FDI approval in India gives cosmetics manufacturers a huge opportunity

By Andrew MCDOUGALL

- Last updated on GMT

Related tags: Cosmetics, Perfume

The Indian government’s decision this month to allow 100 percent Foreign Direct Investment in single brand retail, will be beneficial to the fast moving consumer goods sector, with cosmetics poised to pounce.

Foreign direct investment (FDI) is direct investment into production in a country by a company located in another country, either by buying a company in the target country or by expanding operations of an existing business in that country.

This is done for many reasons including to take advantage of cheaper wages in the country, special investment privileges such as tax exemptions offered by the country as an incentive to gain tariff-free access to the markets of the country or the region.

Fragrance market poised

India was regarded as the second most important FDI destination, after China, for transnational corporations during 2010–2012, and a study by The Associated Chambers of Commerce and Industry of India (Assocham) suggests that there is a big opportunity in the perfumes and deodorants market.

Assocham’s latest study states that the Indian deodorant and roll-on market is currently estimated at Rs 1,800 crore and is growing at about 55 percent every year.

The perfume market is also growing at 30 percent with a current market size estimated at Rs 1,500 crore.

By 2015, Assocham claims the fragrance industry is poised to reach the Rs 10,000 crore-mark.

Market presence

Many cosmetic manufacturers have had a presence in India for a long time, such as L'Oreal and Beiersdorf, and the new policy means that they can save money on imports and get closer to the local market.

Indian consumers still tend to veer towards well-known brands, and the big foreign players will now be able to manufacture locally and grow further in the market.

Price is another factor affecting consumer demand in India and with the 100 percent policy in place, cosmetic companies should remain competitive as costs should now be lowered.

It is also thought that some Indian companies in the cosmetics industry may also choose to sell out completely with the new policy in place.

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