Investment Industry in New Zealand - Case Study Example

Investment Industry in New Zealand of Table of Contents Introduction 3 Industry Analysis 3 Global Investment Sector 3 Investment Sector of New Zealand 3 Competition 4 External Environment Analysis 4 Political and Legal Environment 5 Economic Environment 5 Technological Environment 6 Social Environment 6 Porter’s Five Force Model 7 1.Threat of Substitute 7 2.Rivalry 7 3.Buyers’ Power 8 4.Barrier to Entry 8 5.Suppliers’ Power 8 Review and Analysis 8 Recommendation and Conclusion 9 References 10 Appendix 11 Introduction Investment forms an important part of any business. It can be in the form of debt and equity, which are either borrowed or raised as capital from different financial institutions, venture capitalists and general investors. The world economy is slowly recovering from the financial crisis of 2008, and studies suggest that the investment sector is growing steadily and has a huge potential. In recent years, major structural changes have been recognised in this industry (KPMG, 2013). In the context of growth of the investment industry, the paper aims at analysing prosperity of the investment industry worldwide and in New Zealand. The paper will further focus on one of the prominent investment companies of New Zealand, the Marlin Global Limited, and will analyse its strategic position. Industry Analysis Global Investment Sector The world economy is slowly stabilizing and investment sector of various nations are expanding in other economies in the light of globalisation. According to various studies, demand of foreign and domestic investment in growing in energy, retail, real estate and other sectors. Moreover, worldwide development of technologies is also seeking great degree of attention of investment sectors at international and domestic level. However, financial crisis of 2008 has become an example for many institutions for not promoting reckless investment. Presently, investments are being made by firms after evaluating every aspects of a business including its future potentials of generating revenue (KPMG, 2013). Investment Sector of New Zealand The business environment of New Zealand is globally recognised for its stable and safe investment sector. The country is considered within the OECD high income region and is appreciated globally for protection of investors, minimum corruption, high transparency and supportive environment for starting up businesses. Studies suggest that the banking and investment sector of New Zealand is very strong and were able to face the global economic meltdown well (New Zealand Government, 2014a). Chart 1 shows the country’s share in the investment and saving in the context of its GDP from 1995 to 2005. Chart 1. Current account balance decomposed into savings and investment. In the Treasury, 2005, retrieved August 25, 2014, from http://www.treasury.govt.nz/publications/media-speeches/speeches/investment. Copyright 2014 by the Treasury. In the investment sector, the paper particularly focuses on Marlin Global, an internationally recognised publicly listed investment company, having business primarily in countries such as New Zealand, Australia, Brazil, Denmark and France. Marlin Global limited is an Auckland based public firm has global presence in various sectors. The funds of the company are managed by Fisher funds and are invested in international growth companies (NZX, 2014). Competition The investment sector in New Zealand is primarily driven by competition because of various advantages that domestic and international companies enjoy in the country due to low corruption, safe returns and other flexible policies. In this context, the company faces competition from various private and public investment companies, namely Kingfish Limited, Infratil Ltd, Rank Group, FE Investments, Barramundi Limited and Aorere Resources (Aorere Resources Ltd., 2014; NZX, 2014; Fleisher & Bensoussan, 2003). External Environment Analysis The macro environment exerts a significant impact on business developed in the investment sector. For instance, the financial slowdown in the United States affected numerous nations all over the world resulting in economic depression and recession. The macro environment of New Zealand’s investment sector has been analysed using the PEST technique, which stands for political, economic, social and technological environments. Political and Legal Environment New Zealand is a democratic country and the legal and political system of the country is based on British law. According to the Global Peace Index, New Zealand was regarded as the third safest country in the world. The country is free from political turbulence and corruption. The government ensures physical and economic safety of nationals and foreigners through a strong judicial system (INZ, 2012; The World Bank, 2014). Economic Environment New Zealand is a free economy and shares strong economic linkages with the rest of the world. It has access to markets of emerging economies of Asia as well as to the flourishing economy of Australia which is another source of competitive advantage for the nation (The Treasury, 2005; Easton, 2013). In chart 2, it can be observed that between 1995 and 2005, among various OECD countries, New Zealand has relatively better performance in terms of economic growth. Chart 2. Real GDP growth in the NZ economy and comparison with OECD average. In the Treasury, 2005, retrieved August 25, 2014, from http://www.treasury.govt.nz/publications/media-speeches/speeches/investment. Copyright 2014 by the Treasury. According to the Treasury (2005) of the country, the sound monetary policy of New Zealand has always acted as an external economic shock absorber. New Zealand presents minimum trade and investment barriers to firms and has a highly flexible labour market. Technological Environment The technological environment of New Zealand is highly enhanced in terms of usage of renewable energies. The country has been involved in maximum utilisation and development of clean technologies for a long period of time. Heavy investment is made in sustainable technological development in various sectors such as agriculture, energy, transport and communication (New Zealand Government, 2014b). Social Environment According to the Ministry of Social Development of New Zealand, the living conditions and other measures of social well being are of paramount importance for the government of the country. From time to time, the variables such as poverty, unemployment, cost of living, and administrative practices are evaluated by the system so that social capital of the country can be enhanced (New Zealand Government, 2013; Ministry of Social Development, 2011). The outcomes of social survey by the nation’s government between 2012 and 2013 in presented in Chart 3. Chart 3. Overall life satisfaction. In New Zealand Government, 2013, retrieved August 25, 2014, from http://www.stats.govt.nz/browse_for_stats/people_and_communities/Households/nzgss_HOTP2012.aspx. Copyright n.d. by Statistics NZ. Porter’s Five Force Model Chart 4 (Source: Author’s creation) 1. Threat of Substitute It has already been highlighted that Marlin Global Limited (MGL) has a number of competitors in the public and private sectors, who sell similar kinds of investment products. Most of the private and public firms’ products are not as well managed as those of MGL, but they do have a strong strategic position in the international market. Therefore, in the spider diagram the threat of substitute has been ranked as the highest. It noteworthy in this context that any profitable industry will attract new competition until the market has been saturated, therefore, it is possible that Marlin global may face competition from newer and smaller organisations as well (NZX, 2014; Grundy, 2006). 2. Rivalry Studies suggest that prime competitors of MGL are Infratil Ltd, Barramundi Limited, Aorere Resources and other international firms. All these companies operate on national and international levels and have diversified portfolios of energy, infrastructure, retail and other sectors. It was observed that MGL can face steep competition from Aorere Resources and Barramundi Limited. Barramundi Limited invests small growth companies outside Australia while Aorere Resources is mainly focused upon oil and natural gas related projects. Funds of all these companies are managed by Fisher Funds; hence the level of competition is higher (Aorere Resources Ltd, 2014; Barramundi Limited, 2014; NZX, 2014). 3. Buyers’ Power The third strongest force in Porter’s model, in the context of New Zealand’s investment sector, is the power of consumers to negotiate the cost of products. Though the cost of investment products is rarely negotiable, consumers have the liberty to select products as per their budgeted cost due to a large number of substitutes (Grundy, 2006; Porter, 2008). 4. Barrier to Entry New Zealand’s business environment offers investors a friendly setting through low taxation, relaxed regulation policies and high degree of protection against risky ventures. Therefore there is little barrier for foreign organisations to enter the market. This scenario can pose threat to existence of many small firms in the country (Grundy, 2006; New Zealand Government, 2014a). 5. Suppliers’ Power The business environment of New Zealand is supportive enough to allow existence of multiple organisations within the same sector which minimises the scope of monopolistic and oligopolistic competition among firms. Instead, a high level of competition creates a perfectly competitive scenario in the market (Ormanidhi & Stringa, 2008; New Zealand Government, 2014a). Review and Analysis In context of Porter’s five force model, it was observed that the internal components of the business environment provide a number of opportunities for business organisations operating in the investment sector. In context of New Zealand, it can be suggest that investment corporations require being operative in different sectors. In other words, an investment organisation must be able to cater needs of different sectors such as food, forestry, property, textile, retail and various other sectors functioning in the economy. This will enhance the competitive advantage of the company. Regarding MGL, the company has great potentials to grow as it is already operating at domestic as well as international level and has diversified investment portfolio as well. In context of external environment analysis, it was ascertained that the economic and political environment of the country is suitable for any kind of business. Additionally, the government provide every kind of support to domestic as well as foreign organisations through low taxation, liberal regulations and investor protection. Recommendation and Conclusion Post economic slowdown, presently the world economy is growing rapidly and small as well large firms are vying for comparative advantage. The prime recommendation for MGL is that it is about time for the company to diversify its existing portfolio. The reason behind this proposal is that by undertaking a diversified portfolio, the company will be able to raise capital from numerous investors in different industrial sectors. Furthermore, portfolio diversification will also enable the firm to compete against Barramundi limited and Aorere Resources in a more equipped manner. In context of the potential of the company, it is noteworthy that the company has sufficient potential to gain interest of investors in domestic market as well as international market. Therefore, it can be concluded that the investment company is a good choice for various investors. References Aorere Resources Ltd. (2014). Home. Retrieved from http://aorereresources.co.nz/. Barramundi Limited. (2014). About. Retrieved from http://www.barramundi.co.nz/. Easton, B. (2013). The Commercialisation of New Zealand. Auckland: Auckland University Press. Fleisher, C. S. & Bensoussan, B. E. (2003). Strategic and competitive analysis: methods and techniques for analyzing business competition. Upper Saddle River, NJ: Prentice Hall. Grundy, T. (2006). Rethinking and reinventing Michael Porters five forces model. Strategic Change, 15(5), 213-229. INZ. (2012). Stability and Security. Retrieved from http://www.newzealandnow.govt.nz/investing-in-nz/stability-security. KPMG. (2013). Industry insights. Retrieved from http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/industry-insights/Documents/industry-insights-download.pdf. Ministry of Social Development. (2011). Social indicators and social reporting in New Zealand. Retrieved from https://www.msd.govt.nz/documents/about-msd-and-our-work/publications-resources/journals-and-magazines/social-policy-journal/spj37/11-cotterell-crothers.pdf. New Zealand Government. (2013). New Zealand general social survey: 2012. Retrieved from http://www.stats.govt.nz/browse_for_stats/people_and_communities/Households/nzgss_HOTP2012.aspx. New Zealand Government. (2014a). Invest. Retrieved from https://www.nzte.govt.nz/en/invest/new-zealands-investment-advantage/. New Zealand Government. (2014b). Clean technology. Retrieved from https://www.nzte.govt.nz/en/invest/sectors-of-opportunity/clean-technology/. NZX. (2014). Marlin global Limited. Retrieved from https://www.nzx.com/markets/NZSX/securities/MLN/analysis. Ormanidhi, O. & Stringa, O. (2008). Porter’s model of generic competitive strategies. Business Economics, 43(3), 55-64. Porter, M. E. (2008). On competition. Harvard: Harvard Business Press. The Treasury. (2005). External linkages and the NZ investment environment. Retrieved from http://www.treasury.govt.nz/publications/media-speeches/speeches/investment. The World Bank. (2014). Ease of doing business in New Zealand. Retrieved from http://www.doingbusiness.org/data/exploreeconomies/new-zealand/. Appendix Chart 4. New Zealand’s Stock of Foreign Direct Investment. In the Treasury, 2005, retrieved August 28, 2014, from http://www.treasury.govt.nz/publications/media-speeches/speeches/investment. Copyright 2014 by the Treasury. Chart 5. Decomposition of real GDP growth in New Zealand. In the Treasury, 2005, retrieved August 28, 2014, from http://www.treasury.govt.nz/publications/media-speeches/speeches/investment. Copyright 2014 by the Treasury. Chart 6. Business investment growth in New Zealand. In the Treasury, 2005, retrieved August 28, 2014, from http://www.treasury.govt.nz/publications/media-speeches/speeches/investment. Copyright 2014 by the Treasury. Read More