Published on April 24, 2008
Slide1: Chen Ferguson Business Professor, Miami University China Association of the National Shipbuilding Industry China Boat Industry & Trade Association U.S. Department of Commerce Dec 19, 2006 - Portland, Maine The China Maritime Industry – Who are they? – What do they need? – How to get into the market? Slide2: Presentation Agenda: Stake holders in China’s Maritime Industry and their needs. Critical success factors for international companies to consider. How to enter the Chinese recreational boat market. 0 Slide5: Projection of the Boat Demand in China: In the U.S., one in every 14 people own a boat. China and the U.S. share similar water resources. As China’s economy further develops, China would have a demand of 182 million boats based on the U.S. boat-per-person ratio “If you earn 20,000 Chinese Yuan per month, you will be able to rent a boat; If you earn 500,000 - 1 million Chinese Yuan per year, you will be able to buy a boat.” - Based on current Chinese living expenses 0 Slide6: “Considering the economic development potential and disposable income increases, the recreational boating industry will be the next booming Chinese consumer industry, after housing and automobiles.” Mr. Yang Xinfa, Deputy Secretary-General of the Chinese Shipbuilding Industry 0 Slide7: Stakeholders in the China Maritime Industry As China’s Maritime Industry is developing rapidly, the following stakeholders are working simultaneously to push the industry forward: Investors Marina builders Marina/Club managers Boat manufacturers Equipment and component suppliers Policy makers Advocates and associations Consumers Slide8: Investors for a Marina/Club Investors build marinas, called clubs in China, because they are more than just docking facilities. Clubs in China are 5–star hotel facilities with business offices, vacation resorts and shopping arcades. The investment project includes building marinas and related entertainment facilities with typical investment of FDI or joint-ventures. The total investment ranges from USD 20 million to 300 million with initial investment about 3 million. Usually the entire project includes 3 phases: 1) get the land and water resources ready 2) build a marina 3) expand into a commercial center. Investors start to get income after the 2nd phase. A large project is Xiamen: will be a boat town (biggest club in Asia invested 300 million USD and expects to finish in 2009). Slide9: Investors for a Marina/Club Most investors are from overseas, either individuals or companies. There are many overseas Chinese investors who bring capital from the U.S. The domestic investors are Chinese real estate companies. They want a “piece of the action” from the growing recreational boat industry by leveraging their customer base (sell boats or provide additional services to their high-end customers). This is a very timely opportunity. If you believe the Chinese boat market has potential, you need to start doing your homework NOW. Critical Success factors: investors need a solid long-term plan, good connections with the local government, and a capable Chinese partner to implement the project. Slide10: Mercury Marina/Club with Luxury Characteristics: 0 Slide11: Mercury Marina/Club with Luxury Characteristics: 0 Slide12: Mercury Marina/Club with Luxury Characteristics: 0 Slide13: Mercury Marina/Club with Luxury Characteristics: 0 Slide14: Mercury Marina/Club with Luxury Characteristics: 0 Slide15: American Mercury Club in Suzhou: The most established boat club in China; investments by the Brunswick Group. The Mercury Club is now automatically associated with boating by the general public. Biggest benefits from the Mercury Club go beyond the physical marina. Its branding effect could generate tremendous revenue for Brunswick. Boats and yachts in China are extremely high end products. It indicates a life style that Chinese middle-class dreams about. Brunswick’s effective branding largely due to its being in the market first. Slide16: Marina Builders China needs expertise to build marinas (for short excursions rather than ocean cruising at present). But this is tough market to enter because: The entire market system has not been established yet (not transparent), so you do not know where to get your project. Thus Chinese connection is crucial. Several European companies are well established in China in this area. Customer development process is tedious and long. Need company’s physical presence in China. To identify projects and develop customers requires business development personnel constantly in the trenches, which will make the office, equipment and office assistant under utilized, especially for smaller marina builders with niche services. Slide17: Marina Builders: Shared China resources Potential customers: 1) Small and medium American businesses with the intension or budget to explore the Chinese market. 2) Professional associations who offer the Shared China Resources Program to members. Share resources on: office space, supplies, equipment, bilingual office assistant and business information. Dedicated project managers focus on developing your market. Benefits: 1) Reduced initial investment. 2) You know your maximum cost up front 3) Keeps your business plan flexible, especially during the first year. Critical Success Factor: Identify your business niche, develop customers and improve return on investment are critical. The business model of Share China Resources may be effective and efficient way to enter the market. Slide18: Marina/Club Managers This expertise is in demand, because almost every coastal city is starting to develop numerous clubs. Even in inner cities, as long as there are lakes, big or small, there are clubs. All clubs need experienced expatriate managers to run them. Critical success factors: Expatriate managers have to be very innovative in providing hospitality management employing Chinese cultural characteristics. Slide19: Boat Manufacturers Chinese central government unified a policy to start issuing boat manufacturer licenses to ensure quality production. There is a wide range in quality of manufacturer’s development level and management competence. Great majority of Chinese boat manufacturers do not have their own brand names – they produce at the request of western companies (labor cost advantage). Slide20: Boat Manufacturers China produced 18 mega yachts with average length of 115 m in 2005, ranked higher than Denmark and France (source: 2005 order book by editors of Showboats International). Quality Chinese manufacturers are selective about what orders to take and with whom to form a JV. Manufacturers of this category are also in demand - order waiting time is typically more than one year. Chinese manufacturers need the boat design, quality control, interior preference and technology, but are good at the engineering aspects (electrical, mechanical and structural, etc.) Slide21: Boat Manufacturers Critical success factors: American companies should choose the goals of working with Chinese boat manufacturers (low cost labor or Chinese domestic market potential). Find a reliable and competent partner with common goals, otherwise the partnership will collapse and you may cultivate your own competitor in China. There are only a limited number of quality boat manufacturers in China, so be decisive: once they collaborate with other boat manufacturers around the globe, your opportunity might be gone. Need STRATEGIES from beginning and constantly adjust them based on the market situation. Slide22: Chinese Shipyards: 0 Slide23: Chinese Shipyards: 0 Slide24: Chinese Shipyards: 0 Slide25: Chinese Shipyards: 0 Slide26: Equipment and Component Suppliers Boat and marine equipment suppliers are going to be in extremely high demand as the Chinese boat market grows. The reasons are: The owners and international shipyards require certain brand equipment and components. Currently there are almost no foreign equipment suppliers in the Chinese market. However, the demand has started to grow and it is going to get stronger. Critical success factors: 1) Boat and marine equipment suppliers have to consider cost-benefit analysis when entering the market 2) Using Shared China Resource Model can reduce the entry cost 3) Another strategy is using B2B model via internet. Slide27: Policy Makers at the National Level Ministry of Communications issued regulations in Sept. 2006 in the areas of boat inspection, registration, and pollution control. Boat and yacht schools have been established to issue driver licenses. Seventy National standards on boats and yachts have been published. Regulations on bringing in foreign boats and yachts for personal use have been unified. Need expertise on policy making to stimulate boat development, but also consider the long-term impact. Slide28: Policy Makers at the Local Government Level Over 50 Chinese cities have published a series of policies to encourage foreign investment. Local government officers start to realize using water resources to build a “yacht economy” will increase employment, service revenue and tourism income. Local policies give preference to boat and yacht-related investors on the approval process, land usage and tax advantages. Need expertise and experiences on development of appropriate policies to leverage local water resources. Slide29: 江苏省江阴经济开发区靖江园区概况 Jingjiang Park Of Jiangyin Economic Development Zone Of Jiangsu Province Slide30: Example: Jiangyin City The third richest city in China with per capita GDP over $8000 USD in 2005. The city has an integrated plan for developing its “coastal line” by providing an attractive investment environment for domestic and international investors. The goals are: 2004--- infrastructure construction 2005--- image established 2006--- development in high gear 2008--- create a new Jiangyin from the “yacht economy” Slide31: Advocates and Associations For the past 15 years, Chinese economy developed at 10%. As China has ¼ of world population with limited usable land, its policy makers have to ask the question “what resources can be used to sustain the economy?” There is general consensus among policy makers that developing the boat and yacht industry will bring prosperity by creating more jobs, attracting tourists and generating additional service revenue. Slide32: Advocates and Associates Among Chinese elites, it is very trendy to pursue a luxury life style: buying a second home in the countryside, playing golf and joining exercise clubs. Now inviting friends for a banquet is nothing special, but inviting friends to have a party on the boat while enjoy scenery is considered classy. Chinese people enjoy boating, however, the Chinese boating culture is more group-oriented (spending time with family, friends and colleagues). Slide33: Example Work of China’s Boat Industry & Trade Association Organized 11 trade shows. Conducted 120 workshops related to boat and yacht development in China. Facilitated several hundred business discussions. Shanghai trade show is claimed the biggest in Asia with 3,000 participants from China and 18 countries in 2005. The contract value during the last trade show was $1.5 billion USD. Slide34: Shanghai Boat Show 0 Slide35: Shanghai Boat Show 0 Slide36: Shanghai Boat Show 0 Slide37: Shanghai Boat Show 0 Slide38: Shanghai Boat Show 0 Slide39: Most Popular Chinese Boat Shows: 0 Slide40: Beijing Boat Show 0 Slide41: Beijing Boat Show 0 Slide42: Qingdao Boat Show 0 Slide43: Qingdao Boat Show 0 Slide44: Consumers: Boat Market Segments in China: Successful entrepreneurs Business executives Social celebrities Multinational companies Critical success factors: 1)create targeted programs to attract each segment, which has its own circle of friends, life styles and reasons to buy boats – very diversified needs 2) position your products appropriately based on your product match to the specific customer segment. Slide45: Chinese Luxury Goods Market in General: China is the third largest luxury goods market in the world (10% of world luxury goods market). Currently the demand for luxury goods is about $2 billion USD, approximately 13% of global luxury goods market. The Chinese luxury goods market segments include about 160 million population with about 13 million active purchasers of luxury goods. These are business executives, entrepreneurs and celebrities (source: Ernst &Young). By 2015, China’s demand for luxury goods will reach $11.5 billion USD. This is a market share of 29% of the global luxury goods (source: Goldmand Sachs). 0 Slide46: Demand for Chinese Luxury Goods: Luxury goods started in China with women’s purses, bags, and cosmetics. Later it extended to men with products such as cars and yachts. The year 2005 witnessed tremendous growth. In a survey conducted among 7,568 participants, 70.7% indicated that if they have money, they will buy luxury goods. BMW is no longer considered a luxury car in the Chinese market. Its annual sales were 5,700 vehicles with distributors in all regions in China. Purchasers have to wait in line to buy BMW cars in China! 0 Slide47: How to Enter the Chinese Boat Market? Consider cultural differences and Chinese modern culture Select entry business model Devise unique positioning strategies Select marketing strategies for luxury brands (branding, promotion, channel establishment, endorsement, publicity, news briefing, etc. ) Decide your Chinese market goals Choose market segment for luxury goods Use preemptive strategies Work with Chinese and U.S. governments to your advantage 0 Slide48: How to Enter the Chinese Boat Market 0 Slide49: How to Enter the Chinese Boat Market 0 Slide50: How to Enter the Chinese Boat Market 0 Slide51: How to Enter the Chinese Boat Market 0 Slide52: How to Enter the Chinese Boat Market 0 Slide53: How to Enter the Chinese Boat Market 0 Slide54: How to Enter the Chinese Boat Market 0 Slide55: Examples of Multinational Companies’ Performance in China: Sunseeker sold 6 boats within the first year when it gained a Chinese presence. During the Shanghai boat show, there were 50 bids on its Portolina46 model. Brunswick’s Chinese marina – Mercury Club – membership sales doubled in 2005. “In other markets for luxury goods in the world, even if you do a great deal of marketing, you do not see too much reaction, but in China, if you do limited promotion, you see the impact.” 0 Slide56: Chen Ferguson Cell: (513) 3300888 ([email protected]) Thank you!