Manufacturing at a crossroads: Balancing cost pressures and long-term value
New Zealand manufacturers face a double risk: rising costs that demand urgent action, and short-term cuts that could quietly erode the sector's long-term competitiveness
In today’s Moves that Matter, we’re delving into one of our practice areas. Alex Jones (Director - Auckland Office) joined Polis earlier this year from his previous career as CEO of an NZ manufacturing firm.
It is no secret that New Zealand’s businesses are facing the dual pressures of enduring depressed consumer demand and ever-increasing operating costs. Manufacturers, who are often capital intensive, maintain problematic legacy operations, and are heavily exposed to energy prices are one sector in the firing line.
After a period of contraction and uncertainty through 2023-2024, the sector has shown recent signs of recovery. Yet a fundamental challenge remains: intense pressure to cut costs in the short-term versus the need to invest in long-term value creation.
New Zealand’s manufacturing sector stands at a crossroads. Decisions made now will determine whether Kiwi manufacturers merely survive by trimming costs, or thrive through investment in innovation and high-value production.
The pressure on manufacturing
Manufacturing is vitally important to New Zealand’s economy and communities. The sector contributes about $23–24 billion to GDP (nearly 10% of the economy) and directly employs over 220,000 people. Manufacturing accounts for roughly 60% of the country’s exports. However, manufacturers’ operating costs have risen approximately one thousand basis points faster than the CPI, squeezing margins. Particularly in the Post-covid era, manufacturers are sprinting just to stay in place.
At the same time, manufacturing’s share of GDP has steadily declined from 13.6% in 2004 to 7.8% in 2024 .
The short-term temptation
It is no surprise that many firms are turning to “cost-out” measures: deferring capital projects, trimming payrolls, outsourcing, or relocating production offshore. These tactics can ease immediate financial pressure, but they come with risks.
Excessive cost-cutting often weakens the very capabilities manufacturers need to compete globally. For example:
Productivity growth in manufacturing has been among the lowest of any NZ sector, partly due to underinvestment in equipment and technology.
Firms that cut training or apprenticeships risk deepening New Zealand’s existing skills shortage.
Competing on price alone puts local manufacturers in a losing battle with large industrial nations which benefit from scale and lower labour costs.
Firms that delay capital investments are likely to fall behind at an accelerated pace, given the rapid advancement of manufacturing machinery (e.g., CNC, 3D printing) and comparative foreign (competitor) investment into these areas.
In short, chasing short-term savings can put the wider sector at risk of a long-term decline. But doing nothing is also a risk, as it allows competitiveness to erode slowly while global rivals continue to invest and adapt.
So: how can leaders strike a balance between managing immediate pressures and safeguarding future competitiveness?
The case for value creation
There is another path. New Zealand manufacturers cannot change the realities of being a small, distant economy, but they can control how much value is created per unit of input. Long-term competitiveness comes from innovation, quality, niche positioning, and skills development.
Encouragingly, there are positive signs:
The manufacturing sector is New Zealand’s largest investor in R&D, spending over $825 million annually.
Manufacturing R&D grew by nearly 20% between 2018 and 2022, while emissions fell by more than 2,000 kilotons.
Where appropriate, firms are adopting Industry 4.0 practices, including automation, robotics, and digital supply chains.
Case studies across food and beverage, pulp and paper, and medical technology show that manufacturers who differentiate on quality and branding, rather than price, are better positioned to win in global markets. In addition, manufacturers that operate in specific sectors, including the medical technology and defence space, benefit significantly from added defensible ‘moats’ including industry certification (e.g., ISO, FDA) and global onboarding and compliance requirements which make manufacturing in New Zealand more advantageous.
Moves for tomorrow: start the strategic conversation
The crossroads for manufacturing is not abstract. It comes down to the concrete choices leaders make in their next meeting, next budget round, and next investment decision. Here are three moves that can set the tone today for strategically balancing immediate pressures with tomorrow’s competitiveness:
Pressure test cost-cutting ideas: Put one proposed cost-saving measure on the table and ask, “What capability or future opportunity might we lose if we do this?”
Reframe performance metrics: Agree on one additional measure to track that reflects long-term competitiveness (e.g. productivity per worker, % of revenue from new products) alongside short-term financials.
Map your competitive advantage: Spend 15 minutes identifying two areas where the business can differentiate beyond price, and one area where cost competition is unavoidable.
Looking beyond next week
Every cost decision made today is also a choice about the future your organisation will inherit. Some moves may ease pressure now but limit options later. With that in mind, one powerful question to ask in your next leadership meeting is:
Looking back five years from now, what long-term value decision are you most likely to regret not making today?
We can’t wait to continue the kōrero with you in our next ‘Moves that Matter’.