Cosmetics vs. creative economy

By Sah Dong-seok

Compared with other countries, Korea was a relative latecomer with smartphones. So, it may come as a surprise that Samsung Electronics and other Korean handset makers have been performing well ― nearly on a par with Apple. That is of course thanks to the technical superiority that enabled them to rule over the conventional feature-phone industry, their great ability to adapt to change and their expertise in product planning.

Another unexpected miracle seems to be in the works, this time by Korean cosmetics companies. While most of Korea’s other industries are struggling with globally anemic demand, the nation’s beauty product industry has been chalking up phenomenal sales, domestically and internationally. Consequently, there are premature expectations that cosmetics may become one of Korea’s flagship industries.

AmorePacific, the No. 1 cosmetics maker in the country, saw record sales and operating profit last year, soaring 25 and 52 percent, respectively, from 2013. In the first quarter of this year, the company caused an earnings surprise by posting sales of 1.2 trillion won, up 29 percent from a year ago. LG Household & Health Care, the second-largest cosmetics company, has also been seeing record sales and profit year after year.

Korea’s cosmetics exports amounted to $1.7 billion last year, up 52 percent from 2013. Since the beginning of the year, exports have grown even faster, with first-quarter shipments nearly doubling from a year earlier. Korea is now the world’s sixth-largest cosmetics exporter, following France, the U.S., Germany, Britain and Italy.

As is widely known, the influx of foreign tourists and the global popularity of Korean pop culture, known as “hallyu,” or Korean wave, have fueled the meteoric rise of Korean cosmetics. Chinese tourists to Korea, in particular, numbered more than 6 million last year, up from only 700,000 10 years ago. To most Chinese travelers, Korean beauty products have become a must-buy gift for family and friends back home; such products have become well known for their high quality in the world’s most populous country. It is also true that popular Korean dramas and music have prompted Chinese women to buy lesser-known Korean makeup products at first.

Korean cosmetics have established a firm foothold in many parts of the world, but particularly in Asia. In Korean duty-free shops, where foreign tourists account for nearly 70 percent of customers, LG Household & Health Care’s Whoo and AmorePacific’s Sulwhasoo skin care lines have ranked first and second in sales for eight months in a row, beating out imported brands. More recently, Korean beauty products, which are often collectively known as “K-beauty,” have leapt beyond Asia to the United States, the world’s largest cosmetics market. Entry barriers are high in the U.S., but success in the country is essential to Korean companies that have continuously to discover new growth markets. Korea’s cosmetics exports to the U.S. from January to March surged 60 percent from a year ago to $52.1 million, according to the Korea Customs Service.

Imported brands’ domination of the first-floor cosmetics counters at local department stores is coming to an end, too. A survey of 76 department stores by a business newspaper found that AmorePacific surged ahead of the United States’ Estee Lauder to rank first in the first quarter with a market share of 19.05 percent, up from 15.81 percent in 2012. This is quite a contrast to what was seen at department stores a few years ago, when locally made cosmetics were hard to find, overshadowed by imported brands.

So, what’s the secret behind the success of Korean cosmetics companies?

First and foremost are creative ideas and excellent planning, followed by the fast realization of ideas into products. It would not be a surprise if Korea’s unique “ppalli ppalli (hurry hurry)” culture is found to have contributed to this market’s ability to keep up with rapid changes.

Interestingly enough, an analysis shows that Korea’s sophisticated and discerning female consumers have also played a key role in the success of Korean cosmetics companies. Because Korean women usually consume more beauty products and pay keener attention to their appearance, they tend to buy cosmetics only after carefully assessing the products’ quality. This has prompted Korean firms to upgrade their technical standards and develop products that their American and European rivals would not dare commercialize. In this sense, Korean cosmetics may be following in the footsteps of Korean smartphones, which were able to top the global market by tapping into local consumers’ sensitivity to changes in information technology.

The success of the Korean cosmetics industry may have implications for President Park Geun-hye, who has been traveling across the country in recent months to open innovation centers to promote her goal of a “creative economy.” She has established 10 such centers so far and will be opening seven more by the end of June.

The government came up with the idea of innovation centers to revitalize the moribund economy by connecting startups to large conglomerates that are in the same region and in designated industries. If the past is any guide, however, this outdated, top-down industrial policy, which was in full swing during Korea’s development age in the 1960s and ’70s, will hardly bear fruit. The prevailing view is that this program will perish once a new government is in place.

At a time when it is highly likely that Korea will be driven out in most existing industries by China and India, Korea has no choice but to develop and boost specialized industries, such as the mobile phone and cosmetics industries. It is imperative that the government focuses on this point when extending businesses a helping hand. This is why the government’s recent creative economy endeavor rings hollow.

To be sure, it is long past time that the government has spearheaded an industrial policy. It needs to content itself with faithfully carrying out what it is supposed to do, for example, bold deregulation.

The writer is the executive editor of The Korea Times. Contact him at sahds@ktimes.com.