Recent Trends and Existing Rivalry in Cosmetics Industry - Research Paper Example

Cosmetics Industry Table of Contents Introduction 3 Literature review 4 Research methodology 6 Research objective 7 Research question 7 Research design 7 Data collection 8 Finding and analysis 9 Results 15 Change in research methodology with change in users 15 Reference 17 Bibliography 20 Introduction Female fantasy and cosmetics are inextricably linked with each other since time immemorial. With changes taking place in the society, cosmetic industry also witnessed a paradigm shift. Earlier, women used home made products to enhance their beauty. Cleopatra, the epitome of female beauty, was known to spend one third of her day in applying different packs and oils to beautify her looks. This desire to look beautiful and gorgeous is conspicuous even today. However, the women folk are in dearth of time and prefer to purchase readymade cosmetic products. Presently, cosmetic sector is a booming industry in developed nations. At present there are several companies operating in this sector. Many of them have their operations almost all over the globe and can be called true multinational companies. These companies offer a vast range of product that caters to the different requirements of women. However, cosmetic is a domain that is not strictly restricted to women; the metro sexual men are equal concerned with their looks. As compared to the women, the cosmetic products for men are now showing a stupendous growth. This is a major turning point in the cosmetic industry. With time, many such innovative changes will take place in the international cosmetic industry. Therefore, to analyse the development, recent trends and existing rivalry in this industry, a research has been conducted. This will be an exploratory research where data will be collected and analysed to understand the performance of the industry. Analysis will also be conducted to find out the degree of competitiveness in this cosmetic industry. Before conducting the research, literature related to this topic will be reviewed. After getting a thorough understanding of the topic, the research methodology will be planned, following which the research will be done. Later on, by analysing the finding, result will be concluded. It is true that while conducting the research, focus is always on the users who are going to utilise this report. Therefore, discussion will also be done to specify how this research will change with change in users. Literature review Cosmetic industry gained commercial existence in early 1914 in US and UK in a period that is commonly known as “Drug and Cosmetic Industry” (Kremers & Sonnedecker, 1986, p.438). Companies started manufacturing products such as shaving creams, soaps, oils and lotions. Figure 1: World production of the Beauty Industry (Source: Jones, 2009, p.366) The above table shows that in early 1914, majority of the cosmetic industries were operating from US and France. With time, the cosmetic industry started mushrooming in other European nations. Soon, the craze for cosmetic product entered the Asian countries and this industry started flourishing in nations like Japan and China. Still US retained its leadership position in the international cosmetic industry. Figure 2: Annual retail sales of shampoos and all other hair products in US (1950-1968 (Source: Balsam, 1972, p.74) To study the early growth more comprehensively, this industry was segregated into different sectors. Among them, hair product is one which deserves special mention. The above given table depicts that within a time frame of merely 20 years, sales of shampoo increased from $80.7 million (in 1970) to $349.5 million (in 1970). Even other hair care products showed equal growth rate. Another noteworthy cosmetic product range is the one related to bath preparation. In early 1700 BC, the Egyptians developed special baths with religious connotations. The Greeks and Romans enjoyed baths fragmented with perfumed oils to make their skin look smooth and younger. The Queen of Scots was known to take wine bath. Using milk for bath was also in vogue. The practice of using different kind of medicines, herbs and mineral water to improve and retain beautiful skin is a long term practice in human civilisation. Queen Elizabeth I used different perfumed bath products with distinct smell to reflect her social dominance (Butler & Poucher, 2000, p.750. Products like bubble bath, bath oils, bath soaps and lotion have replaced them in modern times. Companies like Revson, Charles are some of the earlier cosmetic manufacturers who entered this sector in early 1906. The company started manufacturing nail polish from 1932 onwards. The nail colours were then restricted only to colour red but soon Lachman diversified the choice of colours. This company also enjoyed monopoly in lipsticks because it was the sole supplier to more than 100,000 salons (Geisst, 2006, p.362). Therefore, it can be concluded that cosmetic industry flourished mainly in developed nations like US and Europe. Even the numbers of companies operating in this sector were comparatively low. With time, other developing nations emerged as potential markets where the international brands gained significant popularity. Thereafter several local companies emerged to cater to the needs of the local people. Research methodology While starting a research, it is essential to plan the steps to be followed regarding the nature of research, its type, nature of data to be used, the collection process and the manner in which it will be analysed. Thus, research methodology is not just the method to be followed while conducting the research; rather it is the plan that guides the researcher throughout the research process (Weinhardt, Luckner and Stösser, 2009, p.41). The research methodology for cosmetic industry is as follows. Research objective The objective of this research is to analyse the trends, development and rivalry prevailing in the cosmetic industry. Therefore, while developing this research the main aim is to analyse the industry dynamics. Research question Research questions provide a base on which the entire research is conducted. Research questions are more or less similar to research hypothesis (Huber & Van de Ven, p.69). Depending on the nature of research to be conducted, the researcher finalises the research question. If required, one can have more than one research question so that all aspects of the research objective are covered. Considering the research objective for the cosmetic industry, below given research questions should be taken care of. 1. Does the cosmetic industry possess ample growth prospects in the international market? 2. What is the degree of competition in the cosmetic industry? These two questions will be considered as research questions and will be used to provide the required guidance to the researcher. Research design Depending on the research question, one should find out the type of research to be conducted. In general there are four main type of research deigns: exploratory design, descriptive design, evaluative design and experimental design. Exploratory research assists the users to develop a better understanding of the research objective. Often the findings of exploratory research assist in conducting further research by developing more detailed research questions. Descriptive research in conducted to gather in-depth information about the research objective. As compared to exploratory research, descriptive research takes into account more specific information. Data is gathered to analyse the relation shared among the variables. Similarly, experimental research is basically conducted to derive new information. Evolutionary research design is conducted to explore new information and thus it is combination of exploratory, descriptive and experimental research (Yuen, Terao & Schmidt, 2009, “Four Major Types of Research Design”). The given research will be an exploratory one where data will be used to explore the past trend, development and competitiveness in the cosmetic industry. This research will be basically a secondary research were secondary data will be used. Data collection Success of a research design depends on the quality of data collected. As discussed earlier, exploratory research will be done with the help of secondary data. Secondary data is the one which has been used earlier being collected earlier by someone else (Salkind, 2010, p.1330). Secondary data can be both quantitative as well as qualitative. A quantitative research takes into account quantitative data (like numeric data) whereas qualitative research uses qualitative data (like consumer behaviour). Both these research designs have some advantages as well as disadvantages (Baker & Hart, 2007, p.163). In the given research, both quantity data as well as qualitative data will be used. Data will be collected from different industry reports, business on-line journals, news articles and books. As compared to primary data, secondary data is more reliable and authentic; hence the possibility of biasness is comparatively low. Finding and analysis In the present contemporary society, cosmetics have become indispensible to both males and females. People use cosmetics in their day to day life, so instead of considering it as a luxury, people consider it as a basic necessity. Figure 3: The Contemporary Cosmetics Group Inc. Source: The Contemporary Cosmetics Group Inc. In the year 2009, the cosmetic industry in US earned total revenue of $11,974 million where the total industry production was $3,228.5 million. In 2009, the revenue growth was -3 percent. This fall was because of the recession that engulfed the international economy. The total numbers of establishments are 94,999 units whereas 88,336 enterprises are active in US. This single industry provides employment to almost 165,926 people and offers wages of $2,484.9 million. Few of the renowned international brands in cosmetic industry are presented in the given table. Figure 5: Selected Large Beauty Firms (Source: Jones, 2009, p.370) This table shows that majority of the international companies are from US. However, some other European companies are also active in this sector. The cosmetic industry showed a sharp rise mainly in the last few decades. From 1994 to 2003, growth in cosmetic industry was really remarkable. Growth was extremely high in Latin America, North America and Easter as well as Western Europe. Figure 6: Growth of Cosmetic Industry per region (1994-2003) (Source: Weber & de Villebonne, 2002) The cosmetic industry has reached its maturity stage in developed nations like US, UK and Japan. There markets are almost saturated and thus growth prospect is comparatively low. On the other hand, developing markets like India and China are growing at a fast rate. China is the second largest cosmetic market for skin care and skin care products in Asia, next to Japan. In 2008, sales growth in skin care products was 38 percent whereas consumption of hair care product grew by 20 percent. Apart for China, the Indian cosmetic market is targeted by several international companies. The unique demographic condition makes India an attractive market. As compared to developed nations, the population growth is quite high. As a result, in the next 15-20 years, majority of the population in developed nations will be in their late 30s and 40s whereas in India there will be many youngsters in their teens and tweens. The United States Department of Commerce, International Trade Administration, U.S. and Foreign Commercial Service (CS) conducted a meeting to identify the prospects, distributors and end users for the products in Indian market. Indian market is considered as one of the potential new-to-enter market. Currently the beauty and cosmetic market in India is worth $950 million and it is estimated to growth with 15-20 percent per annum (International Trade Administration, 2010). Like other industries, the concept of mergers and acquisition is quite common in this sector. Few of the mergers and acquisitions that have taken place in this sector are given as follows: Figure 7: Mergers & Acquisition in Cosmetic industry (Source: Jones, 2009, p.373) Such mergers and acquisitions provided synergy to the companies operating in this industry. Often companies takeover their competitors to minimise competition in the market. However, low entry barriers keep this sector highly competitive. To analyse the financial performance of cosmetic industry in the US market, few financial indicators have been taken into consideration. Figure 8: The Financial indicators of Cosmetic Industry (Source: Yahoo! Finance, 2009) After comparing the performance of five major cosmetic manufacturers in the international market, Procter & Gamble is a market leader in terms of market capitalisation and number of employees. In terms of revenue growth on quarter to quarter basis, Estee Lauder Companies Inc, the market leader has witnessed growth of 14.10 percent followed by L’Oreal SA. The investors are more concerned with the price earnings ratio; Estee Lauder Companies Inc. is highly popular as it has a P/E ratio highest among the other rival companies. Results After considering the findings and analysis, it can be concluded that international cosmetic industry had a glorious history in past. US had been the market leader in this sector, followed by UK and Japan. However, the market is almost saturated in these counties compelling the concerned companies to diversify their business by entering the developing markets. At present, developing nations in Latin America and South East Asia are growing at a fast rate. Hence, companies are more concerned in capturing these growing potential markets. In countries like India and China, the multinational companies have to face stiff competition from the local players. Better understanding of local needs and customer behaviour help these local players in capturing larger market share. Therefore, the MNEs undergo mergers and acquisition with the local players to gain synergy. In coming years, the developing markets will focus for the global cosmetic industry. Change in research methodology with change in users The users of the research influence the nature of research methodology to a great extent. For example, if the research is conducted for the SMEs, it will be more focused on local markets. These SMEs are concerned with the growth prospect in the local markets. On the other hand, the MNEs are more interested in the growth prospects and competition prevailing in the international market. These companies always try to target those local markets where the growth prospects are comparatively high. Unlike the companies, the investors are more concerned with earnings generated by different companies. Therefore, they use financial indicators like turnover, growth, ESP, P/E, dividend declared and so on. It can be said that for different users, nature of research changes. Reference Balsam, M. A. 1972. Cosmetics science and technology, Volume 2. Wiley. Baker, M. J. & Hart, S. 2007. The marketing book, Volume 2003. Butterworth-Heinemann. Butler, H. & Poucher, W. A. 2000. Pouchers perfumes, cosmetics and soaps. Springer. Geisst, C. R. 2006. Encyclopedia of American business history, Volume 2. Infobase Publishing. IBIS World. 2010. Beauty, Cosmetics & Fragrance Stores. [Online]. Available at: http://www.ibisworld.com/industry/default.aspx?indid=1055 [Accessed on December 07, 2010]. International Trade Administration. November 19, 2010. Trade Mission to India New Delhi, Mumbai, Bangalore. MISSION STATEMENT: Beauty and Cosmetics. [Online]. Available at: http://trade.gov/trade-missions/mission-statements/beauty-and-cosmetics-trade-mission-to-india-november2010.asp [Accessed on December 07, 2010]. Jones, G. 2009. Beauty imagined: a history of the global beauty industry. Oxford University Press. Kremers, E. &Sonnedecker, G. 1986. Kremers and Urdangs History of pharmacy. Amer. Inst. History of Pharmacy. Salkind, N. J. 2010. Encyclopedia of Research Design. SAGE. The Contemporary Cosmetics Group Inc. 2009. The Cosmetic Industrys Best Kept Secret!. [Online]. Available at: http://www.contemporarycosmetics.com/Page12_CatalogPricelist/Catalog08.htm [Accessed on December 07, 2010]. Weber, J. M. & de Villebonne, J. C. 2002. Differences in purchase behavior between France and the USA: the cosmetic industry. MCB UP Ltd. Journal of Fashion Marketing and Management, Vol. 6 Issue: 4, pp.396 – 407. Emerald. Weinhardt, C., Luckner, S. and Stösser, J. Designing E-Business Systems: Markets, Services, and Networks: 7th Workshop on E-Business, WEB 2008, Paris, France, December 13, 2008, Revised Selected Papers. Springer. Yahoo! Finance. 2009. Competitors. [Online]. Available at: http://in.finance.yahoo.com/q/co?s=REV [Accessed on December 07, 2010]. Yuen, F. K. O., Terao, K. L. & Schmidt, A. M. 2009. Effective Grant Writing and Program Evaluation for Human Service Professionals. John Wiley and Sons. Bibliography Crowther, D. & Lancaster, G. 2008. Research methods: a concise introduction to research in management and business consultancy. Butterworth-Heinemann. Lancaster, G. 2005. Research methods in management: a concise introduction to research in management and business consultancy. Butterworth-Heinemann. Read More