What's China got to do with it? A lot. China is the world's largest country with a consumer base of 1.3 billion people, and with rising salaries creating a growing middle class, many are becoming increasingly sophisticated, making the Chinese market an extremely attractive economy to invest in.
These factors have brought many overseas businesses to the multitude of sectors in China, and the personal care industry is no exception. Presently, the country’s cosmetics and toiletries (C&T) market is the third largest worldwide, after the United States and Japan. Still, there is much room for growth in China because the market has yet to reach its full potential. As a result, many personal care brands, along with ingredient suppliers, have set up shop in China, hoping to ride on the segment’s growth.
Opportunities for Expansion
One personal care ingredients supplier that has taken advantage of the developing Chinese C&T market is Shin-Etsu Chemical Co., Ltd. (Japan). In 2003, the company decided to invest in the country because it saw numerous opportunities for development amongst the large number of potential end-users.
"China has a very large population, which offers us a wide scope of consumers to reach out to; yet the market is still quite young and there’s potential for it to mature further," said Tetsuya Ikeda, silicone division, sales and marketing department. "These two factors point to the fact that there are many avenues for growth, making the country one of Shin-Etsu Chemical’s most important focus areas."
Korea Particle Technology (KPT) has also gained from entering China. The company established its Chinese office in 2008, and since then, local sales have increased by 150 percent year-on-year, and now comprises one-third of KPT’s business. Andy Liu, global marketing director, KPT, said, “Our current focus is on Asia, and with China’s large market and rapid development, we decided to establish our first overseas branch here. Although KPT has been in China for only three years, domestic sales already exceed that in Korea."
According to Liu, one of the major reasons behind the Chinese personal care market’s expansion is the increased standard of living. With higher salaries, the locals are now more concerned about appearances. Bellah Halim, regional director, Asia, DSM Nutritional Products, agreed with this view.
“DSM has been in China for more than three decades, and we have witnessed significant levels of rising affluence," Halim said. “Increased income has led to a larger middle class population with a greater expectation for well-being, so the appetite for personal care products is growing. At the same time, the upper class is also expanding. And with their greater spending power, these first-tier consumers increase the demand for top quality products."
Growing Pains
While the middle and upper class populations make good target groups for companies, reaching them is no easy feat. With numerous scandals related to made-in-China goods emerging in recent years, consumers, especially wealthier and more discerning ones, have become wary of locally produced merchandise.
“The higher class is willing to spend, and good quality is important to them," Halim added. "But with the awareness of production quality issues, consumer confidence in the standard of domestic goods has been challenged. This has caused some locals to be less accepting towards China-made products, regardless of the industry."
Another frustration that companies face in expanding their businesses has to do with ingredients registration. In 2008, management of this process was transferred from the Ministry of Health (MOH) to the State Food and Drug Administration (SFDA). Under the new regulation, only results from appointed local laboratories are accepted. Even if the ingredients had been tested and approved by the United States and European Union (EU), the raw materials are still required to be examined once more in China. And as this testing involves the collection and reporting of no less than nine sets of data, the entire process easily becomes a tedious task.
“Business in China was brisk from when Campo entered the market about 10 years ago till 2008," said Joshua Teo, technical management executive, Campo Research. "But when the new regulations came into effect, sales were affected. Previously registered products had to be re-registered, limiting the number of ingredients that we were able to continue selling."
Despite this hindrance, Campo did not pull out of the Chinese market. Instead, the company innovatively created a new approach, known as custom extraction, which has allowed it to continue meeting the needs of customers in the country.
The revised registration process also compounds a long-standing problem that businesses in China face—imitation products. This issue is more apparent to foreign entities without local branches, whose ingredients take up to one and a half years to be approved.
“Within the 18 months that it takes to register our products, competitors are able to develop counterfeits," Teo said. “This means by the time we launch our products in the market, similar ones will already be available, which potentially limits our sales."
Korean-established CQV shared the same sentiments. Kerry Yun, marketing team manager, cosmetics, said: “The copying of our products is a big issue in China because it creates competition. But the good news is at the end of the day, our discerning customers still choose to buy from us when they recognize the difference in quality and efficacy of our products compared to counterfeit ones."
Besides competition that has arisen from imitation goods, there is also greater pressure on ingredient suppliers to stand out as more raw material providers enter the Chinese market. Shin-Etsu Chemical, whose main product for the personal care industry is silicones, is determined to rise above competition.
“Competition is great within the Chinese market because there are many renowned international and domestic silicone manufacturers," said Ikeda. “Though our products are already quite popular with top international cosmetics manufacturers, we also want to build our brand with a greater number of local manufacturers. We foresee that competition will become more intense in the future, but are resolved to carve out a name for our company as a top silicones supplier."
Rising Trends
Despite the current and potential business challenges, companies still remain optimistic about the future of their businesses in China, with trends in various areas picking up. For example, color cosmetics have gained popularity in recent years. This is an area that Shin-Etsu Chemical has particularly set its sights on for business growth. Also, CQV, which produces color pigments, has seen rising demand for its products in recent years. And with greater acceptance, pigments are no longer used only in cosmetic products, but also in toiletries.
“Color cosmetics may not be among the larger personal care segments in China at the moment, but this is changing," explained Yun. “More ladies, especially those who work in offices, are incorporating color in their make-up regime. Some companies even have policies that require female staff to wear colored make-up to work. Consumers now look beyond functional products to goods that can enhance their looks. On top of that, the Chinese are drawn to attractive-looking toiletries these days, so pigments are also more widely added to toiletries."
Two other trends that continue to gain momentum are whitening and anti-aging skincare products. In China, a pale complexion is considered an attribute of beauty, and ladies are also concerned about maintaining youthful appearances. As a result, solutions that help maintain a fair and fresh skin tone are highly sought-after.
High Hopes for the Future
The Chinese cosmetics & toiletries market continues to present itself as an attractive investment opportunity to ingredient suppliers because of the huge population, growing middle and upper classes, and emerging trends. The country has much potential for business growth, and offers favorable conditions under which global companies will be able to develop their local entities.
It is evident a majority of international businesses have high hopes for their ventures in China – Shin-Etsu Chemical anticipates significant growth, DSM expects to double its domestic sales within the next five years, KPT plans to set up a production facility, and CQV intends to establish a local office. Campo Research also expects steady growth as it continues meeting local needs with its innovative extraction approach.
To gain deeper insight into the Chinese C&T market, Shin-Etsu Chemical, DSM, KPT, CQV and Campo Research will join hundreds of other local and international businesses in exhibiting their latest innovations, at the annual Personal Care & Homecare Ingredients (PCHi) exhibition. And as part of the PCHi conference program, delegates will hear from industry experts about current trends and regulations in the Chinese C&T market in order to better equip their businesses for success in China.
