Beauty contest: China make-up brands rein in South Korea rivals

AmorePacific Holdings

01/12/2017 05:00

* Chinese cosmetics close gap on Korean rivals 
    * China brands lure skilled S.Korean talent - sources 
    * S.Korean firms suffered during THAAD anti-missile dispute 
 
    By Hyunjoo Jin and Adam Jourdan 
    SEOUL/SHANGHAI, Dec 1(Reuters) - As a diplomatic spat 
between Beijing and Seoul raged this year, many South Koreans 
felt decidedly unwelcome in China. South Korean businesses were 
shunned, K-pop concerts were canceled and tourist trade dried 
up. 
    But one group of South Koreans have been very much in 
demand: the executives and employees of South Korea's cosmetics 
companies, who are being lured by Chinese rivals as a battle for 
China's huge beauty market heats up.  
    Chinese make-up brands including Jala, Proya  603605.SS  and 
Suhu - which have long trailed Korean rivals in terms of quality 
- are hiring South Korean executives as well as spending up on 
research and buying overseas firms, industry executives and 
headhunters say.  
    The moves seem to be helping.  
    Chinese brands, which compete with Korea names from 
top-rated Amorepacific  002790.KS  to nimble budget makers such 
as Clio  237880.KQ , are gaining market share in the mid-range 
and premium cosmetics sector where South Korea has traditionally 
had strength in China. 
    While Chinese companies have been gaining ground for some 
time, the trend appears to have accelerated this year after 
Seoul's decision to install a U.S. anti-missile system against 
Beijing's wishes sparked a backlash against Korean companies.    
    At stake is a bigger chunk of China's $50.2 billion beauty 
and personal care market, which research firm Euromonitor 
projects will grow to $61.9 billion by 2020. 
    Jason Yu, Shanghai-based General Manager of market research 
firm Kantar Worldpanel, said mid-tier or "masstige" Korean 
brands were most exposed to Chinese brands improving their 
offering. High-end brands from France's L'Oreal  OREP.PA  and 
Japan's Shiseido  4911.T  tended to attract wealthier buyers. 
    "In terms of the price position, they will be more in direct 
competition with the emerging Chinese brands who are moving up 
the price ladder," said Yu, adding Chinese firms were "catching 
up very fast". 
     
    HIRING SPREE 
    There are signs that recent diplomatic tensions have played 
into the hands of local Chinese brands in their battle with 
Korean rivals. 
    Amorepacific's sales fell 8 percent in the January to 
September period from a year earlier, while operating profit 
skidded 30 percent. Smaller, budget makers were hit harder, with 
Clio's operating profit falling nearly 70 percent. 
    While some Chinese make-up brands use South Korean stars or 
highlight Korean links, others are playing up Chinese elements 
such as using traditional medicine ingredients or use slogans 
about suiting Chinese skin. 
    Zoe Zhuang, 24, an engineer in Nanjing, said she used to use 
cushion foundations and eye pencils from South Korea's Etude 
brand. She now uses more Chinese to "support local brands", she 
said, without referring to the dispute over the THAAD missile 
system.  
    "I actually don't think Chinese makeup is that good yet, 
there is plenty of room for improvement," she said. 
    Chinese cosmetics firms have been trying to close the 
quality gap by aggressively targeting South Korean executives.   
    
    "(Chinese cosmetics brands) are recruiting Koreans in almost 
all areas, including brand managers, packaging design, store 
interiors, purchasing and marketing," Choi Sun-hee, head of 
South Korean recruiting firm HR Biz Korea, told Reuters. 
    Some Chinese brands are willing to offer 50 percent higher 
wages, help with rents and flights home to woo Korean workers, 
Choi added. 
    Guangzhou-based Suhu plans to double the number of its South 
Korean employees to 40, Choi said. It recently hired an 
executive from Korea's Nature Republic to oversee the recent 
launch of its Rojank brand, he added. Suhu declined to comment.  
  
    Chinese brand Proya, which owns the Uzero and Cats & Roses 
brands, hired South Korean Kim Hoi-joon from Clio in 2014 to 
launch its Hapsode brand, Kim told Reuters. 
    Another former Amorepacific official said Kim had lured him 
to Proya last year with a salary hike of about 50 percent. He 
said he was one of over 10 Korean employees hired by Proya. 
    Proya declined to comment. 
    Meanwhile, Jala, one of China's leading cosmetics firms, 
hired a Korean executive earlier this year to revamp its 
mainstay Chando brand, two people familiar with the matter told 
Reuters.  
    Jala also hired the former head of Amorepacific's Etude 
brand, Kim Dong-young, they added. Kim, reached by phone, 
confirmed he had been working at Jala for about a year, but 
declined to comment further. 
    Jala's press office was not available for comment.  
    The approach is not limited to cosmetics. Chinese firms from 
carmakers to flatscreen producers to smartphone vendors have 
recently opened up more to hiring foreign talent to help them 
gain a competitive edge, often taking market share from South 
Korean rivals as they move up the value chain and their 
industries mature. 
    But Korean brands aren't going down without a fight. 
    Amorepacific said it was working with experts in seven 
Chinese cities to study local skin characteristics and develop 
products for the local market.     
    "It is not that we are not worried about Chinese 
competition," Rho Jee-hye, an Amorepacific senior vice president 
told Reuters. "As there is Estee Lauder  EL.N  in the United 
States, L'Oreal in France and Amorepacific in Korea, an 
innovative Chinese company could emerge."  
 
 (Reporting by Hyunjoo Jin in SEOUL and Adam Jourdan in 
SHANGHAI; Additional reporting by Joyce Lee in SEOUL, Editing by 
Soyoung Kim and Lincoln Feast) 
 ((hyunjoo.jin@thomsonreuters.com; 82-2-3704-5685; Reuters 
Messaging: hyunjoo.jin.thomsonreuters.com@reuters.net)) 
 
Keywords: SOUTHKOREA CHINA/COMPANIES