Thailand’s and Beauty Products Industry Opportunities for International Business

January 2017 World Business Advisory Center World Business Division 1 Executive Summary

Thailand is the largest market for cosmetics in the ASEAN’s manufacturing base for ASEAN with USD 4 billion market value. cosmetics with USD 400 million export value.

among the fastest growing market in the blessed with local herbs could be turned world with 8% to 10% annual growth rate. into more than 200,000 cosmetic ingredients.

Thailand’s Cosmetics and Beauty Products Industry – Business Opportunities

Market Opportunities: Investment Opportunities:

• Engage in trading activities • Engage in cosmetic manufacturing • Engage in retail and marketing activities • Co-develop products with local firms • Collaborate with local distributors/ • Use Thailand as OEM hub retailers • Source raw materials locally • Expand into ASEAN market 2 Table of Content

Thailand’s Cosmetics and Beauty Products Industry - Overview

Market Opportunities

Investment Opportunities

KASIKORNBANK’s Support

3 Table of Content

Thailand’s Cosmetics and Beauty Products Industry - Overview

4 Thailand’s Cosmetics and Beauty Products Industry - Overview

With rapidly growing market, Thailand has become ASEAN’s beauty hub with tremendous business potential throughout the value chain, ranging from manufacturing, importing, distribution to retail business.

Thailand’s Cosmetics and Beauty Products Industry – Value Chain 1 3 Retailing 4 End Users

Department Store Thai Cosmetics Manufacturers Specialty Store Customers in Thailand

Supermarket

Foreign 2 Hypermarket Tourists Convenience store Importers of Cosmetics Distributors Spa & Salon and Beauty products 2 E-commerce 5 (1) Cosmetics and Beauty Product Manufacturers in Thailand

Thailand has been manufacturing base for international brands for over 40 years; Considerable market size and availability of raw materials have contributed to formation of a robust supply chain with established local brands and a wide spectrum OEM manufacturers. 3 Types of Manufacturers in Thailand

Global Manufacturers in 1 Thailand 2 Local Brand Manufacturers 3 Local OEM Manufacturers

Several local brand manufacturers are There are approximately 2,000 cosmetic OEM Many global manufacturers also have set up successful launching cosmetics in not only manufacturers in Thailand. Most of them are their subsidiaries in Thailand such as Thailand but also many ASEAN countries e.g. SMEs, eager to grow locally and in regional Beiersdorf ( and Eucerin), Kao (Biore). Cambodia, Laos, Indonesia. market. 6 (2) Importers and Distributors of Cosmetics and Beauty Products

Usually, foreign brands distribute their products by import subsidiaries, authorized distributors, or SME’s distributors; The larger brands prefer setting up import subsidiary or appointing authorized distributors, whereas smaller brands would use SME’s distributors.

3 Types of Importers and Distributors in Thailand

Import Subsidiaries of SME’s Importers & 1 international brands 2 Authorized distributors 3 Distributors

Handle only own brand group products Thai companies handle various brands Numerous local SME companies . 100% Foreign owned subsidiaries e.g products eg. Central Marketing Group handle various Thai and foreign brands Loreal (Thailand), ELCA (Thailand), LVMH (, H2O), Minor International PLC products. Perfumes and Cosmetics (Thailand) (Red Earth, ). . JV with local firms e.g. (Thailand) Kanebo Cosmetics (Thailand)

7 (3) Retailing of Cosmetics and Beauty Products

With variety retailing channels for cosmetics and beauty products, company could consider exploring multiple channels by collaborating with existing players or engaging in retailing activities to tap into downstream opportunities.

Major Cosmetics Retailing Channels in Thailand

Department Store Specialty Store Supermarket/Hypermarket

Local Players Foreign Players Local Players Foreign Players (JV with Local Players Foreign Players (JV with • TOPs • Max Value (by Aeon) • Central Group Thais) • Beauty Buffet Thais) • Big C Supermarket • The Mall Group • Isetan (Thailand) • Eve and Boy • Boots • Tesco Lotus • Siam Piwat • Bangkok-Tokyu • KARMART • Watson • Makro

Convenience Store E-commerce

Local Players Foreign Players Foreign Players (JV with Local Players • WeloveShopping • Lazada • 7-Eleven Thais) • Tarad • Mini Big C • Family Mart • Central • Lotus Express • Lawson • SMEs from Facebook 8 Cosmetic Sale Counters in a Department Store (4) End Users

With large number of upper middle income family, beauty salons and numerous foreign tourist visitors, Thailand offers attractive market opportunities for cosmetics and beauty products.

Upper middle income customers Foreign Tourists as additional as end user, 1 with considerable growth 2 target group 3 influencer, and retailing channel

Income per Capita 30 million USD 1.4 billion USD5,500 tourists/year market value

With above $5,500 income per capita, With approximately 48% foreign tourists Beauty salons and spa could be considered as Thailand has sufficiently high purchasing buying cosmetics, businesses could consider influential end users, very useful as marketing power, creating market potential for high-end foreign tourist as additional target group for method as well as retailing channel. cosmetics. their products. 9 Table of Content

Market Opportunities

10 Thailand’s Market - Overview

3.5 billion USD of Thailand’s market value of cosmetics and beauty products in 2016

Facts about Thailand’s Cosmetic and Beauty Products Market Thailand Market Value of Cosmetics and Beauty Products, as of 2016

Thailand is the largest market for cosmetics 1.1 billion USD in ASEAN. Import 32% Thailand is among the fastest growing market in the world with 8% to 10% annual growth rate.

Domestic International brands are very popular Production among Thais, including both domestically 68% produced foreign brands and imported brands. 2.4 billion USD 11 Thailand’s Market for Imported Brands - Overview

Recently, imported brands have extraordinary high growth (16%-22%), especially skincare and make up, indicating high growth potential for Thailand’s market expansion.

Import Value of Cosmetics and Beauty Products 1.1 billion USD Total Import Value Skincare 1 Skincare Import value 2015: Growth in import value during 2012- 2015 48% USD 504 million 16% Lip Make Up Lip Make Up 2 Growth in import value Import value 2015: during 2012- 2015 Others Skincare & USD 47 million 22% 40% Cosmetic 4% 60% Eye Make Up Eye Make Up 3 Growth in import value Import value 2015: during 2012- 2015 4% USD 42 million 16% Powders Powders Growth in import value 4 Import value 2015: during 2012- 2015 12 4% USD 39 million 6% Thailand’s Market – Business Landscape

Nevertheless, business landscape for cosmetics and beauty products market is considerably competitive, in which local brands dominate low income segment and international brands dominate middle to high income segments. Business Landscape of Cosmetics and Beauty Products Market in Thailand

Market Segment Low Income Group Middle Income Group High Income Group Beauty and producers use different • High exposure to local • Perceive that Korean and Japanese women have • Highly value for beauty and healthy skin distribution channels to reach Customer media. Hence, often use flawless skin. Hence increasing popularity of with specific needs for skincare. Hence each target group. Sales Characteristic local movie stars/ idol as a Korean and Japanese brands. need to have beauty advisor (BA) to sell counters in local department selling point products. stores are the most common channel to reach high income Mostly local brands Japanese Brands Non-Japanese Brands Japanese Brands Non-Japanese Brands • Mistine • Hada Labo • L’Oreal • Shiseido • Clarins customers, whereas specialty Key Players • Cute Press • KATE • New York • SKII • Estee Lauder stores with display of various • Tell Me • Canmake • • Three • Christian Dior cosmetic brands have • Beauty Buffet • Biore • Kose • YSL become a popular channel for targeting middle income • Hypermarkets • Cosmetic Specialty Stores • Department Stores (Cosmetics Sale customers. • Convenience Stores • Department Stores (Cosmetics Sale Counters) Counters) Distribution Channel • Cosmetic Specialty Stores

E-commerce and online channels are suitable to reach all target groups. 13 Thailand’s Market – Recent Trends

Target customers consist of young and elderly populations; The young prefers whitening products and colorful make up, whereas the old prefers anti-aging skincare.

Whiteness as the standard Wearing make up at Anti-aging beauty for Going natural as a of beauty young age mature women growing trend

Potential Products: Potential Products: Potential Products: Potential Products: o Whitening Skincare o Colorful Cosmetics o Anti-Aging Skincare o Herbal & Organic Skincare o Sun Screen o Acne Skincare o Covered Cosmetics o Cosmetic for sensitive skin o Brightening Cosmetics 14 Recent Consumer Behaviors: Gen Y VS Gen X

Both gen Y and gen X in Thailand spend considerable amount of time on the internet; But they consume different media and use different mobile applications. Media Consumption Behaviors Gen Y VS Gen X Gen Y Gen X TIPS for business Born between 1981-2000 Born between 1965-1980 Mobile responsive website for products Most Popular Device Mobile phone introduction is necessary as both gen Y and for Internet Access 1 gen X access the internet via mobile devices.

Average Internet Choose appropriate social media for each Usage 7.6 hours/day 6.3 hours/day generation: Product review by blogger on Youtube suit for Gen Y, whereas marketing Most Popular Mobile 2 via Line is more appropriate for Gen X. Application

Popular Social Media Youtube, Facebook, Line, Instagram,Twitter Physical retailing channels are still necessary. 3 as online shopping has not yet become popular in Thailand. • E-Commerce Only 20.9% of internet users engage in online shopping • Problems: Low creditability/reliability of online-retailers 15 Recent Consumer Behaviors: Shopping Mall as Urban Life Style

Regarding physical retailing channels, shopping mall is one of the most effective retailing channel as it is the center of Thai urban Restaurant & lifestyle, ranging from shopping, dining, studying, entertaining, Cafe and healing.

Cram school Supermarket 2 types of shopping mall in Thailand

Shopping Mall as the center of Hypermarket’s Department Store’s Shopping Mall Shopping Mall Thai urban lifestyle Central Group, The Mall Group, Big C, Tesco Lotus, Makro Siam Piwat

Fashion & Bank Beauty Target: Low – Middle Income Group Target: Middle – High Income Group

Retailing Channel: Retailing Channel: • Cosmetic Section in Hypermarket • Cosmetic Sale Counter in Department Store Home • Local SME Cosmetic Store Clinic appliances & • Cosmetic Specialty Store Furniture 16 Success Case of International Brand in Thailand

With deep understanding of local needs and preference, firm can successfully create a new niche market for its own products.

Hada Labo – Key Success Factors

• Understand local customer needs focusing on whitening products • Utilize strong brand image of Japanese products as of premium quality • Communicate with right target using Thai young superstar as presenters • Successfully leverage online marketing to drive consumer recommendations for its products • Choose appropriate distribution channel via Pharmacy & personal care specialty stores

Sale Promotion at Local Specialty Stores, making products more affordable

Japanese language packaging, creating sense of premium 17 Thailand’s Market Opportunities

To grab Thailand’s market opportunities, firms could engage in import, retailing & marketing activities, and collaborate with local to distributors and retailers to reach nationwide customer, as well as expand into the GMS region.

Engage in import activities Engage in retailing and Collaborate with local Expand into ASEAN 1 2 marketing activities 3 distributors/retailers 4 region

To penetrate into Thailand’s market, To ensure successful market entry, To reach nationwide customers, After getting familiar with local firms can set up import subsidiary to firms can engage in marketing firms can collaborate with local market, expand into ASEAN region engage in import and distribution activities and secure retailing distributors and retailers to scale is a good strategy, as Thailand is a activities. channels (online/physical channel). up distribution channel across the trend setter in its neighboring country. countries. 18 Recommendations for International Business

To successfully penetrate local market, firms should understand local preference, know local regulation, and find reliable local partnership.

1 Understand local preference 2 Know local regulations 3 Find reliable local partnership

The key for successful local market entry is to Knowing local regulations allows firm to have Finding reliable local partnership could be the understand local preference and willingness to clear idea about all feasible forms of market way to get local insight, secure distribution pay for product so that firm can set the right entry and strategic options, as well as, all channels, and overcome local regulation, price, choose the right product champion, and procedure need to be done to have present in altogether. form the right marketing strategy. local market. 19 Doing Business in Thailand – Foreign Business Act

According to Foreign Business Act, foreign enterprises who cannot meet minimum capital requirement for wholesale and retail business are prohibited to engage in wholesale or retail business unless they get foreign business license.

Foreign Business Act in Wholesale and Retail Business

Less than 50% considered as share of capital belong to foreign “Thai individual/ juristic Enterprise” entities

Import & Distribution Retailing considered as

Conditions “Foreign CAN engage in 50% or more Conditions • Total minimum capital no less import & distribution of share of capital Enterprise” • Minimum capital no less than THB 100 million and retailing belong to foreign than THB 100 million per AND individual/ juristic each wholesale location • Minimum capital of each store Foreign Investment in entities and subjected to no less than THB 20 million Retail Business Foreign Business Act. MUST get “Foreign Otherwise Business License”20 Doing Businesses in Thailand – Wholesale & Retail Business

Foreign enterprises that cannot meet foreign business act’s conditions must apply for foreign business license. Even after getting the license, foreign enterprises engaging in wholesale & retail business still cannot have land ownership. Hence, forming joint venture subsidiary with local partner is one of the most advisable forms of investment in Thailand.

Import Distribution Retailing

Get Import License Get “foreign business license for wholesale and/or retail business”

Register “company limited”

Start For cosmetics and beauty For foreign enterprise that cannot meet foreign “Import, Distribution, and business act’s conditions for wholesale and/or products, a company must Retailing Business” apply for import license at retail, a company must apply for foreign business Food & Drug Administration. license granted by the Director General of the Department of Business Development, Ministry of No land ownership at Department of Business Commerce and endorsement by the Foreign for foreign enterprise Development, Business Committee. Ministry of Commerce 21 Table of Content

Investment Opportunities

22 Why invest in Thailand?

With capability to meet international standard at low cost and abundance of local herbs, Thailand offers investment opportunities as ASEAN’s cosmetic manufacturing hub.

1 Strengths as production base 2 Abundance of local herbs 3 Gateway to ASEAN market

With capability to meet international Thailand is blessed with local herbs, which As a trend setter of ASEAN market and the standard at low cost, Thailand has strengths could be turned into more than 200,000 regional cost effective manufacturer, as a production base of cosmetics in ASEAN. cosmetic ingredients e.g. pueraria mirifica production in Thailand could serve as a Usually, Thailand exports USD 400 million of extract, mangosteen extract, coconut oil, etc. gateway to enter ASEAN market. cosmetics per year. 23 Success Case of International Manufacturer in Thailand

Using Thailand as R&D and production bases are the key to successful market expansion in ASEAN.

Biore: Kao Industrial

• Thailand is the only country in ASEAN that Kao invests in R&D in consumer products. • The company is successfully penetrate ASEAN markets. Biore: Key Success Factors

• Understand local and regional preference, from long term footprints in Thailand as well as role of Thailand as regional trend setter • Engage in R&D, creating innovative skin care products that match with local and regional customer needs • Get synergy effect of sale, manufacturing, and R&D activities, by using market insight for product development with low production cost 24 Success Case of Foreign Brand Co-Develop Products with Thai

Co-develop products with Thai partner is the fastest way to gain local market insight, creating short-cut for successful market penetration.

Faris by Naris: -Thai collaboration

• JV between a Japanese cosmetic company (Naris Cosmetic co,ltd) and a Thai cosmetic firm (Mistine Thailand) since 2013 • Focus on co-develop cosmetics that meet Japanese quality standard and sell at reasonable price. Faris by Naris: Key Success Factors

• Low production cost in Thailand, allowing firm to sell product at reasonable price and reach mass target • Utilize strength of local partner, securing both local market insight and distribution channel • Exploit strength of Japanese brand image, which is premium quality products 25 Thailand’s Investment Opportunities

To grab Thailand’s investment opportunities, firms could engage in cosmetic manufacturing, co-develop products with local, use local OEM for contract manufacturing, and source raw material from local.

Engage Cosmetic Co-develop Products Use Thailand as Source Raw Material 1 Manufacturing 2 with Local Firms 3 OEM Hub 4 Locally

To penetrate ASEAN market, firms To ensure understanding of local To utilize Thailand’s strength as To benefit from abundant local could consider invest cosmetic preference, co-develop products production base, firms could use herbs, firms could source raw manufacturing to ensure cost with local is one of the best Thailand as OEM hub and get high material from local in form of dried effectiveness, proximity to regional alternative to secure local market quality cosmetics at low cost. herbs or herb extracts. market and ease to gain local insight. insight. 26 Doing Business in Thailand – Cosmetic Manufacturing

Beside normal firm establishment and factory license application procedure, firm must apply for cosmetic manufacturing license before starting production line.

How to start cosmetics and beauty products manufacturing in Thailand

“One Start One Stop Investment Center” can coordinate and organize all legal applications for foreign investors.

Register “company limited” Apply for “factory license” Apply for “cosmetics at Department of Business at Department of Industrial manufacturing license” at Start production line Development Works Food & Drug Administration

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