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International Journal of Business

Management & Research (IJBMR)


ISSN (P): 2249-6920; ISSN (E): 2249-8036
Vol. 5, Issue 4, Aug 2015, 1-10
TJPRC Pvt. Ltd.

SULWHASOO: GLOBAL EXPANSION INTO CHINA MARKET


JIYOON SUNG1, SANGMIHONG2, MYUNGSEON SONG3 & SEUNGHO CHOI4
1

Undergraduate Students, Department, of Management, Ewha School of Business, EwhaWomans University,


Seoul, South Koreaand SK engineering and construction

Undergraduate Students, Department, of Management, Ewha School of Business, EwhaWomans University,


Seoul, South Korea and SK Engineering and Construction
3

Graduate, Students Business Administration, EwhaWomans University, Seoul, South Korea


4

Business, Administration, EwhaWomans University, Seoul, South Korea,

ABSTRACT
AmorePacific is the market leader in Korean cosmetic industry. The expansion into the global market is known as
a successful case especially in China market. However, in spite of continuous growth, Sulwhasoo seems to be suffering
from low brand recognition. Since Sulwhasoo is a brand that has the highest product margin among other AmorePacifics
brands, successfully carrying Sulwhasoo line in China is crucial in Amore Pacifics further growth. We found that the
company only has 2% of market share in China (Dsbaike, 2011) as whole. Being surprised by the statistic result, Amore
Pacific should have encountered some problematic issues which would boost the AmorePacifics whole business in China
if they are improved. From this point, we will carry out an in-depth analysis will on AmorePacific, mainly on Sulwhasoo.

KEYWORDS: Amore Pacific, Korean Cosmetic Industry, China Market, Encounteredsome Problematic, Dsbaike, 2011
INTRODUCTION
History of Amorepacific
AmorePacific has been famed with re-writing its history of Beauty and Health for over 65 years. Their business
origin was in Korea since 1945. With the continuous success of business in the domestic market, AmorePacific started to
consider their global business expansion in 2002 and launched a design center for more systematic and innovative product
design in 2010.
Brand Introduction
AmorePacifics business unit involves three main aspects, cosmetics, personal care, and health. The cosmetics
area is believed the most successful business aspect where many famous brands occupied and were sold in the market, such
as Etude house, Laneige. Being an international corporation, the company operates their business in both domestic and
overseas market, where Asia is the major business region, such as the market in Korea, Hong Kong, China, and few
overseas markets, like L.A., New York.
Financial Report
AmorePacific performed quite satisfying in these few years. According to the companys financial report in 2011,
the net profit has been increased successively from KW 226 billion in 2009 to KW 327 billion in 2011

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Jiyoon Sung, Sangmihong, Myungseon Song & Seungho Choi

Source: AmorePacific Annual Report (2011)


Figure 1: The Financial Report of Amorepacific
from the Year of 2009 to 2011
In terms of sales volume in domestic market, AmorePacific recorded a continuously increase in unit sales for their
cosmetics products sold in Korea (AmorePacific Financial Report, 2011), where the percentage of sales increased by 30%.
However, the financial result was not satisfactory in overseas market where the percentage of products sold in overseas
when compared with domestics market is relatively low. The highest percentage was only 10% in China market.

Source: AmorePacificSemi-Annual Report (2012)


Figure 2: The Sales Volume of Amorepacific from the Year of 2009 to 2011

GLOBAL EXPANSION

Source: AmorePacific International Business Strategy


Figure 3: The Market Share of Amorepacific in the Year of 2011
This graph shows market share of the cosmetic companies in domestic market. In this graph, we could see that
AmorePacific recorded the highest market share (33%). However, we could also see that there is a fierce competition in the
market. In these days, cosmetic companies like AmorePacific are competing not only with Korean cosmetic companies, but
also with international cosmetic companies like LOreal, E.Lauder and etc. Therefore, the market became more saturated.
With the fierce competition and the low market growth, AmorePacific is situated in the Maturity Level in
product life cycle in domestic market.
Impact Factor (JCC): 5.3125

NAAS Rating: 3.07

Sulwhasoo: Global Expansion into China Market

Since the market size of domestic market is limited and the competition in the market keeps increasing,
AmorePacific faced the necessity of global expansion. By expanding its market, it could extend its product life cycle and it
could accomplish economies of scale by conducting International Strategy. There are several advantages AmorePacific
could get by expanding its market into global market.

CHINA MARKET ANALYSIS


High Potential to Growth
The volume of cosmetics sales in China is still explosive and has high potential to growth (Yearly cosmetics
consumption of $13 per person compared to $50 in global average).And with increased level of earnings, demand for
premium brands is expected to grow significantly.
The Growth of Retail Sales of Cosmetics
In fact, the growth of China's cosmetics retail value accelerated in 2011. According to the National Bureau of
Statistics of China (NBS), retail sales of cosmetics of enterprises above designated size reached 110.3 billion yuan in 2011,
up nominally by 18.7% year-on-year.
Sales of AmorePacific in China
Table 1: The Sales of Amorepacific in China from Year of 2007 to 2011

Source: Li & Fung Research Centre


In China AmorePacific recorded 58% of foreign market sales, in 2011. (190.9 billion won in China market sales
327.2 billion won in the overseas market sales)
AmorePacific expects that China market will surely bring larger volume to accomplish economy of scale and its
spillover effect to other territories in Asia region will give further boost to AmorePacific's effort in those countries.
Therefore, AmorePacific is focusing on China market.

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COMPETITOR ANALYSIS
Table 2: Competitor Analysis of SK II and Estelauder
SK II
Distribution
Channel

Department stores counters


Retail stores: Watsons

Number of Stores

78 stores
SKII clearly sets their target customers
group aged at 25-34, concerning their
skin protection, treasure product value
but not the price

Target Customer

Price

Feature

Sales
Users
Comments

Above 2000 RMB on average


(high price product)
SKII facial treatment essence
(No.1 in Asia) Best seller
Advertisement/ Promotion: using famous
and successful model (elegant
representative) with their experience
(verbal evidence) & unique slogan
Models slogan:
-Carina Lau: are you looking at
me ?You can come closer
-Sammy Cheng: more white than white"
"more green than green
US 10 hundred million (in global)
(no result for China)
-I want to buy an international brand
where the quality can be ensured
-I dont mind spending more money but
get a product with special feature

Estelauder
Department stores counters (especially some
luxurious d.p.)
Attempting to cooperate with professional
cosmetics retail stores
111 stores
Target group: 30s up with skin protection
concern
On average 1500 RMB (The price of some
products are double than in US)
Origin-- Best seller
-High end product mainly
-Advertising for products with long history
-Sponsorship activities: Chnnel Young,
Shanghai Fashion Week through making up
for celebrities to recognize the product
special feature
1.

US 5 hundred million (China)

Source:
Figure 4: 2011-2012 Top 10 Cosmetics Brands in China Market

Impact Factor (JCC): 5.3125

NAAS Rating: 3.07

Sulwhasoo: Global Expansion into China Market

SWOT ANALYSIS

Figure 5: SWOT Analysis of Amorepacific


Strength
AmorePacific acquired door to door sales license in Shanghai in 2010. And AmorePacific did thorough marketing
research for 3 years for entering Chinese market. Also, AmorePacific found that Asians skin differ from Westerners, so
they developed ginseng cosmetic products by researching the characteristics of Asian skin (Son, 2011).And they appointed
Chinese dermatologists and undertook joint research with them (Kim, 2011). AmorePacific is building Asian beauty
manufacturing research and development station which will be completed in 2014 (Kung, 2012). Through these high
technology center and research activities, AmorePacific can sustain competitive advantages in Chinese market.
Weakness
Sulwhasoo has low brand awareness and low preference than other foreign cosmetic brands because Sulwhasoo is
late-mover in China market and Chinese people have strong loyalty for other foreign cosmetic brands. In these reasons,
Sulwhasoo cant have brand equity and Chinese people rarely choose Sulwhasoo products over others. In addition, there
are a few expert assessments as well (Kauk,2012).
Opportunity
China cosmetic industry has high potential because market has been growing about 20% in average during 10
years. And potential Chinese customers who can buy luxury products would be 250million in 10 years. And AmorePacific
acquired door to door sales license in Shanghai in 2010. So, AmorePacific can raise market share through expanding
through door to door sales.
Threat
China cosmetic industry is in severe competition. And political environment can be a threat in the Chinese market.
And also, understanding different culture is important in international market.

CURRENT INTRNATIONAL STRATEGY


Sulwhasoo is conducting international strategy because Sulwhasoo products have low pressure of lower cost and
local adaptation. For entering China market, AmorePacific did consumer research for 3 years with Shanghai global
marketing company. They did research with 3500 testers and they investigated the customers needs and evaluation of

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using (Hyun, 2012).

Figure 6: Strategy of Amorepacific


Chinese Consumer Analysis
Chinese customers prefer foreign brand and they put emphasis on products function because there are many fake
products in china (Kim 2009). Also, acquaintances recommendation is given the first rank for getting cosmetic
information in china market as 35.4% (Hyoung, 2006). And Chinese people prefer Korean brands and they admit the
quality of Korean cosmetics, so Sulwhasoo has enough competitiveness in Chinese market. Therefore, AmorePacific
should overcome the low brand awareness problem through strategic marketing.
Premium Strategy (4P)

Figure 7: The 4P of Amorepacific


Through these researches, AmorePacific established premium marketing because Chinese people prefer luxury
foreign brands. And Chinese people are willing to use high quality products. Also they think Korean cosmetics are suitable
for Chinese peoples skin.
Product
Jaumsang cream is made from high concentration of ginseng and it helps skin moisturizing and elasticity. In
addition,Yunjo essence is a boosting essence for helping intensive skin care.
Price
Sulwhasoo products costs on average about 1000RMB

Impact Factor (JCC): 5.3125

NAAS Rating: 3.07

Sulwhasoo: Global Expansion into China Market

Place
For premium strategy, Sulwhasoo has limited distribution channel (China: 20, Hong-kong: 5) in premium A grade
department. Therefore, customers can receive a high level of customer service.
Promotion
Sulwhasoo doesnt have marketing model and they are only doing magazine advertisement instead of
commercials on TV, for their luxurious brand image (Lee, 2006).

STRATEGIC ISSUE-LOW PRODUCT RECOGNITION


The main strategic issue of Sulwhasoowe think is low brand recognition in China market. Building high product
recognition is necessary for brand equity, because customers rarely understand the traits of the product or buy the product
without product recognition. And we figured out four reasons why Sulwhasoo has low recognition in china market and how
they affectSulwhasoo in negative way to Sulwhasoo.
Last Mover Sulwhasoo
First, Sulwhasoo is last mover which jumped into the China market. Sulwhaso was launched in 2011 whereas
SKII and Este Lauder launched around in 1990s in China.Sulwhasoo has not enough time and opportunities to inform its
products to customers than competitors. However, other ompetitive global brands which are front-runners such as SKII and
Este Lauder already have high recognition and brand power as they have been marketing for a long time in China.
Defensive Marketing
Sulwhasoo is conducting defensive and mysticism marketing. Because of this, the brand only advertises in papers.
Also, there is no model who is able to present the image of products sinceSulwhasoo does not want its image to be fixed or
identified by model. Instead, they strive to have more mysterious and special images. However, usually customers buy
products which are familiar with them. Therefore, even if these types of marketing would helpSulwhasooconstruct
premium brand image, they couldbe too passive to increase brand familiarity. Consequently, Sulwhasoo should find a way
to protect premium image but little more aggressive strategies for enhancing brand familiarity.
Market Dominated by Competitors
There is high competition with several global brands from Japan and Europe. The competitors have taken over the
premium cosmetic China market. As a front-runner, competitors have high customer loyalty with higher recognition. Since
the economy of China is growing, consumers tend to show off by using premium foreign brands. For this reason, Chinese
prefer Japan and Europe brands while showing lower preference of Korean. In other words, the customers have strong
customer loyalty over global brands which already dominated China Market. Without strong motivation, consumers are not
willing to switch from global brands to Sulwhasoo. Therefore, Sulwhasoo requires to build stronger brand equity.
Too Much Limited Distribution Channel
Sulwhasoo has too much limited a kind of distribution channel. One of Sulwhasoosstrategiesis to open its stores
in only premium a grade department-storesin order todevelop luxury brand image. For this purpose, they are carefully
expanding the number of stores. As a consequence, there have been only 25 stores in the market since it launched in China
in 2011. Limited distribution channel might be a good strategy for keeping Sulwahsoos premium image. However, when
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Jiyoon Sung, Sangmihong, Myungseon Song & Seungho Choi

we compare the number of stores of Sulwhasoo to other global luxury brands in competition, Sulwhasoo has fewer stores.
For example, SK II has 78 stores and EsteLauder has 111 stores at department stores. Therefore, indiscriminative
expansion of stores is improper but a reasonable increase of store is required for high recognition.

SOLUTIONS AND EVALUATION


Official Online Store
Setting up an online store can be one alternative to boost Sulwhasoo's brand recognition since it can reach to more
consumers which was a limitation of the current, offline oriented distribution. However, due to characteristics of
Sulwhasoo'sconsumer segment, this alternative seems not worthwhile to be practiced. The targeting consumers are above
middle-aged therefore having less opportunities and intention to use Internet for transaction.
Expansion of Offline Store
Sulwhasoo has been located its store only in luxury department stores, especially ones that meet a high rating of
premium A. This distribution system is well suited since Sulwhasoo aims to be a premium, and prestigious brand. However,
compared to the competitors, Sulwhasoo has only few stores, in total 25, across the nation. To achieve competitive parity
against the rivals, increasing the number of its stores are inevitable.
Strategic Alliance with Herborist
Herborist is a local cosmetic brand that has been successful as using herbal ingredients. In 2011, it has market
share of 3.26% and was one of the top 10 brands in China.Sulwhasoo can consider collaborating with Herborist. By doing
so, Sulwhasoo can obtain market information or cosmetic technologies that are more effective on Chinese skin. However,
since Herborist targets the market for low and middle priced goods, working with the brand can significantly harm
Sulwhasoo's reputation and weakens its premium images. Moreover, there is a high potential that Herborist becomes
Sulwhasoo's competitor after acquiring many technologies and resources from Sulwhasoo.
Strategic Alliance with Other Industries
Sulwhasoo can take strategic alliance with other industries into account as another solution. In 2012, a cosmetic
brand Shuuemura has attracted a lot of attentions from consumers by collaboration with Karl Lagerfeld. They introduced a
special collection, called 'Mongshu girl'. In this collaboration, Karl designed a package of the collection (Jo, 2012).

RECOMMENDATIONS
Expansion of Door to Door Sales
In 2010, the company got a license to door to door sale in Shanghai and now is about to start the business.
In China, 'Department' and 'door to door sale' distribution channels each accounts for 45% and 25% of the whole cosmetic
market (Han, 2011).Especially, the market size of door to door sale in China is twice as large as that of domestic.
AmorePacific has a great amount of experiences and know-hows in this business. In fact, in Korea, Sulwhasoo grew up
significantly through door to door sales at its early stage. According to the consumer survey, 35.4% of Chinese consumers
make a purchase through recommendation by acquaintances.
Therefore, in consideration of the fact that door to door sales entails word of mouth effect, adapting this new
type of distribution to Sulwhasoo in China is expected to grow not only Sulwhasoo's brand recognition but also its sales.
However, since Chinese consumers have relatively high doubts on products due to prevalent counterfeits, Sulwhasoo
Impact Factor (JCC): 5.3125

NAAS Rating: 3.07

Sulwhasoo: Global Expansion into China Market

should give much concern to quality of sales persons and training.


Expansion of Offline Stores
It is unavoidable for Sulwhasoo to increase the number of stores in the current distribution system. In china, there
are 3 cities with a population of more than 10 million and 35 cities with more than one million people. Moreover, by 2020,
it is expected there will be 80 cities with 1 million populations (Yu, 2011).As a result, it is recommendable for Sulwhasoo
to use this statistics when they are deciding which area, in priority, they should locate additional stores.
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Impact Factor (JCC): 5.3125

NAAS Rating: 3.07