1、Battle of CosmeticsL Capital Asia， a fund under the global largest luxury products group LVMH made its first investment into Chinas skincare products. The first target was Marubi. Marubis CEO Sun Huaiqing believed that the experiences and resources of L Capital Asia and LVMH are all substantial and
2、solid profits， which is of great importance for Marubis ambition of “building an international brand”. “LVMH has unlimited resources， such as the in-depth cooperation with the media. Our ads could be placed on the first 12 pages of high-class fashion magazines and the cost is 30% less than the origi
3、nal price. LVMH can help to improve the design， bottle shape and packages， as well as the design of counters and business space. Marubi is even allowed to make use of the global channels of Sephora and DFS， such as their duty-free stores.” Speaking of this， Sun Qing could not hide his excitement. In
4、deed， these resources are what most local Chinese skincare and cosmetic brands are dreaming of. In a high-class fashion magazine， ads of local cosmetic brands are usually placed on the central and rear part of the magazine. Marubi had only about one thousand outlets in the high-end department stores
5、 all around China and most of them are located in the second- and third-tier cities. They are far from a nationwide network， let alone the international reach. In comparison， Loreal from France owns the distribution channels twice as many as Marubi in China and has a much greater presence in the fir
6、st-tier cities of China. “Survivors” The data shows that foreign companies took the absolute leading place in the cosmetic market of China in 2012. Local companies took over one third of the market， but the 1/3 share was subdivided by a large group of players and none of them could be an impressive
7、force alone. Presently， there are 5，000 local cosmetic enterprises in China， but 90% of them are small- and medium-sized enterprises， with the total market share of even less than 20%. The weak competitive power of local cosmetic market has been lasting for a long while. When local companies got rea
8、dy to engage themselves into the promising cosmetic industry， they found that multinationals， which were much better than them in capital， talents and brand influence， had already opened the gate and taken a strong foothold there. Famous foreign brands like Shiseido， Unilever， Procter & Gamble， got
9、into the Chinese market early in the 1980s. In this market full of competition， local companies have to face the competition from powerful multinational players when they were born. Sun Huaiqing said emotionally that “this market was like a over-strict teacher who asked you to take part in the exam
10、before giving you a lecture.” Those enterprises which had survived the harsh tests have already formed the core competitive power in the fields of expanding channels， positioning products and innovation. The competitiveness of channels has become a common characteristic of most local cosmetic enterp
11、rises. Confronted with the unshakable advantages of foreign brands in the first-tier cities， local enterprises usually chose to avoid face-to-face competition and adopted the strategy of “taking the less important markets”. They started their market development from the third- and fourthtier cities，
12、 or even counties and villages by expanding their domain through exclusive stores and supermarkets. Presently， there are 160 thousand exclusive stores of cosmetics in China， taking one third of the market and increasing by 30% year by year. The distribution pattern in the form of exclusive stores ta
13、kes over 60% of the market in many second- and third-tier cities. This is where local companies have rich experiences. Danzi， for example， made immense investment into the image display terminals and experience campaigns every year. It prefers the small and regional agents because they are more fami
14、liar with local distribution system and have a wider network， which could earn more advantages for Danzi. In the product positioning and innovation， local brands are actively narrowing the gap between them and foreign companies. For example， Marubi special- izes in the eye care. In 2003， it develope
15、d the essence of repairing the polynary cells around eyes to deal with the problem that the cells around eyes are hard to absorb nutrients. Lancome did not launch the products with the same effect until 2009. Herborist， a local brand under Shanghai Jahwa， built a strong R&D team in 1995， positioned
16、itself as the“modern personal skincare expert based on herbs” from the very beginning. Its products have had international influences by capitalizing on the channels of Sephora. Encounter Actually， foreign cosmetic brands have no compelling advantages in the core technologies compared with local ent
17、erprises. “The core technologies are taken by those giants of raw materials， such as BASF from Germany， Silab from France， Dow Corning from the United States， Croda from Great Britain and Nippon Fine Chemical from Japan， ” said Sun Huaiqing. Even those behemoths like Loreal have to rely on the mater
18、ials and technological support from those companies. The R&D of cosmetic enterprises is mainly the applicable research based on the suggested formulas given by the raw material suppliers， which also includes the tryouts and review by consumers. Therefore， the real gap between local and foreign cosme
19、tic enterprises rests with the brand and culture. Feffrey Jones， Professor of Business History at the Harvard Business School， said in his book Beauty Imagined： A History of the Global Beauty Industry that multinational cosmetic enterprises get into a new market through the paths as follows.“Compani
20、es and fashion magazines will be dedicated to teaching consumers how to use these products correctly and persuade them to buy them. Such a strategy of combining the education with marketing helps those products which originated from the West to those markets with continuously increasing income and m
21、ore segmented sense of value.” Undoubtedly， Chinese consumersrecognition of cosmetic brands and their consumption habits have been dominated by foreign brands， which were the earlier comers. This is also why local brands like Marubi wanted to improve their brand status through LVMH since it has no a
22、dvantages in brand awareness. In addition， multinational brands have chosen to sink down their distribution channels by extending their arms into the stronghold of local brands ? the third- and fourth-tiers cities and even rural areas. This strategic sinking of distribution channels is not out of bl
23、ind expansion， but the duo results of the pressing competition and the increasing market size. The data from ACNielsen revealed that the market share of foreign cosmetic brands in China was 57.9% in May 2009. The proportion dropped to 44.5% in May 2012. Some specific brands even saw their market sha
24、re drop to 10 times less than before. The crisis was also seen in the development pace. For example， Loreal， which takes the largest market share in China （14%） ， had the annual increase of 12.4% last year， slightly higher than the 12% average growth of the cosmetic industry. The change of market sh
25、are is a result of the offensive expansion of local enterprises. These Chinese companies have been running their business in the second- and third-tier cities for a long time， through which they gained a lot of profits thanks to the low operating cost there. Once they have accumulated enough strengt
26、h， they began to march upward to target the market of firsttier cities. Their efforts could be seen by their massive investment in the advertising. Last year， Pehchaolin spent RMB 70 million gaining the title as the exclusive presenter of the second season of Voice of China of Zhejiang TV. Inoherb s
27、pent RMB 109.99 million， 244% of the premium price， getting the title as the exclusive sponsor for CCTVs dance show Step Up. This year， Marubi spent a huge amount of money acquiring the title of exclusive sponsor for Golden Eagle Theatre of Hunan TV. Meanwhile， the progress of urbanization and the i
28、ncreasing income of Chinese people place the cosmetic market of China on the growth path. In 2012， the sales amount of cosmetic industry in China exceeded RMB 200 billion with the annual compound growth rate of 11.7%. However， the consumption per capita accounts for only one third of the world level
29、. As some ana- lysts said， the GDP per capita in China is likely to exceed the global average level of US$10，000 in the next 8-10 years. A conservative estimation said that Chinese people would spend 2-4 times as much as they spend on cosmetics now. the cosmetic market is going to be a market with t
30、he volume of over one trillion US dollars. In front of the growing market with great potentials， Loreal and other multinational cosmetic brands condescended themselves into the lesser cities of China. When they are busy acquiring the third- or even four-tier cities of China， Marubi and other Chinese
31、 local brands choose to go up to target the first-tier cities. The two parties now spare no efforts in attacking each others best protected stronghold， foretelling a coming battle which is more vicious than ever before. Zeng Lingchun， director of Market Planning of Marubi， said that foreign companie
32、s did not do well in the de-velopment in the lesser cities of China. Thats because the multinationals usually spend a lot of time making a decision and implementing relevant policies， rendering them unable to get used to the increasingly enriching demand of consumers. “For example， the offline exclu
33、sive stores we are heavily relying on now have high requirements for the individualized services， which need the brands to react quickly and flexibly， ” he said. In addition， the massive size of these foreign brands also became a hindrance. Limited by the global resources， they are hard to keep comp
34、etitive advantages in every segmented channels and markets. Reversely， things have not become easier when it comes to the development of domestic brands in the first-tier cities. “We are working hard to expand our presence in Beijing， Shanghai and Guangzhou， ” said Sun Huaiqing. “We went to the depa
35、rtment stores to see whether there are rooms for our products. But we were usually answered no. I asked them： is there an empty place there？ And they answered： that place is reserved for foreign brands.” “We must build a world-known brand with global competitiveness. The regional brands are doomed t
36、o die anyway. We need to take strategic measures to survive the harsh competition， ” Sun said. Acquisition Means Damnation？ The cooperation with L Capital Asia is the first step for Marubi to “build a globally competitive brand”. Actually， many people feel worried about its fate since there are many
37、 sad precedents in the Chinese cosmetic industry ? many local brands disappeared or suffered bad performance after being invested or acquired by foreign investors. The most typical cases happened with Little Nurse and Tjoy， which were once famous cosmetic products in China. Little Nurse， which was f
38、ounded in 1992， once had the 99% brand recog- nition. Before being acquired by Loreal in 2003， it took 4.6% of the skincare market of China， ranking as the third largest skincare brand in this country. However， Little Nurse was buried by Loreal and now almost has no tracks in the market. After selli
39、ng some stakes to Coty in 2010， the original shareholders of Tjoy still held 40% of stakes. However， senior executives of Tjoy recently said that the sales amount of Tjoy dropped 50% last year and its fundamental sales teams are undergoing profound changes. Prior to that， the disparity of working me
40、thods forced many original senior executives of Tjoy to leave the company. Many analysts say that foreign cosmetic brands acquired domestic companies for the sake of the latters wide distribution channels. They acquire these brands to get to the market of those companies and after realizing their goals， they usually do not want to invest too much into the Chinese
