The global recession of the last years which affects all economy in the world is known to be as bad as the Great Depression in the 30s. GDP of OECD countries declined by 4.7% in 2009. Some of the top economies also knew a downturn, by 3.4% in 2009 for USA and by 7.9% for Japan for the same period (OECD statistics). According to the World Trade Organisation, world merchandise exports decline by 12% in 2009.
Fisher & Paykel Appliances designs, manufactures and markets a range of innovative household appliances. The company has manufacturing sites located in Auckland, New Zealand; Borso del Grappa, Italy; Rayong, Thailand and Reynosa, Mexico. With appliances' revenue of 1,010.7 million NZD in Financial Year 2010, it's one of the biggest New Zealand Company.
The purpose of this paper is to analyse the impact of the global recession on Fisher & Paykel Appliances and on New Zealand Society.
I/ The impact of the recession on Fisher & Paykel Appliances Holdings Limited:
Fisher & Paykel Sales have been impacted by the global recession, with all markets experiencing a decline in revenues. The New Zealand appliances market declined 11.5% during the financial year ending 31 March 2008 and 9% during the year ending 31 March 2010; it declined sharply after last Christmas. In 2 years, appliances revenue decreased by 23.88% in local market, from 242 987 thousands NZD to 184 963 thousands NZD, due to lower volumes and price rebalancing on selected products as a result of a strong New Zealand dollar. The company knew equivalent losses in other market between the financial year ending 31 March 2008 and the one finishing 31 March 2010: in Australia, which represent almost 40% of the Company's revenues, incomes were down 22.74% with a larger decline post last Christmas like in New Zealand market; in North America, the third market of Fisher & Paykel in 2010 after Australia and New Zealand, the company knew the biggest decreased of its appliances revenue (-36.64%); in Europe, a small regional segment for the company, revenues declined by 20.23%; and in Asia and the rest of the world, incomes decreased by 10.35%.
Fisher & Paykel Appliances revealed a new Global Manufacturing Strategy in April 2008 during the recession. John Bongard, CEO of the company, cited ongoing manufacturing cost escalations, particularly in New Zealand and Australia, as the main reason for relocating production. For him, "free trade agreements with low cost labour countries like China and Thailand have created a playing field we are unable to compete in". The relocations lead to a reduction in the Dunedin (New Zealand) based work force of approximately 430 positions, of approximately 310 in Brisbane (Australia), and a reduction in staff numbers of approximately 330 positions in California (USA). The new global manufacturing strategy involves shifting this Company's manufacturing facilities to a combination of existing sites in Thailand, in Italy and in Mexico. The financial benefits arising from the new strategy are expected to be around 50 million NZD per year. In the financial year ending 31 March 2011, Fisher & Paykel expect to realise a full year benefit from the factory relocations, including lower conversion costs. The process of localising raw material and component supply will continue progressively over the year.
In a speech to Fisher & Paykel shareholders the last 23 August, the CEO gives the future direction of the company. With the global recession, Fisher & Paykel have difficulties to execute the recent year's strategy which was focussed on global expansion, development of differentiated, innovative products and cost reduction, primarily via the Global Manufacturing Strategy. Now, according to the CEO of the company, the business success will depend of 5 main things:
- Business Excellence: it is about having the systems and processes in place to deliver the Strategy and to allow the right Strategy to be implemented quickly in response to a rapidly changing environment.
- Delivering Customer Benefits: it is about creating the organisational capability and infrastructure to continuously gather actionable customer data and use it to drive the development of innovative differentiated product; and ensuring the quality of Fisher & Paykel products.
- Organisational Capability: it is about creating the right environment and retaining the talented people.
- Disciplined Market Growth: it is about focussing the expansion strategy on North America and Europe, applying further resource to key home markets of Australia and New Zealand and focussing more on Asia, particularly China, as a source of future revenue growth.
- Cost Reduction: After the Global Manufacturing Strategy, Fisher & Paykel must continue to optimise costs across all aspects of business to remain competitive.
II/ The impact of recession on New Zealand Society:
The New Zealand economy entered recession in early 2008, before the effects of the global financial crisis were felt later in the year. GDP decreased sharply over 2008, as high fuel and food prices reduced private consumption, while high interest rates and falling house prices generate a rapid decline in residential investment. Economic activity fell sharply following the intensification of the global financial crisis in September 2008, contracting 1.1% in the last quarter of 2008 and 1.5% in 2009 (Statistics New Zealand), with production GDP driven by reductions in manufacturing, construction, and wholesale and retail trade. The exceptionally low fixed mortgage interest rates and rapidly increasing net migration led both to house prices rising in the first half of 2009, after prices had declined 9.8% from the December 2007 peak. Annual Consumer Price Index (CPI) inflation fell to 1.7% in the September 2009 quarter after reaching 5.1% one year earlier (Statistics New Zealand). The unemployment rate increased sharply from a record low of 3.5% in December 2007 to 7.1% in December 2009 (Household Labour Force Survey - Statistics New Zealand).
The impact of the recession on New Zealand Society was uneven. Young people are more concerned by the recession than others. The 15-19 years old category is the most affected: the unemployment rate for this people increased over the years, 14% in 2007, 16.1% in 2008 and 23.4% in 2009. The same rate was almost doubled in 2 years for the 20-24 years old category, from 6.2% in 2007 to 11.5% in 2009 (Household Labour Force Survey - Statistics New Zealand). About regional council area difference, the Northland Region and the Gisborne / Hawke's Bay Regions have doubled their unemployment rate in 2 years, respectively from 4.1% and 4.4% in 2007 to 8.8% and 8.3% in 2009, highest rates in New Zealand. The Southland Region and the Tasman / Nelson / Marlborough / West Coast Regions have the lowest rate of jobless people who are looking for an employment, always below 4% in the last 4 years (Household Labour Force Survey - Statistics New Zealand).
In order to fight against the recession, the government made personal income tax cuts on 1 October 2008, on 1 April 2009 and again on 1 October 2010. Other measures include: an accelerated package of 'ready-to-roll' infrastructure projects in housing, transport, education and energy sectors at an estimated cost of almost 500 million NZD; and a relief package designed to assist small and medium-sized businesses (which make up the largest proportion of New Zealand firms) in order to reduce compliance costs and improve the business environment in the face of the crisis. In response to the international credit crisis, the government introduce retail and wholesale bank guarantees in order to provide further support to the Reserve Bank which introduced a range of facilities to make sure that adequate liquidity was available to the banking sector. In addition to the biggest tax reform over the past 25 years including tax cuts and incentives, the budget 2010, focussed on building recovery, have several initiatives:
- 321 million NZD over 4 years for new science, research and technology initiatives;
- An extra 2.1 billion NZD investment in health priorities;
- An extra 1.4 billion NZD will be injected into better schooling and early childhood education;
- 132.1 million NZD invest in social development;
- 36 million NZD in housing;
- Another 1.45 billion NZD for infrastructure projects in 2010/11, in addition with 10.7 NZD billion over the next 10 years for State Highways and 3.3 billion NZD in the next five years to upgrade the national grid;
- 75.9 million NZD of capital funding for a new joint border management system;
- An extra 6.5 million NZD over the next three years to help settle all historic Treaty claims by 2014;
- The Government is investing 347.3 million NZD to retrofit 180,000 homes with insulation and clean heating devices;
- The Government is on track for 600 extra frontline Police by the end of 2011.
Conclusion:
According to the IMF, New Zealand has been able to ride out the global financial crisis better than many other advanced countries (New Zealand-2010 Article IV Consultation). Recovery has already begun: the housing market recovery, stronger consumer confidence and a higher population base have a positive impact on private consumption. Furthermore, the strengthening global economy and a lower exchange rate result in stronger export volumes driving economic growth, which is profitable for the new strategy of Fisher & Paykel. The government budget 2010 ("Building Recovery") will help the country to exit permanently the recession put the country on the road of economic growth.
Sources:
stats.gov.nz : Household Labour Survey Gross Domestic Product Annual Consumer Price Index
Budget 2010 - Building the Recovery (Government Fact Sheet), New Zealand Government,
http://www.beehive.govt.nz/sites/all/files/Budget_2010-Building_the_Recovery1.pdf
Speech to the New Zealand Council for Infrastructure Development, Bill English, 11 August 2010
http://beehive.govt.nz/speech/speech+new+zealand+council+infrastructure+development+2
New Zealand Economical and Financial Overview 2010, New Zealand Government, April 2010,
http://www.treasury.govt.nz/economy/overview/2010
New Zealand - Economic Outlook, OECD, May 2010,
http://www.oecd.org/document/46/0,3343,en_33873108_33873658_45270062_1_1_1_1,00.html
Annual Report 2009 and 2010, Fisher & Paykel,
http://www.fisherpaykel.com/global/investors/reports.cfm
CHAIRMAN AND MANAGING DIRECTOR & CEO'S ADDRESS TO SHAREHOLDERS, Fisher & Paykel, 23 August 2010,
http://www.fisherpaykel.com/global/investors/Investors-PDFs/Announcements/04%20Chairman%20and%20Managing%20Director%20&%20CEO%27s%20Address%20to%20Shareholders.pdf
Fisher & Paykel Appliances Announces Global Manufacturing Strategy, Fisher & Paykel, 17 April 2008,
http://www.fisherpaykel.co.nz/global/investors/Investors-PDFs/Stock%20Exchange%20Release/06%2017%20April%202008.pdf
New Zealand-2010 Article IV Consultation, IMF, 29 March 2010,
http://www.imf.org/external/np/ms/2010/032910.htm
