Where do you go for growth? Overseas, especially Asia

Posted on Written by Michael Sciulla
Michael Sciulla

A few months after the end of the Civil War, newspaper editor Horace Greeley wrote, “Washington is not a place to live in. The rents are high, the food is bad, the dust is disgusting and the morals are deplorable.” His memorable advice: “Go west, young man, go west.”

Although the food and the dust problem have improved through the years, Greeley’s advice is especially relevant today for anyone hoping to sell more recreational boats, equipment and services.

The good news is that American marine marketers aren’t limited to going west today. Boatbuilders should be looking at the world as their oyster. They should be casting their nets across the Atlantic or angling for the fast-growing Asian markets because, by all accounts, the prospects for substantially growing the U.S. market for new boats remains dim for the foreseeable future. The fact is that new-boat sales (less canoes and kayaks) have plummeted more than 50 percent since 2000, from 465,000 to 228,920.

According to Greg Ip, economics editor at The Economist magazine and a speaker at the National Marine Manufacturers Association’s recent American Boating Congress event in Washington, the United States is “no longer a consumer-led economy. Lack of demand is the problem,” he says.

Ip believes we are two years into a recovery cycle that may well take a full seven years to get us back to “normal.” He projects that manufacturing will propel the economy and that exports will grow, particularly if the dollar stays weak.

If manufacturing is the key to growth, where will that growth be found? The fact is that millions of consumers in emerging markets overseas now have more disposable income than ever before. Consider this report from J.D. Power: In 2010, consumers in China and India bought 19.9 million new passenger vehicles, 70 percent more than were sold in America. Chinese consumers alone purchased 3 million more vehicles than were sold in the United States.

The potential for exporting American-built yachts or building overseas is substantial. At the top of the household income scale, although there are still more millionaires in America than there are anywhere else in the world, 58 percent of the world’s 11.2 million millionaires live abroad and their number is growing at twice the global rate, according to the Boston Consulting Group’s Global Wealth 2010 report.

China is now home to 875,000 millionaires, according to the 2010 Hurun Wealth Report. Depending on whom you talk to, China is now one of the world’s top three markets for luxury goods, along with Japan and the United States, and China recently surpassed India as the world’s largest market for investment gold.

The market for yachts is shifting from “made in China” to “made for China,” says Zhang Yao, general manager of Brunswick Trading (Suzhou) Co. Ltd., which has delivered 600 vessels to Chinese customers. With about one-third of China’s 1.3 billion people living along its coast, there’s a market out there just waiting for our excess capacity. According to the Hurun report, only about 100 Chinese-owned yachts are larger than 60 feet, compared with the more than 7,000 vessels of that size in the United States.

Perhaps Columbus was just ahead of his time by heading west with three little boats in search of riches in the Far East.

Although the luxury boat market is certainly a rich prize, let’s not overlook the fact that there’s a boatload of money to be made by selling high-quality American products to the growing upper-middle and middle classes around the world, whether they are built here or overseas.

According to a special “Behind the Wall” report by Bloomberg News, income has quadrupled in China during the last decade, the 150 million members of its middle class are expected to triple in 10 years and, by 2030, China’s GDP could match that of the United States.

If we can persuade the Chinese not only to eat KFC but also to make it their No. 1 choice in fast food, why not recreational boats?

Although American exports to China amounted to $92 billion in 2010, China isn’t the only export market worth considering. Brazil, Russia and India are the other three countries in the BRIC grouping, which has been the talk of investment advisers since Goldman Sachs coined the term a decade ago. In 2001, Goldman projected that their combined economies could eclipse that of the world’s current richest countries by 2050. The $60 billion in U.S. exports to those three countries in 2010 is projected to continue growing in the years to come.

General Motors, of all things, has demonstrated what can be accomplished in the face of declining domestic consumption and cutthroat competition from global and local competitors. According to Kevin Wale, president and managing director of GM China, through a number of joint ventures GM last year sold more cars in China than in the United States.

GM was the top foreign carmaker in China in 2010, and its Buick division sold more Buicks in China (447,011 in 2009) than in the United States. Buicks have a cachet in China among upscale professional families and a reputation for reliability. These are two virtues that American boatbuilders can exploit as millions more Chinese enter the middle class in the coming decades.

One key to GM’s success is the partnerships it has formed. “Our partnerships are enabling us to do more than we could by going it alone,” Wale says, adding, “You will not be successful [in China] — as the old saying goes — if you and your partner are sleeping in the same bed but dreaming different dreams.”

But wait. You can’t learn anything from the automotive industry because boats are not automobiles. I’ve heard this article of faith repeated without question for the last 30 years. Comparisons between the two industries are certainly debatable, but what’s not debatable is that times have never been tougher and the outlook so tenuous for so many in this industry. To refuse to even consider “going west” is as silly as the strongly held belief that the world was flat.

Apparently some boatbuilders have gotten the message, as the number of boats exported has nearly doubled during the last decade, from 63,378 to 116,669, amounting to $1.8 billion in sales. But there’s certainly room to grow. A host of American industries have seen the writing on the wall, exporting $172 billion in goods in 2010.

“You need to participate in the future,” says GM’s Wale. “This requires understanding where the industry needs to go and actively participating in helping to form the future.”

It’s prescient advice worth heeding from a senior executive whose company was the poster child for a bankrupt American industrial icon just three years ago.

Michael Sciulla is vice president of the Marine Marketers of America and a member of the Boating Writers International and Marine Marketers of America boards of directors. During a 28-year career at BoatUS, he built the association’s brand as membership grew from 30,000 to 650,000.

This article originally appeared in the July 2011 issue.

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