Economic Growth Offers Cosmetics Huge Development Potential


By Tian Xiaojun, Wang Yan


With the sustained growth of economy, the rapid progress of
science and technology, the renewal of life concept and
improvement in standard of living, the cosmetic market in China
has a huge prospect for development.




   1.  Present status


1.1 Sales


    An outstanding feature in the cosmetic market in recent
years is the upgrade in the consumption ability and consumption
consciousness of consumers. Besides, China has a large
population and a great diversity of consumer groups. Cosmetics
have therefore become the most rapid growing commodities in the
domestic market of consumables.
    According to latest statistics, the sales revenue in the
cosmetic sector in China was around RMB85 billion in 2004, an
increase of 13.4% over 2003 and the profit and tax was around
RMB40 billion, an increase of 18%. The average annual growth of
the cosmetic sector is around 12.9%, higher than the growth of
the national economy. In spite of a growth reduction compared
with the 1990s, the development prospect for some brands of
cosmetics is still very bright. An input of around RMB10 billion
by multinational cosmetic companies into China in recent years
has promoted the development of the high-grade cosmetic market
and brought vitality to the development of the cosmetic industry
in China.


1.2 Regional distribution


   Cosmetic producers in China are mostly concentrated in
coastal areas, especially in Guangdong, Jiangsu, Zhejiang
provinces and Shanghai. According to relevant statistics, there
were more than 700 cosmetic producers (holding licenses for the
cosmetic production) in China at the beginning of 1999.
   China has 3 070 registered cosmetic producers today. 11
producers including Longliqi, Avon, Amway, Hubei C-Bons, P&G,
Mary Kay, Shanghai Jahwa, Johnson & Johnson, Unilever, Kao and
Shiseido Liyuan accomplished a sales revenue of over RMB1.0
billion in 2004. Their total sales revenue was around RMB18.8
billion, accounting for 22% of the national total.
   The cosmetic industry in China has developed greatly in the
years after reform and opening up. The cosmetic sector in China
however is small in scale and is a weak competitor in the
international competition. Of the 11 cosmetic producers, only
1 enterprise has no foreign equity.




   2.  Competitive edge analysis


There is a great difference in demand for personal care products
among various major regions in the world. Market demand is
growing fastest in developing countries of Latin America, Asia,
Eastern Europe, Middle East and Africa.


2.1 Advantages


    (1) Advantages of local products in the medium and low-end
market mainly come from the low cost due to the simple package
and simple production line.
    (2) Local products are suitable for low-income consumer
groups.
    (3) Old brands have sound reputation in special consumer
groups.
    (4) Foreign products have high prices and therefore are
inaccessible to a large group of consumers in China.


2.2 Disadvantages


    (1) The support from relevant sectors is weak. The cosmetic
sector is closely related to fine chemical, biological science,
cellular science and material science, but these sectors do not
have many advantages in China. Most of raw materials for the
production of medium and high-end cosmetics have to be imported
from abroad.
    (2) The industry concentration ratio is low and there is a
lack of large enterprises that have strength comparable to
foreign giants.
    (3) High-end products have weak competitive edge and there
are inadequate efforts and methods in the cultivation of famous
brands.
    (4) Product functions are not diversified, and there is a
distinct gap in product quality and grade compared with foreign
brands.
    (5) The product distribution is not rational in China.
Cosmetics are mainly targeted at young and middle-aged women.
Despite having developed relatively, cosmetics for children,
men and elders also offer promising development space.
    (6) Marketing tactics are outdated. There is a lack in the
understanding of fashion and the mastery of tide. The sense of
after-sale customer service is rather weak.


2.3 Opportunities


     (1) The rapid improvement of people's living standard has
generated a great demand of cosmetics and brought a market and
development space to local cosmetic producers.
     (2) Advertisements made by foreign producers have educated
consumers and enabled them to develop more matured consumption
concepts. A great consumption space has therefore been created
for local cosmetic producers.
     (3) The inflow of foreign products has brought opportunity
for local cosmetic producers to gain more experience in
management and marketing.


   Local cosmetic producers in China have weak competitive edge,
and in the high-end cosmetic sector, in particular, lack
strength to compete with foreign producers. Local cosmetic
producers are in an inferior position in product research and
development and product marketing. These two fields are the key
for a competitive edge in the cosmetic market. With additional
input made by multinationals into the Chinese cosmetic market,
the competition in the cosmetic market will become fiercer.
Without initiative and innovation, local cosmetic producers
will hardly be able to maintain the advantages already gained
in the low-end cosmetic sector.