CALIFORNIA ST ATE UNIVERSITY SAN MARCOS PROJECT SIGNATURE PAGE PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE MASTER OF BUSINESS ADMINISTRATION PROJECT TITLE: Countetfeit Cosmetics from China to the United States AUTHORS: Clara Arias PRESENTATION DATE: August 3, 2020 THE PROJECT HAS BEEN ACCEPTED BY THE PROJECT COMMITTEE IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION. Name of Project Advisor Eric Rhodes Ericen Rhodesc Rh (Augt>ti 3, 2020eJ08:23 PDT) 08/03/2020 PROJECT ADVISOR SIGNATURE DATE Name of Second Reader . �os/4eet:q-uc,/u,, Mohammad Oskoorouch1 Mohammad Oskoorouchi (Aug 3, 202008:47 PDT) 08/03/2020 PROJECT SECOND READER SIGNATURE DATE COUNTERFEIT COSMETICS FROM CHINA TO USA GBM 685 MBA International Business Presented by: Clara Arias Rodríguez COUNTERFEIT COSMETICS 1 Table of Contents Abstract ........................................................................................................................................... 2 Overview of the Cosmetic Industry ................................................................................................... 2 Description of Project ....................................................................................................................... 5 Illegal Money ................................................................................................................................... 6 Lessons Learned ............................................................................................................................... 6 Skills to be Used in the Workplace ................................................................................................. 10 Experiences Related to Academic Program ..................................................................................... 12 Illegal Employment in the Illegal Market ........................................................................................ 13 Cost of Monitoring and Enforcing Laws Related to Illegal Goods ..................................................... 14 Potential Solutions ......................................................................................................................... 14 What Would be Done Differently ................................................................................................... 17 GBM 685 Experience & Overall Education ...................................................................................... 17 Overall GBM 685 Evaluation ........................................................................................................... 18 References ..................................................................................................................................... 19 COUNTERFEIT COSMETICS 2 Abstract The purpose of this project is to compile all the skills and learning acquired from conducting research on the U.S. economic and social impact caused by counterfeit cosmetics imported from China. This reflection will be submitted to Global Business Management faculty advisor, in partial fulfillment of the graduation requirements for the degree of Master of Business Administration. COUNTERFEIT COSMETICS 3 Overview of the Cosmetic Industry The world has been preoccupied with beauty since ancient times because humans are visual and social beings. People started using cosmetics and makeup long ago since the Egyptians times, which included dark eyeliner to improve their complexion. The today beauty industry has grown to be the most popular among the mainstream media, and it is one of the most profitable ventures. The cosmetic industry is one of the sectors with the highest annual growth in the economy. Improving physical appearance to achieve certain stereotypes, especially female ones, creates a need for consumption that leads these companies to achieve unattainable sales figures in many other sectors. From a commercial point of view, it is an industry that generates benefits in a large part of the market, since these products affect laboratories, pharmacies, perfumeries, supermarkets, health professionals, beauty advisers and health authorities. The beauty industry is broad, and it involves both products and services, such as barbers and hairdressing (Bian & Moutinho, 2011). The main beauty products in the US market include hair care like shampoo, shower products including soaps, oral care like mouth wash, and color cosmetics such as facial makeup products. It has created employment for millions of people across the world, and in the united states alone, the beauty service sector alone employs over 670,000 people. Distribution Channels Traditionally the cosmetic industry distribution channels focused sales through pharmacies, special beauty stores, and salons. Today with improved technology and e-commerce, direct sales from manufacturers to customers have increased at a rapid rate. According to 2017 statistics, online sales for beauty products had a growth rate of 15.6% in the U.S. e-commerce market (Statista, 2020). The beauty industry is anti-cyclical, and therefore, customers will still purchase luxury beauty products, even during an economic downturn. The industry continues to flourish today is attributed to the millennial generation who are widely known for giving much attention to physical wellbeing. Research shows that millennials perceive self-care as a coping method against difficult economic and political situations. Revenues In 2018, the global cosmetic industry achieved revenues of $507.75 billion, 1.8% more than the previous year, and 25 billion more than in 2011 (IBISWorld). The same study estimates that at the by 2025, the income of the cosmetic industry in the world will be about 758.45 billion dollars, growing at a rate of 5.9%. Trending Brands The most popular cosmetic companies worldwide are Johnson & Johnson, L’Oréal Paris, Gillette, Neutrogena, Nivea and Chanel, Inc. There are also many emerging companies that have COUNTERFEIT COSMETICS 4 experienced a tremendous growth since their first appearance in the market. Some of these brands are Kylie Cosmetics and ColourPop. Composition and Characterization of Cosmetic Products Companies that are part of the cosmetic industry are in charge of producing new products in authorized facilities for their control. In order for a new product to be released, it must go through the following phases: 1. Galenic development: It is based on studies prior to formulation, formulation development and pilot production of the product. 2. Manufacturing: Once the studies are correct, the product is manufactured in batches. 3. QA: Physical, chemical and microbiological control of the product, as well as its efficacy and safety. Only when the product is safe and after it has been tested, it can finally reach end consumer. Natural Cosmetics In recent years, new makeup varieties have fueled consumer demand. Promises such as younger looking skin, and the development of environmentally friendly and eco-friendly products, make it possible to increase the profitability of the sector. Companies seek to increase their market share by investing in research and development, allocating part of their income for this in order to keep up with these product lines and relevant in the market. This branch of the cosmetic industry seeks to achieve the same goal of improving physical appearance, but in this case using only natural ingredients that are far from chemical or synthetic elements. It is a branch that is gaining popularity because it produces non-aggressive compounds to human skin, avoiding risks of disease, allergy or rejection. In addition, these are products that protect the environment and are completely cruelty free. Target Market Today, women between 20 and 64 years old continue to represent the highest percentage of the market, being more than 68%. However, in recent years the sector has undergone changes where male segment has been increasing year by year. Thereby, many manufacturers have found such segment has great potential for development, as male awareness of personal care increases every day. Threat of Substitutes It is fair to say that the main competitor of a makeup brand would be another beauty company; but there is something more threatening: “Fake-up Cosmetics”. It is not a secret, just as there is COUNTERFEIT COSMETICS 5 piracy of music, movies and clothing, there is also counterfeiting of cosmetics and makeup brands. At first glance it may seem innocent, especially when we are not aware of the dangers and harm that buying fake cosmetics can cause to our health. Many cosmetic companies, either emerging brands or inclusively the ones already established, are directly affected by the smuggle of cosmetic products. Description of Project Background This project was done with the mere purpose of gathering solid information about the repercussions counterfeit cosmetics from China could bring not only to the U.S. economy, but also to the consumer’s health. As a graduate student specializing in International Business, I had the opportunity to see in several of my classes, a variety of successful agreements between different companies from around the world. Most of these agreements and deals were related to the exportation of goods and services from different countries to the United States. The Asian continent has been of my personal interest since I can remember; I was always impressed by the huge number of items people in Asia are able to fabricate and distribute to different