Move over Psy. Here Come Panda’s Dream and Disco Kitten
Korean entertainment is wildly popular in Asia, though none of us on this side of the Pacific Ocean were immune to the sounds of Psy’s “Gangnam Style.” Along with K-Pop singers, Korean TV dramas and movies have gained large followings outside of South Korea, especially in China.
Korean food fads are riding the same wave. Last year, TradeVistas wrote about the Honey Butter Chip craze that spurred demand for U.S. potato farmer sales to South Korea, not just to meet the appetite of Korean chip eaters, but so chip producers could keep up with demand outside of South Korea.
“Hallyu,” Have We Met Before?
This cultural phenomenon has been branded hallyu, “the Korean wave,” a clever marketing tool for the Korean entertainment and consumer goods industry.
Do you like the way Korean pop singers and actors look? The Korean beauty industry would tell you they owe their good looks to a 12-step beauty regimen, dubbed K-Beauty, that incorporates exotic ingredients such as snail mucus, starfish extract, and donkey milk.
I personally recall seeing Korean BB creams and foundations in the Seoul airport before they were available in the United States. They later became the breakthrough product for Korean brands in the U.S. cosmetics market.
Sephora and other major U.S. retailers now promote comprehensive Korean beauty lines. Several Korean online retailers including Peach and Lily and Soko Glam have scooped up the exclusive rights to prominent Korean brands. You can even find a Korean egg-based facial sheet mask at CVS or Target for a couple of bucks per pack. (I tried it with my kids – we looked like Jason from the Friday the 13th movie series.)
Image: Sephora.com, Cosmetics chain Sephora introduced K-Beauty products in their stores and online in 2011.
Turns Out There’s a Market for Snail Slime Facial Creams
France is still the undisputed leader in global exports of beauty products, accounting for 18 percent of the total market in 2016. The United States has the next largest share with 12 percent of global exports (by the way, U.S. consumers also account for 12 percent of global imports of beauty products). South Korea has now moved into the number three position with an 8.4 percent share of global exports.
South Korean companies banked $3.34 billion in beauty product exports in 2016 – nearly seventy percent went to just two markets: China and Hong Kong. More than a third of the beauty products imported by China come from South Korea.
China’s Young, Affluent, and Trendy Consumers
K-Beauty products are being developed and introduced to the Chinese market at a dizzying pace. Following the fast-fashion model, South Korean makers are replacing products and brands quickly while cross-marketing through K-Pop and K-Drama stars. South Korean products can enter China duty-free under South Korea’s free trade agreement with China.
American products, however, face a 10 percent duty on eye makeup, lipsticks, and powders, and a 2 percent duty on skin products exported to China. That’s part of the reason Hong Kong is such a large market. $47 million of Hong Kong’s $60 million import market consists of products that will be further processed and re-exported to mainland China duty-free under the Economic Partnership Agreement between China and Hong Kong. The lack of a trade agreement between the United States and China creates incentives for leading American companies like Procter & Gamble to export from the United States to their affiliate in Hong Kong for re-export to China.
Unglamorous Trade Politics
Beauty is not sacred in geopolitics. Last year, China put the squeeze on trade with South Korea to express dissatisfaction with South Korea’s deployment of the U.S.-built, anti-ballistic missile defense system. The scaling back of Chinese tourism alone cost the K-Beauty industry 70 percent of sales in 2017 against the prior year. China’s blockade of South Korean beauty products also set K-Beauty back in its effort to acquire a bigger share of China’s $53 billion beauty market, which is expected to grow to $62 billion by 2020 according to Euromonitor.
Even a short reprieve from competing against South Korean products made room for Chinese homegrown brands and K-Beauty imitators to fill the market space. K-Beauty makers are hoping they can continue to ride the wave of Korean pop culture not only to regain and grow their market share in China, but also to hedge their bets against future political frictions with China by making deeper inroads throughout Southeast Asia, Europe, the Middle East, and of course, in the U.S. market.
Have Some Blusher with Your Boarding Pass
One way they are expanding their global presence and marketing efforts goes back to my introduction to South Korean cosmetics in the airport. The duty-free stores in newer airports across the world rival the best malls anywhere. Fragrances and cosmetics account for more than a third of duty-free sales, more than any other single category. Seoul’s Incheon Airport surpassed Dubai with duty-free sales of $1.85 billion in 2016. Beyond Seoul, quirky, colorful K-Beauty products practically jump out at you in airports all over the world as if to say Hallyu!
Can American Products Compete on K-Beauty’s Home Turf?
They do. South Korea is the 8th largest market in the world for beauty products. American products comprise over half of all imports. If President Trump leaves the U.S.-Korea Free Trade Agreement in place, South Korean tariffs on imported American beauty products will drop to zero in 2022, and American exporters could look to increase their sales and revenue in the growing South Korean market with even more competitively priced “American Beauty” products.
Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. She is a nonresident Senior Fellow at the Chicago Council on Global Affairs and an adjunct fellow with CSIS. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught International Trade for the last fourteen years as an Adjunct Associate Professor at Georgetown University’s Master of Science in Foreign Service program.