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Emerging Markets: A New Spin
By: Briony Davies
Posted: August 28, 2008, from the April 2007 issue of GCI Magazine.
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These opportunities are available equally for both local and foreign cosmetics and toiletries manufacturers. Because apartheid prompted most foreign investors to pull out of the country, the market had been dominated by domestic firms. Since the abolition of apartheid, multinationals have flooded back in and now control the bulk of retail sales. Nine of the top 10 brand owners operating in South Africa are global players, and account for nearly 61% of value sales. While domestic players have the advantage of local knowledge of the market and established brand names and distribution networks, multinationals have the marketing power, internationally respected labels and money to invest in R&D and acquisitions, with no associations to the old regime.
Players across South Africa’s cosmetics and toiletries market can also leverage their positions to expand globally. In particular, South Africa provides a useful launching pad into the rest of the relatively untapped African market. Africa and the Middle East is one of the smallest of the seven regional markets for cosmetics and toiletries in terms of value sales; however, at a time when the beauty products industry is looking for fresh new growth opportunities, Africa provides some of the long-term best. While growth in other emerging markets—such as Eastern Europe, Latin America and Asia-Pacific—is already beginning to flatten out as manufacturers flood into the regions and penetration levels rise, the industry is only just beginning to take off in Africa.
South Africa’s domestic players have the advantage in terms of expansion in Africa—again, understanding the local markets and having a firm base in catering to emerging ethnic markets. The local Moya brand has already made the move into South Africa’s neighboring countries, selling in spas across Mozambique and Zimbabwe. The best chance of success, however, would be through joint ventures between local and foreign players, using the former’s regional expertise and the latter’s spending power as the foundation for growth.
The Dynamism of Pakistan and Vietnam
With 2006 growth rates of 15% and 10% on 2005 respectively, Pakistan and Vietnam are among the world’s most dynamic cosmetics and toiletries markets. The performance of both countries is set in the context of their stellar macroeconomic results. Driven by a combination of exports, investment and consumption, the Pakistani economy witnessed GDP growth of over 17% in 2005. Although growth in Vietnam is not as astounding, the country’s accession to the World Trade Organization in November 2006 marks its determination to integrate into the world’s economy.
Manufacturers looking to succeed in these relatively underdeveloped environments need to be aware of individual peculiarities. Pakistan, for example, is hindered by illegally imported goods from China, India and Afghanistan—the low prices of knockoffs are an inevitable lure for Pakistani consumers. Furthermore, government taxes of 50% on imported products present a barrier to entry. Manufacturers must get creative with ways to keep unit prices low to stimulate consumer demand there.