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US Cosmetics Firms Look to Expand in China


U.S. cosmetics companies are looking to China for expansion, as Chinese women discover moisturizers, skin creams and cleansers. A company based in the western United States faces aggressive competition in what is potentially the world's biggest cosmetics market.

Many Chinese women have now joined their Western counterparts in a daily regimen of cleansing, exfoliation, toning and moisturizing their skin, each with a different product.

For manufacturers, it means an expanding market, with sales in the year 2000 exceeding 30 billion renminbi, or $3.5 billion.

Corey Lindley is president for greater China of Nu Skin Enterprises, a company based in the western U.S. state of Utah. It opened for business in China in January this year.

"Obviously, with our investment, we've invested over $80 million to date, we think it's going to be a tremendous market," he said. "It's a market that, depending on the reports you read, is a $7 billion or $8 billion market that's growing in excess of 10 percent a year."

Mr. Lindley says his company believes China's food and housing costs will stay relatively low as its economy expands, so consumers will have more discretionary income for personal items.

Some cosmetics firms have changed their business model for China. Elsewhere, for example, Nu Skin is a direct-sales company that uses independent representatives who often work from home to sell its products. However, Chinese officials banned direct sales in 1998, alarmed at rampant "pyramid schemes," fraudulent selling plans that required a big investment but offered little or no profit.

Herbert Ho of the U.S. direct selling company Amway says Chinese officials banned all sales not based in a fixed location. Mr. Ho chairs the retail business forum of the American Chamber of Commerce in China. His company sells cosmetics and nutritional supplements, and he says with other direct sellers, including Avon and Mary Kay cosmetics, it restructured its Chinese operations in response to an order from government officials.

"After the 1998 state council ban, they said OK, we'll allow qualified companies to transform to a new model of operations in which you have to open shops," he said.

The companies then hired their former independent distributors as sales agents.

Mr. Ho says in late 2004, China has promised to loosen restrictions on direct sales, after it consults with fellow members of the World Trade Organization. But for now, direct sales companies must sell through stores.

Nu Skin operates in China as a conventional retail chain, and has opened 100 stores in 14 cities clustered around Shanghai and in Guangdong and Fujian provinces.

It faces competition from international firms, says Nu Skin's Corey Lindley. "Certainly a company like Avon is a competitor, but also because we're selling out of stores, we compete with department store brands, Estee Lauder, Lancome, Clinique," he said.

China also has 3,000 domestic cosmetics companies, including the popular local brand Yue-Sai, founded by a Chinese-American woman, Yue-Sai Kan.

Herbert Ho of the American Chamber of Commerce says China is actually many markets, each in a different stage of development. Some cosmetics companies are focusing on the prosperous coastal cities, while others are expanding their efforts to inland and Western China.

"We can say that the market is there; it's huge. A lot of potential is there," he said.

There may also be risks, but Corey Lindley of Nu Skin says his company earns half of its global revenue in Japan, is doing well in Taiwan and Singapore, and sees much of its future growth coming from China.

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