South Korea is Building Up Its Soft Power
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South Korea is Building Up Its Soft Power
  • By Park, Jong-dae
  • Accepted 2023.10.20 16:39
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Power of K-beauty
Park Jong-dae*
Park, Jong-dae*

CEO, Woorimil

*A cosmetics expert who has taken the lead in analysis of the cosmetics industry, which had previously been an unfamiliar realm until early 2010. For the last 10 years, he has been ranked No. 1 in multiple analyst evaluations and became recognized as the top consumer analyst in the Yeouido financial district. He is the author of How eCommerce has Changed Consumer Investment Dynamics and How K-Beauty Has Become the Epitome of Korean Soft Power. Since October 2022, He has taken the role of the CEO of Woorimil, an eco-friendly food company.

Some people say that K-beauty has reached its end. This is more palpable when you look at the data. In fact, the sales of Korean cosmetics in 2022 were at KRW 6.6 trillion (based on HS code 3304), which fell 13% from the year before. Leading Korean cosmetics companies, Amorepacific and LG H&H both saw a drop of more than 50% in sales between 2019 and 3Q 2022. 

The Chinese market had led the loss. China makes up a large percentage of sales of Korean cosmetics giants, such as Amorepacific and COSMAX, because the demand from China has been the major growth driver of the Korean cosmetics industry since 2010. The Chinese market amounts to 50% of the Korean cosmetics sales in 2021, an increase of more than 30% compared to 16% in 2014. However, things are looking grim in the Chinese market. Consumption has shrunk due to COVID-19, among other reasons, and the rise of guochao, or patriotic consumerism, is propelling the growth of local cosmetics brands. Among cosmetics products imported into China, Korea’s market share was slashed from 27% in 2018 to just 14% in 2022.

Nevertheless, things are completely different in other parts of the world. K-beauty is enjoying an elevated stature that is growing daily in other regions across the globe, such as in Japan, the US, Southeast Asia, and Europe. Whereas exports to China in 2022 dropped 22% YoY, exports to Southeast Asia (seven major countries including Vietnam, Indonesia, and Taiwan) increased by 16% YoY. The export of color makeup products to the US and Japan, in particular, surged by 20% YoY. The change in the share of cosmetics exports is a telling indicator of the changing trend in K-beauty. More than 65% of exports from the Korean cosmetics industry went to China in 2016, but the number decreased to 51% in 2022. Today, 10% goes to Japan, the US, and Southeast Asia, which are together taking the place of China. 

Fourteen percent of cosmetics imported into the US in 2022 were Korean ones, taking third place after those from Canada and France. The success of products of major brands like Amorepacific and CLIO on both online and offline channels, such as Amazon and Sephora, resulted in between 50% to 100% growth in sales YoY in 2022. With the increase in demand for K-beauty design and formula, the export of original development manufacturingODM is also enjoying a boom. The move has taken the business of ODM companies for color makeup like C&C International to the next level. The CREME Shop is a US company that was acquired by LG H&H in 2022, and it is known as a brand that has incorporated the elements of K-beauty targeting American Millennials and Gen Z. 

Among foreign cosmetics brands imported into Japan in 2022, Korea ranked first (34%), far outpacing its contender France (27%). Numerous small-sized brands like CLIO, rom&nd, ABLEC&C, MISSHA, VT, and CNP are at the forefront of the advancement of K-beauty. COSMAX is also making up for the sluggish performance of its Chinese subsidiary with exports to Japan rising to 8% of their domestic sales. CLIO’s sales in Japan more than doubled from KRW 20 billion in 2019 to KRW 40 billion (estimated) in 2022. Rom&nd snatched first place in the tint category of the @cosme ranking for two years in a row, while VT is spearheading the cica craze in Japan. TIRTIR has become a brand that has gained greater brand recognition in Japan than in its home country. Although the cosmetics market in Japan is facing a downturn, it is opening up new opportunities for Korean brands.

In 2022, Korea exported beauty products worth USD 880 million to Southeast Asia, which has skyrocketed at an average annual rate of 15% since 2015. According to Shopee, the largest eCommerce platform in Southeast Asia, the demand for Korean cosmetics in 2022 at Brand Festival has surged by twofold compared to the previous year in mostly Taiwan and Southeast Asia. At the 11.11 Big Sale, the largest discount event of the year, the sales of Korean cosmetics reportedly shoot up by more than nine times compared to the daily average sales from the previous month. The sales of CLIO in 3Q 2022 in Southeast Asia actually soared by 390% compared to the year before, while that of Amorepacific also escalated by over 100% during the same period. 

The reason for the global success of K-beauty can be explained by two factors. First, ingenious new categories. There are new cosmetic categories that Korean companies first introduced to the world, such as air cushions, BB cream, mask packs, sun sticks and sick foundations. This was what set them apart from their European and Japanese counterparts that focused on the basic luxury products or the essential cosmetics that invigorate the base makeup. One of the strengths of K-beauty that are often mentioned on YouTube is that you can apply make up with great delicacy that best suits your skin type using a wide array of products available at low cost. Using break through ingredients like snail slime and honey is considered the greatest virtue of K-beauty. 

Such ingenuity does not just reflect the competitiveness of one or two brands or companies. Since 2003, the Korean cosmetics market has evolved through one-brand shops, home shopping channels, and health and beautyH&B channels, becoming one of the fiercest battlegrounds of beauty trends. Myriads of fresh new products have come and gone, boosting the competency of the Korean cosmetics industry in developing new products and launching marketing campaigns. What’s more, Korean consumers are known as the pickiest consumers in the world. There are many multinational companies that see the Korean cosmetics market as their test bed. 

Note: The percentage shows the average percentage of a three-month period ©KITA, Hana Securities
Note: The percentage shows the average percentage of a three-month period ©KITA, Hana Securities

 

In more advanced, mature markets, soft power works as a crucial virtue of the economy.

The entry barrier to the world of soft power is much higher than that of hard power, which is built on technological skills and cost-effectiveness. It takes an awful lot of time for a technology to be turned into a product and for the product to create history and a brand image. The competitive advantage based on the Korean Wave and the sustainable business models make the grounds upon which Korean cosmetics can bolster their brand power and continuity, and the global scalability of K-beauty in the global cosmetics market.

There can be no doubt about Korean cosme-tics’ ingenuity. They are leading the global trend every year with dozens of experimental products and rapid advancement of many venture brands, such as rom&nd, KAHI, 1025 Dokdo, Laka, COSRX, and ma:nyo. Global cosmetics giants are reportedly monitoring new products launched in Korea by opening up a local office in Gangnam, Seoul. When COSMAX announced its plan to enter Japan, the local market was said to be agitated saying the ‘black vessel of cosmetics’ is coming. 

Second, K-culture, or the Korean wave has played a big role The Korean wave that includes K-pop and K-drama has expanded its reach further more than before. A Korean boy band ranked 1st place for two years in a row on the Billboards. A Korean movie won the Academy Awards, and K-pop dance competitions are held right in front of the Eiffel Tower, the symbol of France. For teens and people in their 20s around the world, Korean boy bands and girl bands are their idols. They are learning Hangul(한글, korean) by memorizing the lyrics, and Korea has become one of their favorite countries they’d like to visit. They say that the Korean wave 4.0 has recently begun in Japan. A growing number of Japanese boys and girls are imitating the K-style by wearing Korean cosmetics and fashion. The Korean Town in Tokyo is enjoying a marvelous revival, piggybacking on the global success of K-pop. 

An indulgence in culture drives consumption. Intangible cultural values can affect the price and sales of fashion and cosmetics products, among other things. They are different from other consumer goods that depend on cost-effectiveness, such as engine performance and CPU speed in cars and smartphones. Not many people read the ingredients label by flipping up the product when shopping for cosmetics. Fashion and cosmetics items are embedded with inflexible elements when it comes to the price that goes beyond mere cost-effectiveness. A smash hit drama from 2014, My Love from the Star, drove up the export of lipsticks to China in 1Q 2015 by 320% YoY, and another hit drama from 2016, Descendants of the Sun, caused another stir in exports of cosmetics to China. 

Of course, there are hurdles that the Korean cosmetics industry must overcome. Their global distribution network is not robust enough to support the market entry of Korean brands, meaning that the supply cannot keep up with the demand. Korean companies don’t have luxury brands like Lancôme and Estée Lauder, which makes it difficult to guarantee visibility into mid- to long-term earnings grounded in brand loyalty. In addition, the apathetic attitude of Korean cosmetics conglomerates on M&A is regrettable when it comes to the virtuous cycle of the cosmetics market ecosystem.

In more advanced, mature markets, soft power like brands work as a crucial Crucid factor of the economy. As for cars and the IT world where cost-effectiveness becomes the major buying criteria when making decisions, the industries have no choice but to compete viciously by developing new technologies and offering the best price. We don’t know when they will be caught up by China and this scenario is slowly becoming materialized. however the entry barrier to the world of soft power is much higher than that of hard power, which is built on cost-effectiveness. It takes an awful lot of time for a technology to be turned into a product and for the product to create established image or heritage. This is the very reason why ‘Made in USA’ cannot beat ‘Made in France’ in the fashion and cosmetics market, even though the US is the technology powerhouse of the world.

Korea is building up its soft power with K-pop, K-drama, and K-cinema for the first time in its history. Competitive advantage and sustainability are the grounds based on which Korean cosmetics can bolster their brand power and continuity, and the global scalability of K-beauty in the global cosmetics market. The capability of Korea’s cosmetics industry has reached its peak. K-beauty that marries technology and culture has taken one step further beyond Asia and is now knocking on the doors of the US and Europe. 


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