You don't just barge in without an understanding of tastes and customs
Builders trying to boost their bottom lines as the U.S. economy struggles to regain its footing are increasingly looking at cultivating markets overseas. But manufacturers say it's not as easy as sending a representative abroad and trying to sell a few boats.
Success takes time and patience, an understanding of nuanced markets and, perhaps most importantly, money at a time when cash is typically scarce. There are language barriers to overcome, as well as differences in news channels and financial systems. All of this makes creating brand recognition difficult, and one bad link in the chain can devastate a brand in a particular country.
Identifying up-and-coming hot spots is also a challenge in a world of fluctuating exchange rates, economic flare-ups and political unrest. But for companies that do the research and carefully craft a global strategy, the rewards can be significant, enabling them to balance their revenues when economies are flat in one area of the world.
For companies that already had made these long-haul investments, international demand has been one of the most important revenue sources, keeping them afloat until sales in the United States pick up.
Geographic and product diversity are "always an asset" to help companies offset a decline in one part of the world with stability or growth in another, says Clint Moore, president and CEO of Volvo Penta of the Americas. (Sweden-based Volvo Group has had a global business plan for decades.)
When the economy came crashing down in the fourth quarter of 2008, it was initially "indiscriminate geographically and along product lines," Moore says. "We had never seen that before."
The United States went into the downturn before the rest of the world, says Moore. "And we're coming out of it a little ahead of the rest of the world," he says. "But it looks like the rest of the world is recovering sooner than we had expected." Geographic diversity began paying off again in early 2009, Moore says.
When MasterCraft shut down in 2009 before restructuring, the company halted everything except international production, says John Dorton, president and CEO of Vonore, Tenn.-based MasterCraft Boat Co. and newly acquired MCBC Hydra Boats. That income was helpful in the second half of 2009 and accounted for about 25 percent of production in early 2010. Export revenues have doubled in the last two years, and Dorton expects them to double again in the next two.
Exports account for up to a third of sales at Orlando, Fla.-based Correct Craft, says president and CEO Bill Yeargin, who expects that number to increase as the global recession eases.
Business would also be slow at EdgeWater Power Boats, in Edgewater, Fla., if it weren't for exports, says company president Peter Truslow. International sales have grown from 10 percent to 40 percent in the last few years, though part of that increase is a result of lagging domestic sales.
"We see the domestic market picking up, but you really need the exports too," says Truslow. "I think part of the reason export has gone up is not a reflection that economies are doing better abroad - some are and some aren't - it's a factor of the globalization of the boat market."
Exports have stayed fairly consistent at Viking Yacht Co., says Peter Frederiksen, director of communications for the New Gretna, N.J.-based boatbuilder. "Even if the international market never gets huge, it will always be consistent, and that's very important, too," he says.
"Economies around the world change," says Skip Braver, who bought South Florida-based Cigarette Racing Team in 2002. "An advantage to being a luxury brand that has a global business is that the economy might be better in France than in the United States, so it balances out."
What brought us here
In 2007 and 2008, manufacturers saw little decline in overall sales even though domestic sales were flat, because the weak dollar made U.S.-built boats so attractive to consumers overseas, particularly in Europe, says Yeargin.
The U.S. market had declined all but one of the 15 years leading up to the market crash in late 2008, Yeargin says. Correct Craft, like others, had already spent time and money focusing abroad to not only generate unit increases but to increase overall international sales percentages.
Brunswick Corp. had a similar experience in 2008, when export sales rose from about 30 percent across the board to 43 percent, says Stephen Wolpert, vice president of manufacturing, who recently was named chief operating officer of Brunswick's newly formed European boat group. Brunswick plans to keep those percentages high by manufacturing overseas - in Poland, Portugal and Argentina, for example - to service local markets, keep costs down and avoid import taxes in some instances.
"Some of that is the inflated percentages that everyone experienced because of that overall market drop," Wolpert says. "But when [European] exports get more expensive, we're on the continent, so we won't suffer that problem."
The next hot spot?
Volvo Penta is replenishing worldwide inventories cautiously, Moore says. "What we can't tell yet globally is if [current demand] is just a spurt to replenish depleted inventory or does this recovery have some legs to it?" he says. "And that we really don't know the answer to yet."
Dubai, for example, was once revered by manufacturers as a place to be. Now it has also turned tepid, Frederiksen says. That's due in part to economic troubles there, too. Dubai was bailed out multiple times in 2009 by its wealthier sister emirate Abu Dhabi. On the other hand, Viking recently sent a boat to the west coast of Africa, Frederiksen says, where not everyone would imagine selling a yacht.
Eastern markets seem to have a long-term edge over other markets - not only on the manufacturing side but also for consumers, says Wolfgang Schmid, president and general manager of ZF Marine LLC in Miramar, Fla. ZF Group, based in Germany, manufactures transmissions and axles, and engineers products for several industries.
"The increase in business in the Asian-Pacific markets is breathtaking and hopefully sustainable," Schmid says in an e-mail to Soundings Trade Only.
The Asia-Pacific region includes Australia, Cambodia, Malaysia, New Zealand, Singapore, Thailand and Vietnam. India, though not technically part of this region, has gained attention from builders looking for opportunities overseas.
The Asia-Pacific economies, specifically those in Australia and New Zealand, seem to be less affected than those in the United States and Europe, says Wolpert. But unlike in the United States, global markets are difficult to generalize as "Europe" and "Asia-Pacific," Wolpert cautions.
Cobalt Boats' sales have picked up in Central America and South America, a region that seems "rich with opportunity," says Paxson St. Clair, president and CEO of the Neodesha, Kan.-based builder. "Our best dealer right now is in Chile. He does a really good job for us, but we really need to expand," says St. Clair, pointing out that Cobalt recently signed a new dealer in Mexico.
Viking signed a dealer in Mexico at the Miami boat show and plans to be represented at a boat show there. An avid fishing culture helps increase U.S. builders' visibility in Central America and South America, Frederiksen says.
In 2009, EdgeWater began to branch out of its core areas in Europe and the Caribbean, moving into Central America and growing a small presence in Asia, Truslow says.
China and beyond
Cigarette Racing Team is seeking out future opportunities, says Braver. "One of the areas we're looking at very strongly is China," he says. "I think it might not be a great market for Cigarette today, but we're always looking at the future, and no one can doubt that they're a superpower."
Companies have to determine how much they can afford when seeking markets abroad and whether they can develop those markets over the long term. "We've spent a long time doing things we didn't get instant gratification for ... but I think it's going to be good for the company in the long run," says Braver.
China is most commonly thought of as a nation to which manufacturing operations could be outsourced - an idea Braver isn't interested in pursuing - but less frequently as a venue for consumer sales. "For most boatbuilders today, it depends on what type of assets and resources they have," Braver says. "If someone's making 20 boats a year, maybe China wouldn't make sense for them."
China is in its recreational boating infancy, Wolpert says. He says Brunswick is taking advantage of some commercial and government boat demand there, but sees future potential for a recreational boating market.
"There's plenty of water, but they would need infrastructure like marinas," Wolpert says. "I would agree that it is a good long-term investment - it's just a question of when. Golf is very popular, and we find the boating lifestyle today more identified with work than pleasure, so that has to evolve."
MasterCraft, which was designated the official towboat for the International World Waterski Federation, gets exposure in China because competitions air there. "Billions of people are watching one TV show, and we've got one dealer there," says Dorton. "Not many Chinese people are able to buy, but it still builds brand recognition."
Asian economies have rebounded more quickly than those in other parts of the world, Moore says, which has boosted industrial and commercial marine revenue. Volvo Group does take advantage of manufacturing opportunities in China, with more than 20,000 employees, he says.
Europe, the bread-and-butter outlet for most U.S. manufacturers' export sales, has been tough to figure out. Some say the market has improved more quickly than expected, while others say it remains more depressed than U.S. markets.
"Within Europe, much like the U.S., we find that markets that have been heavily impacted by real estate values are down significantly more than other markets," Wolpert says.
However, European customers are less invested in stocks and equities and, therefore, are more insulated from those market swings, he says. That means they should buy as soon as expendable income is available - a theory already being validated in certain markets.
Truslow thinks European economies might be suffering more than is the case in the United States. However, Europe never had the inventory problem that U.S. manufacturers saw domestically, he says. "That's a big deal," Truslow says. "Generally when we sell boats to Europe they are retail sold, which is different than the United States, where 50 percent were retail sold and others were retail stocked."
As a result, shipments to Europe are only down slightly, Truslow says.
Brunswick is shifting production of its Bayliner and Sea Ray brands for the European market to Poland and Portugal so the company can develop an entire line that appeals to local customers. The boats are still built off U.S. platforms but are configured with special features for the European market so they compete more directly with local homegrown products.
"It's been really successful as far as growing our sales," Wolpert says. "If you're really going to win, you have to compete with the local competition, not just the exports."
Not much floorplan
Easy financing isn't encouraged in Europe, Moore says. Dealers there sometimes keep speculative inventory, but many of them use their own funds instead of borrowing, he says. Whichever model they use, there would theoretically be less inventory because it's a smaller market.
"Buyers tend to use cash," says MasterCraft's Dorton. "They have fewer floorplan lenders, but they don't seem to be as stringent. In all fairness, international dealers don't tend to carry as much stock as we do domestically, so there's less risk for lenders." Instead, dealers rely more on catalogs and sharing, he says.
Europe has inventory, some speculate, just not to the extent as dealers here. "In 2008 ... with the dollar being in the shape it was, U.S.-built products were a real bargain, so Europeans bought a lot of boats," says Cobalt's St. Clair. "So we as U.S. builders pumped Europe full of boats and really paid the consequences in 2009."
Now, with U.S.-made boats still a value in Europe, dealers have worked through excess inventory and have moved back to a more typical, conservative business cycle, St. Clair says.
A weak dollar - or strong euro, for that matter - is good news for American manufacturers but not for European companies. Many European nations have positive trade balances, with exports outpacing imports, ZF Marine's Schmid says. Once the euro gets above about a $1.25 exchange rate, European imports become too expensive for the U.S. market unless European exporters sacrifice margins to maintain market share.
Tailoring the product
Part of Viking's international appeal is the fact it has been a family business for nearly 46 years, Frederiksen says, something that resonates with many cultures. Viking also knows exactly how to equip each boat to accommodate local preferences, he says.
Another plus, he says, is Viking's ability to service and access remote locations, sending technicians around the globe as needed. "It's [what] we would do for a domestic customer - it's just the logistics are sometimes little more challenging," Frederiksen says.
When a customer from India wanted a tuna tower on his 56-footer, Viking enlisted its own tuna tower company. "One of Viking's greatest assets is being vertically integrated," Frederiksen says. The boat was sent to India fully operational, supplied with a captain and a tutorial on all the different systems.
In the case of ZF, the company largely owns all its sales and service locations, allowing it to control the entire chain from product development to consumer service, Schmid says.
Investing time and resources in international marketing isn't all it takes to have success in exports. At the end of the day, people still have to want to buy the boat.
Schmid says ZF's business plan from 2007 to 2009 was based on the assumption that U.S. boatbuilders would be able to steal market share from European competitors, which didn't happen on a large scale. "One of the main reasons, we found, is styling," Schmid says. "Some of the U.S. boat product does not appeal to the European eye, although [it is] up to 40 percent less expensive."
The sportfish segment, a big seller here, is nearly non-existent in Europe, Schmid says. "Unless the U.S. boatbuilders cater specifically to the European, Middle Eastern and Asian markets, we won't see a major shift in market share despite the exchange rate advantage," he predicts.
Moving production into local markets, as Brunswick is doing, might be difficult for other companies, Wolpert says.
Unless a builder is a niche player in a less price-sensitive segment, the competitive edge has to be price, Schmid says. "The more you move into a mainstream commodity type segment, the more pricing becomes critical," he says.
MasterCraft has been successful in Central America, South America, France, Italy and Australia, to name a few, and has seen a pickup in Israel, Egypt and the Sea of Galilee region. However, Dorton doesn't think the brand has as much opportunity in markets like Dubai or South Africa, for example.
Understanding where your segment can succeed is crucial. "Most importantly, you've got to have the right boat for a foreign market, and a lot of boats built in America are really designed more for America than any other country," says EdgeWater's Truslow.
MasterCraft's designation as the official towboat of the International Waterski and Wakeboard Federation late last year will provide mass international exposure for the inboard water-sports boatbuilder, Dorton says. Between 35 and 40 countries have government-sponsored water ski teams, partly prompted by the hope that water skiing will become an Olympic event.
"The word is we got nudged out by dance sport, but I'm hopeful when we're seeing things like volleyball; it seems to have a similar psychograph as water skiing," Dorton says.
IWWF teams buy at least one MasterCraft for tournament training.
In the larger boat and yacht business, a lot of business is done through word of mouth, Dorton says, but for smaller domestic builders that ship internationally, "the challenge is trying to build the brand."
Reaching the small percentage of boaters in relatively small populations can be an uphill battle. "Think about the United States, and if each state was like its own country," says Dorton. "Let's say Tennessee had a water ski magazine, and Massachusetts had a water ski magazine, and you had to go buy 50 magazine ads to reach individuals everywhere."
Not having global print media makes IWWF television coverage more lucrative. Knowing this, MasterCraft also sponsors the World Cup, which holds tournaments in countries like Singapore, London, Moscow and Sydney.
"A lot of these countries only have two or three TV stations, so we get a better saturation," Dorton says. "Not every category has that opportunity."
It takes research, knowledge and partnerships to make a dent in the worldwide market share. "We have a man who travels for us who speaks five languages," Cigarette's Braver says. "You have to do it very professionally if you go into another country. You can ruin your brand image by picking your partners carelessly."
Schmid agrees. "The biggest challenge for U.S. companies is to have the breadth and the commitment to invest years and years to build successful partnerships overseas and to customize products that cater to both individual consumer taste and demands of specific markets," he says. "Unfortunately, we are not known as the most patient people on the planet. A reliable aftermarket support is an absolute must."
Correct Craft's Ralph Meloon, the company founder's son, has visited more than 80 countries to help gain a worldwide presence, Yeargin says. "You just cannot show up in a foreign country and have a boat dealer write a big check to buy your boats," Yeargin says. "They have to know they can trust you and that you are going to stand with them, though you may be thousands of miles and several time zones away."
Smaller builders shift
As smaller niche builders, EdgeWater and MasterCraft are among the companies who have decided to bring exports in-house. Four years ago, MasterCraft negotiated out of its distributorship contract for international sales. The result has been an increase in sales, the company says.
"Markets where we sold three boats a year in the past, now we're selling 10 to 15," Dorton says. "They're small numbers, but they add up."
Because international markets are small, dealers tend to stock less inventory, opt out of boat shows and spend less on marketing, Truslow says. "We have found that working with distributors or commission representatives on a non-exclusive basis allows us to have more exposure around the world," he says. "And it also allows those distributors to offer [EdgeWater] as a niche product that may suit some of their customers needs better."
Not for everyone
Cultivating markets abroad won't fit into all builders' business plans. Builders must be certified to sell in other countries and have more detailed engineering specifications than most American builders have, says Truslow. Companies have to work with foreign banks on financing and facilitate letters of credit and structure payment terms.
"I think some people think they're going to make couple of trips to Europe and ... find a dealer distributor, and suddenly the demand is going to be created," Braver says. "You have to create the demand almost before the outlets."
Braver continues: "It's not a cure-all for a struggling company to say, 'We're going to open dealership in St. Tropez,' " he says. "It's just the managing of your assets versus how important this will be to your bottom line over time, and if you have the staying power to get it done right."
Cash is king, but it's not everything. Companies can pour money into overseas endeavors and still not succeed, Truslow says. "If you were a builder who decided that the market sucked and you're going to market in other countries, I think you'll be disappointed," he says. "It takes a long time."
Still, exports are critical to gain a competitive edge, Yeargin says. "It is very short-sighted to just focus on North America."
This year will be the most challenging ever for the global boating industry and for U.S. marine business in general, says Schmid. "Too many companies will fight over very little business," he says.
Many companies weathered 2009 because of inventories they were sitting on, he says. Those sales, even though they were discounted, fueled the cash flow needed to pay the bills. Now that the inventory has been sold or liquidated, some builders will struggle to pay creditors, Schmid says, leading builders to choose bankruptcy or equity for debt if the market does not recover as quickly as people hope.
"Larger, more international and financially healthy companies will benefit from this situation," Schmid says.
This article originally appeared in the May 2010 issue.