Natural Fibre Export Strategy

I. Executive Summary

New Zealand’s standard of living is dependent upon wealth generated from its export industries.

New Zealand’s comparative advantage in the world economy is three-fold:

1. Producing quality goods and services from New Zealand’s natural environment
2. Adding value through innovation with New Zealand’s R&D capabilities
3. “Brand New Zealand”

The primary sector is and will continue to be a powerful generator of New Zealand’s export wealth. Currently however, the wealth is generated mainly from exporting raw materials from the food and fibre industries. The greatest wealth comes from adding value to these raw materials through innovative capability and creativity.
With its natural fibres (wool, merino, possum/merino, alpaca, harakeke, leathers and hemp) New Zealand is in a strong position to build a successful export-oriented textiles sector targeting the export of luxury natural fibre products. The textiles sector is a critical part of the natural fibre value chain and New Zealand’s Economic Growth Agenda.

This is because New Zealand already has a comparative advantage through its history of wool innovation, its world-class design and creativity, environmental and social sustainability, and the globally recognised “Brand New Zealand”. New Zealand has the advantage (capability and reputation) of positioning itself as a country producing luxury natural fibre, sustainably produced from the natural environment and marketed under the “Brand New Zealand” story.

A strong and resourceful textiles sector targeting luxury natural fibre products is critical to the success. It is the businesses in the textiles sector that convert the natural fibre into export products and it is the businesses that sell to overseas businesses and earn the foreign exchange. The primary sector needs the manufacturing sector to add value to its natural fibres, and it also needs those manufacturers to be successful exporters.

The future of New Zealand’s natural fibre primary sector, and the textiles industry particularly, relies upon the textiles sector spearheading innovation, design, branding and marketing to sell to the world natural, authentic, home-grown, environmentally-friendly, sustainable, beautiful quality textiles, clothing, carpets and life-style products sourced from New Zealand’s natural fibres and the natural environment.

The great prospect of New Zealand’s textiles sector has been evidenced in the growth potential of many smart and innovative companies in this sector that have found strong market niches (despite the impact of tariff reductions and aggressive global competition) and that export $500 million of product a year.

Government policy needs to recognize the value of the textiles sector, and also recognize the leadership Textiles NZ can play as an industry association linking the primary sector to the textiles businesses and to the market of luxury natural fibre products.

Textiles NZ has developed a comprehensive natural fibre export strategy to double exports within the next five years from the textiles sector. The export strategy embodies a market-led approach, innovation through research and development, fashion and design to meet market demand, marketing under “Brand New Zealand”, promoting international quality standards, developing an export facilitation service, working with New Zealand Trade and Enterprise and other government agencies, and developing a commercial solution to accelerate exporting.

2. Background

Textiles NZ is the industry body representing manufacturers of four contributing sectors: textiles, carpet, footwear and apparel.The industry is generically referred to as the ‘textiles sector’.

The textiles sector in New Zealand contains many smart and innovative companies with a bright future despite the impact of tariff reductions and aggressive global competition, and exports about $500 million of product a year. The sector comprises about 2000 businesses which employ over 15,000 workers, and supports an indirect industry and workforce of many more thousands of people. Most of the businesses are small to medium enterprises (SMEs).

Australia is the largest export market, worth $330.4 million. USA is the second largest export market, worth $53m, followed by UK at $18m, Hong Kong $11.5m, United Arab Emirates $7m, and Fiji $6m. Exports to China almost doubled in value from 2005 to 2008.

3. The Economic Imperative

As a trading nation, New Zealand’s standard of living is dependent upon wealth generated from its export industries. To be a successful exporting nation New Zealand must understand what its comparative advantage is in the world economy. The reality is that New Zealand gains most of its export wealth from tourism and the agricultural economy, and the comparative advantage is three-fold:

1. Producing quality goods and services from New Zealand’s natural environment
2. Adding value through innovation with New Zealand’s existing R&D capabilities
3. “Brand New Zealand”

This is also true for the textiles sector. The strategic vision and future for the textiles industry in New Zealand relies on innovation, branding and marketing to sell to the world natural, authentic, home-grown, environmentally-friendly, sustainable, beautiful quality textiles, clothing, carpets and life-style products sourced from natural fibres and the natural environment.

For New Zealand to move away from being a wool commodity exporter to an exporting nation of high-earning added-value quality natural fibre products, wool needs to be positioned as a luxury natural fibre, sustainably produced from the natural environment and marketed under the “Brand New Zealand” story.

Likewise the primary sector needs to realise that to successfully sell its natural fibres to the world (wool, possum/merino, harakeke, and hemp) it needs a strong and resourceful textiles sector that adds value through innovation and design and successfully markets under “Brand New Zealand”.

It is the businesses in the textiles sector that convert the natural fibre into export products and it is the businesses that sell to overseas businesses and earn the foreign exchange. The primary sector needs the manufacturing sector to add value to its natural fibres, and it also needs those manufacturers to be successful exporters.
It is also essential that New Zealand is a power house of innovation through R&D for our natural fibres. To deliver product innovation continually increases the value of the natural fibre. As a result New Zealand-made/designed product helps drive demand and value for the natural fibre, even when sold as a raw material overseas. The natural fibre industry needs New Zealand-made/designed product branded under “Brand New Zealand” to demonstrate to the world the value of using those natural fibres.

As a result the strength of the New Zealand textiles businesses is critical to the success of the primary sector that produces the natural fibres.

Only then does New Zealand capture maximum Net Economic Benefit (NEB), through increased profits and jobs. NEB is grown through the actions of:

Smart and innovative businesses in the textiles sector.
Active government intervention that mitigates market failure and, whilst adhering to New Zealand’s international trade commitments, recognises the beneficial role of the textiles sector to the wider economy.
Textiles NZ being a strong industry body providing leadership to accelerate export growth to an other-wise fragmented SME sector.

4. Present Profile of New Zealand’s Textiles Sector

Over the last twenty years New Zealand’s textiles sector has experienced major downsizing due to the removal of tariffs (the trade-off on FTAs to assist New Zealand’s export industries) and aggressive global competition. The businesses remaining in the sector tend to be robust as they have found a competitive market niche and have strong potential. The businesses that manufacture and process New Zealand’s natural fibres have the strongest export potential.

The challenges facing textiles businesses are fairly typical of all New Zealand industry sectors:

Many small firms
Lack of vertical integration
Lack of design-led to meet customer requirements
Lack of capex
Fragmented industry that doesn’t have a history of working together
Lack of export expertise
SWOT Analysis on the Textiles and Natural Fibre Industries

Strengths

Brand New Zealand
International company brands, some better known that others – Icebreaker, Pumpkin Patch, Karen Walker, Kate Sylvester, Jane Daniels, Ashley Fogel, Trelise Cooper, World, Cavalier Bremworth, Godfrey Hirst, Sallee, Dilana Rugs, Ascend, Perino, Koru, Lothlorian, Native World, McDonald and Macrino, Snowy Peak and Untouched World, Possumdown, Merino/Possum, Waimate
Natural fibres
Very low micron merino
Unique possum/merino
Established industry of spinners, weavers and knitters
Good industry knowledge
Skilled workforce
Good R&D facility at AgResearch
Great designers
Weaknesses
Perception as a sunset industry
Fragmented industry
Lack of vertical integration
Lack of working capital and capex
Product presentation
Low level marketing skills
Aging management and workforce
Lack of high technology skills
Lack of certification to international quality standards
Opportunities
Natural fibres
World demand for sustainable products
Niche up-market opportunities
Ability to produce quality luxury products
World leadership in natural fibre product design and innovation
Design and R&D solutions using natural fibres
Delivery of a vertically integrated supply chain model for the sale of natural fibres

Threats:

Industry at tipping point
Continual loss of New Zealand control of the natural fibre value chains, resulting in increased commoditisation
Loss of processors, affecting the value chain

5. A Textiles NZ Export Strategy

Because it is businesses that convert natural fibre into export products and it is the businesses that export to overseas businesses, the textiles sector is a critical part of the natural fibre value chain. Government policy needs to recognize the value of the textiles sector, and also recognize the leadership Textiles NZ can play as an industry association to link the primary sector to the textiles businesses.

Textiles NZ communicates on a weekly basis with all textiles businesses in the sector, it knows the sector well, it has commenced an audit of the capability of the businesses, and it estimates the industry is presently running at about 60% of its capacity. Without too much new investment the industry could increase its capacity by about 40% in a short time-frame.

Textiles NZ’s ability to link New Zealand’s natural fibre production with New Zealand export manufacturers means it is well placed to provide leadership on export initiatives to the textiles sector.

The “manufacturing” connection between New Zealand raw materials and finished product should not be underestimated. The New Zealand manufacturing base demonstrates to the rest of the world the quality product that can be made from our natural fibres. Whether or not the manufacturing evolves into an Icebreaker model of New Zealand-design offshore-production or the possum/merino New Zealand-based model of design and production, the fact is these successful industries are providing immense value and export return to New Zealand’s raw materials.
The most successful exporters in the textiles sector are those that are market-led, devise innovative product and solutions to meet customer end-use requirements and are demand-driven. They know and continually find new export markets, and then they produce what the market wants. However, not all exporters follow this model, and they struggle to find traction in the marketplace. To meet market demand requires an agile R&D and market-driven philosophy.

Many New Zealand textile businesses still have an immature export profile. The possum/merino manufacturers have developed an industry worth approximately $102 million dollars (+GST) at retail per year, yet their export profile is immature at just 10-15% of their sales volume. Their export potential however is very high. Because possum/merino is a fibre unique to New Zealand sales of luxury, light and warm garments have a strong competitive advantage when exported under “Brand New Zealand”.

The Vision

The Vision of Textiles NZ is to double exports within the next five years from the textiles sector, focussing on the natural fibre industry.

The world has an insatiable demand for natural fibres and New Zealand textiles businesses are well placed to embrace the opportunity. Although the sector has been through tough times, it is in fact very resilient, it contains a real depth of skills and knowledge, and there is a determination in the industry to grow.

With the right support, the adding of value through innovation, powerful branding under “Brand New Zealand” and superb marketing New Zealand textiles exporters can achieve a doubling of their export growth.

A Targeted Industry Approach

The export strategy needs to be targeted at those textiles businesses that fit the strategic vision and future for the textiles industry in New Zealand. These are companies that rely on innovation, branding and marketing to sell to the world natural, authentic, home-grown, environmentally-friendly, sustainable, beautiful quality textiles, clothing, carpets and life-style products sourced from natural fibres and the natural environment.

For the purposes of project simplification, these companies fit into the following categories:

Possum/merino
Merino
Mid-micron and cross-bred wools
Strong wools

6. Implementation of the Export Strategy

For an export strategy to be successful it must be market-led and demand-driven. Different markets in the world are quite different from each other, so different approaches need to be taken to each market. Identified key markets for the natural fibre industry are UK, Europe, Russia and US.

1. A Market-Led Export Strategy

To implement a market-led export strategy for natural fibres Textiles NZ will:
1. Identify the key overseas markets for natural fibre, such as UK, Europe, Russia and US
2. Identify the key natural fibre exporters
3. Group those key natural fibre company exporters for each market, with one each (or ______syndicated/consortia) coming from the following industries to ensure there is no internal competition ______within the group:

Carpets/rugs
Yarn producers
Interiors and home-ware
Fashion/apparel
Possum/merino
Merino
Accessories
Mid-micron and cross-bred wools
Specialist wool breeds
Others

1. Pursue a path to Market programme for each market destination incorporating individual company capability assessments,seminars mentoring and "Dragon Dens". These will be targeted at high -level companies capable of market entry
2. Work closely with NZTE offshore offices to ensure distributors/retailers are identified for each of the companies in the group, culminating in trade show/market visits for the group branded under "Brand New Zealand"
3. Pursue group Beachhead opportunities in the markets
As part of the market-led strategy, additional initiatives will be undertaken under the following headings:

2. Innovation through Research and Development

Textiles NZ Will:

Implement a programme on behalf of the industry to connect individual businesses with AgResearch and other research institutions
Implement a programme with FRST to connect individual businesses to support company R&D through subsidized Government funding
Implement a programme with the businesses that assist their need for capital to fund their R&D and its commercialization.

3. Fashion and Design to Meet Market Demand

Textiles NZ Will:

Support investment into building a highly skilled workforce that supports an innovative worldleading Textiles Industry
Implement a programme on behalf of the industry to develop a strong relationship between the companies and the design schools, including work placements and scholarships
As there are different design requirements for different markets expose New Zealand businessesto the market variations.

4. “Brand New Zealand”

Textiles NZ Will:

Implement a programme with the industry to promote “Brand New Zealand” and the natural authenticity of wool and possum fibre
Pursue generic marketing opportunities with Tourism New Zealand and international events.

5. International Quality Standard Certification

Textiles NZ Will:

Implement a programme with the industry to promote international quality standard certification embodying superior levels of customer service and performance.

6. An Export Facilitation Service

Textiles NZ Will:

Become identified as a one-stop-shop export facilitation service for the textiles sector to provide advice on where to obtain information on topics such as forward financial cover, export credit insurance, shipping documentation, off-shore licensing agreements, etc.

7. Working with NZTE

Textiles NZ Will:

Link individual businesses to all appropriate NZTE Client Managers and programmes such as Better By Design, Manufacturing Plus, export market seminars, etc
Act as a facilitator to NZTE services and play a proactive role of linking companies to the networks.

8. A Commercial Solution to Accelerate Exporting

Textiles NZ Will:

seek commercial opportunities with exporters/groups of exporters that wish to work as consortia into specific markets
Establish an Export Consortia Pilot Programme with Textiles NZ acting as an Export Agency into new markets on behalf of companies on a fee paying basis.