A few weeks ago, the Chamber of Commerce, Hawke’s Bay Inc, EIT and others sponsored an economic summit for local business folks. The focus was how to grapple with the worsening recession.

A major topic was how the Bay’s agriculturally-dominated economy would cope with this latest challenge. As usual for these types of events, several speakers reminded us that about 40% of the Bay’s economic product came from the land-based “growing” sector, including manufacturing services (chiefly, food processing) associated with primary production.

But then, all of a sudden, there at the podium was one John Penny, CEO of a company called ABB (formerly Vectek). His company develops, manufactures and exports sophisticated electronic controls that govern power supply in precision industrial processes, like making silicon chips for computers. While he acknowledged the challenges presented by today’s global recession, he described his company as one that has grown very strongly here in Hawke’s Bay for years, employs highly-skilled labour, and exports its high tech products to some of the world’s premier industrial corporations – Philips, BP, Samsung, Mitsubishi, Honeywell and others.

As he spoke, I was thinking … here’s a flourishing business with a steep growth curve, that most Bay folks have never heard of, that has virtually no connection with the Bay’s
primary production sector. Hawke’s Bay could never grow another apple or market another lamb chop, and this company would be unaffected. Climate change or drought … not a problem.

How many companies are there like this around the Bay, I wondered. And to what degree do they, rather than primary production, represent the more robust growth potential of the Bay? Or more broadly, exactly what businesses and activities represent the “Other Economy” of Hawke’s Bay … the 60% of the HB economy that does not live off our precious land?

It’s beyond the resources of this modest publication to answer those questions in any substantial depth. But we’ve taken a bit of a stab here in a series of articles, and I hope others – including entities like the HB Chamber, HB Inc and EIT – will look at the question more systematically.

Understanding the nature of these companies, and what they require to prosper in Hawke’s Bay, could be vitally important to fostering long-term growth – and especially sustainable growth – in Hawke’s Bay.

As I asked various local business leaders to identify some companies they thought best exemplified HB’s Other Economy, a number of names re-occurred – for example 3R, Furnware, Sirtrack, Vectek/ABB and a few others. So I asked our occasional BayBuzz Digest columnist Brendan Webb to look at some of these. You can read his fascinating story Looking Beyond The Bay. I think you’ll feel a sense of pride that Hawke’s Bay has produced and is home to business winners like these.

As I talked around and heard what Brendan had to report, three themes stood out for me.

Intellectual capital

First, the exemplar companies of the Other Economy are – like their leading primary sector peers – exporters. But in this case, exporters not of commodities, but of high value intellectual capital imbedded in their products and services. They are demonstrating that intellectual capital – in the form of smart design, technical sophistication, out-of-the-box thinking – can drive world-class, globally competitive enterprises, from right here in Hawke’s Bay. And what does that mean?

It means that Hawke’s Bay gets the benefit of relatively higher-paying jobs (which translate into higher consumer demand for the Bay’s other goods and services), more new income and wealth being pulled into the Bay from customers outside the Bay (indeed outside NZ), more demand for our local business services sector (from communications providers like Airnet to web developers like Mogul), and more economic growth that does not leave a heavy footprint on the Bay’s own natural environment.

For those reasons, one would assume that business planners around the Bay, whether in the private or public sectors, would be burning the midnight oil trying to figure out how to attract more companies like these into the region … and keeping them.

Ambiance attracts the right people

Second, it all comes down to finding the right people … and keeping them happy. One of the three key challenges to his business that John Penny discussed at the Economic Summit was attracting the best employee prospects to the Bay … a move he said many prospects with specialised skills consider risky. And then keeping them here.

You’ll see this theme clearly in Brendan’s article. And just as clearly, you’ll hear the business leaders he interviewed talk about the ambiance of Hawke’s Bay and the dominance of this factor as a selling point. “Ambiance” seems to be a composite of easy living, manageable scale, sufficient cultural opportunities, and – not least of all – access to an outstanding, protected natural environment. For these leaders and the professionals they need in their companies, working in Hawke’s Bay is as much (and maybe even more) about enjoying a lifestyle as it is about traditional career advancement.

As the folks at RIOT, who focus on recruiting upper echelon employees, would say, few high-skilled, well-paid workers leave Auckland or Wellington expecting to make better money in Hawke’s Bay … or to make the Bay a temporary sojourn before moving back to the big city fast lane.

One hopes that our local elected leaders “get” that point. It should lead them to put a far higher priority on protecting and improving the essential elements of the Bay’s ambient appeal, starting with our environment. Local Councillors can’t order up more sunshine (or rain, for that matter), and they can’t control the value of the NZ dollar, but they can choose – or not – to nurture the environment. And they can give higher priority to funding the cultural sector, which today’s accounts for less than 1% of the bay’s GDP.

It’s good for business … and maybe essential for fueling the Other Economy. Which brings me to the last theme. Local government can sit on the sidelines, or choose to matter.

Local government support

Few of the Other Economy business leaders that Brendan or I have talked to spontaneously mention local government – what it does or doesn’t do – as a direct factor in their business success. The role of government occasionally comes up indirectly – for example, good infrastructure (Port, roads), appropriateness of rates, environmental sensibilities.

To date, local government has had a fairly limited toolkit when it comes to directly attracting businesses to the region, or supporting the prospects of existing companies with high growth potential. Perhaps a few promotional tools – a slick brochure (now a DVD!) and website, a presence at some “big city” trade shows, maybe a promise (or even a “Key Accounts” rep) to “expedite” some enabling infrastructure or consents.

But that isn’t the whole story.

Local government – especially in its regional incarnation – can be more proactive. Some of its activities can be fairly traditional, like export training and assistance, or helping to access government-funded R&D grants, or developing region-specific economic models, or planning and implementing marketing programs for the region.

Hawke’s Bay Inc has been a favourite whipping boy of local politicians, and with some justification. But as Neil Kirton, new chairman of HB Inc argues in these pages, the organization is now better staffed, securely funded, and strategically focused. It is properly positioned to deliver as a true regional catalyst for growth. And, in fact, Hawke’s Bay Inc can increasingly point to success stories that are validated by the organisation’s ultimate customers … local businesses, as you will also see in these pages.

But Hawke’s Bay Inc is also exploring more innovative tools to assist local businesses with high growth prospects (both Other Economy and land-based). One such possibility is a regional investment fund, which would blend capital from a variety of public and private (e.g., local high net worth individuals) sources to finance and accelerate the expansion of existing local companies with demonstrated success and high growth potential. Indeed, HB Inc’s parent, the HB Regional Council, is testing public support via its LTCCP consultation for the concept of using some of its own financial assets in this manner.

The idea is not to invest like venture capitalists in innovative but high risk start-up companies, but instead to help fuel established companies with exceptional growth potential.

Personally, I would like to see this kind of investment directed primarily at Other Economy companies, because I see these companies as providing Hawke’s Bay with risk-averting economic diversification, higher growth and income potential, and less stress on our environment.

Unlike the land-based economy that represents 40% of Hawke’s Bay’s GDP, the Other Economy is not resource-constrained or weather dependent. Arguably it is as unlimited as Kiwis are smart, because at the end of the day, the Other Economy is based upon renewable intellectual capital, not depletable water and soil.

That said, it’s not an “either/or” proposition. There’s plenty of room going forward for innovation and added-value in HB’s land-based economy. With a finite amount of land to exploit, the same brainpower must to be brought to bear on the optimal, sustainable use of that resource. That’s a subject we’ll turn to in the next BayBuzz Digest.

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