Hong Kong Industry Profiles

Overview

• The mainland granted all Hong Kong products tariff-free treatment under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA). All goods made in Hong Kong, including cosmetics and toiletries products subject to the CEPA’s rule of origin, can enjoy duty-free access to the Chinese mainland since January 2006.
  
  
• Hong Kong has a small cosmetics and toiletries manufacturing sector. Most manufacturers are producing lower-priced toiletries and perfumes with their own brands. Meanwhile, most of the industry players are traders who act as agents to sell to the Chinese mainland, Macau and the US. In recent years, many facial and spa centres in Hong Kong also carry their own brands or act as agents to sell in the Asian region.
  
  
• International brands play a dominant role in the high- to mid-end market of Hong Kong and the region. Local producers of cosmetics and toiletries are forced to put their focus on the mid- to low-price market segments. Apart from female make up and skin care products, international brands such as Sulwhasoo, Kiehl’s and L’Occitane also tap on male skin care market in recent years.
  
  
• With the arrival of mainland tourists under the individual visitor scheme and the concomitant surge in Hong Kong’s cosmetics sales, many businessmen are eyeing the lucrative local cosmetics market.  Hong Kong, as a showcase for foreign brands wishing to target mainland customers, has continued to attract new brands to establish a presence here.
  
  
• While whitening and anti-ageing products remain popular among Asian female consumers, demand for men’s grooming products such as aftershave moisturiser, deodorants and hair products have increased substantially in recent years.
  

Industry Features

Note: Industry statistics cover activities in Hong Kong only.

Hong Kong has a small cosmetics and toiletries manufacturing sector and most manufacturers concentrate their production on lower-priced toiletries and perfumes, particularly for marketing to the Chinese mainland, Southeast Asia and the US usually under their own brands.

Most of the companies in the industry are traders who act as agents to sell to the Chinese mainland, the US, Macau, Japan, Southeast Asia and the EU markets. Some Hong Kong spa and beauty salons also act as agents for cosmetics and skin care products for the sales in the Asian region.

Some traders have good connections in the Chinese mainland, and could help sell professional product lines to beauty salons there. Hong Kong traders are good partners of foreign brands given their market knowledge, skills and connections, and integrity, especially as entry procedures into China would require disclosure of confidential information like product formula.

Export Performance ^

* Insignificant
^ Since offshore trade has not been captured by ordinary trade figures, these numbers do not necessary reflect the export business managed by Hong Kong companies.

The majority of Hong Kong's exports are re-exports, which accounted for over 98% of the total. In 2011, the Chinese mainland and Macau were Hong Kong's largest export markets of cosmetics and toiletries, followed by the US and ASEAN. Exports of beauty or make-up preparation for skin care took up 60% of Hong Kong’s exports of cosmetics and toiletries.

Sales Channels

Most of the companies in the industry are traders who act as agents of international cosmetics brands to sell to the Chinese mainland, Macau and Southeast Asia markets. Hong Kong has experienced distributors well versed in regional markets and regulations. They act as distributors for popular brands, aiming at the general public and devising the whole marketing mix.

Most Hong Kong's cosmetics and toiletries manufacturers concentrate their production of middle- to low-end toiletries and perfumes, marketing to the Southeast Asia and the US usually under their own brands. In addition, some Hong Kong manufacturers have succeeded in building their own brands in the Chinese mainland market, such as Cogi and Cheng Ming Ming.

Some high- and mid-end foreign brands establish sales counters in local department stores, as well as set up their own outlets in shopping malls. Professional products are sold through beauty salons. Specialty cosmetics chains are well developed in Hong Kong, with Sa Sa, Bonjour, Aster, Angel and Colourmix taking the lead. They mainly sell international brands with deep discounts, as well as private label products. Health and personal care chains such as Watsons and Mannings have shifted their focus more towards cosmetics in recent years, selling mainly international brands. Meanwhile, many international brands have tapped into the online sales to extend their reach in different markets.

Industry Trends

Owing to high production costs in Hong Kong, many manufacturers have set up offshore production facilities on the Chinese mainland and in Southeast Asian countries such as Thailand, Indonesia and the Philippines.

The world cosmetics market, especially the upper-end segment, has long been dominated by giant companies such as P&G, Unilever, Shiseido, L’Oreal and Estee Lauder etc. Their brands and images are well recognised internationally. They predominate over the top tier market segment that makes it difficult for new brands to enter.

However, OEM production is not widespread due to the strict requirements on quality control and secrecy of product formula. Most manufacturers will directly export the finished products to their overseas distributors. Recently, some international suppliers have reached licensing agreements with supermodels or fashion brands to develop fragrances and cosmetics products. Besides, an increasing number of famous fashion brands have diversified into developing cosmetics products under their own brands, such as Anna Sui, Burberry, Calvin Klein, Chanel and Christian Dior.

There is a rising trend of Hong Kong companies exploring the Chinese mainland market. Due to the increased affluence and appearance consciousness of Chinese consumers, the potential of the cosmetics and toiletries market in the Chinese mainland is huge, especially for branded mid- to high-end cosmetics and toiletries products. The mainland's cosmetics market is highly brand-oriented.

CEPA Provisions

The Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) was concluded in June 2003 and was expanded in subsequent years. All products made in Hong Kong, subject to CEPA's rules of origin, enjoy duty-free access to the Chinese mainland. Please refer to the Trade and Industry Department’s CEPA web page for more information:
http://www.tid.gov.hk/english/cepa/tradegoods/files/mainland_2012.pdf

General Trade Measures Affecting Cosmetics and Toiletries Exports

The tariff rate of the Chinese mainland is higher than most other markets. Product standards and quality control requirements are also barriers to importation of foreign cosmetics products. Under China’s WTO commitments, import tariff of cosmetics and toiletries had reduced to 6.5%-10%. In order to meet the needs of administrative licensing for cosmetics, The State Food and Drug Administration issued a notice concerning the application and assessment guide for new raw materials of cosmetics, which took effect on 1 July 2011. For details, please refer to: http://www.sda.gov.cn/WS01/CL0846/61608.html

Safety and environmental issues are major trade concerns in overseas markets. In US, the Centre for Food Safety and Applied Nutrition of the US Food and Drug Administration (FDA) is the official body for monitoring the safety of all imported cosmetics. Cosmetics exported to the US must be in compliance with the provisions of the Federal Food, Drug and Cosmetic (FD&C) Act, the Fair Packaging and Labelling (FP&L) Act, and the regulations published under the authority of these laws.  For details, please refer to: http://www.fda.gov/Cosmetics/default.htm

In EU, cosmetic products are covered by 2 main directives which provide that cosmetics product which is placed on the EU market must not cause damage to human health when applied under normal or reasonably foreseeable condition of use, taking account, in particular, of the product’s presentation, its labelling and any instructions for its use and disposal. The directives also contain specific provisions on the labelling, marking and packaging of cosmetic products. For details, please refer to: http://ec.europa.eu/consumers/sectors/cosmetics/

The revised Pharmaceutical Affairs Act which is applicable to all cosmetics, quasidrugs, drugs and medical devices entering the Japanese market went effective in June 2009. Importers of cosmetics assume all quality assurance and product liability for cosmetics. The importer must obtain a primary distributor’s license for cosmetics. The primary distribution business refers to the sale, rental or lending of manufactured or imported cosmetics. Any primary distributor that engages in the final packaging, labeling in the Japanese language, or storage of imported product, is required to obtain a cosmetic manufacturer’s license. For details, please refer to: http://www.jetro.go.jp/en/reports/market/pdf/guidebook_cosmetics.pdf

Product Trends

Makeup tends to have shorter life cycles than many other consumer goods. In advanced markets, the average product life of makeup products could be as short as 1 month. Colours and shades play an important role, and these elements are heavily influenced by fashion trends, tastes and seasonal moods. These trends usually originate in large-scale trade fairs in Europe, spread to the US, then Japan and Asia, through trendsetter magazines.  Giant makeup companies have huge influence on those magazines. It is important for manufacturers to offer a wide selection of colour and shades in each season.

The aging population is driving the recent surge in "cosmeceutical" products that combine cosmetics with vitamins, herbs, and sometimes pharmaceuticals, such as Vitamin-C lotions, tea tree oil-infused cleansers and collagen masks (collagen is formerly used in treatment of burn wounds). Many of these medicinal beauty products focus on the anti-aging skin care function. Dermatology is incorporated in product development, and products catering for different skin types are available. Active ingredients are being added to cosmetics and plant extracts and traditional Chinese herbs are also very common, especially among Chinese, Japanese and Korean made cosmetics.

Recently, organic and natural cosmetics made from mineral pigments and organic plant extracts, which provide natural sun filters, long-lasting colour and delivery a healthy-looking radiant glow is getting more popular. Unlike the conventional make up, none of these products contain artificial fragrances or petro-chemicals, making them ideal for people with sensitive skin.

More professional products with specific functions have emerged in recent years as consumers are more educated in terms of product application. They pay more attention to the ingredients and functions of products, and can handle more steps and specific application. Many products are also moving towards beauty salon standards, claiming to achieve salon effects. For example, body-firming products such as Estee Lauder Perfectionist, Fancl Shape Design and L’Oreal Perfect Slim, are all attempts to compete with salon products, but consumers can carry out salon-type procedures at home. This trend may continue in the long term as the persistence of slimming trend adds to the drive of firming products. Meanwhile, men’s skin care products are also expected to become more specific as demand develops.