Cosmetics makers need a high-tech facelift

Fueled by people’s concerns about health, aging and personal appearance, the cosmetics industry is proving to be nearly immune to economic ups and downs. The cosmetics market grew to 8.9 trillion won ($7.84 billion) in 2011 from 5.6 trillion won in 2006, an annual average increase of 10.4 percent, easily outstripping annual average retail sales growth of 6.1 percent in the same period.

Demographic changes affecting the industry and a rise in disposable income are also driving sales. Senior citizens, men and teenagers are making cosmetics part of their daily routine, with skin care products accounting for nearly half of cosmetics sales.

With market leader AmorePacific leading the way, Korean cosmetic companies are enjoying stellar sales performance overseas, too. Cosmetic exports climbed to $600 million in 2010 from $80 million in 2001, and AmorePacific jumped to 16th in the global ranking of cosmetics makers in 2010 from 25th in 2005.

To maintain its momentum, the Korean cosmetic industry must make a paradigm shift in product development. In short, the cosmetics industry will depend on “product strategy,” a staple concern of high-technology companies.

As cosmetics technology development accelerates and converges with other technologies, the competitiveness of the cosmetics makers will depend not only on anticipating market conditions and trends but also on actively converging with technologies to develop new types of cosmetics.

In basic research, biotechnology will become increasingly important. A deeper understanding of human biological phenomena, including the interpretation of human genetic maps, has shifted research from formula and texture to the prevention of skin aging.

At the same time, the focus of anti-aging studies has moved from single-dimensional remedies such as removal of dead skin cell to comprehensive approaches, including cellular life span and metabolism. L’Oreal, the world’s largest cosmetics company, devoted 10 years of research on 4,400 genes and 1,300 proteins that have the most relevance to skin aging. The result was the gene-activating serum, Genifique, which became an instant global sensation. One Genifique product is sold every four seconds.

In the development stage, electronics, information technology, food and medical technologies are converging. The field of nutricosmetics, which combine cosmetics with food, is already gaining prominence with a variety of products such as skin whiteners and wrinkle removers. One of the companies that attracted attention at this year’s Consumer Electronics Show was Ahrong Eltech, a medium-sized facial beauty products manufacturer, which uses a sensor to assess the condition of a customer’s skin and sends the results to a smartphone that is linked to online shopping sites.

In marketing, the approach is shifting to giving consumers product information. In Korea, “Powder Room,” the leading online community site for beauty tips, has 230,000 members who share ideas and product experiences daily.

And the popular cable TV program “Get It Beauty” has cosmetic experts and ordinary consumers conduct blind tests on beauty products.

In this way, consumer word of mouth, expert reviews and product testimonials are becoming more influential, putting product factors like technology and effectiveness into the spotlight.

Korea still lacks technologies to lead the next cosmetics markets such as dermatology, biocosmetics and beauty convergence solutions. For example, L’ Oreal’s R&D investment is more than sevenfold that of the total Korean cosmetic industry. The government and companies need to expand investments and support for the cosmetics industry given its growth potential and value.

Because of weak R&D investment, Korea’s cosmetic companies must rapidly cultivate their technological capabilities through a “choose and concentrate” strategy, focusing on specific areas such as the genetics of aging and stem cells. Conducting joint research with universities and medical institutions renowned for their basic research is also desirable.

The fate of a high-tech industry is largely determined by R&D capability and high-tech marketing. Companies must concentrate their resources and capabilities in R&D.

In particular, they must actively take advantage of the technological innovations in fast developing fields such as biotechonology and advanced materials. Cosmetics companies will no longer grow by analyzing and predicting markets well. They will have to produce technological innovations.

The writer is a research fellow at the Industry and Strategy Department I at the Samsung Economic Research Institute. For more SERI reports, visit www.seriworld.org.

by Kang Chan-Koo