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“Chinese Brands, Made In USA”—Might Be A Booster for USA-China Economy

Jonathan Lin

The 16th Annual 2011 Shanghai International Cosmetic Beauty Show provided an opportunity to gain insights into the Chinese cosmetics industry and its consumers.

“To make something special, you just believe its special,” was the sage wisdom imparted by Po’s father in the animated film Kung Fu Panda. What does this have in common with cosmetics in China? I was just waiting for you to ask!

It is no secret that the Chinese cosmetics industry has been experiencing huge growth, and, by all measures, it appears poised for significant growth into the foreseeable future. Current estimates put the number of cosmetics brands in China between 3,700 to 4,000, and foreign companies such as L’Oréal, Unilever, P&G and Estée Lauder are dominating the market because the are perceived to be superior in quality and effect.

So what about the domestic Chinese players? It seems that when a Chinese brand starts to “make it” and gain popularity, it quickly becomes acquired by a foreign company. So why are there not many Chinese brands who are big players in the Chinese market? Surely competing in the home court should offer some advantages. I have identified two key reasons.

1. Lack of Brand Vision: The Chinese brands do not have faith and believe that they can become stronger brands. As Po’s father pointed out, they do not believe they are special. That feeling filters through down to their products.

2. Quick Profits vs. Brand Building: Building a stronger brand is very costly and only happens over an extended period of time. In China, everybody is interested in getting rich now, and few brand owners and top executives have the patience or are willing to invest heavily in building a brand. When faced with the prospect of taking the cash now vs. possibly higher returns in a quickly changing and ever uncertain future, top executives choose the riches now path.

On top of these challenges, there are inherent problems with manufacturing cosmetics in China. Quality ingredients, process and quality control are the three key elements for a successful cosmetic manufacturing. For example, in addition to varieties of ingredients choices, water and air are actually the key and major ingredients among most of formulas. Furthermore, water and air are also widely used in equipment cleaning and sanitizing process. Therefore, water and air quality and purity will greatly impact the quality and integrity of the formulated finished product.

As far as I can tell, maintaining high quality of water and air in China, especially in urban areas, are still facing big challenges and are in need lots of help. There are many improvements needed in China if the quality there is to catch up to that expected in the U.S. and Europe. It may also cost the domestic manufacturer twice as much just to deliver the same quality of water and air to those manufactured abroad. GMP standards and ISO certifications on domestic manufacturers alone may not necessarily guarantee enforcement.

For now, I think “Chinese Brands, Made In USA” might be a winning strategy for both the U.S. and Chinese economy and quality living standard. Chinese brands should simply source production in the U.S.. The simple fact is that the product of “Made in USA” will create instant credibility for the Chinese brand and result in a higher quality product. Sourcing and having business dealings in the U.S. will also provide an advantage if Chinese brands choose to compete in the U.S. or other markets.

Most importantly, this strategy can quickly break the mental barriers for both the consumer and the brand team. With a unique brand strategy such as this, consumers are likely to treat the product differently. The brand would become something special because consumers may “believe its special.”

Jonathan Lin, a native of Shanghai, recently attended the 16th Annual 2011 Shanghai International Cosmetic Beauty Show where he gained deeper insights into the market trends in the growing Chinese cosmetic market. He is also the CEO and chief chemist of JWL Beauty Solutions.

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