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How to Import Cosmetics into China and Sell on its Domestic Market

The global cosmetics industry, valued at $511 billion in 2021, is highly lucrative and China has become one of the largest consumers in this industry, being second only after the USA; making it an attractive target market to sell your cosmetics products. But before you jump at the opportunity to enter this huge market, there are certain regulations that you should be aware of first.

Some Data about the Cosmetics industry in China

China’s beauty and personal care market has a value of over $38 billion USD.
In 2019, the online retail sales value of cosmetic products in China amounted to approximately RMB 194.4 billion.
This extremely profitable industry in fact is forecasted to exceed RMB 350 billion by 2024.
Around 70% of the purchases will be made via e-commerce, largely on Tmall and JD.com from Alibaba Group Holdings Limited or Jumei Incorporated respectively.
The Chinese men’s skincare market is forecast to hit $1.9 billion USD this year, and is projected to reach around $2.8 billion USD by 2025.
In recent years, The Chinese cosmetic industry is the fastest-growing market in the world.
The main consumer groups for cosmetic products are between the post-80 and post-90 generations, who are highly aware of product updates and have a strong inclination towards appearance and trends. As a result, several cosmetic brands have witnessed the collaboration with KOL and beauty bloggers and have incorporated advertisements to increase cosmetic sales.

While the Chinese market is flourishing, there are still some tricky aspects about this opportunity, namely the regulatory compliance for cosmetic manufacturing, importation, and special rules governing the sales and promotion of such products.

Revenue of beauty & personal care market in China (2015-2025), by segment | Source: Statista

New and Existing Cosmetic Regulations in China

Chinese cosmetics manufacturers are getting ready for a brand new array of regulations that went into effect this year. The National Medical Products Administration (NMPA) has issued a list of new rules that manufacturers should abide by:

Cosmetics Efficacy Claim Evaluation Standards
The Technical Guidelines for Cosmetics Safety Assessment
Cosmetics Classification Rules and Catalog
Provisions on Management of Registration and Notification Dossiers for Cosmetics and Cosmetic Ingredients

How are our Location Analysis Studies priced?

Location studies are typically priced by the number of locations. The price will reflect the kind of research that is conducted, such as: desktop research, reputational queries, and site visits.

Locations studies based on desktop research will range from US$500 to US$1000 per site depending on the depth of the research. Reputational queries are usually priced from US$750 to US$1200 per location. Site visits are typically priced between US$1000 and US$1500.

Some firms will charge more if a client has a pre-existing framework for evaluating sites because this will force them to use a different approach than normal, while some will charge less because they are able to more easily focus on the clients’ concerns.

Discover how we can help your business select the best location for setting up in Emerging Asia.

Policy Spotlight: What is ‘dual circulation’ and what does it mean for China’s economic development?

‘Dual circulation’ is the coexistence of ‘inner’ and ‘outer’ circulation.

‘Inner’ circulation refers to China’s goals to realize greater domestic economic potential by boosting consumption, improving innovation, and developing urban clusters. ‘Outer’ circulation refers to China’s trade and investment relationships with foreign countries.

Party leaders argue that inner and outer circulation should complement and reinforce one another.

Reorienting the economy away from exports towards domestic services and innovation has been a longstanding policy priority for China’s leaders. In this sense, dual circulation is not a radically new direction for China’s economic policy, but a bundling of policies under a single – and more urgent – banner.

Expressing these policies as ‘dual circulation’, however, allows leaders to convey its importance and mobilize lower level government officials to take action in China’s top-down political system.

Why is ‘dual circulation’ important to China’s future development?

China’s central leadership developed the ‘dual circulation’ economic strategy to boost domestic consumption and innovation in coordination with international trade towards development goals.

Authorities first announced the strategy at the Chinese Communist Party’s Politburo meeting on May 14, 2020. At the meeting, China’s leaders said that dual circulation would “fully bring out the advantage of its superlarge market scale and the potential of domestic demand to establish a new development pattern featuring domestic and international dual circulations that complement each other.”

Business Case: Diversifying manufacturing supply chain from China to Southeast Asia

Client Company

An international manufacturer of automotive components with factories in China and primary sales operations in the United States and the European Union.

Objective

To identify a location for manufacturing in Southeast Asia able to provide sustained operational savings over a 15 year time horizon without compromising product quality.

Current Status

Company entered China in 2003 and has factories established in three 1st or 2nd tier cities, supported by a deep network of suppliers. Company has identified Thailand, Vietnam, and Cambodia as candidates for a relocation.

Key Challenges: Company lacks on-the-ground resources to identify and compare locations for manufacturing. Company is particularly concerned that a wrong decision could compromise its current supply chain setup.

Solution

Company engages BZ•IN•TL to evaluate its top options for relocation. BZ•IN•TL employed its Multi-Country Benchmarking Methodology to compare each market with the following findings:

1. Cambodia provides the lowest costs for the client and is likely to present the least regulatory risk to start. Supplier network and quality of local labor force are shown to present significant constraints on the client’s ability to retain product quality control over the long term.

2. Thailand possesses the most developed manufacturing supply chain for the automotive industry, BZ•IN•TL found that costs in Thailand are likely to limit the client’s time horizon in market by nearly 50%.

3. Vietnam’s cost trade offs result in a slightly shorter timeframe than required in specific locations but BZ•IN•TL notes that the less developed central region of the country provides opportunities for further cost reduction.

Conclusion

In the end, client company was drawn to Cambodia and discussed the idea of relocation with a number of its key suppliers China. Many of these suppliers were not ready to make the move. As a result, Company was forced to forge new partnerships with companies operating in Cambodia.

Discover how we work with our clients to identify the optimal investment location for their business expansion or relocation.

Country Spotlight: Vietnam

Investment Climate

Costs: Average manufacturing compensation in Vietnam as of 2017 stood at US$3,673 or 36% of a comparable cost position in China.

Taxation and Incentives: Vietnam’s corporate income tax rate stands at 20%, a marginal discount to the 25% applied in China and in line with regional competitors such as Cambodia (20%) and Indonesia (25%).

Industrial Zones: With over 400 industrial zones located across the county and a clear incentive policy to seal the deal, Investors in Vietnam have no problem gaining access to production facilities in line with their expectations.

Trade Agreements: Vietnam’s network of trade agreements is unprecedented for a country at its stage of development and a significant leg up compared to most China-based operations.

Key Considerations

Vietnam offers a cost competitive alternative for manufactures in China that are increasingly pressured by wage inflation, regulatory compliance, and competition for industrial land. Companies that once enjoyed a competitive position by manufacturing in China are now losing ground to local companies in a battle for skilled labor, which’s cost and social insurance obligations are fast rising. However, China’s size and well-integrated supply chains still leave significant incentives for companies to keep at least part of their manufacturing base within the mainland.

While Vietnam may not be viable for more complex operations, Chinese manufacturing operations can usually benefit from relocating some low cost production and assembly to Vietnam.

How can your company use Regional Competitiveness Studies to develop a market entry strategy?

In order to formulate a successful market entry strategy, business leaders need to connect regional competitiveness data to their business goals after identifying target markets. This most often takes the form of profiling a target market based on publicly available information and needs specific to a business.

Michael Porter, the American business strategist, popularized this “Diamond Model,” which shows how two factors can be integrated for optimal success.

In this model, business leaders can see how publicly available information provided by multi-laterals organizations and government agencies relates to a real market conditions. The “government” encourages businesses to stimulate the economy and market, and realize its growth and competitive advantage.

Businesses that would like to develop a comprehensive strategy based on a model like Porter’s have a number of information requirements such as business factors, market demand, supporting industries, and that business’ strategy within the overall competitive landscape.

While large multinational firms have often institutionalized processes for achieving these information requirements, smaller and medium-sized businesses can focus on so-called “factor conditions,” which Porter identified as the most influential to determining competitive advantage.

Businesses with limited resources to support the decision-making process can develop market entry strategies with targeted reports that define:

• Corporate establishment regulations;
• Taxation policies;
• Incentives for businesses;
• Land access, availability, and cost;
• Labor access, availability, and cost;
• Basic service provision and costs.

This information allows a business to create initial consensus to support a prospective market entry strategy and execution plan because it addresses concerns that may arise from legal, accounting, human resources, and operations divisions; all of which are reflected at the c-suite level.

How can Regional Competitiveness Studies support your business’ decision-making process?

To begin, a business can utilize regional competitiveness reports to learn about an economic region and make a shortlist of countries that merit the attention of their business.

For example, business management may seek to extract information from the World Economic Forum’s Global Competitiveness Report for macro-economic and micro-economic indicators, the World Bank’s Ease of Doing Business for business regulations, and Transparency International’s Corruption Perceptions Index to understand the nexus between the public and private sector.

However, this information is not a complete picture of all business conditions.

Simply, minimum wage data published by the World Economic Forum’s Global Competitiveness Report can make for intuitive modeling, but is usually far from the mark when it comes to projecting actual wage costs in many emerging markets. In fact, most regional competitiveness reports use approximate data. Therefore, publicly available information in regional competitiveness reports are best used to develop a shortlist of countries that require further examination.

Information Needs to Scale

Business leaders who need to scale regional competitiveness information to foster support within their organization have several low cost options:

1. Conduct deeper examination that entails country-by-country desktop research as provided by the trade & economic arm of an investor’s embassy/consulate or chamber of commerce. Business leaders can further build on this research with meetings with economic or commercial service officers at the same agencies, which can help bring experiential insights into the decision-making process.

2. Business leaders can also attempt to collate this research with news media and content published by private consultancies. This information often mirrors data provided by multilateral organizations, state governments, and commercial services, albeit with some analysis to factor impact on businesses or more often, an industry or an economy in general.

3. Business leaders may also seek to contact industry associations and its members in target markets. This method is more successful in developed economies, where representatives can afford to facilitate further investment. However, the downside to this approach is that associations in developing economies may struggle to provide veritable information, while representatives may be disinclined to share information freely with outside investors without viable incentives to partner.

Conclusion

In the end, each of these options require time, resources, and expertise. Beyond this, the information gathering process can detract from a business leader’s core responsibility – developing an actionable market entry strategy.