Skin Care Market Shanghai

Skin Care Market Shanghai

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Skin Care Market Shanghai

I lived in Hong Kong and Singapore in the late 90s and early 2000s. This marked an amazing opportunity to become entrenched in the Asian culture.  I also had the opportunity to visit Beijing.  During the WPP visit, Deepender Rana coined a phrase ‘A different Kind of Youth’.  The WPP executive described how the youth are self-absorbed, and focused on pursuing their dreams. This a vastly different from the culture I experienced when living in the region.  The business culture is also different from what I remembered in Hong Kong.  Hong Kong is focused on maintaining business relationships with the western region versus what I experienced during our Global Study Tour.  I would like to write about creating a beauty company and how the visits to Johnson & Johnson, WPP, and Alibaba impacted the way I would approach as an entrant into the beauty market in China.

The beauty industry’s growth has been tremendous over the past decade.  The current and future generations are embracing new beauty products, treatments, and services. Companies are leveraging technology distribution channels to market customers in innovative ways.  There are many factors that an investor or company must consider when introducing a new beauty service or product. The subsequent sections will explore the introduction of a concept beauty company ‘Black Swan’ from Market trends and consumer profile, the ‘Perfect location’, human capital, distribution channel, intellectual property (IP) rights strategy, and government policies and regulations.

Market Trends and Consumer Segmentation

The Chinese Communist party unifies the country from a geo-political sense, socially, and economically.  Foreign companies must delve deep to under the disparity and fragmentation of the markets to see that this is not a uniform and homogenous market(s). The irregular economic growth rates in the various Tier 1 versus Tier 2 versus Tier 3 cities exacerbate the economic and social differences that have existed for centuries.  Despite this fragmentation, China is one of the largest markets for U.S personal care and cosmetics exports.  Chinese consumers are more sensitive to their life quality, and health (South China Morning Post, 2016).  WPP coined a phrase ‘A different Kind of Youth’.  The younger generation wants to see features in their body and skin care products. The wealthier segment of the population will be able to purchase the luxury brand skin care products, and will crave a more ‘bespoke’ experience.“With an estimated $50 billion in domestic sales in 2015 and 7% to 10% annual growth predicted in 2016 and beyond, China is projected to become the largest market for personal care and cosmetics products globally in the next five to ten years.” (U.S. Department of Commerce, 2016) Within 10 years, China has the potential to become the largest market for U.S. exports.   Today, most of the consumption of cosmetic products are in the tier 1 cities.  Once penetration occurs to the tier 2 and tier 3 markets, the revenue will increase remarkably.  Traditionally companies have focused on women, but another segment to consider are men.  Investors are commenting that the cosmetic industry in China is like a cash money machine. “There is a rising opportunity in the male cosmetics market, which is growing at a faster rate than the female market.” (Cosmetics China, 2016)

Location of the Business

Historically, foreign businesses have been attracted to the coastal cities such as Zhejiang, Guangdong, Jiangsu and Shanghai.  These areas have greater populations and higher incomes.  Predominantly, companies involved in consumer markets tend to focus on these higher income coastal regions. China's Tier 1 cities (Shanghai, Beijing and Guangzhou) are highly populated areas with a large, middle-class representation and income levels well above the national average. The Tier 1 cities are China's most developed markets in terms of consumer behavior, and are typically the most suitable for new foreign companies with limited knowledgeof China’s complexities. The lowest risk for market entry will be in the Tier 1 cities.  The downside will be that the company faces greater operational expenses and an increase in rivalry. The Tier 2 cities have become more attractive to foreign suppliers due to the economic growth and rising incomes. The Tier 2 cities have the advantage of lower set-up and operating expenses. The increase in consumer spending power in these areas is creating a rapid growth in demand for foreign manufactured goods and products.  “In particular, cities such as Shenzhen, Tianjin, Wuhan, Chongqing, Chengdu, Nanjing, Qingdao, Dalian, Suzhou and Hangzhou all offer strong commercial opportunities for foreign companies across a range of sectors. In the long run, including Tier 2 and even Tier 3 cities in their strategy can enable foreign companies to gain first-mover advantage in these cities, and lead to greater long-term market success.” (Hedley, 2017)

Distribution Channels

During the Johnson & Johnson (J&J) presentation, James Mounter described concepts such as ‘Confluence of manufacturing with eCommerce’, nimble supply chain, evolve the path to purchase, and win by paying attention to the execution of detailed data.  Ellie Xie from J&J, talked about acquiring a local brand to leverage their distribution network.  Many foreign companies are creating a ‘join venture business model’ with local brands or acquiring local brands seen as a lower-risk strategy than the wholly foreign owned enterprise (WFOE). Acquiring the local brand has such numerous advantages as an opportunity to utilize existing sales networks and customer base, local production facility, and existing human capital resources.

Manufacturing eCommerce solutions for Businesses allows for greater opportunities for businesses to earn large revenues withouttraditional upfront investments involving significant amounts of capital. Unlike, land based stores simple eCommerce websites require little financial investment. “Online retailing is by far the fastest growing channel up from 5.3% in 2011 to 15.5% 2014, with estimates that this channel could grow to 30% or more of total sales in the next five to ten years. The increasingly popularity of online channels reflects both the sparser access to retail stores and diversity of brands in Tier 2 and 3 cities.”(U.S. Department of Commerce, 2016)  Many foreign based companies will be able to take advantage of the eCommerce websites to expand into the region because of their partnership with numerous Chinese companies, and distribution network.  “Of the major sellers, 62 percent said they sell on Amazon, compared to 45 percent on Wish, and 40 percent on AliExpress, a division of Alibaba. Ebay, Lazada, and JD.com all accounted for smaller portions of the pie… a b2b online payments company, found that of the respondents who preferred Amazon, they felt the retailer was trustworthy and favored its emphasis on quality products and simple and fair rules.” (Saiidi, 2016) The next platform to consider is developing online sales, and boosting advertising on new media platforms (WeChat and Weibo) to raise brand recognition. Ellie Xie from Johnson and Johnson, commented on the concept The “dedicated counter”.  This is a major traditional sales channel for cosmetics, adopted by most world-renowned cosmetics brands. Dedicated counters generate great return in terms of word-of-mouth publicity and are extremely effective in establishing brand image. Global brands such as Lancôme, Estée Lauder, Chanel and Dior dominate the sales of cosmetics through dedicated counters on the mainland.