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Chinese Market Lures Western Cruise Leaders

cruise ship Quantum of the Seas in harbor
Royal Caribbean's Quantum of the Seas. Photo by Flickr user madle_fotowelt

As with so many businesses, the potential market for cruise vacations in China is so big that Western industry leaders don’t feel they can ignore it.

Last fall, Carnival agreed to help China build its first cruise ship, in a possible joint venture with state-owned China State Shipbuilding Corporation. It also signed a memorandum of understanding with China Merchants Group earlier this year to explore the creation of a domestic line there. Carnival, already the world’s largest cruise company, is expanding; it recently signed agreements with European shipyards to build nine new ships between 2019 and 2023. Those ships’ final routes have not been announced, but at least some of them are slated to go to newer markets - including China.

The second-largest cruise company, Royal Caribbean, is not far behind. It has added its own ships to the Chinese market, including its new Quantum of the Seas, a “smartship” loaded with Internet-friendly features, app-driven dining options and amenities including an observation pod, simulated skydiving and a casino. It seems Royal Caribbean wants to put its most cutting-edge foot forward in anticipation of China’s projected rise to become the second-largest global cruise market by 2020. With a market that size, neither Carnival nor Royal Caribbean are willing to neglect China.

Fair enough. They certainly will not be the first to find China’s market too big a prize to pass up, despite the many reasons non-Chinese companies have to be wary. But still you have to wonder what will happen when Chinese shipbuilders master the art of designing and constructing modern floating cities using the latest Western-developed technologies. You also have to wonder what will happen once Chinese leaders decide it would preferable to give home market advantages to Chinese owned and crewed vessels. After all, the regime that censors Facebook in Shanghai is probably not going to be enthused about hordes of its middle-class citizens exposed to foreign thought and information as soon as they get outside China’s territorial waters.

China has a long history of requiring Western companies to engage in joint ventures and technology transfers as the price for gaining access to the local market. In some cases, the non-Chinese partners have found themselves providing know-how for a venture in which they have frustratingly little influence. Even for ventures where the foreign company keeps some measure of control, lack of Chinese connections can constitute a major handicap. And intellectual property is notoriously hard to protect in China, meaning not all of the know-how provided is necessarily technology the company willingly chooses to share.

Not every Western company will face such scenarios. But time and again, China has demonstrated that it would rather learn what it can and then strike off on its own. When and if China has a domestic cruise line up and running, it would be unsurprising if the government offered enough support that foreign-based lines would have a hard time competing.

European shipyards that build today’s supersized cruise liners may have even more to lose from China’s entry into the industry than do the leading cruise operators, since a Chinese-built liner might easily undercut the pricing and delivery times from shipyards in Italy and Germany. But that danger is probably quite some time down the road. Although China has a healthy domestic automotive industry, its products still have not reached the global quality levels they would need to gain significant market share in the West. And China’s aviation industry seems even farther from challenging global leaders like Airbus and Boeing, or even mid-tier companies like Brazil’s Embraer or Canada’s Bombardier.

It also remains to be seen whether Western tourists and Chinese middle-class cruisers will be comfortable aboard the same ships sailing from Asian ports, since their tastes may diverge considerably. After a U.S.-based test run, Royal Caribbean plans to make some major changes to the Quantum of the Seas before it repositions to Shanghai, including expanding the casino and adding more shops. As Christopher Reynolds of the Los Angeles Times noted, there will inevitably be a period of trial-and-error in which cruise lines learn what Chinese passengers expect from their floating vacations. Those expectations may not track with the expectations of American and European passengers, posing a new set of challenges for companies that want to cater to both sets of passengers on the same voyage.

All of this remains in the future, as cruise operators just begin to dip their toes into the Chinese market. In the meantime, it will be interesting to see whether the big global cruise lines find what they are looking for when they start calling Chinese ports home.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

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