WorldCity Business Magazine

Charting a new course

by Mary Dempsey

China not only has a seemingly limitless ability to produce goods, it is also showing a voracious appetite for buying them especially luxury items. Within the next decade, the Asian country is expected to become the world’s second-largest consumer of luxury goods after the United States. The U.S. Commerce Department is taking steps to ensure that South Florida benefits from that development.

The Commerce Department arranged the participation of several high-profile Chinese companies at Fort Lauderdale’s annual boat show. The delegation is made up of businesses that want to buy goods or services from U.S. companies.

“The boat show is a tremendous source of business for the 800 members of the Marine Industries Association of South Florida. Many of them do 30 percent, 40 percent, 50 percent of their annual sales as a result of contacts made at this show,” says Frank Herhold, executive director of the association. “This is an opportunity for what amounts to a practically brand-new market.”

South Florida is an old hand when it comes to pleasure craft. The Miami area imports more yachts than any other Customs district in the United States. But it is also an important exporter of luxury boating equipment. WORLDCITY trade figures for the first eight months of 2005 show that South Florida exported $218 million in yachts, a third of them destined for Mexico.

In fact, until this year, South Florida was the nation’s No. 1 yacht exporter. Despite 11 percent growth in yacht shipments from Miami this year, Savannah has slipped into the first place position. The Georgia Customs district saw its yacht exports swell to $227 million between January and August, a jump of 74 percent compared to the same period in 2004.

Still, one of the premiere spots to see the latest products in the industry is at the fiveday show in Fort Lauderdale, which features $1.6 billion-worth of boats and accessories. William Lawton, a Foreign Service officer and senior trade specialist at the U.S. Commerce Department’s Export Assistance Center in Fort Lauderdale, says some maritime interests in South Florida responded enthusiastically to the news of the Asian delegation at the boat show, although others worried the Chinese would take away ideas and replicate them.

“No matter how many ideas you think they can see, we’re good at many things they are not,” he says. “For the luxury market they need to know how to work with brand names. They don’t have that expertise.”

The Chinese market is a coveted one because of the size of the country’s population. Even if only a tiny fraction of Chinese now with more disposable income and time to relax become interested in boating, it will be a dramatic boost for U.S. manufacturers and suppliers.

“It’s a huge market. You can just see the potential,” says Lawton. “When Mercury Marine started putting in a marina near Shanghai six years ago, everyone thought it was a white elephant. No one is laughing anymore. China wants to establish a pleasure-boat industry and that’s what we’re focusing on.”

Mercury Marine, which runs its Latin American operations from an office in Miramar, is one of the world’s biggest producers of boat engines. Its marina was the first in China. Norseman Shipbuilding in Miami also has been a pioneer in China: Last year it opened the 25-acre Norseman Shipyard in Xiamen.

Several U.S. embassies lined up prescreened foreign delegations for the Fort Lauderdale boat show at the end of October. But the biggest interest was focused on the Chinese delegation.

“China is sending some development people. It means they’re looking ahead,” says Herhold. “They’re coming across as very well organized. They’re sending a broad cross-section of marine industry types. It looks to me that they’re interested in buying more than boats.”

Between 2005 and 2008, Chinese purchases of luxury goods are projected to grow by 20%, according to research by international accounting and consulting firm Ernst & Young, and to exceed $11.5 billion in 2015. Last year, China bought only $44,000- worth of pleasure craft from South Florida.

Hot new market

China’s recreational marine market is already in the throes of growth. Chinese imports of U.S. pleasure boats, accessories and marina planning and construction materials more than doubled from January to October 2004, compared with the same period a year earlier. China imported $5.63 million- worth of yachts and pleasure vessels in 2003, according to Commerce Department figures. In the first 10 months of 2004, those imports exceeded $8 million.

The China Boat Industry and Trade Association and 17 companies with operations in China registered for the Fort Lauderdale boat show. They included Barfuss International Trading Co., a Netherlandsbased firm with operations in Shanghai. Barfuss is interested in high-speed patrol boats to be used for security at the 2008 Summer Olympics. The coastal city of Qingdao will host the Olympic sailing regatta.

Ningbo Yongwang Motorboat Co. compiled a Florida shopping list that included bilge pumps, motorboat carburetors, ignition systems and marine lubricants, while Ningo Chenglu Yacht Co. hoped to meet with yacht-design companies and suppliers of on-board furnishings.

One boat show registrant, Shanghai Double Happiness Yacht Co., built all 10 vessels in the Clipper Round the World Yacht Race 2005- 2006. The 68-foot sailing boats left England on Sept. 18 to begin their 35,000-mile circumnavigation of the globe.

Meanwhile, CRED Real Estate Co, which is involved in marina construction in China, wanted to meet with South Florida marine developers, as did Ningbo Global Yacht, which has plans for a yacht club in one of the major ports of eastern China.

The U.S. Commerce Department says provincial governments in China, property developers and boat builders are all investing heavily in the rising industry.

Using the runaway popularity of golf in China as a benchmark, Commerce Department analysts expect recreational boating, including the development of yacht clubs and marinas, to see a boom. China has more than 90,000 lakes and 11,000 miles of coastline. Although the country’s GDP grew an impressive 9.1 percent in 2004, some coastal cities including Shanghai, Qingdao and Guangzhou saw even greater growth of 10 percent.

Yachts have taken over from luxury cars as the new status symbol for China’s well heeled, and waterfront properties, marinas and yacht clubs are under development. Pleasure craft are also being purchased by the country’s swelling tourism sector. The World Tourism Organization predicts that China will be the world’s No. 1 travel destination by 2020.

The next big pastime

Resorts are seeking big cruising yachts to attract tourists. The new Three Gorge Reservoir is expected to become a hot spot for cruises. The Zhoushan Islands, a 1,390-island cluster off the eastern coast of China, are being developed by their municipal government as a yachting haven for upscale Asian tourists.

Shanghai, which is developing cruises along the Hungpu River, purchased a 116-foot Sir Winston Luxury Yacht in Florida in June 2004. Sir Winston Luxury Yachts are five-deck vessels with elevators and space for a helicopter on the top deck some even have fireplaces used by upscale charter services Florida.

The United States is the dominant player in China’s maritime industry, with more than a 50 percent market share. Lawton at the Export Assistance Center in Fort Lauderdale says the boat show offers South Florida an opportunity to improve that position.

“This is the biggest boat show in the world and Florida has the reputation, almost of mythic proportions when it comes to pleasure craft,” says Lawton. Chinese delegations have attended boat shows in Seattle and Boston but those focused on the fishing industry. Where Florida stands out is in the luxury market.

Lawton says a trade mission to China will follow the boat show, as will a seminar on doing business in Asian. “I think there’s an enormous amount of business available for Florida companies,” he says.