Xinhua Insight: Chinese cosmetics use global expansion to elevate status at home

While many domestic cosmetics brands are challenging international giants like L'Oreal and Estee Lauder in China, one brand is slowly encroaching on their home turf.

Herborist, a herbal medicine-based cosmetics line owned by Shanghai Jahwa United Co. Ltd., has been available in Europe for nearly eight years. Its Taichi facial mask is among the five best selling cosmetics distributed by European retailer Sephora.

China's consumer brands are leading the fresh wave of global expansion, with many on the lookout for established local brands to sell to the foreign market. Chinese auto maker Geely bought Volvo in 2010, meat processing company Shuanghui snatched up Smithfield in 2013 and PC maker Lenovo acquired Motorola Mobility in 2014.

But Jahwa, which traces its roots back to Hong Kong in the late 19th century, has sought to take a cut of the cosmetics market with a brand it built 17 years ago.

That strategy of exporting home-grown brand to Europe has domestic calculations. "If Herborist can survive and thrive in mature markets like Europe and the United States, its appeal will definitely grow among consumers here at home." said Huang Zhen, Herborist general manager who has been with the brand from day one.

Although Herborist has been gradually advancing in these developed markets -- with a number of outlets selling its products across western Europe, and its own shop in downtown Paris is also eyeing the United States -- herb-based cosmetics remain a niche product. The company sold 20 million yuan of cosmetics outside of China last year, accounting for a small share of Jahwa's 5.33 billion total revenue.

"The market that will continue to generate high growth and returns for Chinese cosmetic companies in the coming years is still China, not Europe." said Yu Wei, consumer product principal at Bain & Coy.

"What Chinese cosmetic companies do with their brands at home lays the ground work for entry into the international market."

Jahwa president Xie Wenjian said Herborist needs greater exposure in the developed market if it is to stand a chance against the world's leading cosmetics giants.

"We are very cautious with every step we take." Xie said.

According to him, there is no better time than the present for Jahwa to make a splash in the international market, as China's consumer brands and growing economic prowess are drawing worldwide attention.

Using China's traditional medicine to take western premium cosmetics head-on is at the heart of Herborist's strategy.

Herborist brand development director Li Meng said the China factor can be a double-edged sword in Europe.

"Overseas consumers interested in Chinese culture feel an instant connection with Herborist cosmetics, but we must also battle the stigma of low-quality, safety concerns and forgery often associated with Chinese products," Li said.

At home, the same strategy is helping many domestic firms gain an edge over international brands.

"China's cosmetics have long sought to challenge foreign brands' dominance and their strategies have evolved from trying to undercut the market to using traditional Chinese culture for its own value," Bain's Yu said.

Leading Chinese cosmetic companies are outperforming the sector's average growth, which reported 9.2 percent growth and posting revenue of 98 billion yuan during the first half this year, compared with its previous double digit growth.

Pehchaolin, a skin cream from Shanghai's concession days in the 1930s, reported more than 30 percent in revenue growth in the past three years. Revenue growth at Jahwa, though moderated to 14 percent in the first half this year, is still above the industry average.

Meanwhile, foreign brands are seeing decreasing revenue growth in China. Among the many reasons that these once-coveted brands have lost their appeal is that foreign brands are not tailoring their products to the needs of Chinese consumers.

"International cosmetics brands are not developing products specifically for China or looking to its culture for inspiration. Even if they do, their products are often not as good as domestic offerings," Yu said.

Meanwhile, China's ongoing modernization is also unleashing new demands, among them a desire for beauty products, which have been largely overlooked by international brands.

"It's our own companies that are responding these new market demands," said Melody Kong, business analyst at China Market Research.

Consumers are also becoming more practical, Kong said. Customer's preference for foreign brands is loosing out as consumers are more concerned with quality and value.

Despite the bottom-up challenge posed by home-grown cosmetics, foreign brands still dominate the premium market, a niche that brands like Herborist craves.

"There are also Chinese companies looking to buy boutique brands in developed markets, but rather than expanding their business there, they want to sell such brands back to China," Yu said. Endi