Foreign Brands in China: Turn From a Guest into a Host, Get the Best of Both

Reporter  Hu Zuohong

Zhang Zhe(not his real name) from Anhui is a little annoyed recently, because the sales of several domestic shampoo brands for which he acts as an agent has decreased greatly this year. Although he has taken many measures, the situation remains the same. Not long ago he attended an industry conference, and found that everybody was in the same tone: local shampoo brands are losing their edges. Why? Actually the reason is obvious to everybody: all is due to the god-damned P&G. There are many other agents in China daily chemical market who share the same worries as Zhang Zhe. What annoyed them most is that the market of domestic shampoo has been continuously squeezed by foreign brands. The troubles of “Zhang Zhe”s are another reflection of foreign brand’s gradual expansion into Chinese market.

As to the development situation of foreign brands in China, Huang Zhidong, a senior market expert, has a lot to say. He says, the enormous capacity of the China market as two hundred billion yuan every year attracts nearly all the international daily chemical magnates, from comprehensive ones like P&G (USA), Unilever(Britain and Holand), Henkell (Germany),KAO(Japan), Shiseido(Japan) to relatively specialized ones like L'Oréal Paris (France), Estee lauder(USA), Johnson & Johnson(USA), SC Johnson(USA), Colgate(USA), Lion (Japan), Reckitt Benckiser(Britain and Holand), Bayer Stoph (Germany)…Well-known ones and not well-known ones all file into China one after another.

The cause for all is the enormous Chinese daily chemical market.

    When concluding the reason for success of  foreign brands in China like Shiseido and P&G, Huang Zhidong thought that success is attributed to “The early bird catches the worm”, besides their strength. He said, China’s cosmetology and hair dressing market was basically “empty” from 1981 when Shiseido entered China to 1988 when P&G entered China. They opened Chinese market by “joint venture” and “OEM/ODM”, then they taught Chinese to do “cosmetology and hair dressing” by lots of educational advertisements. In this way, they quickly “occupied a position” in the head of customers, and achieved success in China market.

Make Careful Arrangement, Turn from a Guest into a Host

Since 1981 when Shiseido came to China for the first time, many foreign daily chemical brands has been following it to travel far away across the sea to “pan for gold” in China. Foreign brands relied on their great financial strength, brand effect and marketing capability to make careful Arrangement by means of OEM/ODM, joint venture and takeover, gradually turned from a guest into a host and finally became the first team in today’s China daily chemical market. 

In the field of skin protection and cosmetics, the strong brand effect and sales of foreign brands grant them certain “privileges” in China daily chemical market. In supermarkets and department stores, counters in the best location are occupied by foreign brands such as L'Oréal Paris and Olay, while domestic brands are forced into the corner. Surveying the domestic cosmetics market, in the high level, foreign brands rule the land; in the middle level, joint venture brands led by multinational corporations take up most of the market share; domestic brands cluster in low or middle end market. An industry insider once pointed out that, foreign brands took away 80% profit in Chinese skin protection market, while local brands added up 80% in amounts but only 20% in market share.

In the field of shampoo, foreign brands have absolute say. Sub brands of P&G and Unilever take up over 70% market share in China. Another tycoon L'Oréal Paris also entered shampoo market in 2009 and has achieved good results. There is only 30% market share left for domestic brands like Bawang. A few days ago the reporter roughly counted in the exclusive shampoo area of a large international chain supermarket in Guangzhou, among all the 30 or so shampoo brands, 25 of them are foreign brands. Despite that, foreign brands are unsatisfied and still take further actions. For example, P&G has released a new series called Rejoice Herb, and label it as one can “prevent hair loss”. Its intention is obvious, that is, to squeeze the market space of domestic shampoo like Bawang.

In the field of laundry products, foreign brands are in inferior position at present but have sufficient aftereffect. According to the latest Nielsen rolling statistics, 60% of sales in washing powder market are occupied by Liby (24.3%), Tide (20.6%) and Diao Pai (17.7%), the other 40% sales are divided by OMO, Lonkey, Qiqiang, etc. In the field of liquid laundry detergents, Blue Moon is the big brother, but with the rise of Unilever’s OMO and P&G’s Tide and Ariel, the leading status of Blue Moon is facing challenges. With the involvement of more industry tycoons, the domestic market of liquid laundry detergents is facing more fierce challenges. The local brands may lose their monopolistic status, and the present market will be restructured.

      In the field of mouth care, still foreign brands are the leading role. As to toothpaste, Colgate, Crest and LG occupy most of the shelves in supermarkets and department stores. There are only several local toothpaste brands like Yunnan Baiyao, Lengsuanling and Liangmianzhen and the amount of each product is also at a disadvantage. As to other mouth care products like mouth rinse and dental floss, it is ruled by foreign brands without a doubt. Few domestic brands show up there. 

So far, the ruling status of foreign brands in China daily chemical market is stable and it is hard for new strength to make a breakthrough.

Adopt Diversification Strategy, Get the Best of Both

In China daily chemical market, especially the high end market, foreign brands has taken the lead since long time ago. Local brands mainly cluster in middle and low end market. However, the situation has been gradually changed in the past few years. L'Oréal Paris, Shiseido and P&G begin to care about middle and low end market. They attack domestic middle and low end daily chemical market by the means of price deduction, take over or new sub brands. Their intension is obvious— to get the best of both.

To prove the point “Adopt Diversification Strategy, Get the Best of Both”, you just need to count sub brands of L'Oréal Paris and P&G, whose products has covered all consumer groups from high end to low end, from city to countryside. Especially P&G has involved itself in every segment market.

 “In the past, in Chongqiong or even national daily chemical market, foreign brands normally focus on the high end market, while the local brands stay in the middle and low end market. But now the situation is being changed. Foreign brands have shown their ambition to get the best of both.” A daily chemical agent Mr. King from Chongqiong told the reporter. Foreign brands usually take two measures to fight for middle and low end market. On one hand, they purchase local middle and low end brands in order to compile with the market of these brands and get their marketing channels. For instance, L'Oréal Paris took over Xiaohushi, Bayer Stoph took over Sibao and Johnson & Johnson purchased Dabao. On the other hand, they develop new sub brands to cater to middle and low end market. For example, apart from its high end brand “BEAUTEdeKOSE”, KOSE the third largest cosmetics magnate in Japan has released middle and high end brand “KOSE” and popularization brand “RECIPEO”. Recently it has released a new middle end brand “AVENIR” emphasizing on fashionable style. and JUNKISEI with the selling point of herb moisten. KOSE is revealing it ambition to sweep the board. 

In addition, foreign brands have gradually learned from local advantages of domestic brands. For example, P&G has released Rejoice Herb series following the fashion of Chinese herbal medicine. Similar events also appear in the field of other daily chemical products like toothpaste. There is no doubt that international daily chemical magnates have got their eyes on the potential market of Chinese medicine ingredient. L'Oréal Paris claims that the goal of its purchase of YUE SAI, a brand which has integrated into many Chinese elements, is to promote the globalization of the research of Chinese herbal medicine. They also hope to introduce Chinese herbal skin protection elements to Lancôme Paris which originated from France. Besides, Estee lauder, Shiseido, Koze and Unilever have set up research centers in Shanghai one after another and emphasized the development of Chinese herbal medicine cosmetics.

What’s more, some foreign brands have turned from “Made in China” to “Made for China”, customizing products for Chinese consumers. For example, L'Oréal Paris’ Lancôme Renergie Morpholift Lifting and Firming Eye Serum and Shiseido’s Urara are specially developed for Chinese women.