VietNamNet Bridge – Cosmetics manufacturers are expected to import products to sell in the domestic market instead of producing goods in factories in Vietnam, as import tariff barriers will be removed next year.

In 2015, many changes are expected to occur in the cosmetics market, when Vietnam has to reduce the import tariff on most products to 0-5 percent within the framework of the regional bilateral and multilateral agreements it signed with the partners. By that time, the incentives offered to foreign investors in the cosmetics sector will no longer be attractive.

“When the import tariffs on cosmetics are cut to zero percent, manufacturers will stop their production in Vietnam. Instead, they will import products for domestic sale,” noted Nguyen Thi Thanh Thao, investment director of the Saigon Cosmetics Company.

To date, two-thirds of foreign cosmetics manufacturers have stopped their production in Vietnam.

Analysts noted that it would be better to import products to distribute domestically than make products in Vietnam with imported materials, because the investment costs would be very high.

They also believe that a zero-percent import tariff would generate big changes in the positions of the big players in the Vietnamese market.

Foreign cosmetics manufacturers follow two ways to approach the Vietnamese market, either under the mode of foreign direct investment (FDI) or through franchise contracts.

The South Korean DeBON came to Vietnam, for example, as a foreign direct investor with a factory set up in Vietnam in 1997.

Shiseido then followed. The Japanese brand has been present in Vietnam since 1997 through distribution by Thuy Loc, a Vietnamese company.

The brand has quickly become well-known in Vietnam and expanded its distribution network run by Thuy Loc. Many companies have been set up, joining the distribution network and put under the control of Thuy Loc.

Analysts commented that Shiseido followed a wise business strategy when penetrating the Vietnamese market through a Vietnamese distributor in the 1990s.

If Shiseido had tried to sell products directly in Vietnam, it would have spent big money to build up a distribution network in Vietnam, while Vietnam at that time did not welcome foreign investors to its distribution market.

Later, in 2010, Vietnam’s WTO commitments helped Shiseido successfully “regain” the Vietnamese market. Thuy Loc had to transfer the administration and management of Shiseido to Shiseido Vietnam Company, as foreign investors now have the right for direct distribution in Vietnam.

In 2012, the cosmetics market witnessed a harsh battle between the brand owner and the initial distributor - Shiseido and Thuy Loc.

According to Nielsen, a market survey firm, spending on cosmetics is modest, 4 dollars per head per annum, much lower than $20 per head in Thailand.

Kim Chi