Ocean Magazine, June 2011

Re-made in Taiwan

Having survived global recession, draconian government regulations and stiff competition from neighbouring China, Taiwan’s yacht builders are fighting back with new boats and new markets. Sam Tinson reports.

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“Some of the bigger yards with a lot of money tied up in orders were hit very badly, but we were just small enough to be flexible, so we survived ok.”

F r a n k C h ya n, j oh n s o n ya ch t s

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SAM TINSON

n many ways, Taiwan is the least likely location for one of the world’s most successful yacht building industries. A tiny island half the size of Tasmania, overshadowed politically and economically by mainland China (with whom it’s engaged in a long running dispute over sovereignty), it is bordered on the west by the heavily militarised Taiwan Strait, and to the east by a mountain chain that runs the length of the island, forming a natural barrier to the Pacific Ocean. While the missile bases, gunboats and vertical cliff faces are an excellent deterrent against possible Chinese invasion, they don’t make for very inviting cruising grounds. On top of that, security restrictions mean that private yachting in the region is practically prohibited. Taiwan, then, is something of an industry anomaly: a yacht building powerhouse with no domestic yachting market of its own.

Prior to the global financial crisis, having a wholly exportbased growth strategy didn’t present a problem for Taiwan’s yacht industry. The country after all was one of the ‘Asian Tiger’ economies (alongside Hong Kong, Singapore and South Korea) whose ability to supply the industrialised world with everything from bicycles to biotechnology fueled its rampant economic growth from the 1960s onwards.

By the 1980s Kaohsiung harbour, on Taiwan’s southern tip, was the busiest commercial dock in the world. A booming shipyard sector grew up alongside it, and by 2008 Taiwan was home to some 40 yacht building companies. In Kaohsiung alone, well known brands such as Jade Yachts, Ocean Alexander, Johnson, Vision, Monte Fino and – the daddy of Asian yacht builders – Horizon made their homes, exporting product to European and North American markets that couldn’t get enough of their relatively low cost yachts, many of which were designed by western naval architects and built to a high standard.

And then, in mid 2008, came the GFC. With their vital US and European markets imploding, Taiwan’s yacht builders were faced with a stark choice: adapt, or perish. Remarkably

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“i have my own stores, so i can control the prices and i have a direct link with my customers. it gives us more flexibility.” j o h nny chueh, oc ean alexander

most yards survived – the Taiwan External Trade Development Council (TAITRA) says just two or three yards closed as a result of the crisis – and a tour of Kaohsiung harbour today finds boat builders in various states of health, from the bare-bones survivors (Johnson Yachts) to the cautiously optimistic (Ocean Alexander) and the brazenly resurgent (Horizon Group). The overall mood, even at the healthier end of the market, is one of recovery, change and renewal.

One yard that felt the pinch harder than most when the market crashed was Johnson Yachts, a company whose stock in trade was large, semi-custom boats designed for the US market.

Sales Manager Frank Chyan makes no attempt to sugarcoat the situation the brand now finds itself in.

“The hulls you see in the yard now are all cancelled orders from US buyers,” he says. “They are big boats, and we can’t sell them because that market has gone. Right now we’re struggling to find work for our staff to do. After 2009 everything changed.

For every yard, the main job now is to keep going and try to survive. Not make money, just try to survive.”

To do that Johnson had to make the inevitable cuts, slashing its workforce by two thirds from 270 employees to 90 as orders for new boats dropped off. From having six or seven yachts in build at any one time the company ended up with just two. The only blessing, says Chyan, was that the drop in business happened relatively slowly.

“We were lucky,” he says. “During the early stages of the financial crisis no single customer pulled out, no builds were cancelled. We experienced a gradual decline, but we had enough orders to keep us going. Then from mid-2009 it dropped off quickly, but by then we’d had time to adjust. Some of the bigger yards with a lot of money tied up in orders were hit very badly, but we were just small enough to be flexible, so we survived OK.” While staff lay-offs and belt-tightening allowed Johnson and the other Kaohsiung yards some temporary relief, survival in the oceanmedia.com.au

longer term required more deep-rooted change. With the big boat markets in Europe and the US floundering, they began focusing instead on building smaller boats to attract Australian and New Zealand buyers, and – importantly – the nascent market in mainland China.

“There is definitely a trend towards smaller boats since the GFC,” says Chyan. “I never thought that we’d be developing smaller boats, as in the last decade it’s been always bigger, bigger. But since 2008 there have been no enquiries for large yachts. So we’re currently developing a 65-foot design, which is the size preferred in Australia. You can’t tell how long this strategy will be in place. Maybe in two or three years we’ll have requests for bigger boats again.”

Over at Ocean Alexander the situation looks slightly brighter, if the upbeat manner presented by company President Johnny Chueh is anything to go by. Young, bright and fiercely driven, Chueh prides himself on taking control of every aspect of his business. Unlike his competitors, who sell the majority of their boats through third-party dealerships, Cheuh sells through Ocean Alexander’s own worldwide distribution network. This, he says, made all the difference when the GFC hit.

“About 90 per cent of our production goes to our own distribution centres, so we’re very unique in that,” he says. “The dealers are really a secondary market for us. We have our own offices in Shanghai and Hainan, and in the USA we have nine offices, and we have our own stores in Porto Rico and Panama, where we also sell Azimuts alongside Ocean Alexander. So we’re not really just a manufacturer; we’re involved in the industry.”

Having his own outlets gave Chueh a huge advantage during the GFC, allowing him – and not the dealerships – to control prices, discounts and contracts to suit the wildly fluctuating yachting market.

“We were better protected because I have more control over the final selling price,” he says. “I have my own stores, so I can

looking up Above: Ocean Alexander CEO Johnny Chueh kept a steady ship during the GFC by using the brand’s own distribution centres to control retail prices.

Previous page: Frank Chyan of Johnson Yachts looks forward to busier times.

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“taiwan could turn into a yachting country if the government lifts the ban on development of marinas.” john Lu, h orizon

broader horizon Above: John Lu, founder and CEO of Horizon Yachts, at the company’s headquarters in Kaohsiung. Lu has been lobbying the Taiwanese government to lift yachting restrictions in the region.

control the prices and I have a direct link with my customers. It gives us more flexibility, being able to fiddle with all these knobs; I can have full control of trade-in prices, new selling prices, service contracts. I have more options. So we were affected less.”

This flexibility has helped to keep Ocean Alexander in the big boat market, and while Chueh acknowledges there is a healthy demand for small boats in Australia, he doesn’t deem it large enough to warrant serious attention.

“We haven’t played in Australia at all, we’ve been so busy with the USA,” he says. “We pulled out of Europe because we decided it would be most affected long-term by the crash, and pushed everything into the USA and in starting up our Chinese operation.

Our average size is around the 90-foot mark right now, for the USA. In China it’s a new market and the sizes there are around the 50-foot mark, but growing quickly. We do have a dealer in Australia and I’m trying to decide what resources to put into that, but we’ll never set up our own store there. It’s just not a rich enough market for us to invest in.”

As well as the efforts to breathe life back into existing markets, the heavyweights among Taiwan’s yacht builders are also trying to create a new market closer to home – in Taiwan itself. In August, Horizon Yachts (the largest yacht builder in Asia, and the sixth largest in the world) held a lavish ‘Open House’ event at its huge Kaohsiung facility, where local media and high-net-worth individuals were invited aboard a selection of Horizon vessels in what amounted to an exclusive, private boat show. The object was to demonstrate the attractions of the ‘yachting lifestyle’, and encourage Taiwan’s wealthy young elite to buy into it.

The Taiwan Yacht Industry Association (TYIA – a collective of local yards chaired by Horizon CEO John Lu) is also lobbying the Taiwanese government to lift maritime restrictions and open up potential cruising grounds in the region. The Penghu island group, an archipelago of around 90 small islands in the Taiwan Strait, is currently being put forward as a possible starting point.

Ultimately, Lu looks forward to a time when Taiwan – currently the only yacht building country in the world in which yachting is so heavily regulated – can enjoy the benefits of its own domestic cruising scene.

“It is not impossible for Taiwan to turn into a yachting country if the government lifts a ban on the development of marinas and yachting, and adds new statutes governing yachting,” Lu said.

While the Taiwanese government is moving slowly with regard to building a domestic cruising infrastructure, is has agreed to invest more on the industry side. TYIA members recently signed a letter of intent with Kaohsiung Mayor Chen Chu, greenlighting the development of a new sailing yacht-building hub in the city.

Named the Asia Luxury Sail Boat Development District, the project will be located on 105 hectares of tidal land and allocated NT$5 billion ($AU160 million) of government funds.

For Lu the agreement is a concrete signal of intent on behalf of TYIA members to maintain their industry base in Taiwan, despite increasing incentives from China to relocate over the Taiwan Strait. Lu said that despite China’s beckoning, he and other Taiwanese yacht builders preferred to keep their roots in Kaohsiung because of the high-quality labour and a wellestablished research, production, marketing and delivery chain.

There is also an unspoken cooperation among the Kaohsiung yards, who appear to enjoy a mutually beneficial relationship seldom found in other yacht building regions, where rivalry often gets in the way of cross-brand collaboration.

“There is an unofficial cooperation between many of the yards,” confirms John Kung, Sales Manager of Monte Fino Yachts at Khashing . “Many of us know each other and have worked together before, so there’s discussion out of hours and a willingness to lend each other a hand. It’s a tight network.”

Monte Fino, Taiwan’s second largest yacht builder after Horizon, is another brand that has seen its new boat sizes shrink as a result of the GFC. While the company’s healthy client base

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“there are still buyers who are confused about boat building in taiwan – they think it’s the same as china. There’s a big difference.” j o h n kung, monte fino

has seen it hang onto a slice of the US market, new orders are for smaller vessels than previously.

“So far we’re OK after the GFC,” says Kung. “We still have six projects on the go, including some new ones. The biggest market right now for us is still USA, but we’re getting orders from Europe and Australia too. The wealthy people have stayed wealthy, but it’s interesting that most of the new projects we’re working on now are smaller boats, in the 40- to 50-foot range.”

While the smaller brands have been content just to weather the financial storm, heavyweights like Horizon and Monte Fino, with their superior resources and industrial clout, have used the quiet period to develop groundbreaking products designed to appeal to a new generation of boat owners. Horizon recently unveiled the new AquaCat 80 (reviewed in this issue), a cruising power catamaran that defiantly goes against the monohull trend, while Monte Fino are working on an eco-friendly yacht that will conform to RINA Green Plus certification.

“The market has still not come back yet, so at Horizon we’re using our extra manpower and resources to invest in new projects, such as the AC80 [AquaCat] and also our solar-powered SunCat,” says John Lu. “In the 50-foot market there is just too much competition, so we’re focusing on unique projects, and bigger ones. It’s very hard to find competitors with something like the AC80, for instance.”

Monte Fino are pursuing a similar strategy, finding different ways to stand out in the market while at the same time keeping their workers busy with new, out-of-the-box projects.

“Horizon and our company are the two that have invested a lot in engineering and design, so we are capable of building yachts to an international standard and class,” says Kung. “Here at Monte Fino we used to be able to define ourselves as a truly custom builder in the relatively smaller boat range. But now everyone is heading that way, so we’ve started to involve foreign designers to give excellent western designs with Taiwanese build oceanmedia.com.au

quality. And of course we’re developing the Green Yacht too.”

Kung firmly believes that “green is going to be the future”, and says that, with governments beginning to increase legislation to restrict CO2 emissions, boat builders need to be prepared to meet more stringent standards and possibly a future ban on higher polluting yachts.

Another point on which Lu and Kung agree is the importance of promoting Taiwan’s yards to the rest of the world – especially in the context of the emerging yacht building industry in China.

“I think people are attracted to the Taiwanese yachts because they are strong on build quality, craftsmanship and reliability,” says Kung. “There are other builders in emerging markets where customers feel that they can buy a boat at a competitive price, but those builders don’t have our experience, and there’s a big question mark over the reliability of those boats.

“So the challenge for us is to better promote the image of the Taiwanese builders. There are still some retail buyers who are confused about boat building in Taiwan – they think it’s the same as China. There is a big difference, so we need to work a bit more on educating people about what it means to buy a Taiwanese yacht. We need to put more emphasis on promoting the industry here and on the various brands, and get people to actually see the boats so they can see the difference in quality.”

Following the success of Horizon’s ‘Open House’ weekend there is talk in Kaohsiung of expanding the event to include all the neighbouring yards, which would put Taiwan on the annual Asian boat show calendar along with Hong Kong, Singapore and Japan. It’s hard to imagine a major boat show taking place in a region where free, unrestricted cruising is still frowned upon by the government, but if Kaohsiung’s boat yards get their way the military bases in the Taiwan Strait could soon be making room for a luxury superyacht marina or two. Having survived a global financial storm, the yacht building industry’s most unlikely success story has it all to play for.

heavyweights Above: John Kung of Monte Fino Yachts.

The brand is part of the Ka Shing group, the second largest yacht builder in Taiwan after Horizon.