News for NZ Business Owners - 18th December 2025 Edition
NZ SMEs In A Global Context
Productivity, pay, worker rights, job security, and what we could do differently
New Zealand likes to describe itself as a nation of small businesses. That’s not branding, it’s literally how the economy is built. MBIE’s “Small Business Facts and Stats” shows that most NZ firms are small, and a very large share are micro-businesses.
That structure has upsides. Small firms are often closer to customers, quicker to decide, and more likely to be rooted in local communities. But when you line New Zealand up against higher-performing small advanced economies (think Denmark, Finland, the Netherlands, parts of Canada, and top-performing regions in Australia), a consistent pattern shows up: our SME-heavy structure has not translated into strong productivity, high wages, or deep, systematic investment in workforce capability.
What follows is a plain-English positioning of NZ SMEs globally across the dimensions you asked for, how we likely got here, and what practical innovations could lift our status.
1) Performance and productivity
The most important global comparator is output per hour worked. That’s the “engine room” metric: it’s what ultimately funds wages, training budgets, technology upgrades, and business resilience.
A recent draft Long-term Insights Briefing prepared by MBIE/MFAT summarises the problem bluntly: New Zealand’s productivity has lagged other advanced economies for decades, with growth often coming more from adding labour (more people, more hours) than from lifting output per worker.
That same briefing points to a striking long-run comparison drawn from the IMF: NZ’s GDP per hour worked was close to Scandinavian peers in 1970, but by 2022 it was about 40% lower.
It also flags a key mechanical driver: capital intensity (capital stock per hour worked) is materially lower than in comparable economies, which limits what labour and skills can produce.
Why does this matter specifically for SMEs?
Because small firms are the place where the productivity “diffusion problem” becomes visible. High-performing economies don’t just have a few frontier firms doing brilliant things; they also have systems that spread better practices, technology, and skills quickly through the long tail of smaller operators. The MBIE/MFAT briefing explicitly highlights NZ’s “small dispersed regional economies largely made up of small firms” and notes weak innovation diffusion and limited scale economies as part of the structural challenge.
In other words: we’re not short of hardworking people. We’re short of a system that consistently turns effort into higher-value output.
2) Pay levels, internationally
Wages track productivity over time. In the short term you can get deviations (migration surges, commodity cycles, inflation bursts), but in the long run, higher output per hour is what sustains higher average pay.
Using OECD-style “average annual wages” expressed in USD PPP terms (a standard way to compare purchasing power across countries), Trading Economics’ OECD-derived series shows New Zealand at about US$62,437 in 2024.
For context, the same series puts:
Australia at about US$70,736 in 2024
United States at about US$82,933 in 2024
United Kingdom at about US$63,691 in 2024
NZ isn’t at the bottom of the table. But compared to the productivity-leading small advanced economies we often admire, we’re typically not in the top tier either. That gap matters to SMEs because wages are not just “a cost”; they are also how you attract capability, stabilise teams, and reduce turnover. If your national productivity settings and capital allocation keep wages constrained, SMEs end up in a perpetual knife-fight between paying enough to keep good people and maintaining margins.
3) Worker rights and worker voice
On paper, NZ has a modern employment relations framework and basic standards (minimum wage, holidays, sick leave, protections against discrimination, health and safety duties). But “worker rights” in global comparisons is also about practical enforceability, union access, bargaining coverage, and whether workers can exercise voice without retaliation or structural disadvantage.
One widely used global benchmark is the ITUC Global Rights Index, which grades countries by how well labour rights are respected in practice. New Zealand is not usually ranked alongside the worst offenders, but it also does not automatically sit at the very top in the way Nordic countries often do.
For SMEs, this matters in a pragmatic way: countries with strong worker voice often have better-developed systems for training, credentialing, and industry-wide capability uplift. Strong labour institutions can be part of a productive “high-trust” equilibrium, not just a compliance burden. The question for NZ is how to get the upside of that equilibrium without importing bureaucracy that small firms can’t carry.
4) Security of tenure and dismissal protection
If you want the cleanest international signal on job security settings, look at dismissal protection, notice periods, and redundancy obligations.
The OECD’s “Back to Work: New Zealand” report is unusually direct. It states that legal protection against dismissal in New Zealand is more flexible than in any other OECD country, with notification procedures and notice periods among the most relaxed, and no statutory requirement for redundancy payments in labour law.
That flexibility can support hiring and restructuring. But the OECD also spells out the trade-off: the costs of economic restructuring fall heavily on individual workers and their families.
This interacts with SME behaviour in predictable ways:
In a high-flex system, some SMEs hire more readily because exit is easier.
But workers may be more cautious, less loyal, and less willing to specialise deeply without security.
And when displacement happens, the economy can lose accumulated firm-specific skill and trust, which is expensive to rebuild.
If the goal is higher productivity, you want a labour market that is adaptable without being disposable.
5) Training and development offered by employers
This is where NZ’s SME structure bites hardest.
Many small firms do train people, but often informally: buddying, learning-by-doing, quick vendor sessions, and ad hoc short courses. That can work for basic competency, but it struggles to build deep capability at scale (supervisory skill, lean process improvement, digital systems mastery, advanced technical credentials, export readiness, and innovation routines).
The OECD report highlights that NZ’s support framework puts heavy reliance on individuals and families when displacement happens, and notes that active labour market spending is on the lower end in the OECD ranking.
That’s not “training inside SMEs” directly, but it signals a wider system issue: when the country doesn’t strongly co-invest in re-skilling and transitions, the burden of capability development falls back onto individual firms, including the smallest ones — the very businesses least able to fund it consistently.
High-performing jurisdictions typically do three things better:
They share the cost of training (government + employer + sometimes sector levies).
They make credentials modular and stackable (so SMEs can train in small chunks without losing people for weeks).
They professionalise management (because management quality is one of the strongest predictors of productivity diffusion).
How we likely got here
NZ’s current position isn’t because Kiwi owners are lazy or backward. It’s structural.
The MBIE/MFAT briefing points to enduring constraints: small market size, geographic isolation from major markets, and an economy dominated by many small firms operating in relatively insular markets, limiting scale, capital investment, and connection to global frontier firms.
It also notes a persistent pattern in domestic investment skewing toward residential property rather than productive activities like R&D and high-tech, contributing to low capital intensity and a less diversified economy.
On innovation inputs, OECD comparisons commonly show NZ’s overall R&D intensity below the OECD average (the OECD average is materially higher than NZ in the commonly cited figures).
When capital and R&D are thin, SMEs end up doing what they must: competing on effort, improvisation, and long hours rather than on systematic process advantage.
What innovations could lift NZ SMEs globally
Here are practical “system innovations” that don’t rely on wishful thinking -
1) Sector training compacts that SMEs can actually use
Create industry-led training compacts (construction trades, light manufacturing, food processing, logistics, aged care, hospitality, agri-services) with:
co-funded training budgets per employee
micro-credentials designed for 2–4 hour blocks
mobile trainers who come on-site
simple skill ladders tied to wage progression
This reduces the “I can’t spare them” barrier that kills training in small firms.
2) Management capability as infrastructure
In high-performing jurisdictions, management capability is treated like economic infrastructure. NZ could scale:
short, practical supervision programmes (performance conversations, rostering, basics of coaching, conflict handling)
process improvement skills (lean, quality, maintenance discipline)
digital operations basics (job costing discipline, inventory accuracy, scheduling systems)
Because in SMEs, one good manager can change the productivity of 10–30 people quickly.
3) Diffusion engines, not “innovation theatre”
NZ doesn’t need more hype. It needs diffusion:
regional “productivity extension” services (like a practical, SME-facing version of what high-performing countries do)
shared benchmarks by sub-sector
hands-on implementation support, not just advice
The MBIE/MFAT briefing explicitly suggests other small advanced economies have been more deliberate in targeted “vertical” levers to speed innovation andimprove efficiency across value chains.
4) Capital intensity fixes aimed at SMEs
If capital stock per hour worked is a core drag, you need mechanisms that help SMEs invest:
faster depreciation for productivity-enhancing equipment and software
co-investment funds for automation where it genuinely fits
support for export-ready capability (because higher-value markets justify better capital and training)
5) A “flexible but not disposable” employment bargain
Given NZ’s unusually flexible dismissal settings in OECD terms, a productivity-focused reform package would aim to preserve adaptability while reducing the destructive side-effects:
stronger transition support (career navigation, rapid retraining access)
clearer minimum notice/redundancy norms (or portable schemes) to reduce inequality by bargaining power
incentives for retention and upskilling rather than churn
6) Make the “Māori economy” capability lift part of the national productivity story
The MBIE/MFAT briefing notes rapid Māori economy growth and the importance of targeted support in a fragmented small-firm economy. MBIE
Done well, this isn’t “special treatment”; it’s smart national productivity strategy: lifting capability where there is growth momentum, strong networks, and long-term ownership horizons.
The bottom line
New Zealand’s global SME position is not hopeless - but it is structural.
We have an economy with a huge long tail of small firms, relatively low capital intensity, persistent productivity gaps, and labour market settings that lean heavily on flexibility while leaving many workers carrying the downside risk.
The countries that beat us are not magically better people. They build better systems - co-investment in skills, deliberate diffusion of good practice, management professionalism and capital settings that reward productive investment over passive gain.
The Plug
If you’d like to discuss how to ready your business for new directions or even to establish the health and sustainability of where you are right now, lets have a chat. For goodness sake, it’s free!
📞 Phone +64 275 665 682
✉️ Email john.luxton@regenerationhq.co.nz
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If you’d like to read more RegenerationHQ thinking on SME business and other things, go here – www.regenerationhq.co.nz/articlesoverview
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