New Zealand's gain from Australia's offshoring pain

Australian firms hurt by a slowing economy are moving roles across the Tasman Sea. Lower costs, a convenient time zone and a shared culture are giving Kiwi companies a chance to make hay while the sun shines.

When Australian customers of Quickflix ring the online video rental and streaming service's support centre, the voice at the other end of the line sounds reassuringly familiar.

That's because the person speaking is not in Manila or Bangalore, but Auckland, New Zealand, where call centres have been steadily gaining clients from neighbouring Australia.

While it costs more to operate in the South Pacific island nation than the Asian centres that dominate the industry, Australian firms hurt by a slowing economy can still save some 30 per cent by moving roles across the Tasman Sea.

"A few years ago Australian companies wouldn't even consider outsourcing work to New Zealand," said John Chetwynd, managing director of Telnet, which operates Quickflix's call centre.

"This is a window of opportunity to grow our business based in Australia."

Telnet's work from Australia has doubled this year to roughly 20 per cent of its total business, as more firms shift support centre operations to New Zealand, attracted by lower costs, a convenient time zone and a shared culture.

The trend highlights one of the risks facing Australia's economy, where firms are increasingly finding that rising wages during a long boom, inflexible labour laws and red tape have blunted their competitive edge on the global stage.

Figures from the Organization of Economic Co-operation and Development show unit labour costs in both Australia and New Zealand rank in the top five among OECD countries, but costs in Australia climbed 7.8 per cent between the first quarters of 2009 and 2011, much faster than 4.4 per cent growth over the same period in New Zealand.

Minimum wage costs alone are higher in Australia, at $16.37 for most adults in the country, compared with a minimum wage of around $12.00 in New Zealand.

"Offshored" jobs are adding fuel to New Zealand's economic growth and reversing the historical migration to much more populous Australia just as it prepares for an economic slowdown.

Australia may have gone 22 years without a recession, but growth has sputtered as its China-led mining boom tapers.

In contrast, New Zealand's economy is on the up due to earthquake reconstruction projects in the Canterbury region of the South Island, while its high-tech manufacturing and IT sectors are expanding strongly.

That has been reflected in the New Zealand dollar's climb to a five-year high against its Australian counterpart. But despite the exchange rate, industry sources say Australian companies still stand to save around one-third in costs by shifting to New Zealand.

Crossing a ditch

Another sign is a marked slowdown in "kiwis" leaving for Australia so far this year, New Zealand government data shows, stemming a two-year exodus during which New Zealanders decamped to their bigger neighbour for better jobs and pay.

Now, more Australians are considering heading over "the ditch", said Pete Macauley, regional director of recruitment company Michael Page New Zealand, as more job losses push Australian unemployment to a four-year high.

"We are talking to a lot more Australians looking to New Zealand for their next career move," he said, citing demand from across the job spectrum, from mining to financial services.

While New Zealand has traditionally been relegated to "little brother" status against Australia, the two are major trading partners, closely linked through geographical proximity.

Companies including Australia and New Zealand Banking Group Ltd, Australia's third-biggest bank, and Fairfax Media, which publishes some of Australia's leading newspapers, have moved roles to New Zealand.

In June, Michael Stutchbury, Editor-in-Chief of the Financial Review Group at Fairfax, told readers in an email, "there's nothing wrong or new with offshoring", after the Financial Review moved copy sub-editing to Auckland.

"The strong dollar, digital disruption and changed consumer behaviour - are forcing just about every traditional company in Australia to reassess its business plan," he said.

Last year, food giant H.J. Heinz Co. moved some production from Australia to New Zealand, partly to become more competitive.

Mates rates

Only two years ago Lion Food and Beverage Company, owned by Japan's Kirin Holdings Co, and other big firms were moving jobs the other way to capitalise on Australia's stronger economy. Gary Ivory, M&A partner at KPMG in Auckland says this traditional shift "has definitely stopped".

Australian firms, able to deal with demands of its relatively strong unions when flush with cash, are reconsidering in a weaker economy, he said.

"What's affecting Australian companies is their cost structure. Now that things have slowed down, they're realising that they're uncompetitive," Ivory said.

A recent World Economic Forum survey on global competitiveness showed New Zealand outranking Australia for the first time, while Australia fell from the top-20 due to tight labour laws, government red tape and high tax rates.

Notoriously rigid labour laws put Australia near bottom of the 148-country list for wage flexibility and hiring and firing, while New Zealand ranked 10th for wage flexibility.

This may prompt more firms to consider New Zealand, where unions relations are warmer and a right-of-centre government since 2008 has fostered a business-friendly environment.

"Australian companies complained of hiring and firing practices along with a highly regulated labour market and the cost of employing people, whereas in New Zealand that wasn't an issue," said Oliver Hartwich, executive director of the New Zealand Initiative think-tank, which contributed to the survey.

"As long as Australia doesn't tackle these problems, New Zealand has a chance to outcompete," he said.

While many experts anticipate more Australian companies will shift jobs to New Zealand as the Australian economy slows, once things improve they say flows of migration and jobs will likely reverse, given Australia's economy is roughly six times bigger.

For now, firms in New Zealand can capitalise. And not just through cost savings - Australian customers of Quickflix and other companies can ring up operators who have similar accents and shared sense of humour.

"There's surprisingly little cultural stress, or tension - apart from when the rugby's on," said Dan Turner, chief executive of Unity4, an outsourced contact centre services provider that opened in New Zealand about six months ago. "It's a sibling rivalry."

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles