Chen Ferguson

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The China Maritime Industry Who are they?
What do they need? How to get into the
market?

• Chen Ferguson
• Business Professor, Miami University
• www.Chinaboatmarket.com
• China Association of the National Shipbuilding
  Industry
• China Boat Industry Trade Association
• U.S. Department of Commerce
• Dec 19, 2006 - Portland, Maine

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• Presentation Agenda
• Stake holders in Chinas Maritime Industry and
  their needs. Critical success factors for
  international companies to consider.
• How to enter the Chinese recreational boat
  market.

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• 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 Chinas 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

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• 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

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• Stakeholders in the China Maritime Industry

• As Chinas 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

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• Investors for a Marina/Club

• Investors build marinas, called clubs in China,
  because they are more than just docking
  facilities. Clubs in China are 5star 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).

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• 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.

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• Mercury Marina/Club with Luxury Characteristics

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• Mercury Marina/Club with Luxury Characteristics

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• Mercury Marina/Club with Luxury Characteristics

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• Mercury Marina/Club with Luxury Characteristics

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• Mercury Marina/Club with Luxury Characteristics

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• 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.
• Brunswicks effective branding largely due to its
  being in the market first.

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• 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 companys 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.

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• 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.

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• 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.

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• 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
  manufacturers 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).

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• 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.)

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• 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.

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• Chinese Shipyards

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• Chinese Shipyards

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• Chinese Shipyards

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• Chinese Shipyards

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• 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.
  

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• 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.

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• 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.

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????????????????Jingjiang Park Of Jiangyin
Economic Development Zone Of Jiangsu Province

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• 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

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• 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.

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• 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).

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• Example Work of Chinas
• 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.

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• Shanghai Boat Show

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• Shanghai Boat Show

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• Shanghai Boat Show

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• Shanghai Boat Show

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• Shanghai Boat Show

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• Most Popular Chinese Boat Shows

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• Beijing Boat Show

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• Beijing Boat Show

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• Qingdao Boat Show

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• Qingdao Boat Show

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• 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.

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• 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, Chinas 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).

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• Demand for Chinese Luxury Goods
• Luxury goods started in China with womens
  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!

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• 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

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• How to Enter the Chinese Boat Market

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• How to Enter the Chinese Boat Market

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• How to Enter the Chinese Boat Market

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• How to Enter the Chinese Boat Market

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• How to Enter the Chinese Boat Market

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• How to Enter the Chinese Boat Market

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• How to Enter the Chinese Boat Market

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• 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.
• Brunswicks 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.

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Thank you!

• Chen Ferguson
• Cell (513) 3300888
• chen.ferguson_at_chinaboatmarket.com