries.

    • BevanJS 1.1

      Better still, just stop propping up farming so much and use that money to help / target those small “groups” that really needed. Nothing worse than corporate welfare.

  2. dukeofurl 2

    Thanks for the extra info that this gives.
    Im always a bit sceptical about certain sectors blowing their trumpets and over inflating their ‘charms’ but this does seem like a genuine broad based success.

    Amoung those over inflating their effects are the ‘cruise industry’ which means ever more ratepayers paying for wharf extravaganzas, the racing industry which might have meant something 50 years ago and of course the new upstarts, the screen industry who gobble up tax breaks while counting movie admissions/video rentals as part of their ‘economic impact’.

  3. Paul Campbell 3

    Actually as a tech exporter – one of the 1000s who work remotely from NZ, and aren’t included in these figures, the $NZ hasn’t been all that high, it’s been mostly going down wrt the US$ over the past year (last month was slightly better – my take home pay has gone down almost every month this year

    • ropata 3.1

      That’s the advantage of the NZ tech sector. They get highly skilled staff at Mumbai level salaries

      • Paul Campbell 3.1.1

        No, I’m paid what I was earning before I returned home from Silicon Valley … without the 1 hour commute each way and with NZ’s 10% lower taxes

      • Infused 3.1.2

        You clearly don’t have a clue. You will start on 60k here now as a coder. We are dying for them.

        • Poission 3.1.2.1

          60k is less then a fonterra truck driver earns

          • Infused 3.1.2.1.1

            That’s a straight out of uni wage with no experience.

            • Poission 3.1.2.1.1.1

              Which one do you think,could afford a three bedroom home,with vege garden .and doesnt moan and whinge about the high repayment rate of their tax payer subsidized student loan?

              • Infused

                You’re going to bitch and complain about everything, yeah? I paid mine off not long ago, and so will other people. It’s not the end of the world.

            • lprent 3.1.2.1.1.2

              And a lot of training time needed to be invested in them.

              I seem to spend an awful amount of time in work training grads at present.

        • ropata 3.1.2.2

          You are right, I was an idiot to start on $30K in 1998 and then go all the way up to $49K (gross) in 2008… That was the state of it in CHC at least. It’s a lot better in AKL, still nothing like Silicon Valley or even Australia. Maybe I was just unlucky to start in a toxic workplace.

          • Lanthanide 3.1.2.2.1

            I started on $39k in 2006 and was at $58.5k 2 years later, in Christchurch.

            10 years later, I’m more than double that starting salary.

            I think to go from $30k to $49k in 10 years is unfortunate.

          • Paul Campbell 3.1.2.2.2

            I started at $7777 out of Uni in 1978 – it rose to ~$21k by 1984 just before I moved to Silicon Valley (70s oil shock inflation + Muldoon’s mismanagement of the economy) – I started in the US at US$38k – thank’s to the crash of the NZ$ (and again thanks to Muldoon) that was ~NZ$76k … my salary had gone up by a factor of 10 in 6 years ….. my buying power didn’t though, not even close

            My real point here is that salary increases over time are not always easy to compare

            • Lanthanide 3.1.2.2.2.1

              Depends on the time, obviously. Talking about salaries during a time period of high inflation, is obviously very different than talking about salaries during a time period of low and stable inflation (1998 onwards).

              Also, our time-frames overlap: I with 2 year experience in 2008 was earning 58.5k. ropata with 10 years was only 49k.

              • RedLogix

                I won’t detail my salary history except to note that over a 40 year career the principle bit of advice I can pass on is NOT to stay too long.

                Loyalty is rarely rewarded.

                • ropata

                  Yep, figured that out. Loyalty is more likely to be exploited, it is just not appropriate in the corporate setting.

                • Lanthanide

                  Yeah in general that’ll be true. In my case, there won’t be a whole lot of companies in CHCH with job openings that match my current salary.

                  Given that I’ve only worked on weekends three times in the past 10 years and have only worked past 7pm on evenings twice (and this is on a salary), I think I’d be a mug to leave my company 🙂

    • save nz 3.2

      As a tech exporter you should still be showing up as a ‘services’ exporter in the export figures (unless you need to be over a certain about of turnover to be included). The tech export figures will be higher that those being shown. Unless you are a remote worker to an offshore corporation in which case not sure how that works in the figures which I think are based on NZ resident tech company exporters.

      • Paul Campbell 3.2.1

        I don’t see how, my consulting company doesn’t tell any govt dept how much money I earn from what – just a normal IRD return – there’s a monthly bank transfer between a US$ account and a NZ$ account in my NZ bank but that’s not tagged with “software services” or “hardware design and debug”.

        The checkins into the corporate source code control system, and the hardware designs into that same system that are the bulk of my work product leave the country through a VPN, no one accounts for them as ‘exports’. If anything they see physical imports of prototype hardware designs for debug, not the exports of the fixed designs.

        (BTW: I have a company so that the NZ govt has first bite at my taxes – one should pay taxes where one lives to pay for the services you receive – in my case my company exists so I pay the right taxes, not to avoid them)

        • dukeofurl 3.2.1.1

          The IRD has codes for most business types

          ‘Business industry code (BIC)
          The primary activity of a business is classified using a Business Industry Description and a corresponding Business Industry Code (BIC).
          /www.companiesoffice.govt.nz/companies/learn-about/starting-a-company/how-to-apply/ird-information/bic

        • lprent 3.2.1.2

          Most businesses are required to fill out paperwork for the stats department. There are no aggregate codes for tech businesses. Basically their coding system is very early 20th century.

          • dukeofurl 3.2.1.2.1

            These are the relevant BIC categories

            Information, media and telecommunications

            Computer System Design and Related Services
            Data Processing, Web Hosting and Electronic Information Storage Services
            Internet Publishing and Broadcasting
            Internet Service Providers and Web Search Portals
            etc

            These are BIC codes for IRD purposes not stats. I presume they are using these.
            https://www.businessdescription.co.nz/#/home

            • lprent 3.2.1.2.1.1

              Tech tends to be way wider than than just IT these days. I tend to focus on server or application code in linux these days.

              However about two thirds of my work is writing code to talk to semi-intelligent bits of hardware. Everything from GPS units to various radio or switches. Each of these is in itself a programmed bit of hardware with their own code. Most of the time I’m in the minority of application programmers embedded with a pile of electrical engineers doing hardware or writing embedded code.

              If you have a look at the list of the tech companies in the TIN100, you’ll see that about half of the larger ones are primarily hardware firms who program their hardware and control applications.

              And I haven’t even pointed to the biotech or the other types of tech firms.

              It doesn’t matter what industry that companies are in. It is the type of work that they are doing that makes the difference between companies founded on high tech and those who are not. That reflects back into everything from how they are financed to the types of people that they employ.

    • lprent 3.3

      …the $NZ hasn’t been all that high, it’s been mostly going down wrt the US$ over the past year (last month was slightly better – my take home pay has gone down almost every month this year…

      It is more about the financial reporting periods for the various companies. Many of these results will include significiant 2015 time. And I tend to look at USD as most of the export sales I have ever exported in are related to USD.

      If you look some thing like the cross rate chart
      http://www.xe.com/currencycharts/?from=NZD&to=USD&view=5Y

      in 2014, the exchange rate almost hit 0.9.

      It then dropped as low as 0.65 in 2015 and has subsequently peaked at 0.72’ish.

      So the exchange for 2014/2015 reporting periods was way higher than 2015/2016 reporting periods

      • Paul Campbell 3.3.1

        yes that’s true – I must admit I look at the inverted graph

        https://finance.yahoo.com/chart/USDNZD=X?ltr=1

        because as someone who largely earns US$ it better reflects what I’m going to be paid.

        When I moved back from the US in 2004 the exchange rate had been ~2:1 for years – I’ve effectively taken a ~30% pay cut over the past decade – largely due to the carry trade (and more recently dairy) pushing up the NZ$

  4. save nz 4

    After the GFC, with the increased terrorism risks and to provide a safer place to raise and be with family, NZ got some very talented and experienced IT people back into the country and the growth in the tech sector reflects that.

  5. Ad 5

    Lyn, I’ve got a difficulty I can’t get out of.

    I perfectly understand how successive governments have sold us down the bulky, dirty, low-value Anglo America commodity river, and it’s going to keep us poor and dumb as far as I can imagine. Fonterra.

    I also perfectly understand how companies like Xero and Jade are part of the high-value, dematerialized, higher-salary future this country has desperately needed. Denmark. Finland. Singapore.

    But. Xero is continuing to burn through shareholder cash and not making substantial profits for many years. Dominated by one guy. Super-high risk for anyone near it.

    Fonterra is a co-operative, great international partners, doing stuff that we know how to do really well, will never leave us, acts as the dairy industry’s new Supplementary Minimum Price floor, and won’t ever go bust.
    For better or for worse it’s rooted in what we are and who we are.

    So, despite all the strategic good reasons to want more high-tech Xero’s, isn’t it safer for New Zealand over the long term to simply continue to improve and expand companies like Fonterra instead?

    • Paul Campbell 5.1

      IMHO the right thing to do is both (provided the dairy industry gets its environmental ducks in a row rather than ruining all our rivers) – we need diversity – tech, agriculture, tourism, manufacturing, movies, all these things so that the entire economy doesn’t tank when one of them runs into a spot of trouble.

      The nats’ insistence that dairy is the goose that lays the golden egg at the expense of everything else is real problem, it’s them taking the easy way out, the short term view, and not working to create a strong diverse economy for the future

      And their R&D policy, what’s with that? only supporting big companies who already have the base to do their own R&D, but not the small startup companies that we have to keep making to replace the companies we keep selling overseas.

      • Infused 5.1.1

        You should look at the many technology incubators around the country. They are supporting many local small/large firms.

        These are govt and council funded with many private businesses funding them.

        • Paul Campbell 5.1.1.1

          Having worked in Silicon Valley startups for 20 years I’ve been less than impressed by my experiences with the NZ incubators – there seems to be a basic idea here that I’m expected to bring a ready-to-manufacture product to the table, the idea that I might be seeking investors to do actual R&D seems to be foreign to a lot of people – I think this is essentially an expression of a particularly low tolerance of risk compared with SV, and I suspect it’s mostly because the tax free investment opportunities provided by the NZ property market are too ‘safe’ – in the US capital gains are taxed by default at ones marginal rate, longer term gains at a lower rate, but never 0 (unless you’re Trump of course)

          However what I was really getting at above was that companies that spend money on R&D have to write it off against that year’s profits – great if you’re a big company with an existing revenue stream, not so good if you’re a startup that isn’t making any money yet, you should be able to credit it to future years so you can write off your R&D costs against the (hopefully future) profit you will make from your endeavours – Labour brought something like this in a few years back, the Nats took it away to fund lower taxes for the 1%

          And don’t get me started on the IRD’s treatment of crowd funded things like Kickstarter that, if you are unlucky, can result in you being taxed on your gross rather than your net .

          • Infused 5.1.1.1.1

            The kickstarter thing is not cool.

            • Paul Campbell 5.1.1.1.1.1

              no – pro tip: organise your kickstarter so you are funded and spend the money in the same tax year – the IRD assumes you:

              – take some existing own money and buy goods
              – assemble them
              – sell them at a profit
              – you bank the original money + profit

              the value of your company during the first 2 steps is essentially the same so you only get taxed when the value of what you have increases (your profit)

              But if you do a kickstarter it happens in a different order:

              – you take the money+profit
              – you buy your goods
              – you assemble them
              – you ship them

              In the first step the value of your company essentially goes up by your gross, as you buy goods, assemble them and ship them the value of your company drops to be simply your profit.

              The problem is if you get taxed on the value of your company before you ship you essentially pay tax on the cost of making the thing you are selling, not just the profit – what you can’t do is put on your books the obligation you owe to your customers (as a negative value), something that goes away as you ship – while that obligation is a ‘virtual’ sort of thing it’s very very real.

              You can avoid this trap if you time your klckstarter carefully, I don’t think it’s actually possible to do a ‘big’ kickstarter in NZ, one that takes multiple years to do

    • lprent 5.2

      So, despite all the strategic good reasons to want more high-tech Xero’s, isn’t it safer for New Zealand over the long term to simply continue to improve and expand companies like Fonterra instead?

      Nope. The problem comes with the fundamental imperatives of capital vs employment. With something like Fonterra (and dairy) everything pushes them towards reducing their numbers of employees because adding capital increases their overall return on invested capital. Essentially investing in capital equipment is a more productive than any return on investing in employees.

      This is damn obvious as soon as you into the countryside. There are old derelict dairy factories everywhere, and if you go into areas with recent dairy conversions (like Southland), you can see the number of people in the landscape and small towns plummeting fast.

      Read the report. Xero is just number 5 by turnover in the top 10. It is dwarfed by F&P Appliances, Datacom, and F&P Health. It is barely larger than Gallagher Group and the same size as Orion Health. I’m pretty sure that none of those companies is bleeding cash – so why pick that as the exemplar of a tech company? It isn’t.

      It is an example of a rapidly growing tech company. They have considerable differences to more mature enterprises.

      Increasing revenue by NZD 83m to 207m is a sizeable increase – something over 60% increase in a year. I’m not surprised that they aren’t realizing a profit while growing that fast. It is frigging expensive to put in the sales and support to handle that kind of growth, and that is even before you start looking at cost of scale-up on their production infrastructure.

      However if you also look at increases in revenue in the report, you’ll find more staid examples of lower percentage growth with profit attached.

      Looking at the ones above. F&P Healthcare increasing by 143m to 816m, Datacom by 123m to 1060m, Orion 43m to 207m, and Gallagher by 25m to 228m.

      • lprent 5.2.1

        I’m afraid on re-reading this that I didn’t make my fundamental point quite clear.

        Companies like Fonterra wind up making a return on their investment capital and attempting to minimize their dependence on people and their skills – because that is their optimal course. Because the human skills are relatively low-grade and replaceable to one degree or another by automation. Over the last century this has shown up in the gradual use of economies of scale where people are replaced by machines both on the farm and the processing of their commodities. Effectively capital has been replacing employment throughout the primary commodity sector.

        In NZ, since we tend to import most of our capital it means that most of the benefits go to people offshore. This is something that is unlikely to change because the local sources of capital are so small and relatively costly compared to those available from offshore.

        This isn’t exactly a recent problem. It was what caused all of the retributive logic on the 20th century.

        Tech companies make their primary return on their human capital – ie skills. They increase employment rather than decreasing it. It means that company earnings disperse far more into the NZ economy than the overseas economies. Since NZ is such a small economy, damn near every tech firm is a major exporter. Consequently they bring overseas earnings directly into local wages, and in a form where expansion of companies doesn’t require extra capital as much as it requires more skilled employees.

        That is far better for NZ in just about every sense.

      • Ad 5.2.2

        I will certainly have a good look at the report over the weekend.

        I picked on Xero to make the highest contrast.
        I’ll have a better look at the steadier ones over the weekend.

    • Draco T Bastard 5.3

      doing stuff that we know how to do really well,

      No, we don’t know how to do it really well at all. For two reasons:
      1. The majority of us aren’t farmers and simply don’t know how to farm
      2. The farming practices in use in NZ are actually piss poor as can be seen from the poor state of our waterways

      For better or for worse it’s rooted in what we are and who we are.

      That’s probably the biggest myth about NZ that we have.

      The majority of us aren’t farmers and don’t want to be farmers and so it’s not the root of who and what we are.

      So, despite all the strategic good reasons to want more high-tech Xero’s, isn’t it safer for New Zealand over the long term to simply continue to improve and expand companies like Fonterra instead?

      No.

      1. Because such dependence upon a single sector is detrimental to our societal resilience
      2. It actively prevents further development of our economy and society
      3. It means that we’re at the mercy of the global market and thus can’t choose our own path

      • dukeofurl 5.3.1

        Do you have any business experience or knowledge of exporting. Just as you say most of us are not farmers nor do we want to be, just having wishful thinking about agriculture doesnt help anything either.
        “such dependence upon a single sector is detrimental to our societal resilience”
        So you would prefer we stuck to flax so we can make rope instead ?

        • Draco T Bastard 5.3.1.1

          Do you have any business experience or knowledge of exporting.

          Yes.

          So you would prefer we stuck to flax so we can make rope instead ?

          WTF are you smoking?

          Not being dependent upon a single sector does not mean that we stop developing our own economy or trade.

          • dukeofurl 5.3.1.1.1

            I was reading the interesting story by direct participants in the ICT sector of the large contributions to the economy. Sort of contradicts what you say.

            If we dont have cows, exactly what would we ( the farmers )be growing?
            Flax used to be a major industry and for export but changes in what rope was made from then more profitable ones came along – like diary.
            Reality of soil types and climate indicate some sort of grazing. In the 70s forestry was the new saviour and would require heavy processing which create more jobs. Ended up as mostly whole logs to Asia for turning into packing crates and pallets.

            • Draco T Bastard 5.3.1.1.1.1

              If we dont have cows, exactly what would we ( the farmers )be growing?

              I didn’t say anything about getting rid of cows. Although, I have said that we should be reducing farming because of the damage that it’s doing to the environment.

              Flax used to be a major industry and for export but changes in what rope was made from then more profitable ones came along – like diary.

              Considering the damage that dairy is doing is it really more profitable? About time we started charging the farmers to undo the damage that they’ve done.

              Reality of soil types and climate indicate some sort of grazing.

              Actually, it doesn’t. NZ is critically short of selenium meaning that grazing animals are chronically ill and we don’t get the necessary amount either.

              And then there’s the fact that wind and rain removes the top soil. No, what our country needs is more forests.

              In the 70s forestry was the new saviour and would require heavy processing which create more jobs. Ended up as mostly whole logs to Asia for turning into packing crates and pallets.

              Another fine example of the stupidity of capitalism and trade. Becoming dependent upon something that appears to be easy and cheap only to find that resilience is removed and we all end up worse off when it all falls down.

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