Chinese make-up brands catch up with South Korean rivals

Source:Reuters-Global Times Published: 2017/12/3 19:28:39

Customers flock to a cosmetics chain store in Seoul, South Korea. File photo: VCG

While a diplomatic spat between China and South Korea raged this year, many South Koreans as a result felt less welcome in their neighboring country; South Korean businesses were somehow shunned, K-pop concerts were canceled and tourist trade dried up.

But one group of South Koreans have very much been in demand: the executives and employees of South Korea's top cosmetics companies, who are currently being lured by Chinese rivals as a battle for the top spot in China's huge beauty market heats up.

Chinese make-up brands, including Jala, Proya and Suhu - which have long trailed behind South Korean rivals in terms of quality - are now hiring South Korean executives, spending money on research and buying overseas firms, industry executives and headhunters say, with those moves recently showing positive results.

Playing catch-up

Chinese brands, which compete with South Korean names from top-rated Amorepacific to nimble budget makers such as Clio, are quickly gaining market shares in the mid-range and premium cosmetics sector, where South Korea has traditionally outperformed China.

The rising competence of Chinese make-up brands has posed increasing challenges for foreign rivals, especially South Korean and Japanese ones.

At the end of October, Japanese cosmetics maker and seller Kose Corp announced a strategic shift to end production in China and instead return to domestic manufacturing to pursue middle- and high-level cosmetic production, a move that has been attributed to the company's underperformance in the mass market in China.

Although Chinese companies have been gaining ground for some time, their sudden rise in strength seems to have accelerated this year due to Seoul's decision to install a US Terminal High Altitude Area Defense system (THAAD), causing the two countries to get stuck in months of tension and bilateral economic slowdown. In contrast, this has had a negative impact on South Korean companies, as their performances have shown weaknesses this year.

At stake is a bigger chunk of China's $50.2 billion beauty and personal care market, which research firm Euromonitor predicts will grow to be worth $61.9 billion by 2020.

Jason Yu, Shanghai-based general manager of market research firm Kantar Worldpanel, said mid-tier or "masstige" South Korean brands were most exposed to Chinese brands that are improving their offerings this year. Meanwhile, high-end brands such as France's L'Oreal and Japan's Shiseido tended to attract wealthier buyers.

"In terms of the price position, they [South Korean brands] will be in more direct competition with emerging Chinese brands, which are [quickly] moving up the price ladder," said Yu, adding that Chinese firms are "catching up very fast."

Hiring spree

There are signs that recent diplomatic tensions between the two northeast Asian countries have played into the hands of local Chinese cosmetics brands in their battle with South Korean rivals.

Amorepacific's sales fell 8 percent in the January to September period from a year earlier, while operating profit skidded 30 percent. Smaller budget makers were hit harder, with Clio's operating profit falling nearly 70 percent.

While some Chinese make-up brands use South Korean stars or highlight South Korean links, others are referencing Chinese culture by using traditional Chinese medicine ingredients or using slogans about suiting Chinese skin, to quote two examples.

Zoe Zhuang, 24, an engineer working in Nanjing, East China's Jiangsu Province, said she used to use cushion foundations and eye pencils from South Korea's Etude brand but now uses more Chinese ones to "support local brands," without referring to the dispute over the THAAD missile system.

"I actually don't think Chinese makeup is that good yet, there is plenty of room for improvement," she said.

Chinese cosmetics firms have been trying to close the quality gap by aggressively targeting South Korean executives.

"[Chinese cosmetics brands] are recruiting South Koreans in almost all areas, including brand managers, packaging design, store interiors, purchasing and marketing," Choi Sun-hee, head of South Korean recruiting firm HR Biz Korea, told Reuters.

Some Chinese brands are willing to offer 50 percent higher wages and help with rent and flights home to woo South Korean workers, Choi added.

Guangzhou-based Suhu plans to double the number of its South Korean employees to 40, Choi said. It recently hired an executive from South Korea's Nature Republic to oversee the recent launch of its Rojank brand, he added. Suhu declined to comment.

Chinese brand Proya, which owns the Uzero and Cats & Roses brands, hired South Korean Kim Hoi-joon from Clio in 2014 to launch its Hapsode brand, Kim told Reuters.

Another former Amorepacific official said Kim had lured him to Proya last year with a salary hike of about 50 percent. He said he was one of over 10 South Korean employees hired by Proya.

Proya declined to comment.

Meanwhile, Jala, one of China's leading cosmetics firms, hired a South Korean executive earlier this year to revamp its mainstay Chando brand, two people familiar with the matter told Reuters.

Jala also hired the former head of Amorepacific's Etude brand, Kim Dong-young, they added. Kim, reached by phone, confirmed he had been working at Jala for about a year, but declined to comment further.

Jala's press office was not available for comment.

This approach, however, is not limited to cosmetics. Chinese firms, from carmakers to flatscreen producers to smartphone vendors, have recently become more willing to hire foreign talent to help them gain a competitive edge, often taking market share from South Korean rivals.

But South Korean brands aren't going down without a fight. Amorepacific said it was working with experts in seven Chinese cities to study local skin characteristics and develop products relevant to the local market.

"It is not that we are not worried about Chinese competition," Rho Jee-hye, an Amorepacific senior vice president told Reuters. "As there is Estee Lauder in the United States, L'Oreal in France and Amorepacific in South Korea, an innovative Chinese company could [soon] emerge."

Newspaper headline: Beauty contest

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