New Zealand’s export push is missing a key ingredient: Innovation

Professor Rod McNaughton

Opinion: The government wants to double New Zealand’s exports by 2034, but there’s a missing piece: innovation. Without a stronger emphasis on innovation, firms will struggle to compete, and the strategy will fall short. Simply increasing the number of exporters isn’t enough. The real challenge is ensuring that firms have world-class products and services that can hold their own in global markets.

While small and medium-sized enterprises (SMEs) make up approximately 96% of New Zealand’s exporting firms, they contribute only 12% of the country’s total goods exports. Despite being far fewer in number, larger firms account for a significantly greater share of export volume. Moreover, SMEs are far less likely to export than larger firms – only 16% of all SMEs export, compared to 35% of firms with more than 250 employees.

Meanwhile, New Zealand’s research and development spending is about 1.5% of GDP, well below the OECD average of 2.7%. This chronic underinvestment limits the ability of firms to develop high-value, competitive exports.

An emphasis on exporting alone risks pushing more firms, especially SMEs, into international markets without a clear internationalisation strategy and the innovation capacity they need to succeed.

How Internationalisation Drives Innovation

In a study I recently published with my colleagues Olli Kuivalainen (Lappeenranta University of Technology) and Michael Sheppard (Acadia University), in Navigating Disruptions and Transformations in International Business, we examined 779 Canadian SMEs to understand which internationalisation strategies contribute most to innovation. The findings offer important lessons for New Zealand, where SMEs face similar challenges in innovation, productivity and global competitiveness.

Our study found that the most innovative firms followed one of two internationalisation pathways: some scaled up rapidly in a few key markets, while others expanded their scope across multiple countries while maintaining moderate sales in each. These companies that expanded systematically introduced more pioneering innovations, invested more in research and development, and applied for more patents than those that remained domestic or expanded without a clear strategy.

However, most SMEs didn’t follow either of these structured approaches. In our sample, 29% had internationalised, a considerably higher proportion than among NZ’s SMEs. But of those who entered international markets, only 31% focused on scaling in key markets, while 9% adopted the strategy of increasing their market scope.

Businesses that concentrated on a few key markets tended to be highly innovative because they faced intense competition, which forced them to refine their products, improve processes, and invest in research and development. This pressure pushed them to develop new solutions, form strong partnerships with distributors and suppliers, and integrate cutting-edge technologies.

Meanwhile, firms that expanded their scope by entering multiple markets, sometimes almost simultaneously, benefitted from exposure to diverse customer needs, regulations, and technologies. Engaging with multiple regions allowed them to integrate best practices from different parts of the world, encouraging breakthrough innovation and the development of scalable business models.

In contrast, companies that entered export markets in an ad hoc manner or delayed internationalisation were far less innovative. They struggled to build competitive advantages without a clear internationalisation strategy and often failed to grow or maximise the innovation benefits of operating in global markets.

These findings are particularly relevant for New Zealand, where SMEs often enter export markets reactively rather than strategically. As a result, they miss out on the innovation benefits that structured internationalisation provides, limiting their ability to develop world-class products.

What New Zealand Must Do Differently

If New Zealand is serious about its export growth target, policymakers need to ensure that firms are not just expanding but innovating as they do so. Export promotion and innovation strategy shouldn’t be treated as separate challenges. Without a deliberate focus on innovation, businesses entering international markets will struggle to compete.

Firms that scale rapidly in key markets require assistance in securing international distributors, financing growth, and managing logistics. Sustaining innovation at scale depends on access to capital, R&D support, and stronger connections to research institutions.

In contrast, firms expanding across multiple countries need help navigating foreign regulations, managing international partnerships, and developing scalable business models. Their success depends on leveraging global knowledge networks and adapting to different customer demands.

Without innovation, New Zealand won’t just fall short of its export target; it risks falling further behind in global competitiveness.

Professor Rod McNaughton is Academic Director of the University of Auckland Business School’s Centre for Innovation and Entrepreneurship.

This article reflects the opinion of the author and not necessarily the views of Waipapa Taumata Rau, University of Auckland. It was first published by NBR.