Cosmetic Industry

Introduction Global economy had experienced the worst recession in decades during 2008 till 2009 (Nouriel, 2009). Fear and panic were surrounded among people. During those days, the main headline of newspaper is about share market decreasing, industrial growth decreasing, and overall instability of the economy. Rumors are thick and flying, as a result, it create more fear among people and households about their savings and hard earned income.

Most countries are affected by the recession, especially the developed country, United State (US). For example during May 2009, US housing sector had face a declined of sales, which was 79%, much more than from its peak in 2006 (74%) and became lowest in the history (Xinhua, January 21, 2010). While, stabilization in construction activity and housing prices has come during the mid of 2009, when a turnaround had emerged in housing sector. Besides, a global financial meltdown had affected world stock markets facing huge fallen, large financial institutions have collapsed and world’s wealthiest nations’ governments have to come up with strategies and resolution in order to bail out the financial systems (Anup, 2009). United Union has forecast that in 2010, the world economy is toward a mild growth of 2. 4% (Xinhua, January 21, 2010). 1. 1 How Did the Downturn Start? The crisis bursting can be caused by many reasons, inflation, increased unemployment, high oil and food prices, declining dollar value. However among the reasons, it can be concluded as due to the US housing bubble which peaked in 2005 to 2006 (Wikipedia, 2010). US economy is built on credit, therefore credit is a great tool in US and is used wisely. People can easily get credit to start or expand a business. Besides, crediting can be used to purchase luxury goods or assets such as houses or cars. In addition, the combination of low interest rates and large inflows of foreign funds had become the reason for people to do loans for doing investment or speculation (Ryan, 2009). When there are enough funds, there will be enough money to lend to potential borrowers. Loan agents definitely were asked to look as much potential borrowers or home buyer as possible in turn to get big sum of incentives or commission.

Therefore, low interest rates or cheap credit systems were launched. An increase in marketing on loan packaging and incentives such as easy initial requirement or a long-term trend will be given when raising the total loan had given. This encouraged investor assumed that they are able to increased property value to refinance their homes with lower interest rates and take out the second mortgages and use the funds to refinance or to purchase another house for the sake of investment (Wikipedia, 2010). When cheap credit created more money, definitely people spend more the money. In turn, overbuilding of houses during the period had finally led to a surplus inventory of homes. Beginning from the summer of 2006, home prices started to drop moderately (Victor, Sonal, Sreekanth et al. , 2009). Refinancing became more difficult, loan rates reset to higher level interest rates and also the payment amount, heavy losses in mortgage and many banks and investment firms began losing money in directly.

Housing price declining slowed growth of new home building, meaning that the housing market value was worth less than the mortgage price (Ryan, 2009). As compare to 2006, sales volumes of new homes were declined by 26. % in 2007 of the excess supply (Victor, Sonal, Sreekanth et al. , 2009). During March 2008, an estimated 8. 8 million of US homeowners were believed that had the negative equity. Instead of paying high interest rate which unaffordable, many people choose to just go off. [pic] (Sources: https://www. globalissues. org/article/768/global-financial crisis#Thefinancialcrisisandwealthycountries. By Anup Shah, 2009) Figure 1: Global Financial Crisis Figure 1 showed about the total amounts that governments have spent on bailouts during the economy recession. From a credit loss of $2. 8 trillion in October 2009, US taxpayers alone spend $9. 7 trillion in bailout packages and plans. Besides, $14. 5 trillion of the value of world’s companies significantly wiped out by the financial crisis (Anup, 2009). 1. 2 Implications of the Downturn to Various Economies or Countries Across the World? Around the world, stock markets have fallen, large financial institutions have collapsed and even governments have to come up with rescue planning to bail out their financial systems (referred Section 1. 1, Figure 1). In this section, we are going to compare BRIC (Brazil, Russia, India and China) and Asia Four Tiger’s (Hong Kong, Taiwan, Singapore and South Korea) economy by presenting their GDP (Gross Domestic Product) real growth rate from year 2007 to 2009. Brazil is a emerging, large and well-developed in agricultural, mining, manufacturing and service sectors country. Brazil macroeconomic can to be said stable and steadily improved before the global financial crisis hit on it during September 2008. However, their consumers and investors are in good confidence with Brazil gradually increasing of GDP growth in the second quarter of 2009. Second, Russia had faced the hardest hit economy downturn by the 2008 to 2009 as oil prices goes up and large sum of foreign credits that made Russian banks and firms relied on dried up. Thirdly, India is a developing open market country, which capitalized on large numbers of well educated people.

India escaped the brunt of the global financial crisis in 2009 because of the cautious banking policies and a low rate dependence on exports although faced a deficit due to fuel and fertilizer subsidies, debt waiver program for farmers, job guarantee program for rural workers and also with other expenditures. Lastly, China’s economy during the past thirty years has changed from a central planned system (largely closed to international trade) to a more market-oriented economy (rapid growing in private sector). The 2009 global crisis had reduced foreign demand for Chinese exports for the first time in many years. [pic](Sources BRIC referred CIA World Factbook: https://www. theodora. com/wfbcurrent/brazil/brazil_economy. html, https://www. theodora. com/wfbcurrent/russia/russia_economy. htm, https://www. theodora. com/wfbcurrent/india/india_economy. html & https://www. theodora. com/wfbcurrent/china/china_economy. tml) Figure 2: BRIC’s GDP Real Growth Rate As comparing between BRIC’s GDP real growth rate in Figure 2, Russia’s growth rate faced the most impact during the crisis year on 2009 which made the country faced a -8. 5% of real growth rate. However, second largest impact country Brazil only showed a 0. 1% of growth rate comparing to year 2008 which still maintaining a 5. 1% of GDP real growth rate. Hong Kong, Taiwan, South Korea and Singapore are recognized as the Asia Four Tiger and knew as newly industry country. Hong Kong has a free market economy and highly dependent on international trade and finance. However, Hong Kong’s open economy left it exposed to the global economic slowdown in but luckily its integration with China has helped it slowly recover from the downturn. Taiwan’s economy mostly generates 70% by exporting electronics and machinery products.

Heavy dependence on export makes the economy in danger to economy downturn. For example, during January to October 2009 Taiwan exports depreciated about 27%. South Korea had achieved an incredible record to the growth and global integration and become a high-tech industrialized economy. During the global economic downturn, South Korea faced a slowed growth of GDP to 2. 2% in the late of 2008 and 0. 8% during second quarter of 2009 and began to recover in the mid of 2009. Singapore is a country that heavily depends on exporting in consumer electronics, information technology products, pharmaceuticals and financial services’ sector. It has a highly developed and successful free-market economy; however during the 2008 global financial crisis, their GDP real growth rates depreciate about 2. 6% in 2009. [pic](Sources Asia Four Tiger referred CIA World Factbook: https://www. heodora. com/wfbcurrent/hong_kong/hong_kong_economy. html, https://www. theodora. com/wfbcurrent/taiwan/taiwan_economy. htm, https://www. theodora. com/wfbcurrent/korea_south/korea_south_economy. html & https://www. theodora. com/wfbcurrent/singapore/sinpapore_economy. html) Figure 3: Asia Four Tiger’s GDP Real Growth Rate Figure 3 is comparing GDP real growth rate between the Asia Four Tiger. Four of the country faced a negative growth rate during the 2009. Taiwan was the worst comparing to others and presents -4% of growth rate at the 2009. Then come to Hong Kong, Singapore and South Korea which is the country faced a less impact in between the four countries and showed -0. 8% for the GDP real growth rate during 2009. 1. 3 How Did It Affect Malaysia? Malaysia is a middle-income developing country. Since 1970s, Malaysia had transformed from a producer industry of raw materials into an emerging multi-sector economy.

During 2003, former Prime Minister Tun Abdullah Ahmad Badawi put in effort and tried to boost up Malaysia’s economy by investment in high technology industries, medical technology and pharmaceuticals (Malaysia Economy, 2010). Nevertheless, Malaysia is counting on exports and particularly of electronics can be concluded as a significant driver of Malaysia economy (Indexmundi, 2009). As an oil and gas exporter, Malaysia definitely has profited from higher world energy prices, even though the US crude oil price spikes approximately to $145 a barrel during 2008 and made domestic gasoline and diesel fuel forced to reduce government subsidies (Nouriel, 2009). During the global downturn, Malaysia central bank has maintains a healthy foreign exchange and same to the regulatory system. This has limited Malaysia expose to a riskier financial instruments and be one of the global financial crisis even though decreasing worldwide demand for consumer goods is expected to hurt Malaysia economic growth in 2009 and beyond (Malaysia Economy 2010). In general, we are using statistics of unemployment rate, labor force, inflation rate, export, import and GDP in order to easily explained and carry out the affect been faced through Malaysia’s economy during the US housing bubble crisis. [pic] (Source: https://www. indexmundi. com/malaysia/unemployment_rate. tm, by Indexmundi, 2009) Figure 4: Malaysia’s Unemployment Rate Figure 4 showed about the Malaysia’s unemployment rate from the year of 2006 to 2009. Highest rate was showed during 2006, which is 3. 6%. It was consistently decline over the next two year from 3. 5% to 3. 2%. However, it showed an increasing of 1 % on 2009, due to the global downturn. [pic] (Source: https://www. indexmundi. com/malaysia/labor_force. html, by Indexmundi, 2009) Figure 5: Malaysia’s Labor Force Figure 5 showed about the total employment from the year 2006 to 2009. According to Indexmundi, Malaysia labor force was at the rank of 40 over the world at the total of 10,670,000 and gradually increasing over the next few years. Even though the global downturn on the 2008, Malaysia’s labor force also showed an increasing to the total sum of 11,090,000 and at the rank of 45 among the global. [pic] (Source: Data Stream Sultanah Bahiyah Library UUM, 2010) Figure 6: Malaysia’s Inflation Rate Malaysia’s 2007 to 2009 inflation rate which present in Figure 6 showed an instability performance. It showed an increasing from 2006 to 2007 and obtained 2% of inflation rate. However, during 2008, inflation rate was increased dramatically to 5. 43%. Malaysia central bank has maintains a healthy foreign exchange and regulatory system, therefore, this has limited Malaysia expose to face a worst financial crisis. During 2009, the inflation rate declined sharply to 0. 64%. [pic] (Source: Data Stream Sultanah Bahiyah Library UUM, 2010) Figure 7: Malaysia’s Total Exporting, Importing and GDP Figure 7 showed about Malaysia’s total exporting and importing of goods and services and also the GDP (Gross Domestic Product) from the 2005 to the 2009. From 2005 to 2008, the rate of total exporting, importing and GDP gradually showed an increasing with 11. 4%, 14. 4% and 15%. However, it showed a declined on 2009 with -11. 3%, -14. 2% and -1. 7%. 1. 4 How Did It Affect Cosmetics Industry? As the US fell into a deep financial crisis in 2008, consumers who felt wealthy from the housing boom and treating themselves to indulgences such as designer handbags and luxury cosmetics had started looked for lower-priced mass brands and private label products as to close their wallets. Besides, consumers have also begun to buy less products and wait until their cosmetics bottle empty to buy another. Many middle class consumers have become more careful on spending or value-conscious. They are cutting coupons, shopping at discounts, buying more private label and will just used credit cards for certain time. In addition, well develop of internet system made them able to shop via online, comparing products via web sites in an effort to cutting down unnecessary expenses to stretch their incomes (Svetlana, 2010). pic](Sources:https://web. ebscohost. com. eserv. uum. edu. my/bsi/pdf? vid=1&hid=9&sid=f8ee297f-348b-4a8c-a310-b13bcd72ca4a%40sessionmgr12, by Chain Drug Review, 2010) Figure 8: Beauty Survey Figure 8 present about a beauty survey of consumer behavior during the global downturn period and their reaction to buy beauty products.

The survey showed that about 26% of consumers willing to buy more store or private label beauty/cosmetic products that are close to their budgets. For example, during the great depression, cosmetic sales-lipstick went up 25% because consumers looking for an affordable pick-me-up during difficult times (Sarah, Nov 20, 2008) Apart from the above survey, the weak economy of US has forced beauty store department sales drop another 2% from 2003 levels and even though offering on those high-end products, but in the end a 4. 5% dollar sales decline at September, 2009 (Chain, 2010). In addition North American L’Oreal, French cosmetics giant industry sales were down 5. 7% year over year during the September, 2008 as some distributors cut back on purchasing. Some more, New York beauty company Avon’s third-quarter revenue in North America slipped 3% (Andrew, October 11, 2008). Furthermore, according to Brazilian Association of Cosmetics, cosmetic industry in Brazil grew up 27. 5% and a drop of 3. 5% in United Kingdom (IMI, 2009). In 2009, a research been done by world’s top cosmetic leader-L’Oreal. Discovered that although times are bad, people are keeping close with their budgets, women are still willingly to spend, continue to use cosmetics to cheer themselves up and maintain a flawless complexion and hides the effects of stress and money worries on the skin (L’Oreal, 2010). For example, highlighting of the effect and risks of unprotected sun exposure and converting the message to non-users to regular sun protection in order to increase the sales (Svetlana, 2010). Research and development been done through by L’Oreal.

They find out there is still a huge market for cosmetic industry. For example, they found out that the trend women focusing on self-expression. In 2009, they determined that as the recession took hold, women were four times more likely to choose natural looking make-up than brighter colours. Therefore, striking/bolder colours beginning to replace by the nudes. Besides, they realize the market for false lashes and false lash effect mascaras is growing rapidly due to consumers feel false lashes are fun and easy way to experiment with look and also within the budgets (Amandine Ohayon, 2010). Therefore, L’Oreal sales market for false eyelashes and mascaras increasing hugely and represent more than 30% during 2009. According to Beyond Beauty Paris, to keep survive in the recession, manufacturers must not losing sight of the importance of innovation and product research and development even in the current climate. Besides with the purpose of increasing sales, manufacturers should also work together with their value chain to show how they can add value to their brand, products and services offering (Katie, July 15, 2009). Brief History of Cosmetic Industry The core purpose people used cosmetics are to make their face or body more attractive. Perfumes, lipsticks, nail polish, facial makeup, hair spray and many other type of product also are the example of cosmetic.

The history of cosmetic goes back very far into the past and it covered at least 6,000 years of human history. The first archaeological evidence of cosmetics usage is found in Egypt around 3500 BC during the Ancient Egypt times with some of the royalty having make-up such as Nefertiti, Nefertari, mask of Tutankhamun, and so on. The Ancient Greeks and Romans also began to use cosmetic. (Wikipedia, 2010) During the middle Ages, the use of cosmetics fell rapidly low. It is mainly because religious leader claimed that the use of cosmetic was similar to immorality or prostitution and was a sign of a person’s sinful nature. (Chelsi Woolz). For example, in the 1800s, make-up was used primarily by prostitute, and Queen Victoria publicly stated that make-up is inappropriate, and acceptable only for use by actors. (Wikipedia, 2010). This belief persisted for centuries until the beginning of the Renaissance. (Chelsi Woolz). Nevertheless, cosmetics were not just for beauty reason, but rather also for cultural reasons. For example, in ancient cultures, women would add rouge to their faces by grinding various mineral into a powdered form and applying them to their face. They used things like slate as a mirror. They also used various minerals to adorn their eyes, and add pigment to their hair. (https://www. health-and-beauty-advice. com/cosmetics/history-of-cosmetics. php) One of the famous cosmetic products was perfumes. Alcohol based perfumes were developed in the Middle East and were brought to Europe by the Crusaders in the 13th century. Perfumes were developed in France in 17th century.

Natural perfumes were made from ingredients like flowers, fruits, or any other naturally occurring aroma containing product. The commercial cosmetics industry saw its earliest substantial growth in the beginning of the 20th century. Lydia Boyd). In the early years of the 20th century, cosmetic are used by women to emulate their favorite singers, artists, and dancers. As a result, many companies like Revlon, Estee Lauder, Christine Dior and other had grown up and began to mass produce cosmetics to support the demand of cosmetic. 2. 1 Cosmetic: Capital Intensive Industry According to the explanation on Investopedia, capital intensive is a business process or an industry that require large amount of money and other financial resources to produce a good or service. On the other hand, labor intensive mean that a business or industry that requires large amounts of human effort to produce goods. (https://www. answers. com/topic/labor-intensive) From an article, it states that cosmetic industry is capital intensive industry. This is because they use much capital to do research and development.

There have many competitors in cosmetic industry, since companies will put more effort and time in R & D. They need to produce more product innovation which is different with their rivals so that they can attract more consumers. (https://www. firstresearch. om/Industry-Research/Personal-Care-Products Manufacturing. htm). The R&D budget that spends by the major company in cosmetic industry – L’Oreal in 2006 had cost € 533 millions. Even other competitors such as Shiseido also spend €119 millions during 2006. There is a big amount or budget need spend by cosmetic industry. (L’Oreal Annual Report, 2006) 2. 2 Factor Affecting the Industry Figure 9: PEST Analysis According to Thomas L. Wheelen, PEST analysis focuses on factors in societal environment which are political-legal, economical, socio cultural and technological. 2. 2. 1 Societal The meaning of societal that given by Oxford Advance Learner Compass is connected with society and the way it is organized. It also can be relate to the structure, organization, or functioning of society. Besides that, societal also relate to human society and its member. (Free online dictionary, 2010) 2. 2. 1. 1Animal Testing Cosmetic companies have to test their cosmetic new product on animal before they launched it. Many companies have passed regulations which states that the preservatives and lotions have to be tested before the usage. However, many protests do not agree what they did on animal. As a result, many companies have stopped testing their product on animals because of the animal right. Avon is the first company that stops using animal for product testing.

They realize that it is unethical to treat the animals cruelly. In addition, now have a lot of alternative that can substitute the cosmetic animal testing. (https://www. clearleadinc. com/site/cosmetic-animal. html) 2. 2. 1. 2 Health Care Some of cosmetics product will give impact on the health. Although before launching the new product, they will do testing on animal, some effect of the products may need more time to react. Furthermore, some of the feature in the animal is not similar to human. If the products do not give any reaction to animal, it doesn’t mean it won’t have impact on human. As a result, consumers must choose the cosmetic product carefully.

Low quality cosmetic product will dry the skin out, block the pores and others. It is best to avoid products that contain mineral oil artificial colors and artificial fragrances. Consumers are advice to check the ingredients inside the products and how the product manufactured to protect them. (https://www. vegetarian-restaurants. net/Additives/Cosmetic-Skin-Effect. htm) 2. 2. Political Malaysia cosmetic industry is controlled by Act Control of Drugs and Cosmetics Regulations 1984. However, in United State, cosmetic industry has controlled by The Federal Food, Drug, and Cosmetic Act and also The Food and Drug Administration Globalization Act. Those Act or rules is to ensure that those companies’ products is safe. According to the Al J. Spicoli, cosmetics are not considered as drugs or food, so they do not need a prior certification by the FDA or any governing body. If the cosmetic company says their new products is safe, it is allowed to go to the market without pre-market testing. Therefore, cosmetic regulation is left up to the cosmetic companies and thus, is a self-regulating industry. 2. 2. 3 Economic Economic, it usually will relate to economy. In economic term, it economy will affect or concern materials resources or welfare. (Free Online Dictionary, 2010) 2. 2. 3. 1 Palm Oil Price Increase [pic] (Sources: https://www. mongabay. com/images/commodities/charts/chart-palm-oil. html) Figure 10: Palm Oil Price Chart Nowadays, oil price are very unstable. The high oil price will increase the cost of the products especially for the supply chain. The transportation cost will increase indirectly will increase the product costs.

Beside, palm oil is a popular ingredient in personal care product has undergone a series of price increases over the past year. The price of palm oil can be seen at the chart above. When the price of raw materials increase, ingredient suppliers have been able to increase their price, thus, competition will be so fierce in the market. 2. 2. 3. 2 Economic Downturn When there is economic downturn, it will affect the sales of cosmetic. Consumers will first purchase food, clothing and then transportation, education and health care. But, it is another case for cosmetic industry when economic downturn.

According to the Beauty Counter Direct, (February 18, 2009) beauty products and cosmetics are increasingly popular. This situation is called “lipstick effect”, first evidence during the Great Depression 1929-1933 when lipstick sales rocketed 25%. 2. 2. 4 Technological Meaning of technological given by free online dictionary relates it to technology especially scientific technology. In the other hand, it is also affected by or resulting from scientific and industrial progress. 2. 2. 4. 1 Nano Technology Nanotechnology has been used in cosmetics since 1990s but it was only during the last decade that marketers caught on and started using it to sell products. Nanotechnology is currently used mostly in sunscreens. Scientist use nano technology to add shimmer and increase solubility. (https://chemistscorner. com/top-cosmetic-science-stories-of-the-decade/) 2. 2. 4. 2 Website Costly to Maintain For those companies that use e-commerce, website is costly to maintain.

Website has to attract people to click in. As a result, they need to put much effort and time to design website and manage the website. They need to always update the information to their customers and make sure their customers get what they want and needs. (https://www. econ. unian. it/servizi/hpp/micozzi/documenti/Aveda_Mktg_Plan. pdf) 2. 2. 5 Conclusion The industry is very volatile since changes in the PEST factors will affect the industry dramatically. 2. 3 Rules or Acts Governing by Cosmetic Industry Every industry in each country will govern by a rules or acts. Below is analysis of rules or acts of cosmetic industry. Food, Drug Administration (FDA) is the agency in US which relate to health and human services. It is the agency representative most popular among cosmetic industry. 2. 3. 1 United State In USA, there is few rules and regulations which famous among cosmetic industry. a. ) The Federal Food, Drug, and Cosmetic Act The purpose of this act is giving the authority to the US foods, drugs, and cosmetics. The Act defines cosmetics as products for cleansing, beautifying, promoting attractiveness, or altering the appearance. In this sense the FDA classify cosmetics without actually regulating them. This allows a manufacturer the ability to use ingredients or raw materials and market the final products without government approval. . ) The Food and Drug Administration Globalization Act The purpose of this act is to ensure the safety of the nation’s food, drug, medical device and cosmetic supply in an increasingly globalized marketplace.

The Act contain several provisions that will impact the cosmetic industry which are ? All cosmetic facilities would be required to report adverse event resulting from the use of their products to the FDA. ? All cosmetic would be required to comply with good manufacturing practices established by the Secretary of Health and Human Services. All color additives must be specifically approved by the FDA before they can be included in cosmetic products sold in the US. ? All importers of drugs, devices, foods and cosmetic would need to register with the FDA annually and pay a registration fee. ? The FDA would be given additional resources to monitor foreign facilities producing food, drugs, devices and cosmetics for American consumers. FDA also has the power to intervene when necessary to protect the public but does not generally require pre-market approval or testing.

Companies are required to place a warning note on their products if they have not been tested. The source and information about FDA is taken from Wikipedia- FDA. 2. 3. 2 Malaysia The cosmetic industry is governed by The Control of Drugs and Cosmetic Regulations 1984 Act. All of the cosmetics products have to register with the Drug Control Authority, National Pharmaceutical Control Bureau of the Ministry of Health which effective on 1st January 2004. Besides of that, manufacturers, importers and wholesalers of cosmetics industry must be licensed by the Drug Control Authority before they want manufacture, import or sell the cosmetic products. a) The Control of Drugs and Cosmetic Regulations 1984 Act All of the cosmetic products has been divide into two category which is category 1 (products which can absorbs through skin or mucous membranes) and category 2 (others cosmetic products). Products in category 1 include of eye care or make-up product (exclude eyebrow products), lip products, oral cavity products, and sun tanning products containing topical dyes or tan accelerators that apply on the area of body. For category 2 products, it includes of hair dyes without phenylendiamine, toluenediamine, salt and derivatives, and sun tanning without topical dyes or tan accerators. Registration for category 1 can be applied which began on January 2002. However category 2 products can be applied which began on January 2003. All of the registration can be apply by online system. All of the ingredients of cosmetics product must be make known by the manufacture before the product going to be register. Cosmetic product must be manufactured, packed, and keep under hygiene conditions which suit to the Good Manufacturing Practice (GMP) requirement.

There is some information that must be labeled by the manufacture on the product is: The term of ‘cosmaceuticals’ has not yet been applied by the Drug Control Authority. Therefore, all of the cosmetics product will be identified by three criteria which set by Drug Control Authority. The criteria are about application, purpose and ingredient of the product. For those products contains include medical claims, that products have to referred to the Drug Control Authority to determine the classification. All of the source and information is taken from National Pharmaceutical Control Bureau’s website. 2. 4 Growth of the Industry |2004 |2005 |2006 |2007 |2008 | |Tobacco |5 180 |5 594 |6 010 |6 426 |6 839 | |(RM million) | | | | | | |Tourism receipts |8 198 |8 846 |8 974 |9 066 | | | |(US$ million) | | | | | | | |Total Exports |86. 83 |147. 18 |113 |130 |150 |44 | |Imports from U. S. |44. 4 |32. 4 |65 |39 |41 |25 | (Source: World Trade Atlas & Department of Statistics, Malaysia) * This is an estimated figure.

The latest production data available is for year 2003. Table 2: Cosmetics and Toiletries, Malaysia From table 2, it shows that total cosmetics products import from US on year 2007 is estimated got $25 millions. It become less if compare with the year before. It may because the fluctuated on exchange rate. On year 2004, cosmetics Malaysia which imports from US is the higher which reach on $65 millions. Total market size that estimate for cosmetics and toiletries products is estimated $226 millions. In another business report shows that, the actual market size of cosmetics and toiletries products is RM3520 million. There is a different amount actual amount and estimated amount. [pic] (Source: Euromonitor and Bernstein analysis) Figure 11: 2002-2007 CAGR by Category in Global Beauty In global market, an analysis done by Euromonitor and Benstein (Figure 11) shows that the Compound Annual Growth Rate (CAGR) by category of colour cosmetic is the most slowly in beauty industry. It had only growth 4. 1% from year 2002 – 2007. The average growth rate in beauty industry is 5. 4%. However, sun care becomes the fastest growth in industry which gain 7. 8% from year 2002 – 2007. [pic] (Source: Euromonitor and Bernstein analysis) Figure 12: 2002-2007 CAGR Contribution to Growth by Product Category in Global Beauty In contribution sales by product category part (Figure 12), skin care is the largest contribution in global beauty eventhough the sales is only growth 6. 9% which less than sun care. It contributes 45% of CAGR to the global beauty by product category. Eventhough sun care sales is the most fastest growing, but the percentage sales that contribute to global skin care is only 5% during year 2002 – 2007. | |% of Total Sales |2002 – 2007 CAGR | |Facial Care |26. 7 |6. | |Body Care |5. 8 |7. 9 | |Hand Care |0. 8 |5. 4 | |Skin Care |33. 3 |6. 9 | |Shampoo |8. 4 |7. 1 | |Conditioners |5. 7 |8. 9 | |Colourants |5. |3. 9 | |Styling Agents |4. 1 |1. 6 | |Salon Hair Care |2. 5 |1. 8 | |2-in-1 Products |1. 5 |-2. 9 | |Perms and Relaxants |0. 5 |7. 2 | |Hair Care |27. 9 |4. | |Facial Make-Up |7. 0 |4. 1 | |Eye Make-Up |5. 1 |5. 6 | |Lip Products |5. 0 |3. 5 | |Nail Products |1. 7 |1. 9 | |Colour Cosmetics |18. 8 |4. 1 | |Fragrances |16. |4. 7 | |Sun Care |3. 5 |7. 8 | |Total |100 |5. 4 | (Source: Euromonitor and Bernstein analysis) Table 3: Sub-Categories within the Broader Categories Colour cosmetic can divide into face make-up, eye make-up, lip products, and nail products.

Four of these sub-categories had gain 7. 0%, 5. 1%, 5. 0%, 1. 7% respectively. Face make-up gain the largest sales percentage in colour cosmetic. But the percentage of average growth of face make-up is not the highest. It is only 4. 1% which same with the total average growth rate of colour cosmetics. Percentage sales of skin care is the highest and growth of skin care also faster than hair care, colour cosmetics, fragrances, and sun care. [pic] (Source: Euromonitor and Bernstein analysis) Figure 13: 2002 – 2007 CAGR of Global Beauty by Geographic Area From the information of figure 13, Latin America is the faster growth place for beauty products. Malaysia consider as emerging Asia category which rank on 3rd of the world in beauty industry. North America is the most slightly growth in global beauty industry. The average growth of global beauty industry is 5. 4%. Western Europe, Developed Asia, and North America growth rate is lower than the average growth rate. It means that the country growth rate which higher than average growth rate is growth faster than others. 2. 5 Contribution of the Industry to Employment and GDP |Sector |2008 (Thousands) | |Agriculture, Hunting, and Forestry |1 365. 6 | |Fishing |122. | |Mining and Quarrying |54. 5 | |Manufacturing |1944. 7 | |Electricity, Gas, and Water Supply |60. 5 | |Construction |998. 0 | |Wholesale and Retail Trade; Repair of Motor |1729. 4 | |Vehicles, Motorcycles and Personal and Household | |Goods | | |Hotels and Restaurants |783. 6 | |Transport, Storage, and Communications |583. 4 | |Financial Intermediation |276. 0 | |Real Estate, Renting, and Business Activities |553. 2 | |Public Administration and Defence; Compulsory |751. | |Social Security | | |Education |656. 5 | |Health and Social Work |252. 6 | |Other Community, Social and Personal Service |274. 2 | |Activities | | |Households with Employed Persons |253. 0 | |Extra-Territorial Organizations and Bodies |1. | |Total |10659. 6 | (Source: (BA) Labour force survey) Table 4: Statistic of Employment by Sector Cosmetic and toiletries industry consider as manufacturing sector in Malaysia. In manufacturing, it divides into few sub-industries.

Cosmetic and toiletries industries are under non electronic and electric product- chemical and chemical products industry. In 2008, manufacturing sector had contributed 1944. 7 thousands (Figure 17) of employment. The job opportunity in manufacturing sector is quite high if compare with other sector.

Sector |2006 |2007 |2008 | | |(RM Millions) |(RM Millions) |(RM Millions) | |Agriculture, Forestry, |50 512 |65 701 |76 219 | |and Fishing | | | | |Mining and Quarrying |83 869 |92 796 |127 277 | |Manufacturing |169 761 |179 522 |195 027 | |Construction |15 941 |17 584 |19 519 | |Services |266 062 |299 139 |335 235 | |Undistributed FISIM |18 066 |18 846 |19 942 | |Import Duties |5 659 |5 969 |7 387 | |GDP at purchaser |573 736 |641 864 |740 721 | (Source: Jabatan Perangkaan Malaysia, Department of Statistik, Malaysia) Table 5: GDP Malaysia at Current Price Same as mention before, cosmetics and toiletries industry is under manufacturing sector which sub-sector is chemical and chemical products. The GDP Malaysia at current price in manufacturing sector is increase year by year. Manufacturing is rank on second which only behind service sector. The GDP rate of manufacture sector from year 2006 to 2008 is RM169 761 millions, RM179 522 millions, RM195 027 millions respectively (Figure 18). The percentages on manufacturing sector contribute to Malaysia GDP is become decrease year by year even though the total gain by manufacturing is increase year by year. It shows that Malaysia economy crisis will be recovered soon. From the economy report Malaysia (Refer to appendix), it shows that GDP by index of non electronic and electric- chemical and chemical product achieve 152. 2 on year 2007 and increase to 156. 4 on year 2008. The percentage change on year 2007 is 9. 2 and year 2008 is 1. 4. An export of manufactured goods chemical, chemical and plastic products had gains RM20128 millions on year 2007 and raise to RM23136 millions on year 2008. The percentage change is 22. 1% and 14. 9% on year 2007 and year 2008 respectively. 2. 6 Critical Success Factor Critical success factor is the factor that an organization or company necessary to achieve its mission. It also relate to how an organization success in an industry no matter is current or future. 2. 6. 1 Loyal Customer Base In cosmetic industry, there have many well-known cosmetic companies such as Christian Dior, Lancome, Avon, Estee Lauder and many more.

Each company has to build its own loyal customer base so that they can gain a large market share. Loyal customers are more likely to stay with the brand and buy more. This is because the company can give a high satisfaction to the customers and they choose to buy and visit more. Many companies spend much of their time and effort always trying to attract new customers. Each cosmetic product has its own characteristics. Therefore, companies have to study the needs and want of the customers and produce the cosmetic products that match the requirement of customers. (https://marketingpr. suite101. com/article. cfm/building_a_loyal_customer_base) 2. 6. 2 Wide Range of Product Cosmetic industries are suggested provide a wide range of product.

Cosmetic market target can not only providing cosmetic product to the women which in 20 to 30 years old, but also provide product that suit to the women in 50s and 60s. For example, Kanebo has done that with its Chicca brand, not just women in the 20s and early 30 s, producing eye shadow and lipstick that can be applied quickly and simply by women in their 50s and 60s. On the other hand, Shiseido also launched a new brand called Elixir Prior which targets the over 60s. (https://www. beautypackaging. com/news/2008/12/30/despite_economic_slide,_japan’s_cosmetic_market_remains_strong) 2. 6. 3 Time and Effort Time and effort is one of the important critical success factors. In cosmetic industry, company will require much effort and time to do research and development. There have many cosmetic companies supply similar product. As a result, company can apply product differentiation strategies by concentrate more in product innovation to gain competitive advantage. The companies use their creativity to create a new product which their rivals are difficult to imitate. But, in other case persistence is also a reason for some people failures. Many people persist too long in the face of obvious defeat, increasing their losses and missing out on lost opportunities while they follow the wrong path. If the research cannot be continuing, then the company has to stop it to reduce the loss. (https://www. articleflame. com/Art/1512/140/Critical-Success-Factors. html) 3. 0 Analysis of Competitive Factors Competitive factor is a feature benefit considered key or essential to the promotion of a product or service to its intended market (Layton, 2007). Competitive factor is an important tool which can attract buyers on the products.

The company has to analyze carefully and clearly about the competitive factors that available in the markets to make sure the products can gain the customers’ loyalty, increase market share and raise the reputation of the brand or company, 3. 1 Major Companies and Other Players of the Industry The major company that we will discuss is Loreal which is the leading company in cosmetics industry and other players which are Christian Dior, Shiseido, Kose and Estee lauder which know as the competitors of Loreal in this industry. We will briefly explain the company information as below. 3. 1. 1 L’Oreal Although there are many other brands of cosmetics in the global market, but L’Oreal still considered as the leading company in the cosmetics with a portfolio that contains many of the world’s biggest hair and beauty products, including such brands as Garnier, Maybelline and Lancome. Lancome had been established since 1935 in cosmetics market. It has variety kinds of products which include skincare, makeup and fragrance products. 3. 1. 2 Christian Dior It is specializes in the production and distribution of consumer goods. According to annual report 2006 of Christian Dior, it stated that the perfumes and cosmetics again gained the market share compare with all of their competitors. The strength of the LVMH’s leading brands such as Louis Vuitton, Christian Dior and so on give the group a competitive advantage. 3. 1. 3 Shiseido It is a major Japanese hair care and cosmetics producer. It is known as the oldest cosmetics company in the world and fourth largest company in the world. Currently, Shiseido sells Benefique pre-makeup and foundations products, Macquillage full-line makeup counseling-based products, and integrate full-line makeup self-selection based products.

The “Makeup” provides full range of products including lips products, powder eyes shadow, eye liner pencils, mascara, fluid and compact foundation, concealers, and powder blush. 3. 1. 4 Kose Thegu basic of all Kose’s corporate activities based on two words which are sensuousness and intelligence. Kose seeks to evolve from just a cosmetics manufacturer into a diversified company that focuses on beauty and enriches people’s lives. Kose has always been committed to brand development for each age, producing products long-loved by customers and items at the cutting edge of new trends, and will continue to offer cosmetics with unique value to win satisfaction of customers. (Kose Corporate Profile) 3. 1. 5 Estee Lauder The company founded in year 1946 armed with four products and an unshakeable belief which is woman can be beautiful. It is a globally recognized manufacturer and marketer of skin care, makeup, fragrances and hair care products.

Headquarter of Estee Lauder is in New York. 3. 1. 6 P (Beauty) It is the world first maker of household products courts market share and billion dollar names. It divided into three global units which are health and well-being, beauty and household care. (https://biz. yahoo. com/ic/11/11211. tml) 3. 1. 7 Avon Avon products are the world largest direct seller of cosmetics and beauty-related items, it is busy building a global brand and enticing customers younger than its typical middle-aged buyer. Its products lines include cosmetics, fragrances, toiletries, jewelry, apparel, home furnishings, and more. (https://biz. yahoo. com/ic/10/10152. html) Avon use both door-to-door sales people and catalogs to advertise its products. Avon is the company for women which is a leading beauty company, with $10 billion in annual revenue. (https://www. avoncompany. com/investor/companyoverview/index. html 3. 2 Trend and Drivers of Cosmetic Industry Trend means a general direction in which a situation is changing or developing (Oxford Advanced Learner’s Compass, 2010). In cosmetic industry, there will have different trend and drivers on every year. Cosmetic industry include of skin care, hair care, and also make-up. The similar trend may continue on next few years.

But it will have some change on style, product category or ingredient. 3. 2. 1 Cosmetic Market Trend and Driver by Make-up Style According to the head of buying beauty at House of Fraser, the latest or major trend on cosmetic industry is bronzing make-up ( Debbie Beaumont Howell). Bronzing make-up can define as make-up with natural colour which similar with human skin. It more to gold color or brown color or skin colour. The fashion cosmetic trend now can be considered to more natural since Debbie answer an interview in International cosmetic news. In 1990, exaggerated make-up is very famous among girls and lady. Almost every girl or lady who like to make-up will draw a very sharp colour on their face. “One new trend which cannot ignored is that of facial primers which have seen a resurgence in light of the new focus on eye products. ” (www. thefreelibrary. com) The purpose of they focus on eyes is to make human looks become more eye-catching and nice-looking. The colour use to eye make-up also is focus on neutral colour such as bronze, taupe, gold or brown colour. It will look natural. But, for younger female, they will try to combine the neutral colour with a layer of bright colour. To make it become attractive, use eye liner and mascara to carry on it. Eye liner is one of the popular cosmetic that use by female during make-up. Nowadays, most will choose powder or liquid type and brush the base of lash liner with metallic or colourful colour. The old style of eye liner pencil will eliminate by the industry (https://www. thebeautybiz. com). 3. 2. 2 Cosmetic Market Trend and Driver by Product Category Debbie also got mention that sun care also is one of the trend in the latest cosmetic industry. For people who have whitening skin is very care on their skin colour. They will use the cosmetic which has sun protection to avoid their skin become worse.

People who stay at Asia country will more concern about it because there are almost tropical countries which will have a hot weather no matters in which month of the year. Nowadays, cosmetic not only use for make-up and make human become difference, it also become a product that need to protect their skin and avoid injured by the fierceness sunshine. Cosmetic product also include of skin care. The fierceness of sunshine had made the SPF product high demanded.

The side effect of sunscreen is can bring pigmentation problem to human skin. Therefore, SPF product becomes a trend in cosmetic industry to reduce the irritating emotion of consumer. With the “well-established of UV filter ethylhexy methoxycinnamate was safely entrapped in silica, giving Eusolex ® UV Pearls OMC (Rona/EMD Chemicals Inc) and contact of the UV filter with the skin was practically eliminated” (Phyllis Klein, vice president of public relations at Max Factor). Besides of that, for Asia market, consumer will more prefer to buy multi-functional product which fulfill the economy value (https://www. bfsmagazine. com. my/pdf/JA_articles. pdf). For example, consumer can use a product which include UV protection and in other way can hydrate their skin at the same time. Some of the cosmetic will include some vitamin contain with take advantage for consumer skin. It is a good product for smart consumer for those got a well financial planning. According to an article from ids group, it got mention that consumer nowadays got a great demand on anti aging added function product (www. idsgroup. com). The growth of baby boomer generation has brought the trend in cosmetic industry. There is few example of the company which launch of anti aging product or shows growth sales on anti-aging product.

According to Avon, market of anti aging product had a double digit growth sales compare to year before. They also state that Avon had spent US$200million on R to develop anti aging product.

For Lancome cosmetic brand, they had breakthrough for anti aging series on second semester of 2009. The trend of Lancome is concern on consumer future. It is a long term planning for a consumer. Lancome will continue the amazing stories which happen on 1990. The product had brought an amazing and great result to the customer. The mastery of Lancome is the ingredient of cosmetic make consumer ease to use the product without worry of the safety issue or any allergic problem. Most of the female consumer will use of the anti-aging product around they in 25 years old which can bring them become younger with economically without any surgery or Botox (www. beauty. about. com). The purpose of they take anti aging product is wish to see the immediate result without any brand loyal (Global Insight Report). In 21st century, cosmetic is not a product which only own by female consumer . Male consumer already becomes the new target market for cosmetic company. (https://www. bfsmagazine. com. my/pdf/JA_articles. pdf). There is a lot of male cosmetic product range develop by cosmetic company such as L’Oreal, Shiseido, Mandom and so on. Nowadays, not only female concern about their appearance or image, male also will care of it. In a Global Insight executive summary report got state that male consumer nowadays already start accept the usage of cosmetic or personal care. The acceptance of male in this industry has bring a new trend to the cosmetic industry.

For young male, they will care on cleanness of face and also focus on their looks of media star. However, aging male will care on the volume and colour of their hair. There is an expected growth on men shaving products and hair care products as well as facial cleansers and skin care items. Usually skin care items or facial cleanser is use by teens or male on range 25-30 years old. (https://edms. matrade. gov. my) Another trend on product category is whitening product. This trend is more popular on Asia countries which locate at tropical country with a shining sunshine. In China and Indonesia, a research done by Asian Market Intelligent report that almost half of the female on that country has use whitening product. Asian countries prefer white and fair radiance skin.

However, Western country people are more prefer on bronze colour skin. Therefore, the cosmetic product trend will have some different on different contingent country. (https://www. bfsmagazine. com. my/pdf/JA_articles. pdf). . 2. 3 Cosmetic Market Trend and Driver by Ingredient “ By 2009, the natural personal care market is projected to reach US$7. 9 billion. ”(https://edms. matrade. gov. my) The major trend of cosmetic industry in ingredient part, consumer more prefer to natural product which not include too many organic ingredient in cosmetic. There is a market report done by Euromonitor International with an article name as the growth of natural ingredient can show how popular a natural ingredient in cosmetic industry. Euromonitor also predict that natural cosmetic product will continue growth on the next five years.

President of Green Marketing Inc. , Darrin C. Duber-Smith mentioned that there is a growth almost 8% per year on natural ingredient. Besides that, in a beauty tips article, it mentions that organic cosmetic market is growing exceptionally. (www. beautytipshub. com). Other than that, from a marketing research company- Kline show that the trend for natural care products in Asia is strong and the awareness of consumer on ‘natural’ concept is quite high on Asia. A report with content of overview of the china cosmetic also state that demand of natural product also has been grow well. “Since China consumer tend to believe in traditional Chinese herbal medicine, cosmetic using natural herbs appear to be appealing to many user. ” (www. idsgroup. com). In other way, we also can conclude natural product as ecological product. All of the report and article can shows that people nowadays are more concern and aware of the important of health and wellness. Ingredient of cosmetic is very important to consumer. Today’s consumers are more prefer to choose the safe and pure option to assure a better treatment even though only for externally used.

Consumers are willing to pay higher price for their health and skin benefit and have a higher standard quality product. Therefore, to become a smart consumer, consumer will very concern and ask beauty advisor or consultant about the ingredient in the cosmetic product. Debbie Beaumont Howell personally thinks that pure rather than organic is the way forward. As cosmetic manufacture, they also start to concern about this issue and do R on this field to produce natural product in mass market and specialty markets. 3. 3 Comparison between Major Company with Competitor in Cosmetic Industry |Company |Sales |Profit |Market share |Products |Target market | | |($ millions) |($ millions) | | | | |Estee Lauder |7910. 8 |473. 8 |6. 1% |Types of products: |Premium market | | | | | |Skin care | | | | | | |Make-up | | | | | | |Fragrance | | | | | | | | | | | | | |Product Category: | | | | | | |Core Brands | | | | | | |Specialist Brands | | | | | | |Licensed Fragrances / | | | | | | |Make-up | | |Kose |1. 802220 |0. 069 |0. 00009% |Types of products: |Premium market | | | | | |Skin Care | | | | | | |Make-up | | | | | | |Hotel Amenity | | | | | | |Cosmetics | | | | | | | | | | | | | |Product Category: | | | | | |High-Prestige Brands | | | | | | |Prestige Brands | | | | | | |Self-Selection Brands | | (Source: L’Oreal official website) Table 7: Geographic Area that L’Oreal Going Abroad L’Oreal is a worldwide company which in cosmetic and toiletries industry.

The origin country of L’Oreal is France. However, after few centuries, they had success to bring their business going abroad. With the well performance of their business strategy, they had become the major company in cosmetic and toiletries industry. They had brought their business to Europe country, Asia country, America, Africa, and Middle East country. As a parent company, L’Oreal has a lot of product under different brand name with different division. Not every brand has gone abroad every country that L’Oreal going abroad. It has depended on the country market. | |2008 | | |€ millions |% of total | |Western Europe |7 984. 7 |45. 5 | |North America |4 167. 5 |23. 8 | |Rest of the World |5 389. 6 |30. | |Group |17 541. 8 |100 | (Source: 2008 Annual Report, L’Oreal) Table 8: Revenue / Sales by Geographic Zone Total revenue (Figure 21) that gains by L’Oreal from all of the sub-brand all over the world on year 2008 is €17541. 8 millions. In Western Europe, there had supply €7984. 7 millions (45. 5%) to L’Oreal parent company. It is a large amount compare with other contingent of the world. It shows that L’Oreal has a large and stable market on Western Europe country. A strict and success inventory management by distributors has brought a positive impact to L’Oreal sales. Compare with other country, they also supply 30. 7% from overall revenue to parent company.

The rest country can be divided into Asia, Eastern Europe, Latin America, and Africa. Overall sales performance of those countries also has brought like-for-like growth with minimum 6% and maximum 27%. But the revenue gain still less than Western Europe. | |2008 | | |€ millions |% of Total | |Western Europe |7 381. 5 |45. | |North America |3739. 3 |22. 9 | |Rest of the World: |5238. 1 |32. 0 | |Asia |1844. 3 |11. 3 | |Latin America |1151. 2 |7. 0 | |Eastern Europe |1380. 3 |8. 4 | |Other Countries |862. 2 |5. | |Cosmetics Branch |16358. 9 |100 | (Source: 2008 Annual Report, L’Oreal) Table 9: Revenue / Sales of Cosmetic by Geographic Zone The business of L’Oreal is quite wide. On cosmetic industry, they had total earn €16358. 9 millions. In cosmetic industry, L’Oreal has divided it into consumer products, luxury products, professional products, and active cosmetics. In Western Europe, it has achieved a slightly growth with the success of L’Oreal Professional for man and the new launch of Keraskin Esthetics. However, the rest of the world also has a growth with the successful leadership management. For Nor

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