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Cosmetics companies eye direct sales in China

10-Nov-2004

China's government is set to free up the market for direct sales in the country, a move that is likely to allow the direct sale of cosmetics by international companies such as Avon, Nu Skin and Oriflame. Simon Pitman reports.

According to a report from the Wall Street Journal, the country is preparing to issue its first comprehensive rules for direct sales company in the next few months. Direct marketing has traditionally proved to be a strong means of selling cosmetics to consumers, and Avon in particular has become synonymous as the leading company worldwide.

But tough regulations have, until now, made direct cosmetics sales almost impossible in the country.

 

All that is set to change, however. Under the conditions of China's entry to the World Trade Organisation, one of the main stipulations is that the country opens up the economy, and more specifically the retail sector, to allow the entry of foreign players. At the time of entry the WTO said that China's government had to comply with all the agreed quotas by 2005. That date is now rapidly approaching, which is why China is now making moves to introduce more liberal retail laws by the end of the year.

 

As well as the law to liberalise the regulations on direct sales, the authorities are also freeing up regulations allowing foreign multinational retailers to set up in China. A move that could also bring a number of new opportunities for leading multinational cosmetic and personal care companies.

 

Until now cracking the China market has proved difficult as direct sales businesses have had to struggle against China's ambiguous laws related to the area. In fact direct sales are currently illegal in the country, after Beijing banned all direct sales in response to pyramid schemes, which were sweeping the country at the time.

 

Eventually ten direct sales companies were allowed to continue their operations after lobbying the government, but other companies had to turn their businesses around by setting up retail outlets in key urban areas. An expense that proved too much for many businesses that subsequently went out of business.

 

But with the new regulations promising to allow greater freedom to businesses already established in China, as well as offering greater access to new businesses wishing to enter the market, leading international directs sales cosmetic businesses can now look forward to better prospects.

 

Surprisingly, industry experts and company executives believe that the new regulations are more likely to favour foreign companies. This is because stringent capital and sales requirements are difficult for domestic companies to fulfil, freeing up the market for foreign multinationals with bigger purse strings.

 

The sheer size of the China populace combined with the fact that economic prosperity is continuing to develop at phenomenal rates gives many industries reason to believe that there are significant opportunities. For cosmetics companies in particular, huge opportunities are in the offing. Currently the market for cosmetics is valued at $4 billion, but with growth rates continuing to skyrocket, some industry experts believe that this figure will have grown ten times by the year 2010.

 

This, combined with the fact that the vast majority of China's population remains outside the primary industrial and economic zones, and consequently out of reach of the major retail centres, gives many industry experts reason to believe that direct cosmetics sales could be a major growth industry.

 

The companies agree too. Nu Skin is planning on changing its business model to combine direct sales with retail outlets. Already it is predicting that sales will rise from $38 million in 2003 to reach $100 million this year. And with the added impetus of direct sales next year it is anticipating growth to continue apace.

 

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