Inoac Packaging Group Inc. believes its Shanghai molding plant is at the front of a trend in China's cosmetics industry: As local consumers spend more, domestic Chinese cosmetics manufacturers are forking out more for better packaging to appeal to them.
The local market, rather than the more traditional market of foreign brands selling in China, is attracting more attention from other prominent cosmetics packaging firms, and causing them to look at China for more sales as other markets slump.
Inoac, based in Bardstown, Ky., and a unit of Japanese conglomerate Inoac Corp. of Nagoya, may be among the early adapters.
Two years ago, virtually none of Inoac Packaging's sales from its Shanghai blow and injection molding packaging plant were to Chinese firms. Instead, business was devoted to Western and Japanese firms that either exported their cosmetics or sold their brands directly in mainland China.
A significant shift is under way, as one-third of the firm's business in Shanghai now comes from domestic Chinese cosmetics manufacturers looking to upgrade, said Yutaka Matsui, executive vice president of Inoac Packaging, in an interview at the CosmoProf Asia 2009 show, held Nov. 11-13 in Hong Kong.
One year ago a lot of Chinese companies came to my booth and said, 'We like the packaging but it is too expensive,' said Matsui, who claimed Inoac's packaging could cost double or triple that of his domestic Chinese competitors at the trade fair.
But those prices no longer deter Chinese cosmetics brands, he said: They see the foreign brands selling for a lot more in China [and] they want to sell for higher prices. One easy thing is more gorgeous packaging.
He claimed Inoac has not altered its pricing to enter the domestic Chinese market.
The change, while nascent, has attracted the attention of other global cosmetic packaging firms.
Taiwanese-owned HCP Packaging which employs 3,000 at injection and blow molding factories in China, the US and, next year, Mexico is putting the Chinese market more firmly in its sights.
We've had a strategy this year to increase our presence with the local brands, and we're doing that via our mascara product line [where] we have a strong core competency, said Steven Levine, president of the company's American unit, HCP Packaging USA Inc. in Shelton, Conn.
The firm has grown an average of 20 percent a year for the past decade, but this year will slip to single-digit growth as even the normally recession-resistant cosmetics industry takes a hit, Levine said.
We've realized if we're going to continue to grow at double-digit rates, more of that growth is going to have to come from Greater China, because obviously the Greater China economy is growing at much higher rates than the United States or Europe, he said.
We've seen some local brands, they are very definitely looking to upgrade packaging, Levine said. Technology and things like decoration complexities are quickly becoming equal to global brands.
China's domestic market for cosmetic and personal-care products is growing 15 percent this year, said Haitao Chen, the China cosmetics sales manager in DuPont Co.'s packaging and industrial polymers business in Shanghai.
About 20 percent of Wilmington, Del.-based DuPont's cosmetics industry sales in China go to local brands, Chen said, echoing comments from others that local brands are looking for better packaging.
We are seeing that local brands want to upgrade their brands to prestige brands, Chen said.
It's a change some local Chinese packagers say they are seeing as well.
Guangzhou Qiaoxin Plastics Co., which does more than half its business in exports of tubes and other packaging to American brands like Avon and the CVS drugstore chain, said China's domestic market is becoming more important.
That market now accounts for about 25 percent of its business, compared with 15 percent two years ago, said JoJo Fang, a sales representative for the Guangzhou-based firm. Chinese customers usually want simpler technology, like monolayer tubes instead of the five-layer tubes overseas firms want, but that's changing as well, she said.
Inoac's Matsui said his company's change in thinking about China also reflects the reality of rising costs there, which he said makes it a less attractive export platform.
When the company first opened in Shanghai in 1995, it focused entirely on exporting to Japan and America. Today, those exports are only about one-third of its sales, with two-thirds of business coming from within China, either from direct sales to Chinese firms or from Japanese brands selling into China.
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