Taiwan yachtmakers face struggle to stay afloat

July 26, 2013 12:28 pm

Taiwan yachtmakers face struggle to stay afloat

By Sarah Mishkin

Truckers at Bluewater Yacht Builder struggle to load a megayacht on to a truck that will help the 30-tonne luxury boat begin its journey to its new owner in California. While the task may be tricky, at least this Taiwanese company has a buyer. Taiwan recently overtook Germany to become the world’s sixth-largest yachtmaker, with 43 boats under construction. Yet despite this, sales are much lower than before the 2008 financial crisis. Production at yards across the country hit $148m last year, down from $357m in 2008.“The market is actually shrinking so . . . all the shipyards couldn’t get enough orders,” said John Lu, chief executive of Horizon, the world’s tenth-largest yacht builder.

Yachtmakers are far from the only companies in the export-dependent island facing tough times. Weak global growth has cut demand for a range of products – primarily electronics, but also boats and bicycles – that are Taiwan’s exports.

With exports equivalent to 70 per cent of its economy, the government recently cut its 2013 growth forecast to 2.4 per cent from 3.6 per cent. Economists expect the economy will have expanded 2.2 per cent when Taiwan releases second-quarter data on Wednesday.

Many Taiwanese companies are also battling againstlarger US and European competitors and, increasingly,ambitious and cheaper Chinese rivals. These troubles are rocking an industry whose growth has been an unusual success story for Taiwan.

Many large Taiwanese companies, and especially the electronics group Foxconn, specialise in using cheap labour to do low-margin production for others companies such as Apple.

Only a few industries have graduated to the more profitable business model of selling high-value goods directly to consumers. The yachting industry has made that jump alongside the nation’s bicycle industry, led by Giant – the world’s largest bicycle maker – and a few tech companies, such asphonemaker HTC.

Jack Chen, Bluewater’s general manager, said Taiwanese shipyards started out making small boats for others. But then they began investing more in marketing and design, as rising labour costs made it harder to compete on price.

Most of the world’s top yacht makers capitalise on the fact that they are European by trading on their nations’ storied histories in seafaring and design.

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Since Taiwan lacks the cachet of its European competitors, such as Italy’s Ferretti, it suffers in terms of pricing power. However, Ellie Brade of Superyacht Group, a market research firm, says Taiwanese boat builders have seen their reputation improved over time.

But even as they are better able to compete with their western rivals, Taiwanese yachtmakers are buffeted by a new challenge – China.

Many Chinese companies are investing in the industry as the number of rich in the country grows dramatically, sparking demand for everything from fast cars and yachts to helicopters.

Dalian Wanda, a large Chinese property group, recently bought Sunseeker, the premier UK yachtmaker. The southern Chinese island of Hainan alone has 206 companies in yacht-related industries, according to Chinese state media.

Rivalry from Chinese yacht makers is particularly tough. Echoing the challenges that Taiwan’s electronics companies say they face, Taiwanese boat industry executives say mainland competitors often poach their staff, enjoy lower labour costs and have better access to China’s tariff-protected home market.

“China has very strict policies in protecting their own industries,” said Memphis Han, general manager of Jade Yachts, an offshoot of the Jong Shyn shipping company.

Jong Shyn is refocusing on making commercial vessels, such as cargo ships, as yacht demand has dried up globally.

Others, like Horizon, are targeting Asian buyers other than mainland Chinese, particularly as southeast Asia becomes increasingly rich on the back of strong economic growth. It recently sold its largest ever boat in Singapore, and next month will deliver one to a Malaysian customer.

To help the yacht builders stay ahead of China and keep their hard-won global market share, the government has also taken steps to support the industry.

“China is focusing on the yacht industry,” said Mr Han. “Maybe their agenda caught Taiwan’s attention.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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