David Adams hopes an $8 million investment can turn a semirural piece of waterfront land outside Zhuhai into one of the world's hotspots for building luxury yachts from fiberglass-reinforced plastic.
Adams, a veteran of Florida's yacht industry, and another investor recently opened Tricon Marine Zhuhai Ltd. They say it is the first entirely Western-owned shipyard making FRP yachts in China.
The business model, in part, is a familiar story: take advantage of China's low labor costs, build something at lower cost, export it and capture more of the market back home. In the case of Tricon, labor costs are about one-third that of labor at a typical FRP yacht yard in North America.
But the decision to set up shop in China is about more than building a less-expensive boat, Adams said during a late-August tour of Tricon. He was showing off an 88-foot FRP yacht the firm's first under construction at temporary quarters in Zhuhai.
He contends the location actually gives the company greater design flexibility. Mixing Tricon's Western expertise with China's lower labor costs allows the firm to do more with FRP than what would be cost-effective in the United States, making design improvements that result in a better boat, Adams said.
The company can, for example, more easily replace aluminum and wood with costlier FRP in fuel tanks, water tanks and sewage tanks, and in structural parts like some bulkheads, which will save weight, deaden sound and make the boat stronger with the potential to reduce stress cracks, Adams said.
``The longevity of this boat is going to be much greater because you are going with all plastic,'' said Adams, Tricon's vice president. ``Over a period of time, going through waves and the abuse a boat will take, this boat will hang together.''
He said the company also can take the labor savings perhaps $6 million to $8 million on a $35 million yacht and apply it toward building a better boat. Tricon estimates mainland China shipyard labor costs are 30 percent less than yards in Taiwan, another center of yacht building in Asia.
Before starting Tricon, Adams opened his own Florida yacht brokerage in 1995 and spent significant time in China overseeing the building of 14 FRP yachts in Chinese shipyards for North American and European customers.
It was that experience, and nudging from a customer who later became Tricon's other investor, that convinced Adams it was time to open a yard in China.
Adams said he sold two yachts made in China to Greek investment banker Christos Livadas, who saw a business case and kept suggesting to Adams that they should have their own shipyard.
Adams said he resisted the idea at first. But as he found it more challenging to work with Chinese yards, he decided he wanted to control the manufacturing process. He said he has recruited several North American managers to the factory in Zhuhai, a coastal city near Hong Kong and Macau, to see that the yachts are built to his standards.
``We intend to put China on the map as a place for world-class yacht construction as never before,'' said Livadas, Tricon's chairman and chief executive officer, in a statement.
At the moment, the company has about 80 employees working in temporary space in Zhuhai's Pingsha Industrial Zone, around the corner from what will be its 592,000-square-foot permanent factory. The site is under construction but has faced delays.
The company plans to grow in two phases, with a total investment of $21 million over five years. It will need more than 210 skilled workers in the next 18 months.
``I could triple the size of Tricon's capacity over here, given the energy,'' he said. ``The demand is here.''
While the world and U.S. economies are certainly slowing and that might be expected to dampen demand for luxury products like multimillion dollar yachts Adams said that's not really what's happening.
Demand for the smaller luxury yachts, those that cost $4 million and under, is definitely down, he said.
But demand for larger, upper-end yachts, selling anywhere from $4 million to $50 million and up, is not showing any real signs of slowing, Adams said.
Less-expensive yachts tend to be bought by working executives and company owners who notice economic slowdowns. But larger yachts sell to those wealthy enough not to feel much pinch from economic troubles, he said. (A yacht owner can expect to pay 5-10 percent of the purchase price in annual operating costs, including crew and fuel, he said.)
``The $4 million-and-down market is suffering,'' said Adams. ``I would have to say $4 million and up, some of the people might be pausing, but for most of them, it's business as usual.''
Tricon has revised its plans for its yard several times, to accommodate larger and larger boats. Now it plans to build yachts up to 200 feet long in 16 bays. But Adams said the company does not want to build at full capacity any time soon because it wants to focus on quality.
Adams said, however, that he thinks the biggest challenge will be managing growth.
``Ramping up to meet the demand is my biggest issue,'' he said. ``Getting the guys who are skilled will be the tough part. And of course controlling them all and managing them properly is a tough one.
``I would say the demand side of it is not nearly as big an issue as ramping up.''
So far, Adams said he has found enough skilled workers with experience in the FRP boat- building business in China, in part because he's building his factory an industrial zone in Zhuhai that's home to about 20 small boat builders from pleasure boats to small commercial and military craft.
He recruited workers from FRP yacht builders he had worked with in other parts of China as well, and said employees were lined up looking for jobs when Tricon opened. Now, he said, he wants to use his core of skilled boat builders to train new workers, and look for more skilled craftsmen like cabinet makers.
While he sees opportunities, Adams said he does not see himself as the first in a big wave of North American yacht builders setting up in China.
There have been some yacht yard closures in the United States and Canada, and Adams said he recruited two of his top North American managers in Zhuhai from those yards.
Some competitors are taking a look at China, but Adams thinks that since making yachts is a fairly unique industry, most companies will be reluctant to try Tricon's strategy.
``It takes a certain level of expertise and knowledge [and] it's a labor of love,'' said Adams, who was a professional fisherman before selling yachts.
``There are not enough people in the world that love it enough and know it enough to come here and ramp up.''