Yacht makers on the slow boat to China

Most manufacturers with their plants mainly in high-cost countries have found the past few years a struggle, as the balance of power has swung towards low-wage nations led by China. Read original article

A notable exception to this trend is the leisure boating business - a segment of manufacturing with annual sales of about $25bn. Sales are growing at 5 to 10 per cent a year thanks to healthy demand for many kinds of vessels from sailing boats to the $200m "superyachts" favoured by film stars.

Of the industry’s output, which covers sales of boats that are predominantly for non-commercial use and owned by individuals, only a tiny percentage comes from factories outside western Europe and the US.

These are just the parts of the world where competition with low-cost manufacturers has been extremely tough, leading to heavy job losses in sectors such as car parts, furniture and electronics.

The 16 largest boat builders have combined annual sales of about $8bn. They employ some 38,000 people, all but a handful of whom are based in high-cost countries, mainly the US, Italy, France, Germany and the UK.

These companies construct a range of boats from 8 metre, $30,000 sailing craft to 35 metre luxury yachts.

One of the most resplendant of these is the $150m Perolus, which contains two helicopter pads, has space for 22 guests and twice this number of staff, and is owned by Roman Abramovich, the Russian businessman.

People in the leisure boating business point to a number of factors that have shielded them from competition from low-cost nations.

Paolo Vitelli, chief executive and founder of Azmut-Benetti of Italy, says the attention to detail and customisation of many high-price yachts means the required standards of the purchaser can almost always only be met by products made in high-cost nations.

"A modern boat includes many kinds of sophisticated items which are unlikely to be made in China," he says.

Among the items to which he is referring are sophisticated diesel engines and electronic navigation systems, as well as products - such as metal guard rails - which often have to be made in small quantities so they fit a built-to-order product.

David King, managing director of Princess Yachts, a UK maker of large engine-powered yachts, says: "We are the opposite of a mass-production industry. Most components are made to very high specification and made by the boat companies themselves, or suppliers fairly close by."

Another crucial point, says Lars Nettestrom, chief executive of Denmark-based X-Yachts, is that most customers for high-end yachts are rich enough not to be too worried about high costs.

"There is more of a pressure to achieve quality, than to cut prices," he says.

For the next few years, most people in the leisure vessel industry expect demand for their craft to continue to rise - with little of the pressure seen in other industries for companies to "offshore" final assembly or even production.

The one exception to this upbeat view comes from companies selling mid-sized boats in the US, where demand for such craft has been hit due to the weaker economy, even though purchases of the most expensive boats still appear strong.

Luca Bassani, chief executive and founder of Monaco-based Wally Yachts, says: "There are more wealthy people than there used to be – and they are from a greater range of countries, which gives the industry a good platform for growth."

Bruno Cathelinais, chairman of Beneteau of France, is sufficiently confident to be aiming for annual sales of his company’s sailing boats to rise to €1bn ($1.35bn), up from €830m last year and just €106m in 1995.

In the past 10 years his company has expanded its predominantly French workforce fivefold to 5,400 – defying a trend seen in virtually every other part of European manufacturing.

However some in the industry see the tide turning on the sector’s reliance on products made in high-cost countries.

Dusty McCoy, chief executive of Brunswick of the US, the world’s biggest maker of leisure craft, says boat building generally is too much of a "cottage industry". He reckons it has not done enough to take advantage of the economies that can be gained by outsourcing production to low cost nations, something that Brunswick has done by setting up two plants in China.

"We think we have to do more to set up a network of global factories as happens in other industries such as cars," says Mr McCoy. "We‘ve located some very good suppliers in China."