China rapidly emerges as a worldwide hub for cosmetics

By Simon Pitman

- Last updated on GMT

Related tags: Cosmetics, Middle east, China

With exports of cosmetic products from China expected to rise 20
per cent during the course of 2006, China is rapidly emerging as a
world-wide hub for the cosmetics industry. But challenges for this
burgeoning industry are on the horizon, a new report reveals.

With the value of cosmetic and toiletry exports expected to reach $630m this year on the back of increasing interest in high-end products, the industry is thriving, but so too are costs, as inflation and a world-wide increase in the costs of raw materials starts to take its toll.

According to research work carried out by market research firm Global Sources, 68 per cent of cosmetics makers in China says they are planning to raise their prices in the next 12 months.

This will inevitably lead to manufacturers having to raise their prices in the course of the next year, which could impact a segment that has built up its business on the pretext of supplying foreign traders with lower-priced goods.

According to the latest report from Global Sources, cosmetics exports out of China remain predominantly focused on low-end products, but there has also been a distinct shift towards luxury products, in line with global demands.

However, the higher cost of raw materials is likely to have less of an impact on premium-end cosmetics products, where there is more room to absorb the price hikes, which should in turn lead to an even bigger boom in the export of premium products.

"Although low-end products still dominate, intense competition is pushing many large suppliers to focus on mid-range and high-end products,"​ said Global Sources' general manager of content development Michael Kleist.

"Shipments of more upscale products are expected to increase export value by as much as 20 per cent in the next 12 months,"​ he added.

The report says that the Middle East and Africa and the EU had emerged as the biggest markets for Chinese cosmetic exports, with 30 per cent of China cosmetics companies citing each region as their primary source of export.

But Global Sources believes it is the Middle East and Africa that shows the most potential for further growth.

"The Middle East and Africa are emerging to become important market for many suppliers. This is particularly true for company that want to start marketing their own brand names but can't afford the high cost of entry into the US and EU markets,"​ Kleist said.

This partly explains why the US only accounts for approximately 25 per cent of exports. Indeed, penetrating this saturated and mature market is proving no mean feat for many established industry players.

However, exports of China cosmetics products to other markets in Asia are not so favorable, with only 13 per cent of companies saying they were planning to export with the region.

This probably reflects both the development of the market and price sensitivities, with many other Asian markets, Japan being the exception, being focused on lower-end, cheaper products.

With global trends dictating an ever-larger market for luxury cosmetic products, it appears that manufacturers in China will be playing an increasingly important role in the evolution of this segment by filling gaps in key markets worldwide.

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