Strategies For Shiseido's Business in China

Asia Business and Management 　　　　　　　　　　Shuyuan, (Ellen), Huang; PD090309
Professor: Dr. Andrew Staples 　　　　　　　　　 Nov. 18th, 2010
Strategies for Shiseido’s Business in China
Professor: Dr. Andrew Staples

Shuyuan, Huang
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Table of Contexts:
1. Introduction
2. Why Could Shiseido Beat Western Cosmetics Marketers in China?
3. Current Status and Outlook of Shiseido’s China Business
4. Shiseido’s ‘New Three-Year Plan’ and Brand Strategy
5. The sustainable growth strategies for Shiseido’s business expansion in China
6. Conclusion
Introduction
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This paper aims to analyze sustainable growth strategies for Shiseido in china. First of all, the
paper will try to analyze the reason why Shiseido could beat western cosmetics marketers in
China and became one of the top three players. Second, the current status and outlook of
Shiseido’s China business will be examined. Based on Shiseido’s “New Three-Year Plan”
(Fiscal 2008- Fiscal 2010)—— Strengthening cultivation of global SHISEIDO brand, aiming to
establish an undisputed presence in Asia and strengthening the foundation for enhancing the
value of the Shiseido Group, the paper will further illustrate how Shiseido is building up their
brand to meet the Chinese consumers’ needs. Also highlight managerial challenges of growing
the China business further in the face of increasing competition and analyze the organizational
changes in Shiseido. Finally, the paper will summarize the sustainable growth strategies for
Shiseido’s business expansion in China.
Why Could Shiseido Beat Western Cosmetics Marketers in China?
Shiseido has been in China longer than its competitors. Shiseido began its business in Beijing
by exporting cosmetics selling in hotels and other outlets in 1981. In 1983, Shiseido established
first R&D center in Beijing by an agreement of sharing the production technology. In 1991,
Shiseido established a joint venture, Shiseido Liyuan Cosmetics Co., Ltd., with a government
company. They launched AUPERS, a brand for high-end department stores and strengthened
the joint venture’s business base. Due to this, Shiseido established a strong presence as a high-
end brand in China. In 2004, Shiseido launched its cosmetics specialty store organization and
then steadily expanded its network of stores one by one. The long work of developing a
business rooted in China has been one key advantage which supports Shiseido’s growth to date.
Shiseido now has a brand image of high quality, reliability and safety. Chinese believe that
Japanese technology in making cosmetics is the most cutting-edge. They also believe that
Japanese skin is close to theirs and that Shiseido has the best understanding of their skin care
needs. So Shiseido’s strong global brand is one of the reasons of its success in China market.
The other two important advantages that supported Shiseido to beat western marketers were
Shiseido developed China-specific products and various programs such as Beauty seminars at
companies, universities and groups. First, Shiseido developed two brands only sold in China,
the AUPRE brand and the URARA brand that meet the diversifying sensibilities and needs of
Chinese women. The definition of beauty has become globalized, but there are cultural and
social differences that influence the way women in different countries view and use beauty
products, especially in China. Chinese women are much heavier users of skin care products, for
example. Skin care holds a 70% share of beauty consumption in China. Chinese women’s skin
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shows the age through dark spots while western women’s skin shows the age through lines and
wrinkles. Also whereas Japanese women emphasize the entire face when applying makeup,
Chinese women take a different approach that focuses on the area around the eyes. Through the
surveys showing the public concern, Shiseido will launch products proposing this eye-centric
approach, starting with SUPREME AUPERS and URARA. Second, Shiseido is creating
opportunities for study in areas such as product knowledge, approach to customer service and
beauty consultation techniques. As beauty is still relatively new to Chinese women, education is
a valuable tool for consumers and an opportunity for marketers. Shiseido promotes efforts to
tailor service and beauty consulting to each consumer. A Shiseido instructor visits cosmetics
specialty stores once a week and area-based training seminars take place once every three
months. [1]
Current Status and Outlook of Shiseido’s China Business
Shiseido China Co Ltd has a wide product portfolio, with more than 200 products in skin care
and color cosmetics covering the high-, medium- and low-end market segments. It ranks fourth
[2]
in the overall beauty and personal care market with a 4.8% value share in 2009. The company
continues to develop rapidly by implementing a powerful marketing and multi-brand strategy.
As the cosmetics market has boomed, Shiseido established a research centre in Beijing in 2006
to develop new personal care products containing Chinese herbs.
According to Shiseido’s Annual Report 2009, the company ‘will further strengthen channel-
specific brand marketing and maintain a high rate of growth in its China business, which has
been expanding an average of over 20 percent per year.’ [3]In the department store channel, the
company will strengthen the makeup domain, in which needs have increased in recent years in
China, from a sales foundation built on skincare. In 2009, Shiseido has launched a new color
cosmetics product lines under Win Series, and at the same time it also launched
MAQUILLAGE color cosmetics, with heavy advertising frequently seen in fashion magazines,
on TV and also outdoors. The series is targeted at young women, with strong character who
wish to show confidence in both work and life. Its revolutionary marketing method, which aims
to combine color cosmetics with the personal character of young women born in the 1980s,
achieved great success during the review period in the beauty and personal care market.
In the cosmetic specialty store channel, the number of contracts for Shiseido Chain Stores and
sales at existing stores are both growing steadily. As of the end of 2007, the Shiseido Cosmetics
Specialty Store business covered 28 administrative regions in China, excluding Beijing,
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[4]
Shanghai, and Chongqing, and has increased the number of its contracted stores to 2,500. At
the same time, Shiseido will develop new businesses and sales channels. The esthetic beauty
brand Qi, a professional division product, was introduced at specialty stores with esthetic booths
late in the previous fiscal year. Shiseido will continue to focus on such initiatives with the aim
of generating synergy with cosmetics.
In addition to the department store channel and cosmetics specialty (CS) stores, for other
cosmetics sales channels, which have begun to diversify in recent years, Shiseido’s AQUA
LABEL skincare brand is sold at Watsons chain drug stores, along with its Za skincare and
makeup brand for young consumers and UNO men’s products. In March 2010, Shiseido
launched a new cosmetic brand DQ (Dermal Quotient) and cover over 600
drugstores/pharmacies in major cities, such as Beijing, Shanghai and Guangzhou. This channel
will be the third important distribution channel in addition to department stores and specialist
stores for Shiseido. With its extension into the dynamic cosmetics market as well as diversified
distribution channels, the company will be able to realize its strategic goal of double-digit
growth in China over the next two to three years.
Shiseido’s ‘New Three-Year Plan and Brand Strategy
In 2008, Shiseido announced its global goal to become a global player representing Asia with its
origins in Japan in ten years, and the aggressive growing strategies and reforms it would
implement to do so. In line with the aim of it, Shiseido is executing a New Three-Year Plan
(Fiscal 2008-2010) which declared in three aspects by the CEO SHIZO MAEDA in April, 2008:
‘1.Create a brand loved by customers throughout the world; 2.Establish unsurpassed, world-
class quality of business management; and 3.Strengthen the solidarity of the Shiseido Group
across countries and organizations.’ [5]
The feature article titled ‘Giving back to China by delighting customers’ from Masaru
Miyagawa (Corporate Officer, Chief Officer of China Business Division and Chief Area
Manager of China) covers the strengths Shiseido has built up in its China business, and the
initiatives that Shiseido will execute in building momentum as a global player representing
Asia. First he mentioned that ‘the origin of the company name “Shiseido” is a passage from the
Chinese classic, I Ching (The Book of Changes): “praise the virtues of the great Earth, which
nurtures new life and brings forth new values.” ’ [6] Then he said that the great success in China
Shiseido has made was not simply by building scale only for the scale but has been the result of
meticulous channel-specific brand strategies and a focus on activities that build brand value.
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[7]
Source: P25, Shiseido’s Annual Report 2009
According to the paper ‘Winning the Chinese Consumer: Opportunities for Japanese
Companies’ produced by McKinsey Asia Consumer and Retail, there are three factors stand out
while examining why Shiseido so successful in China: it has developed China-specific products,
adopted a multichannel distribution strategy and globalized its organization. [8] Recognizing the
importance of selling to different consumer segments through different channels, Shiseido
developed differentiated offerings. Shiseido has its luxury brand product (the AUPRES brand)
line sold by its staff on a person-to-person level at counters in some high-end department stores
and a different set of brands (such as the URARA brand) sold in thousands of cosmetics
specialty stores across the China. And yet another set of less luxurious brand products such as
AQUA LABEL skincare brand are sold in the ubiquitous Watsons drug stores. Benefit from
maintaining the channel-specific brand strategies, Shiseido maintains its brand image and
reaches a wide range of consumers.
In order to become a global player, MAEDA SINZO considers two challenges Shiseido must
tackle: One is to raise growth potential in markets throughout the world; the second is to
transform into a business structure capable of continually generating ROE (Return on Equity)
and operating margin at levels comparable to those of global competitors. Below is a chart
showing the strategy direction in the New Three-Year Plan.
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[9]
In this chart, it can be seen that further expand business in China as an important strategy for
globalization. For strengthening Shiseido’s corporate value, it's necessary to accelerate reforms
of Beauty Consultant activities, reinforce value creation power and establish global production
systems. Based on the strategy direction, the paper will analyze the sustainable growth strategies
for Shiseido’s business expansion in China from two aspects: 1) product and brand strategy 2)
human resource management and the CSR.
The sustainable growth strategies for Shiseido’s business expansion in China
A) Strategy: Develop Products that Meet the Needs of Chinese Women
Use methods such as group interviews and surveys to research the attitudes and tastes of
Chinese women regarding beauty. Keep conducting research in areas such as Chinese
medicine and beauty not only for the Chinese market, but with an eye on global market as
well. Add more Chinese stuff and enhance research functions in the future. Also create the
solid brand by enhance the production and procurement in two production bases in Beijing
and Shanghai.
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B) A Channel-Specific Brand Strategy That Is Plugged into Customer Needs
Growth Strategy for the Department Store Channel in China
 Renew the core brand AUPRES which is focused on the two brands of anti-aging and
whitening products, makeup and other brands. Maintain or rise the positioning of AUPRES as a
Chinese national brand;
 Introduce newly designed counters and launch products that are highly popular in Japan as a
“regional lines originating from Tokyo.”
 Renew training for store beauty consultants (BC) while also reflecting the repeat visit rate at
stores in BC personnel evaluations.
Growth Strategy for Cosmetics Specialty Store Channel
 Shift product selection and contract conditions, which had been uniform at all stores up to the
present, toward a stratification strategy to provide an enhanced range of products according to
the store;
 In addition to URARA, establishing new “PURE&MILD Excellent Stores,” a format that will
be limited to handling mid- and low-price range skincare products, such as PURE&MILD to
broaden its base of customer segments both in terms of price range as well regions;
 Keep enhancing counseling tailored to customer skin and preferences by using customer data
and other information collected from point-of-sale (POS) systems installed at all cosmetics
specialty stores.
Cross-Channel Brand Growth Strategy
Strengthen the cultivation of brands sold across multiple channels. Strive to raise in-store shares and
cultivate established Za and UNO brand as well as TSUBAKI and Aquair hair care products, mainly
at key customer stores, including department stores, general merchandizing stores, drug stores, and
CS stores.
C) Omotenashi, the Hospitality that Only Shiseido Can Provide
 Educating personnel by creating opportunities for study in areas such as product

knowledge;
 Approach to customer service and beauty consultation techniques by area-based training
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seminars to ensure that the value of Shiseido brands is conveyed in all aspects of the
business, from the design of stores and sales counters to customer management;
 Enriching the Hearts of Chinese Women: the New 1980s Generation which is very
interested in cosmetics and beauty; hold various programs including beauty seminars in
companies, universities and groups such as the Association of Women Mayors.
D) Establish unsurpassed, world-class quality of business management, which is a key

theme of the Three-Year Plan
 Enhance profitability by conducting ongoing production process improvements and other

efforts to optimize our supply chain
 Reduce costs by implementing other structural reforms such as modifying our materials-
ordering system
 Set up a system that attracts the most suitable people for the most suitable roles by
removing barriers related to age, gender, and nationality
 Further enhance management transparency and objectivity while clarifying authority and
responsibility by continuously strengthening corporate governance.
 CSR: Shiseido became the first major manufacturer of cosmetics in China to use plastic
containers made with eco-friendly polylactic acid
Conclusions
This paper analyzed the strategies for Shiseido’s business expansion in China. Shiseido has
become a loved brand accepted by Chinese women since its entry into the China market in
1981. It’s due to the efforts that Shiseido made to meet the needs and cultural trend of Chinese
women as well as its unique channel-specific brand strategies. Under the multichannel
distribution strategies, Shiseido maintained its brand image of high quality, reliability and safety
and reached a wide range of customers. It has contributed to the good performance of Shiseido
in China market even in the recession of 2009. Shiseido has also developed brands only sold in
China market such as AUPRES and URARA successfully. The sales of AUPRES were much
more than its global SHISEIDO brand. In line with the company’s New Three-Year Plan
declared by CEO MAEDA SHINZO aiming to become a global player representing Asia with
its origins in Japan, the paper illustrated the sustainable growth strategies of Shiseido’s
expansion in China in from five perspectives : Develop Products that Meet the Needs of
Chinese Women; A Channel-Specific Brand Strategy That Is Plugged into Customer Needs;
Omotenashi, the Hospitality that Only Shiseido Can Provide and Establish unsurpassed, world-
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class quality of business management which is a key theme of the Three-Year Plan.
References:
[1] SHISEIDO (2009), ANNUAL REPORT 2009: Building momentum as a Global Player
Representing Asia with its Origins in Japan [For the year ended March 31, 2009]
[2] Euromonitor International: Local Company Profile (2010) Shiseido China Co Ltd - Beauty and
Personal Care – China, [May, 2010]
[3] Same as [1]
[4] Same as [2]
[5] Shinzo Maeda (2008), Three-Year Plan (April 2008 March 2011) Shiseido Co., Ltd. [April
3, 2008]
[6][7] Same as [1]
[8] Jayson Chi, Osamu Kaneda, Gordon Orr and Brian Salsberg, McKinsey Asia Consumer and
Retail (2009), Winning the Chinese Consumer: Opportunities for Japanese Companies
[September 2009]
[9] Same as [5]
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Asia Business and Management 　　　　　　　　　　Shuyuan, (Ellen), Huang; PD090309

Professor: Dr. Andrew Staples 　　　　　　　　　 Nov. 18th, 2010