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2019.01.08
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[Cosmetics] Status and Prospects of the South Korean Cosmetics Industry

Market Size of the Korean Cosmetics Industry


The Korean cosmetics market is estimated to be at around KRW 14 trillion as of 2017. It is the eighth largest market in the world, larger than that of Italy or Russia, and similar to the French market. Korea’s cosmetics industry has been growing rapidly since 2010 on the back of the growing Chinese cosmetics market and is considered to be one of its major industries.


<Table 1> Global Market Size of Cosmetics Industry

Ranking Country 2015 2016 2017(E) 2018(E)
Amount Share Amount Share Amount Share Amount Share
1 US 67,469 19.4 70,645 19.4 74,124 19.2 77,315 18.9
2 China 41,178 11.8 43,632 12.0 46,912 12.2 50,631 12.4
3 Japan 32,436 9.3 32,742 9.0 33,573 8.7 34,308 8.4
4 Brazil 22,760 6.5 23,510 6.4 25,630 6.6 28,162 6.9
5 Germany 14,767 4.2 15,034 4.1 15,420 4.0 15,811 3.9
6 UK 13,663 3.9 14,188 3.9 14,875 3.9 15,670 3.8
7 France 12,368 3.6 12,278 3.4 12,444 3.2 12,690 3.1
8 Korea 10,435 3.0 10,926 3.0 11,495 3.0 12,059 2.9
9 Italy 8,863 2.5 8,937 2.4 9,083 2.4 9,263 2.3
10 Russia 6,741 1.9 7,420 2.0 7,939 2.1 8,501 2.1
Global market 348,370 364,928 385,894 408,792

* Source : Beauty & Personal Care Euromonitor (2018), Korea Health Industry Development Institute (2018)
* Korean cosmetic standards applied; (E) means an estimate


In particular, annual cosmetics production, which can be seen as the index of the domestic cosmetics market size, soared to KRW 13.5 trillion in 2017, up about 70 percent compared to the KRW 7.9 trillion in 2013. As such, the cosmetics industry is dynamically growing more than any other industry.


<Table 2> Domestic Cosmetics Production by Year

(Unit : KRW 100 million, %)

Item ‘2011 ‘2012 ‘2013 ‘2014 ‘2015 ‘2016 ‘2017 ‘2012~’2016
CAGR
Gross production 63,856 71,227 79,721 89,704 107,328 130,510 135,155 -
YOY
growth rate
6.17 11.54 11.92 12.52 19.64 25.91 3.55 13.31%

* Source : Ministry of Food and Drug Safety (yearly production data, 2018)


Along with the growing market, the industry is also expanding. In 2017, the number of cosmetics manufacturers surpassed the 2,000 mark, up 70 percent from 2014. The number of brand holders exceeded 10,000, which is a whopping 200 percent greater when compared to the numbers in 2014, proving that the industry is indeed at its peak.


Export Status of Korean Cosmetics


Korea’s cosmetics industry was in the export-deficit category until early 2010 but has since grown rapidly, thanks to the Korean Wave that brought cultural awareness, such as dramas and K-pop, to surrounding Asian countries including China. In 2017, the exports of Korean cosmetics amounted to USD 4.96 billion, more than four times that of 2013, with Korea emerging as one of the leading cosmetics exporters in the world.


<Table 3> Cosmetics Exports by Country

(Unit : USD 1 million)

Ranking Country Exports Average Annual
Increase
(5 years/%)
2013 2014 2015 2016 2017
1 France 13,994 14,532 12,682 12,928 14,863 0.5
2 US 8,011 8,351 8,510 8,607 9,266 2.7
3 Germany 8,115 8,079 6,975 7,165 7,486 -3.0
4 Korea 1,219 1,854 2,848 4,087 4,860 40.3
5 Italy 3,776 3,931 3,762 4,290 4,784 5.1
6 UK 4,461 4,680 4,097 4,083 4,261 -2.1
7 Spain 3,183 3,301 2,959 3,154 3,625 2.3
8 Japan 1,392 1,438 1,717 2,464 3,313 23.2
9 China 2,195 2,346 2,688 2,709 3,259 9.4
10 Poland 2,381 2,391 2,160 2,394 2,663 1.8
11 Netherlands 1,940 1,986 1,878 2,216 2,460 5.1
12 Canada 1,528 1,580 1,590 1,628 1,683 1.4

* Source : UN Data (2018), Korea Cosmetic Industry Institute (2018)
* Classified according to Korean cosmetic standards / excluding re-import and re-export


Based on 2017 export data, Korea became the fourth largest exporter of cosmetics in the world, surpassing top cosmetic producers such as Italy and Japan. However, the growing trend appears more evident when looking at the export-growth rates by country in the last five years where Korea was the only country whose average annual increase exceeded 40 percent.


<Table 4> Export and Import of Korean Cosmetics

(Unit : USD 1 million, %)

Year Export Import Trade Balance
Exports YOY
Growth Rate
Exports YOY
Growth Rate
2013 1,231 25.9 1,275 2.9 △44
2014 1,873 52.2 1,386 8.7 487
2015 2,910 55.3 1,397 0.8 1,513
2016 4,183 43.7 1,433 2.6 2,750
2017 4,952 18.4 1,523 6.3 3,429
2018(Jan~Nov) 5,808 - 1,486 - 4,322

* Source : Korea Customs Service, Korea Cosmetic Industry Institute (Korean cosmetic standards applied, 2018)
※ Last five-year (2013–2017) Compound Annual Growth Rate (CAGR) - Export : 41.6% / Import : 4.5%


Cosmetics exports (preliminary value) from January to November 2018 stood at approximately USD 5.8 billion, already well above the USD 4.9 billion of 2017, and the trade balance is also expected to break its record set in the previous year.


Growth Factors and Outlook of the Korean Cosmetics Industry


The global cosmetics market has grown every year since the official compilation of data began and the market deemed it a promising industry with high growth potential. K-beauty has been leading the global cosmetics market growth in recent years with its various strengths and is expected to continue its steady growth for the following reasons.

First, China remains strong. The Chinese market and its consumers have already become the backbone of K-beauty. China has enjoyed an annual average growth rate of 5.5 percent over the last five years and still has immense growth potential. Therefore, it is regarded as a positive factor for the Korean cosmetics industry. After Korea beat out France and became the largest exporter to China in 2016, it was temporarily set back because of diplomatic conflicts between the two countries. However, Korea reclaimed its no. 1 status in China soon after because of the continuing popularity of Korean cosmetics among Chinese people. The number of Chinese tourist groups, the so-called “big hands” who buy large quantities of Korean cosmetics, has also been steadily rising after the diplomatic crisis, and this is expected to play a positive role in the future.

Second is the growth of non-China export markets. With China accounting for almost 70 percent of Korean cosmetics exports at one point, there has been growing concern on whether the industry needs to diversify its export markets. Recently, however, Korean cosmetics have become popular not only in China and Southeast Asia (ASEAN) but also in Japan, the U.S., Russia, France, and other countries. Furthermore, cosmetics consumers are increasing in emerging countries as their economic growth has led to the expansion of the middle class while advanced markets are further developing into the youth, men, and elderly categories.


<Table 5> Korean Cosmetics Exports to Major Countries

(Unit : USD 1 million, %)

Ranking 2015 2016 2017
Country Amount Share Country Amount Share Country Amount Share
1 China 1,172 40.3 China 1,570 37.5 China 1,937 39.1
2 Hong Kong 687 23.6 Hong Kong 1,248 29.8 Hong Kong 1,222 24.7
3 US 238 8.2 US 347 8.3 US 449 9.1
4 Taiwan 139 4.8 Japan 183 4.4 Japan 225 4.5
5 Japan 138 4.7 Taiwan 136 3.3 Taiwan 154 3.1
6 Thailand 93 3.2 Thailand 118 2.8 Thailand 151 3.0
7 Singapore 66 2.3 Singapore 94 2.2 Vietnam 141 2.8
8 Vietnam 54 1.8 Vietnam 71 1.7 Singapore 104 2.1
9 Malaysia 48 1.6 Malaysia 61 1.5 Russia 96 1.9
10 Russia 36 1.2 Russia 48 1.1 Malaysia 67 1.3
Total
(125 countries)
2,910 100.0 Total
(122 countries)
4,183 100.0 Total
(128 countries)
4,952 100.0

* Source : Korea Customs Service, Korea Cosmetic Industry Institute (Korean cosmetic standards applied, 2018)


Third, the new Korean Wave or Hallyu craze, thanks to social media and mobile devices, will further spread K-beauty across the world. The first generation Korean Wave led by millennials had been disseminated mainly through mass media, such as TV, before online media truly began to grow in earnest. Now, the new Hallyu, which is rapidly spread by the post-millennial generation through mobile and social networking sites (SNS), has been leading the global trend. As a result, Hallyu has been spreading online, thus having a wider impact, extending its reach not only across Asia but also to North America, Europe, and South America. With this, more and more consumers are becoming interested in the beauty of Korea beyond Korean products like cosmetics.

Fourth, the Korean market will serve as a bridgehead for entering the Asian market. Cosmetics brand mergers and acquisitions (M&A) can be used as a way for global companies to effectively enter the market. Such access to Korea also serves as an intermediary bridge to effectively make inroads into the Asian markets. Recently, as several Korean cosmetics firms have been acquired by global companies, the domestic industry is undergoing rapid restructuring. Carver Korea and Style Nanda were acquired by Unilever and L'Oréal, respectively. This shows that the Korean cosmetics market and industry are regarded as attractive investment targets in the world market, implying that the growth of Asian markets will also increase the marketability of Korean cosmetics.

Finally, the government’s investment and support will be able to boost the industry’s growth. Currently, the Korean government is actively providing support in all directions including research and development as well as direct and indirect export assistance in its efforts to help the Korean cosmetics industry increase its competitiveness across the globe. In particular, industry deregulation and the reinforcement of small and medium enterprise development are expected to continue to improve the domestic business environment.


Conclusion


In early 2010, even when the Korean cosmetics industry began to grow in full force, no one expected it to grow as rapidly as it has today. But times have changed. Now, K-beauty has become more than just a trend but a mainstream of the global cosmetics market. As a researcher in the cosmetics industry, I am cautiously curious about how far the Korean cosmetics industry will grow.


Seongmin (Mike) Sohn (mike@kcii.re.kr)
Assistant Research EngineerResearch Planning Team Korea Cosmetic Industry Institute (KCCI)


**The opinions expressed in this article are the author’s own and do not reflect the views of KOTRA
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