Business Evaluation Of TOP QUALITY Cosmetic Sector

China, as the next largest economical entity of the world, has the biggest population over the world. As the increased living standard of Chinese language people, the intake on fashion and cosmetics is enhancive since previous decade. Regarding to Goldman Sachs survey, China has increased its position from being rarely found to the world's third most significant consumer of luxury goods, accounting for 12% of global sales. (Bialobrzeski, 2011) According to Datamonitor (2010)'s forecast, the Chinese language make-up market grew by 6. 8% in '09 2009 to reach a volume of 129. 5 million units (Number 4). The marketplace is forecast to truly have a positive development of 169 million units by 2014 with a rise of 30. 5% since 2009. This gigantic market progress rate is because of increase of income and proceeds changed life frame of mind in China.

Furthermore the traditional points of views of people have changed with regard to cosmetics application. Specifically, women who are in the cities of China spend big money on luxury beauty products - for example in Shanghai it accounts for about 10% of the income. In China the primary consuming power originates from middle and upwards class. By now, about 150 an incredible number of Chinese out of 1 1, 3 billions, are believed to belong to the middle-class, although it is forecasted that in 12 months 2020 the middle-class of Chinese population will increase up to about 400 large numbers. The Chinese makeup market is still an growing market. The active development will continue in the future, offering excellent opportunities for the European plastic companies to efficiently enter the marketplace.

Considering above necessary factors, it is clear that China has a great demand of high-end cosmetic brands of international brand. And until now most of them already are available in China. The brand understanding is constantly growing because as well as the high quality, the presentation as well as the image takes on a significant role in consumers' purchasing decisions.

The reason for this newspaper is to obtain a detailed knowledge of luxury cosmetic sector in China market through analysing exterior and competitive environment of several major market leaders in this industry in accordance with their business. Actually, PEST research and Porter's Five Pushes will be used in the following context.

In luxury beauty portion, several opponents such as Lancome, SKII, Compact disc, and Estee Lauder will be analysed in this paper. Actually these famous brands have built up a world course reputation for excellent quality and prestige in China. In addition, Estee Lander and Lancome will be the beauty brands which earliest stepping into China in early on nineties. Right up until now, they have got gained a huge market talk about in luxury skincare sector.

PEST Examination of High-end Cosmetic Industry

PEST or PESTEL analysis provides a framework of macro-environmental factors to review the exterior environment (Johnson G, Scholes K and Whittington R, 2006). It provides as a simple analytical tool for understanding market growth or decline. The platform evaluates the impact of regulatory, monetary, social and technical factors on the business enterprise environment. It analyzes the way the exterior environment may create opportunities or risks for a business.

Political factors

Tariff and taxation system

As reported, over ninety percent of China high-end cosmetic products are foreign brands and mainly brought in from Europe or Japan. From 2004, in the light of lowered tariffs, many Europe brands are flowing into Chinese language market. Today, most top notch top brands have been offered in China's market.

To penetrate the business into China, the goal is dealing with the organic and frequently modified taxation system in China. In the beginning of 2007, China raised its import duty on overseas makeup from 20% to 50 % which led a barrier on foreign cosmetics consumptions (Wu J, 2007). For a long period, the process of importing increases the challenge for cosmetic companies, including a series of difficulties in conditions of tax treatment (Utilization Duty) and customs responsibility. (KPMG, 2007) Additionally, consumers in the consumption of imported luxury makeup products needed on too much tax, so that some choose to travel in foreign countries purchasing products. However, lately, the local authorities are considering reducing or trimming the high use taxes as the case of extremely high rate of duty added on luxury goods.

Tightened regulation and Import block of EU cosmetics

To safeguard use, the Government has tightened the restrictions of cosmetics in recent years. The Legislation for the Administration of Cosmetics

Labeling promulgated by the overall Administration of Quality Guidance, Inspection and Quarantine (AQSIQ) arrived to effect on 1 September, 2008. Substances labelling requirements are tightened. Under the regulations, cosmetics labeling on plans must include a full set of ingredients; and the method of labelling and requirements must adhere to the stipulations in the corresponding expectations. Exaggerating functions, making fake says, indicating explicitly or implicitly that the merchandise has medical efficiency, using product titles that can simply mislead or confuse consumers are prohibited.

In early 2002, Chinese administration enforced the ban of contamination of cosmetic makeup products by dog by-products that might transmit the human version of bovine spongiform encephalopany. This action brings a huge impact on luxury skin care imported from France or other EU countries at that time. Just lately, after negotiation between China and European union, the ban is getting released to some extends.

Economic factors

GDP increase and development of seaside regions

As table 23 demonstrates the GDP of china from 2005 to 2009 has experience a rise of 12. 5% normally. Wealthier coastal regions in China have always been the major market segments for aesthetic players. The urban areas such as Shanghai, Beijing, Jiangsu, Guangdong, Zhejiang and Shandong collectively accounted for over 55% of the national sales in cosmetic makeup products. However, in the follow years, the speed of use among those areas will decelerate, because they have been older in luxury market. Therefore, the luxury plastic companies will seek the opportunities in second-tier places. In the past, China's wealthier coastal regions will be the must-win battlefields for high-end and luxury makeup products players; as prosperity trickling right down to other areas, lower-tier cities commence to experiment with on screen.

Financial Problems, Inflation

In 2008, before recession, people are less inclined to purchase discretionary products and services, because they are not a requirement to survival. Aesthetic companies have a tendency to watch the overall economy closely as the majority of their products show up within the category.

There are, however, symptoms of market slowdown lately amid macroeconomic downturn. Beauty products retail sales progress slowed down to 23. 6% in the first three quarters in 2008 and further declined to 14. 5% and 16. 3% in Oct and November. Relating to industry experts, high-end makeup products sales were damaged the most as consumers become more price-conscious and have the propensity to trade down to value brands and lower priced private labels. Regardless of the recent slowdown, China will still be one of the fastest-growing cosmetics markets. Hit hard by the financial meltdown, makeup sales in many developed economies are expected to show toned or even negative growth in '09 2009; meanwhile, industry experts are assured that China' s cosmetics market will maintain steadily its doubled development in coming years with government's ongoing efforts to boost domestic consumption. During the same period, French luxury makeup products company L'Oral's sales enlarged 1. 4% globally, but grew by a increase of 13. 9% in China.

Recently, the poor pace of economical recovery leads commodity inflation in China's market. As the increased cost of productions and distributions, the large cosmetic companies state to escalate the price tag on luxury cosmetic makeup products. However, the experts forecast that the escalation will bring little influence on high-end beauty use, because of the affluent end consumers.

Social factors

Largest population

Undoubtedly, even although rapid growth of China's current economic climate, a little percentage of China's huge inhabitants can afford to invest a large number of money on daily makeup. However, many experts still think that China can be the major luxury consumption market because of the large human population bases. Kelly (2007) boasts that China's luxury market is positive due to its female inhabitants aged 16 to 45 almost equals the entire blended populations of the U. S. and Japan.

China's unique characters

China's unique characters of luxury products consumption leave a great potential development for high-end plastic market.

In the growing middle class, Chinese language consumers who buy luxury goods accomplish that to show off or even to help establish their identity. The Asian idea of face-or pride and dignity-is an integral reason they invest in expensive brands. In a very fast-growing economy, position symbols are the easiest way to demonstrate wealth and electric power (Bialobrzeski, 2011). To most of Chinese consumers, the data of luxury product is uncommon to identify the value of luxury goods.

Counterfeiting is a definite character which only came out in China's market. As the Chinese luxury plastic market is speedily growing, another equally fast growing portion of local industry is counterfeiting. Like a production empire, China also produces luxury fakes. Counterfeiting has a tremendous negative effect on brand value, a whole lot worse, to damage consumer's health. The blissful luxury brand must combat to hold their brand individuality against counterfeiting.

Key portion of luxury beauty sector

In addition, unlike the consumers in the West aged forties, China's more radiant generation are inclined to spend money on luxury products. White collar is major customer for up-scale cosmetic makeup products. The expanding middle class has developed the dedicated customer basis because of this market, especially girls. Their spending on cosmetic is outgrowing over other time level.

Higher-income working females and wealthy housewives will be the major consumers of high-end and luxury makeup; these consumers are generally more brand-conscious and brand-loyal. Based on the HKTDC, it's estimated that this group of consumers accounted for about 20% of the urban population.

Technological factors


The highly development of E-commerce differs the older circulation channel of high-end aesthetic utilization, such as luxury shops and spas. Internet business is also an important marketing strategy that the business is focusing on. Estee lauder is an effective example who provides the produce on its website and thinks that whenever consumers make their first purchase online, they will tend to go to the store next time for the full experience. Also, there may be array of beauty choices on the internet. They can also find out about beauty from the 300 sites with beauty products content. It is estimated that the internet will eventually produce 5 percent of the $6. 5 billion prestige beauty market in the next five years (Cleaning soap, Perfumery & Cosmetic makeup products, 2002).

As reported, almost 60% of the consumers would like to access to the Internet gathering standard information for luxury goods. Online buying is currently focused on overseas websites, but the proportion of total sales is still very low. The clients aged from 25 to 44 years old who are experienced in the network led the luxury online shopping patterns. These young consumers also found another great benefit of using the Internet, that in international countries such as Glamour-sales. com and other online discount website to find the best value and lowest price of products. (eastmoney. com, 2010)

Advanced high-tech innovation

In luxury cosmetic industry, skincare products can be high-tech and luxurious. These products typically deliver the best skincare ingredients in higher formulations designed for lasting results. Take Estee Lauder as an example, the star nights cream named advanced evening repair synchronized restoration complex is followed Exclusive Chronolux Technology to avoid skin damage. The continuous advancement make the product life cycle brief and bring the competitive advantage in the market.

Porter's Five Forces

After examining the exterior environment through Infestations, the key motorists of luxury plastic sector are identified. Through the severer global competition, Michael Porter's theory of five makes research (Porter, 1980) will be utilized to exam the resources of competition on countrywide level. In the next, we will assess an China's luxury plastic sector in conditions of hazards of new entrants, product substitutes and matches, buyer power, provider power and inner rivalry,

Impact of High-end Makeup products on Threat of Entry

Customer loyalty

Generally speaking, the threat of new entrances into China's high-end aesthetic sector is relatively high. The Chinese language prestige-beauty segment is growing fast with a rise of 30% per year and is very attractive for new firms to enter. (Scott, 2004) However, almost all major competitors have previously moved into into China market, such as Lancme, Estee lauder and SKII are types of companies advertising products in China who have achieved successful and reputation among Chinese customers.

The capital requirement

Cosmetic business, a section of substance industry, takes a significant amount of capital purchases, associated with research, development and tests, because a high level of direct contact between makeup products and human body. Chinese federal imposes a stringent and complex regulation to the start of services; therefore, a good suggestion for the new entrant is to create a product under a synergy and cooperation with giant cosmetic makeup products companies. Furthermore, the expenditures of advertising to create brand identity are incredible. Most Chinese individuals are lack of brand consciousness and brand loyalty in this emerging market, so that luxury brands are making a great investment on marketing to advertise their music group and products to teach Chinese consumer about luxury.

Proprietary product differences

Product differentiation is a critical factor for high-end plastic companies which mean that the business must have the ability to determine the uniqueness of its products in comparison to competitors' products (Sameer K, Cindy M and Michelle D, 2006) Taking Estee Lauder as example, it provides variety of products that are designed exclusively for high end consumers, which finally allows the business to compete in the market on the best degree of price. The uniqueness of Estee Lauder's products comes from a higher technology and considerable R&D. These work make other competitors to truly have a hard time to imitate their products and also build up the entry obstacles to the new comer.

Impact of High-end Cosmetic makeup products on Bargaining Vitality of Buyers

The bargaining electricity of the buyers is high because of the multiple options are given to consumers. Within high-end cosmetic industry, price is no important factor to gain the market talk about. Instead, the bargaining power of purchasers is the key factor to competence for market talk about among other opponents. All companies are fighting to entice consumer's attention by providing the best quality, most stylish, and great price.

As mentioned before, the prospective consumers of high-end makeup more focus on brand identity rather than price. High-end cosmetic makeup products usually have a stable group of targeted customers and will often have less have an impact on on prices.

Impact of High-end Cosmetic makeup products on Bargaining Ability of Suppliers

Supplier ability in plastic industry is relatively low. Due to a great deal of merging and acquisitions happened in China, the monopoly to get advantage in capital in the beauty products industry will be huge in the foreseeable future. If the industry is now monopolized, therefore, suppliers will have low ability, where they will compete tightly to be able to get the largest piece of show.

Products can be produced with a variety of alternative raw materials, which reduces supplier's electricity.

Impact of High-end Beauty products on Risk of Substitutes

Mid-tier Cosmetics

In the mid-tier portion of cosmetic industry, the competition is also fierce. The well-known brands such as Olay, Za, NIVEA stand a sizable proportion of market share. Still, foreign companies are prepared to enter the mid-end beauty products market currently. Weighed against buying identity of high-end cosmetics, it is worth taking into account the facts that consumers in this section tend to be more price-sensitive and less brand identification.

Addtionally, current economic climate slow-down is an excellent time for mid-tier to catch up market talk about. During the monetary recession, a member of family low price with a similar quality and service provided to customers will developed the brain devotion as long as mid-tier beauty products promoting a brand identity

Natural cosmetics

The natural cosmetic makeup products have been developed a main blast of new cosmetic portion which promote their 100 % natural ingredients and target the young customer segment. In China, young and well informed people are in the pattern of declaring environmental friendly and human protection under the law. The brand concept of natural makeup is well built in the trendy bulk. The newly moved into brands, such as The Face shop, Lush (allergy free, no chemicals, fragrances or preservatives added) have already captured some of market share. In the following ten 12 months, China's market talk about of natural aesthetic will be gained, especial for the access of The Body Shop into China.

Impact High-end Cosmetic makeup products on Rivalry

Foreign Brands

Foreign brands perform perfectly in China's cosmetic makeup products market. The dominating proportion of the beauty products market between foreign brands and home-grown counterparts is lopsided. Indeed, overseas players have dominated the high-end and luxury makeup products markets. Within the last decade, cosmetic makeup products giants such as L'Oral, Shiseido, Estee Lauder and Dior have made major commitments to cultivate success in these segments. Exhibits 9 to 11 figure out the market show of main plastic brands in skin care, colour beauty products and fragrances sector in 2006 and 2007. Even two middle-low level brands Olay and Maybelline are made up in a big amount of market talk about, the other high-end brands gain a considerable talk about and the expansion movement is positive.

Internal rivalry in the aesthetic industry is high. Through the exhibits we can also realize that the competitors are of roughly equal size. Therefore, the rivalry of China's high-end aesthetic market is server.

Estee Lauder makes high quality skin care, cosmetic, fragrances and wild hair care products and sells them through upscale department stores, perfumeries, and prestige salons and spas. These platforms point out exclusivity, which helps defines them as luxury beauty and personal maintenance systems. The company competes with well-known companies like L'Oreal and P&G. Estee Lauder's luxury brands include Clinique, La Mer. The online marketing strategy encouraged by the creator, Estee Lauder, is to provide high-quality service and products as a basis for a solid and faithful consumer foundation. The marketing attempts focus generally on promoting the product quality and benefits of each product. Each brand is being positioned distinctively, meaning that it really needs an individual global image, custom logo, packaging, as well as advertising. This enables Estee Lauder to be always a truly global company. The real reason for this is to make a unique and specific image of each brand from other existing brands, especially ones that come from rivals (Estee Lauder website).

The toughest rival of Estee Lauder is L'Oreal which also contends several high-end brands under the group. However, L'Oreal's position of luxury brand is less targeted, weighed against Estee Lauder. L'oreal has continuously become the head in cosmetic makeup products by their capacity to adapt their products to the global market and achieve a higher degree of efficiency. After locating the various kinds of demand in local market, L'oreal's transnational strategy has allowed it to build a strong global framework while still departing room for different changes that might be needed at an area level. It shows that L'oreal is inclined to make use of different price levels in different locations or demographics.

Domestic brands

In the foreign prominent market, some local brands such as Herborist and Mimocrys pick up the profitable opportunities because of the special figure and particular product position. Herborist, with desire for natural products goes along with a strong attachment to Chinese language Traditional Treatments are emerging though China's market with a higher position. However, local brands still cannot contend with foreign luxury brands. Under the fierce competition, local brands have to invest on marketing the brand and improve the quality as well.

Evaluation of both examination tools and the limitation of the report

Kotler (1998) boasts that PEST evaluation is a useful proper tool for understanding market progress or drop, business position, and course for businesses and helps to break free of unconscious assumptions, but we must admit it is merely a strategic starting point, and has its own limitations scheduled to emphasizing the necessity to test the conclusions and conclusions against the truth. Another potential disadvantage comes from issues of validity, dependability and relevance in regards to to collecting information from the extra sources.

For Porter's five pushes research, though it is regarded as the seminal works available field (Kotler, 1998), it is persuaded by some business experts that the ever before changing business environment requires more flexible, dynamic or emergent approaches to strategy formulation. (Jan, Y, 2002) Some critiques are placed forward as follows

First, when working with this tool, some individuals have a tendency to underestimate or underemphasize the importance of the prevailing strengths of the business. Quite simply, the model does not address the opportunity an industry could be attractive because certain companies are in it. Subsequently, the model was suitable for analyzing individual business strategies however, not for coping with synergies and interdependencies within the stock portfolio of large organizations. Finally, it can be possible to produce completely new markets rather than selecting from existing ones sometimes.

As the majority of the statistics based on the monetary and demographic situations by 2007-2009 and it is not capable of getting usage of the internal financial records of the some leading market players, the statement needs further improvement in the next semester with more up-to-date information available.


After analysing the macro external and inner environment of China's high-end beauty sector, the sustainable development of industry will keep dynamic in a member of family long period of time. Both opportunities and hazards exist at present time. The strength of luxury makeup products are consist of the great probable of brand personality, high skilled product along with service, and a sense of differentiation provided to consumer. In addition, the tendency of early age of China's end consumers will lead a long long-term development of luxury brand, because these young women, who'll be 40 in 2020. At last, the rising market in China brings a lot of target customers and opportunities, which is essential to the success. However, the relevant problems for luxury cosmetic makeup products remain. The tough economy of overall economy, high barriers of import regulation and low brand recognition concern the further success of luxury beauty sector. The luxury aesthetic company should make investments on marketing and advertising because the critical factor for high-end strap success is brand identity.

Estee Lauder is a solid company in the cosmetic industry as it is well known once and for all quality products. It seems that Estee Lauder's main weakness is that it is sold in high-end shops. If Estee Lauder would advertise that Clinique is also an Estee Lauder company, they could be able to create more awareness in the business. Overall, Estee Lauder, L'oreal and P&G devoted to gain luxury cosmetic image in China's market. The overcoming their weaknesses by their capability to assume the substitutes of products that aren't selling well on the market, communication with retailers and suppliers, high quality service and products as a basis for a solid and loyal customer basic and groundbreaking materials and friendly packaging are also needed.

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