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Asia Insider: Brand Lessons

By: T. Joseph Lin, PhD
Posted: August 27, 2008, from the May 2007 issue of GCI Magazine.

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In reading Chinese newspapers and talking to people in Shanghai, I was surprised at the degree of anger directed at the manufacturer of SK-II. Why didn’t P&G simply tell the truth and assure Chinese consumers that there was nothing wrong with the product? If this “selective enforcement” of cosmetic safety law was indeed used to retaliate against Japan for its government’s “selective enforcement” of food safety law against imported Chinese agricultural produce, as was widely reported by Chinese and Japanese media, why was P&G (which is not a Japanese company) targeted? Some experts speculated that it might be due to the brand’s strong Japanese image.

The History of SK-II

When I worked for MAX Factor during the 1960s in its Hollywood R&D lab, the company was still owned by the Factor family, and was successfully using its Hollywood connection to expand its business to many parts of the world—including Europe, Latin America and Asia. The company’s original policy was to market identical products globally. However, their big success in the Japanese market created demand for higher-priced products specifically designed for local needs. The company later decided to allow its Japan branch to develop its own products, and SK-II was created as a high-priced specialty product named after the original Secret Key toning lotion produced in the U.S. The product proved to be very successful, and a complete line of SK-II products later followed. To counter the success of many foreign brand cosmetics, some Japanese companies promoted their skin care products as being formulated specifically for Japanese skin. Since SK-II was created in Japan, the company also used Japanese imagery and Asian movie stars to promote the products, even after the company was acquired by P&G, and expanded the product line in many Asian nations. For this reason, many Asian consumers associate SK-II with prestigious Japanese cosmetic products. Over the past decade, P&G has invested heavily in promoting its beauty products in China, and now, reportedly, has an 18% share of the cosmetic and toiletry market.

Green Wall and Trade Wars

China has been very successful in exporting various products overseas in recent years. With an improved standard of living, Chinese consumers are also buying many imported luxury products from abroad. However, many Chinese cosmetic and toiletry manufacturers have lost market share to powerful multinational companies from Japan and Western nations. Since China is now a member of the World Trade Organization (WTO), the country can no longer impose heavy tariffs to effectively limit imported products, but there is no lack of other creative means to fight international trade wars. Four years ago, when BSE was discovered in Europe and Japan, the Chinese health authority banned importation of all cosmetics and raw materials containing bovine and other animal-derived ingredients—including a large number of common ingredients such as amino acids, collagen, hyaluronic acid and lanolin derivatives. All imported cosmetics required government reports and/or test results that certified that they were free from all listed ingredients.

The stated reason for the ban was to protect Chinese consumers, but it was widely reported in both Japan and China that the real reason was retaliation against Japan’s import restrictions on Chinese vegetables. Responding to complaints made by a Japanese farmers’ association that some imported Chinese spinach contained excessive amounts of pesticide residue, the Japanese government tightened the rules and increased inspection fees. A Beijing paper pointed out that the level of the chemical found in the rejected Chinese spinach was actually only one third of that allowed for Japan’s domestically produced radish. Chinese papers criticized the Japanese government for its use of “technical barriers” to restrict importation of Chinese vegetables1. Not surprisingly, it did not take long for the Chinese government to learn to use similar tactics in its efforts to protect weakened domestic manufacturers and to express its displeasure over restrictions on Chinese exports.

In China, this kind of nontariff trade barrier was originally referred to as jishubilei (technical barrier), but has recently been renamed lusebilei (green barrier) by the Chinese media, implying a creative use of ecological or safety concern to restrict importation. Headlines describing the claims lobbed in this trade war get public attention and sell newspapers, but also create confusion in the consumer’s mind as to whether the alleged “risk” is real or politically exaggerated. When a newspaper reported the finding that many well-known imported and domestic cosmetic products were also found to contain various amounts of chromium and neodymium, the headline implied that Dior and other famous imported cosmetics had also “contracted the SK-II epidemic!” A weekly magazine in Hong Kong reported that the incident was a clever use of the “green wall” to kill “two birds with one stone,” restricting Japanese imports and protecting domestic cosmetic manufacturers2.