Analyzing Risk Factors for a Manufacturing Firm to Invest in New Zealand

This report analyzes the political, legal, cultural, and economic risks involved in a manufacturing firm investing in New Zealand. PESTLE analysis is used to examine macro environmental factors. The report also discusses the Heckscher-Ohlin theory and Doole & Lowe cultural theory.

Running Head: GLOBAL BUSINESS 0
Global Business
New Zealand
(student name)
1-9-2018

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Contents
Risk factors in New Zealand............................................................................................................2
PESTLE analysis.............................................................................................................................3
Political............................................................................................................................................3
Legal................................................................................................................................................5
Cultural............................................................................................................................................7
Doole & Lowe cultural theory.....................................................................................................7
Economic.........................................................................................................................................8
Heckscher- Ohlin theory..............................................................................................................8
References......................................................................................................................................11

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Risk factors in New Zealand
New Zealand is a developed country still, risk must be analyzed for making an accurate business
decision. An Australian based manufacturing firm that is interested in establishing its subsidiary
firm in New Zealand for which political, legal, cultural, and economic risks need to be analyzed.
Major political risk involved in New Zealand includes dependence of the country on demand
from China.
The major legal risk involved is, elections are held in every three years in New Zealand. Which
means new government, new rules and regulation, and new policies, this could be risky for doing
business because changes regarding business policies could be quite often (Lawrence, 2015).
Major cultural risk involves in the country is, multi-culture existing in a country. NZ European
(Pakeha) societies and Maori in New Zealand are very different. Maori are tribes established
which were developed from Polynesian heritage. Due to globalization, the culture of the country
has broadened, and includes immigrants from South Asia, East Asia, and the Pacific islands
(Singham, 2008).
The major economic risk involves, New Zealand is majorly dependent on foreign investment and
especially in the manufacturing sector, foreign investment rates are very high due to which
competition had increased very much. This could involve high risk for Australian based
manufacturing firm, to invest in the country (Balli, 2018).

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PESTLE analysis
In order to study macro environmental factors, one of the most popular concepts involves
‘PESTLE analyses.’ Among PESTLE analysis, four aspects will be considered in this report, that
is political, legal, cultural and economic factors would be discussed and their pros and cons
respectively, for a manufacturing firm to establish in New Zealand (Trivedi, 2016).
Political
The first and most significant risk factor to consider while making investment decision is a
political environment in New Zealand. Political stability and significance of the manufacturing
sector in New Zealand are to be analyzed initially. According to ‘The World Bank Data,’ for
years 1996 to 2016 for New Zealand, the average value for the country in these years is 1.32
points. The minimum point was 1.07 points in 2009 and 1.53 points being maximum in 2015
(Kelsey, 2015). The graphical presentation for the same is provided below.
(Source: theglobaleconomy, 2018)

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Another political indicator to consider is ‘Political rights index’ (7 points being weak while 1
point being strong). ‘The Freedom House’ gives the average value for New Zealand was 1 point
from 1972 – 2016 (Roth, 2017).
(source: theglobaleconomy, 2018)
Advantages
 Political stability is consistent of the country that indicates more stable business in New
Zealand for a manufacturing firm.
 Political rights index of New Zealand is strong, which means the election process is held
with a good degree of freedom. In addition, civil war, oppressive regimes, warlord rule,
or extreme violence does not exist in the country. For manufacturing firm to establish in
New Zealand would be beneficial for the politically safe environment.
 With 99.9% business freedom and 84.6% trade freedom in New Zealand, makes entry to
the market comfortable for investing firm.
Disadvantages
 Corruption perception index is not fully transparent. Moreover, the corruption level was
high in 2016, which is a challenging aspect for a manufacturing firm to invest in New
Zealand.

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 Inequality of income was a major political issue, the focus shifted from income to wealth
inequality in 2015. Unequal distribution of wealth could affect the investment decision
and can be challenging.
 Lending rate is high in New Zealand, due to which investing company have to pay more
interest, and can reduce a company’s profit.
 The expensive labor force is another challenging aspect in New Zealand to consider
before investing.
Legal
Legal rules and regulations are other important risk factors to be considered for effective
business decision. New Zealand is a constitutional monarchy along with democracy. Principal
formal statement of the country’s constitutional structure is ‘Constitutional Act 1986.’
Parliamentary elections are conducted every three years.
The first aspect to study legal environment of New Zealand is ‘Government Effectiveness’.
Government effectiveness index (-2.5 to 2.5 points, indicating week to strong respectively), for
the year 1996-2016, The World Bank gives 1.78 points average for New Zealand (Magalhães,
2014).
(Source: theglobaleconomy, 2018)

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Rule of law performance of New Zealand is another indicator in legal factor. Eight factors are
considered under rule of law index for performance measurement: absence of corruption,
Fundamental rights, open government, regulatory enforcement, Order and security, criminal
justice, civil justice and constraints on government powers. Rule of law index (-2.5 week to 2.5
being strongest), according to the world bank data, the average value was 1.89 points for New
Zealand for period 1996-2016 (McLean, 2017).
(Source: theglobaleconomy, 2018)
In order to strengthen Asia-Pacific community, and improve investment and business
environment in the region of Asia-Pacific, APEC business advisory council exists.
Two legal agreements are OECD, which includes principles of free market economy and
representative democracy that encourage investors without any government intervention.
Another one is FPDA, an agreement between New Zealand, Malaysia, Australia, United
Kingdom, and Singapore consulting each other in external aggression event (Frankel, 2015).
Advantages
 Intellectual property treaties, including the parent corporation treaty, TRIPS
agreement, Paris convention, and the Berne convention are a signatory in New

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Zealand. This would make manufacturers and traders register trademarks and
patent inventions in New Zealand easily.
 Human rights act 1993 and the New Zealand Bill of rights act 1990 are two main
law to protect human rights in New Zealand. This would promote a lawful
environment for the company and its employees to work in New Zealand.
Disadvantages
 The risk is high in New Zealand because of government changes every three years with
new legal rules and regulations. This would also effect in working of business in the
country.
 The non-resident company’s subsidiary in New Zealand is taxed at 28% of its income
worldwide.
Cultural
Doole & Lowe cultural theory, in relevance to international marketing, according to this
theory, eight cultural characteristics are studied to examine the culture of the foreign country.
This cultural framework involves Religion, education, technology and material culture,
aesthetics, values and attitudes, social organization, law and politics, and language (Doole &
Lowe, 2008).
For a manufacturing firm to expand business in New Zealand, what products and packaging to be
offered to New Zealand’s residents majorly depends on this factor. The adaption of new
technology and innovative products by people depends on their education level. In New Zealand,
99% of the population is literate. 6.2% of New Zealand GDP is spent on education (Zealand,
2013).
New Zealand has the majority of the Christian religion, which indicates that the import level and
consumption of electronic gadgets, and foods and beverages generally increased near Christmas
(Ward, 2008).
Advantages

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 Medicine and healthcare facilities are good in New Zealand, a wide network of clinics
and hospitals are established. Free treatment funded from taxes is also available. Making
the country comfortable to live and invest.
 For a manufacturing firm of Australia, language is not the main concern because English
being one of the most used languages in the country. Moreover, the country is influenced
by a western culture that is good for the Australian firm to deal with while offering any
products especially fashion related.
Disadvantages
 Expensive land, this could be a major challenge for the company to invest in this country.
Even the cost of basic needs and dental treatment are very high.
 There is no city life, passionless culture and uninspiring.
 Racist statements can be stated openly, this could make foreign people lives difficult in
the country.
Economic
Heckscher- Ohlin theory- this theory is propounded by Eli Heckscher, and Bertil Ohlin.
According to this model, it is predicted or assumed that the goods, which use locally abundant
resources intensively, will be exported by a country, whereas goods use intensive use of locally
scarce factors will be imported (Baldwin, 2008).
The economy in which a company is planning to invest must have a detailed study of that. New
Zealand economy depends on risk factors like GDP, Foreign direct investment (FDI).
GDP, the gross domestic product is the addition of GVA (gross value added) of all producers of
the economy plus any taxes from products and deducting subsidies. GDP of New Zealand until
2018, on an average, is 37.26billion currency units. Among which, 15.8 is lowest in Q2 1987 and
highest of 72.57 billion in Q4 2017.

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(Source: theglobaleconomy, 2018)
FDI, it is a summation of equity capital, other capital, and reinvestment of earnings. From Q2
2000 to Q1 2018 for New Zealand average value of Foreign Direct Investment, million currency
units in New Zealand as per New Zealand Statistics is 509.22 million currency units. This index
describes cross-border direct investment related to a resident in an economy having control over
the enterprise in another economy (Bartleet, 2010).

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(Source: theglobaleconomy, 2018)
Advantages
 Investment forecast on an average of New Zealand according to International monetary
fund for period 2000 to 2022 is 23.28 percent. Among which from 2018 to 2022, the
values are constantly increasing.
 According to heritage foundation data, Investment freedom index is 80 points in average
from 2014 to 2018 for New Zealand. This indicates a restriction to investment activity is
around 20% from the last four years.
 The well-developed infrastructure of New Zealand can be beneficial for a firm to invest
in the country.
 Since Australia wants New Zealand to remove export incentives. Australian
manufacturing firm to invest in New Zealand would improve economic relation with
New Zealand.
Disadvantages
 For a long period of time (1996-2016), the average rate of economic growth is approx. 2
to 3 percent per annum. This is not s substantial rate for a developed country. If it reaches
five, it will be considered significant (Pickford, 2018).

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References
Baldwin, R., 2008. the Development and testing of Heckscher-Ohlin trade models: a Review.
s.l.:MIT press.
Balli, F., 2018. New Zealand business tourism: Exploring the impact of economic policy
uncertainties. Tourism Economics.
Bartleet, M., 2010. Energy consumption and economic growth in New Zealand: Results of
trivariate and multivariate models.. Energy Policy, 38(7), pp. 3508-3517.
Doole, L. & Lowe, R., 2008. international marketing strategy: analysis, development and
implementation. s.l.:Cengage Learning EMEA.
Frankel, S., 2015. Limits of Free Trade Agreements: The New Zealand/Australia Experience. In
Intellectual Property and Free Trade Agreements in the Asia-Pacific Region. In: MPI Studies on
Intellectual Property and Competition Law. s.l.:Springer, Berlin, Heidelberg, pp. 315-333.
Kelsey, J., 2015. Reclaiming the future: New Zealand and the global economy. s.l.:Bridget
Williams Books.
Lawrence, J., 2015. Dealing with changing risks: a New Zealand perspective on climate change
adaptation. Regional Environmental Change, 15(4), pp. 581-594.
Magalhães, P., 2014. Government effectiveness and support for democracy. European Journal
of Political Research, 53(1), pp. 77-97.
McLean, J., 2017. Legislative Invalidation, Human Rights Protection and s 4 of the New Zealand
Bill of Rights Act. In Bills of Rights, pp. 237-264.
Pickford, M., 2018. State highway investment in New Zealand: the decline and fall of economic
efficiency. Policy Quarterly, 9(3).
Roth, P., 2017. Globalization and sovereignty: the case of human rights in New Zealand. In
Sovereignty under Siege?. Routledge, pp. 65-81.
Singham, M., 2008. Multiculturalism in New Zealand–the need for a new paradigm. Aotearoa
Ethnic Network Journal, 1(1), pp. 33-37.

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Trivedi, M., 2016. PESTLE technique–a tool to identify external risks in construction projects.
International Research Journal of Engineering and Technology (IRJET), 3(1), pp. 384-388.
Ward, C., 2008. Attitudes toward Immigrants, Immigration, and Multiculturalism in New
Zealand: A Social Psychological Analysis 1. International Migration Review, 42(1), pp. 227-
248.
Zealand, S., 2013. Census QuickStats about culture and identity., Wellington: Statistics New
Zealand .