Business opportunities in Chinese cosmetics industry.

Discussing business opportunities in cosmetics industry in China, we should first review macroeconomical factors influensing Chinese economy most. Chinese economy quite so associated with some “sweeping statements” like “China will be next economic superpower; its economy is still government run; foreigners don’t make money there; relationships count, so a partner is needed. But they are hyperbolic, misleading, out-of-date, or just not true”(Woetzel J.R. (July 2004) A guide to doing business in China. P.)

So, what the situation is really about in China and what cultural and economical differences has Chinese business environment in comparison with French? At first, I French and Chinese societies have totally different basis. If we look back to sociology, we remember, that all societies can be divided on two main categories: High-context(China) and Low-context(France). In high-context society words may not mean what they really mean. For example “yes” may not be “yes” at all, opposite to low-context society where “yes” always means “yes” and “no” always means “no”. It results in a need for deeper understanding the position of the people you’ll have to work with and sphere you’ll have to work in, because in high-context society it is easy to miss the cue, if you haven’t obtained enough information about the problem. Secondly, one of key chinese cultural concepts is “Guanxi”, which literally translates to relationship. It may draw us to an assumption that having partner may be really important in China, but McKinsey consultants conclude that it was key winning concept in early days of foreign investment in China. Now, they say, “Those that fail to bring tangible advantages, such as new capabilities, technologies, or business models—as well as a record of success—are unlikely to win the deal, no matter how good their relationships”. So we can see how different Chinese business culture become year by year and how it becomes more compatible with business cultures of western countries. It can be explained with paradox of individualist and collectivist societies, where individualists tend to accept that certain values are shared by everyone, and collectivists tend to accept different rules in different groups. Besides, role and number of state-owned enterprises are rapidly decreasing. According to McKinsey information from 1980 to 2002 the percentage of state-owned enterprise dropped to 25%(this number and all numbers further are taken from Hui M.N. (2004, October) The Moodie Report. China Report. Booming beauty market. P.67) from 75% and presence of companies with foreign investment increased from 1% to 18%. Now Chinese government relies more on taxes from private sector than on revenues from state-owned companies. In addition, from 1999 to 2004 tax receipts risen from 11% to 17% of GDP. On the other hand, due to cultural respect for hierarchy and long power distance foreign investors have to be aware of bureaucracy, low transparency in decision-making process and top down approach among employees, which is unsual for french business culture, which is more individualistic and more committed to rules and regulations rather than to relationships and blind trust to supervisor.
Speaking about economic superpower, Chinese economy will not grow to the level of Japan until 2020 and USA until 2040, with present growths rates(speaking about year 2004), but it represents very big and demanding market, so companies achieving expansion goals must pay attention to this market. E.g., only 4% people(in year 2004) had household income more that $20000. But it transforms into 50 million people market countywide. Speaking more specificly about cosmetics, we can see a bit different cultural point of view on it. Due to long-time suppression of women expressing their beauty and concept of “uniform is the best dress” by Mao Zedong resulted in unbelievable growth rates of cosmetics market. 2For example, according to Moodie report in 2003, compared to 2002 imported cosmetics growth was 93% in skincare products(total of $53.3M), 84.7% in fragrances(total of $6.2M), 52.3% in eye cosmetics(total of $47.56M) and lip cosmetics(total of $6.46M) and 29% in haircare(total of $5.19M). As we can see from cultural and economical perspectives, according to changing business culture with more orientation toward west and decreasing presence of state-owned enterprises and decreasing government control and increasing its budget percentage relying on taxes from private enterprises as well as tremendous growth rates of Chinese cosmetics industry, L’Oreal could not pick better time to enter Chinese market.

Macro: individualism vs collectivism Future-oriented vs past-oriented Socialism vs democracy
Mezo: top bottom employee approach Bigger value of relationships in doing business Micro: need to be valuable for country and unemployment insurance vs unemployment and high social care

Hui M.N. (2004, October) The Moodie Report. China Report. Booming beauty market. Retrieved from http://www.moodiereport.com/pdf/oct04_china_report3.pdf

Ting Z. (2006, November 15) Doing Business in China: Opportunities and Treats. Retrieved from http://www.cambridgeconsultants.com/downloads/library/innovation_day_06/in_06_tzhang.pdf Woetzel J.R. (2004, July) A guide to doing business in China. Retrieved from https://www.mckinseyquarterly.com/Strategy/Globalization/A_guide_to_doing_business_in_China_1464?gp=1