South East Asia – strength in diversity

Southeast Asia remains a diverse market, but despite the recession the cosmetics sector is generally still developing well. Karryn Miller (Hanoi), Ahmad Pathoni (Jakarta) and Mark Rowe report

Southeast Asia remains a diverse market, but despite the recession the cosmetics sector is generally still developing well. Karryn Miller (Hanoi), Ahmad Pathoni (Jakarta) and Mark Rowe report

Southeast Asia is a growing and diverse market for international personal care product brands, despite the challenges (and some losses) caused by the recession. The region contains relatively rich emerging markets (and the very rich city state of Singapore), and its major poorer countries, notably Vietnam and Indonesia are growing fast and emerging robustly from the recession.

VIETNAM coping with counterfeits

With a population of 86 million – over half aged under 30 – Vietnam in particular is an attractive market for cosmetic companies. In fact, according to business advice service VietNamNet, approximately 90% of cosmetics sold in the country are imported. The country’s largest foreign players are South Korea (30%), the EU (23%), Japan (17%), Thailand (13%) and the US (10%), according to 2006 estimates from the US Commercial Service. Ngo Minh Phuong from the US Commercial Service in Vietnam points out: “Although the share by each player may be slightly different [than the 2006 figures given] the ranking is the same and [South] Korea is still clearly the predominant player.”

Phuong stresses that Vietnamese cosmetic sales and demand have steadily increased over the years, and she believes that “a change in government regulations has made it easier for foreign brands to find distributors in Vietnam”. Leading cosmetic company brands such as Revlon, Estée Lauder (including MAC) and Shiseido sell in Vietnam and each year sales expand. This year Japan’s Shiseido further increased its presence by establishing a subsidiary – the Shiseido Cosmetics Vietnam Company Ltd – in early 2010 and opening a Shiseido factory in Dong Nai province in February.

According to Phuong one ‘major headache’ for cosmetic companies in the past was the large amount of counterfeit and smuggled personal care products. She cites the example of the US hair care brand Lander. “Lander has no representative or official distributor here but you can buy it at the local supermarket.” In 2006, of the US$82m consumers spent on beauty products in Vietnam, approximately 60% was spent on illicit counterfeit or smuggled products. Although still widely available, fake products are on the decline as legitimate manufacturers distribute more and more products in Vietnam, increasing consumer knowledge. “People here want to buy the legitimate product,” adds Phuong.

Meanwhile Vietnamese owned and produced personal care goods have yet to gain significant market share domestically and abroad. Most local brands that do exist target the low end of the market and find it tough to compete with imports from neighbouring countries (illegal and legal). The two main local manufacturers that have had some success are Thorakao (www.thorakaovn.com) and Saigon Cosmetics (www.saigoncosmetic.com), both of which have exported products throughout Asia and further afield to the Middle East and the US.

They have to hold their own, notably against Thai exports, manufactured in a country significantly more economically developed than Vietnam.

THAILAND expansion boost

Despite Thailand’s political unrest and the global economic slump, the country’s personal care industry has fared reasonably well. According to a 2009 study by the US Commercial Service the market size in 2008 was US$1.2bn, a growth of 8% from 2007. Based on the same report, consumers of mid to high-end cosmetics in Thailand generally remain loyal to their brands, while purchasers of low-end personal care products will look for even cheaper options.

Overall, the US dominates the Thai cosmetics import market with a 22% share. When broken down into subcategories France is the leader of the perfume segment, accounting for 54% of official perfume imports. And although perfume only accounts for a 3% share of the personal care products market (with a value of US$45m) the sector experienced the most growth in 2008, increasing in value by 22% from the previous year.

Perfumes produced locally are of dubious origin. “I see the perfume market as 100% imported. Other than that is a grey market and local production is almost 100% fake,” says Nalin Phupoksakul of the US Commercial Service. “There is also a good amount of smuggling perfume and high-end cosmetic products by independent importers.”

But while many products sold are fakes, nearly all major brands can be found legitimately in Thailand with some of the most popular being Estée Lauder (including Clinique), Shiseido, Christian Dior, L’Oréal (inclucing La Roche-Posay), P&G’s Olay and Beiersdorf’s Eucerin. Some of these brands continue to import their lines while others have set up manufacturing locally.

Seraina Peter, a representative for DKSH, a market expansion services group involved in the personal care and cosmetics industry in Thailand, points out that export-orientated manufacturing in Thailand by local, multinational and OEM firms has continuously increased.

This boost can in part be credited to the ASEAN [Association of Southeast Asian Nations] Harmonised Cosmetic Regulatory Scheme that has pushed Thai companies to fall in line with overseas regulations. “This directive represents a big shift in the way Thai personal care industries regard product safety and the environment when designing and applying formulations. Industry-wide adoption of these global standards has become mandatory,” says Peter.

Table 1: Leading C&T brands (by umbrella brand name) and companies, RSP, 2009
BrandCompany
Indonesia
SignalUnilever Group
LifebuoyUnilever Group
SunsilkUnilever Group
PanteneProcter & Gamble Co, The
Pond'sUnilever Group
Malaysia
AvonAvon Products Inc
L'Oréal ParisL’Oréal Groupe
Johnson'sJohnson & Johnson Inc
Estée LauderEstée Lauder Cos Inc
ColgateColgate-Palmolive Co
Philippines
AvonAvon Products Inc
ColgateColgate-Palmolive Co
JohnsonsJohnson & Johnson Inc
Cream SilkUnilever Group
PalmoliveColgate-Palmolive Co
Singapore
Estée LauderEstée Lauder Cos Inc
L'Oréal ParisL'Oréal Groupe
SK-IIProcter & Gamble Co, The
ShiseidoShiseido Co Ltd
LancômeL'Oréal Groupe
Thailand
NiveaBeiersdorf AG
AmwayAmway Corp
MistineBetter Way (Thailand) Co Ltd
GiffarineSkyline Unity Co Ltd
ColgateColgate-Palmolive Co
Vietnam
P/SUnilever Group
ColgateColgate-Palmolive Co
Close-UpUnilever Group
PanteneProcter & Gamble Co, The
DoveUnilever Group
Source: Euromonitor International

INDONESIA delayed by recession

Further south in Indonesia there has been less progress in this regard. The country’s cosmetics industry has yet to implement the ASEAN regulatory scheme and this has made it more difficult to market products internationally. The directive seeks to harmonise cosmetic regulations in the region and to allow member countries to meet standards set within the (EU).

And Indonesia has had plenty of time. The agreement was signed during the 35th ASEAN Economic Ministers Meeting in September 2003, which imposed a 2008 implementation deadline. “Most cosmetic companies are not yet ready to implement the directive. Hopefully next year we can start implementing it,” says Dra Kustantinah, chairwoman of the Indonesian Food and Drug Monitoring Agency.

The agreement includes guidance on how to categorise products, product registration requirements and procedures, common labelling requirements, a handbook on ingredients listings, common claims guidelines, common import and export requirements and good manufacturing practice.

The Indonesian Cosmetics Association wants action. It says that by implementing the directive, Indonesia’s cosmetics industry could grow by 20%. This is particularly important given that the recession harmed the sector in Indonesia. Its exports for cosmetics and cleansing products dropped to US$737m in 2009, from US$862m the previous year, according to Euromonitor International. Imports also fell to US$643m in 2009, from US$893m in 2008, says Euromonitor.

The Martha Tilaar Group, which says it commands a 30% share of the country’s cosmetic market, says it was targeting a 20% increase in sales this year, up from 900bn Indonesia rupiah (US$100m). The company employs 6,000 people, has 44 spas, over 30 shops and celebrates its 40th anniversary this year. Its products were the first in southeast Asia to be certified for ISO9000, ISO14000 and meet GMP (Good Manufacturing Standards) requirements. It is also setting up three sales and distribution offices on Sumatra island, west of the central island of Java. Martha Tilaar also controls 15% of the toiletries market in Indonesia.

Another top three company – PT Mustika Ratu – won the Indonesia Best Brand Award 2010 for its slimming and skin care products. Demand for skin care remains strong in Indonesia. Mustika Ratu says its new product, BIOLIFT Nano Tech Advance Lifting Serum, applies nanotechnology to help revitalise and lighten skin.

SINGAPORE serious about skin care

International trade norms are of course a critical part of neighbouring Singapore’s commercial policy, with this wealthy city state remaining a major centre for re-exports. The value of exports of cosmetics and toiletries in 2009 from Singapore was a robust Singapore (SNG) $3.17bn (US$2.34bn), according to Euromonitor, comprising SNG$1.1bn (US$812m) of domestically produced exports and SNG$2.06bn (US$1.5bn) of re-exports, a symbol of Singapore’s continued importance as a regional trading hub.

Around 50 companies export cosmetics from the country, according to IE Singapore, which promotes the country’s companies overseas. Of the re-exports, skin care and beauty products grew by 2.37% between 2007 and 2009, but perfumes and edts shrank by 20.61%. Over the same period, most domestic export categories, such as beauty products and skin care and shaving products, remained stable or shrunk slightly, but odiferous substances rose by 31% over the period. The largest destination for domestic exports was Thailand, followed by Indonesia and the Philippines.

But this 4.8 million population country, with a GDP per head of US$36,000 also spends a lot on personal care products itself. Beauty and personal care remains the major market in Singapore at US$793m, and this market rose by 3.8% in 2008/2009, according to Euromonitor. The highest growth in the last financial year was in skin care, which rose by 5.1% to a market value of US$246.4m, followed by bath and shower (up by 4.2%) and hair care (up 2.9%).

The mass market continues to dominate sales, representing 90.3% of all sales in the bath and shower sector, though this is down by 0.2% from 2004, according to Euromonitor. Meanwhile, international companies dominate the market in beauty and personal care, which is led by L’Oréal, Procter & Gamble and Estée Lauder. Analysts at Euromonitor anticipate that with bath and shower, hair care, oral care and sun care products all saturated, any value growth will be driven by colour cosmetics and skin care, with new products launched to cater for consumers’ increasing demands.

The Cosmetic, Toiletry and Fragrance Association of Singapore (CTFAS) is extremely active and seeks to disseminate information and exchange ideas through a network or regularly held ‘tea talks’: semi-formal briefings of new regulations, developments and wider industry challenges. Of these, a common thread across the region has been, unsurprisingly, the recession.

MALAYSIA export downturn

The recession has even hit relatively wealthy Malaysia, which has a GDP per head of US$8,200. Its cosmetics and toiletries market is valued at approximately 3bn Malaysian Ringgits (US$955m) with an average growth rate in recent years of 13% annually, government statistics show. And the Malaysian sector is diverse – it is estimated that there are more than 60,000 types of cosmetic products sold in Malaysia. Imported products from Thailand, the US, France, Singapore and Japan dominate. However, even here, the recession bit. Malaysia’s exports for cosmetics and cleansing products dropped to US$625m in 2009 from US$828m the previous year, according to Euromonitor International. Imports fell to US$646m in 2009, from US$858m in 2008.

PHILIPPINES domestic initiative

All sectors of the cosmetics industry showed growth in the Philippines in 2008/2009, according to Euromonitor. Beauty and personal care sales were US$2.26bn, a 2% rise year on year. The highest growth was in colour cosmetics (7.9%), skin care (6.3%), deodorants (4.3%), hair care (4%) and fragrance (2.9%). The mass market is dominant in the Philippines, accounting for 96.3% of all bath and shower sales.

As elsewhere in the southeast Asian region, the major players are foreign multinationals – Unilever, followed by Procter & Gamble, L’Oréal, Estée Lauder and Shiseido, according to the trade association Chambers of Cosmetics Industry of the Philippines (CCIP). In the beauty and personal care sector, Colgate-Palmolive is the third largest company, behind Unilever – who in 2009 adopted a strategy of offering smaller-sized packaging, targeted at middle and lower income consumers – and Procter & Gamble, according to Euromonitor. The economic slowdown in the Philippines has prompted growth in direct selling. Companies such as US-owned Avon and Philippines-based Ever Bilena Cosmetics adopted commitments to boosting revenues through discounts and tapped into a female labour market keen to increase household incomes.

The market appears to be remaining vibrant. Between January 2009 and January, 2010, 511 new cosmetics products were launched in the Philippines, according to market research group Mintel – the highest number (176) was in skin care, followed by soap and bath products (131) and hair products (108).

CCIP has expanded recently to include McRitz International Corporation and Beauty Elements Ventures within its membership. The association is currently arguing against government plans to increase taxes on cosmetics as part of a wider levy.

The Philippine cosmetics industry has its own laboratory and research arm, the Philippine Cosmetics Technical Assistance Center Foundation, created in 2005 to serve as the centre for learning and information and a base for testing facilities.

Balinese wisdom from Dr Martha Tilaar Spa menu and training courses
Following five years’ research in Balinese villages to gather information on authentic treatments and recipes handed down over the past 1,000 years, Martha Tilaar has put together Bali Spa – Shui Pani Amarta, a book that brings together, for the first time, the rich, exotic spa and beauty culture for which the island is renowned.
Traditionally, information in Indonesia has not been written down, apart from on lontar (palm leaves), but this book forms the basis for the development of the company’s new treatments and training courses, which are available for overseas therapists.
The massage imitates the movements of animals and the sequence has actions that follow the tiger’s claw, a heron peck and the golden worm as well as the divine palm shaking the earth. Treatments include experiences to prepare couples for weddings and for mothers before and after giving birth.
The Bali Spa Menu treatments include rituals, pure, traditional oils and jamu drinks. To carry out this programme therapists must undergo training including Balinese gymnastics, special exercises and meditation to raise their bio energy levels. The idea is that this energy is then channelled into the treatments transferring it from therapist to client to heal and rejuvenate.
Martha Tilaar comments: “My aim was to bring this ancient wisdom to light and share the wonder of its health and beauty treatments with the world. They are beautiful they are part of Indonesia’s rich heritage and work effectively to combat the pressures of today’s lifestyle.”
email info@marthatilaar.com
www.marthatilaar.com

Singapore forum ASEAN calls on cosmetic leaders
Organiser of FormulaCare, Pam Jones spoke to Le Chau Giang (left), president of ACA (ASEAN Cosmetic Association), about the development of ASEAN regulations and plans for the ACA Cosmetic Leaders Forum
“The ASEAN Cosmetic Association (ACA) was founded in 1997 by the presidents of the cosmetic associations of Indonesia, Malaysia, Philippines, Singapore and Thailand. The objective was to create a strong regional association to facilitate the movement of cosmetics within ASEAN and to support its members in enhancing their competitiveness in the response to globalisation. “With a market of over 500 million people, ASEAN is an important player in global trade with a high potential for future growth. ASEAN has envisioned an Economic Community by 2015 and a lot of initiatives have been put in place. Economic integration is not just about cutting or removing tariffs on trade, ASEAN countries have to make sure that non-tariff barriers are removed as well. “In 2003 the ASEAN Harmonized Cosmetic Regulatory Scheme was signed by the Governments of the ten ASEAN Member Countries. The ASEAN Cosmetic Directive came into force on 1 January 2008 and the grace period for existing products expires at the end of 2010.
“For over ten years, ACA has worked closely with members as well as collaborating and supporting the regulatory agencies to put in place the right infrastructure for the implementation of the ASEAN Cosmetic Directive.
“ACA is now moving to a new period where we expect it to be an internationally recognised association. We recently developed a new vision, mission and strategies for ACA and have restructured the organisation.
“One of our main projects is the ACA Cosmetic Leaders Forum which will be held in Singapore next year. This is designed to equip decision makers from cosmetic companies with the latest information in ASEAN on three major topics: investment policies; legislation and technical regulations; and ASEAN FTA negotiations with other countries, eg China, India, Korea etc. Top executives will hear directly from policy makers and discuss concerns and issues about doing business in ASEAN, with topics selected following discussions with cosmetic executives from both multinational and local companies in the region.”
Seating at the forum will be limited to 100.
ACA Cosmetic Leaders Forum, 23 February 2011, Singapore
www.aseancosmetics.org

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