German company sets the trend for hair-care products in China
It is quite something to be able to say that your company's brand pioneered the anti-perspirant market in China. But German cosmetics manufacturer Henkel can also claim the title of longest-running international skincare brand on the mainland for its Fa line of deodorants, bath gel and soap.
Just how the firm did this has been an exercise in using lateral thinking to sidestep much larger competitors.
Patrick Kaminski, Henkel's vice-president and regional director Asia-Pacific for the cosmetics retail division, is a native of Berlin. Now 37, he started straight from school in Henkel's Dusseldorf sales department. 'I was the guy running around with the bag of soaps.' he says.
He worked his way up before his interest switched to marketing. It was unusual to be in marketing and not a graduate, so the company sponsored him through university. He started from scratch in the marketing department and once again climbed the 'hierarchical company which has got flatter in time'.
Henkel took Fa, a European bodycare brand, to a wider global market, doubling business in four years from 1998 to 2001.
With 38 brands in the Henkel portfolio, Mr Kaminski's move to become head of the consumer marketing division was an interesting step, he says. Then two years ago, he was given the chance to run Henkel's Asia-Pacific business in eight countries.
'In a weak moment I said yes,' he laughs. While a 'very slim team' of four set up the new regional headquarters in Shanghai, he set about streamlining production.
It seemed illogical to him that a major chunk of product was coming from Europe. 'So we reinvented the supply chain to stop European imports.' He consolidated production facilities in two factories in Beijing and Shanghai, with 1,000 employees between them.
The company's Japan factory was closed and China became its Asia sourcing factory. Now the tide has turned. 'From China we are even sending product back to Europe.'
In terms of output at the China factories, 50 per cent is for the mainland market, 35 per cent for export to Japan (hair colourants) and 15 per cent for export to India and Australia (hair colour and others).
Formerly a joint venture, the mainland production facility is now wholly owned and run by Henkel. 'So we have total control of quality. This is one of the key reasons why in a very short time we had the closure of the factory in Japan in July and moved production in October.'
Strict German-Japanese production standards operate in the mainland factories.
'The know-how is now with our local staff and we fly in Japanese experts to share that know-how.' Any concerns that a 'made in China' label would not appeal to Japanese customers proved unfounded.
'Interestingly, many Japanese companies have moved their operations to Thailand or China, without making a big fuss about it.'
Now, he says, it is not so much about where a product is made but whether people feel it suits them or not.
The mainland factories have been making Henkel's leading hair-care brand, Schwarzkopf, since October. Now he has taken things a step further, making new products in China which do not exist in Europe, such as Bei Ze Si, a fashion hair-colour brand meaning 'light reflection' which uses silk extracts.
'You won't find this ingredient in Europe or the US; it's been done just for China,' says Mr Kaminski. 'We will export it.'
The market for branded cosmetics and skincare, with affordable prices, is dynamic in China, he explains. Although dominated by big players, Mr Kaminski has had to find niches for Henkel's growth.
It is not like selling a Louis Vuitton handbag, he says. The name is not enough; it must be different from the European product. Henkel's products live in the bathroom, out of sight. With Schwarzkopf, the trendiest product is not just a single-colour application but a two-colour effect mixed up. This did not exist before in China, he says, but salon sales show the rapidly increasing demand.
Hair-care products, from shampoo to colouring and styling, are also dynamic, he says, disagreeing with industry sceptics. Although demand is there, many bigger companies ignore it, he adds, allowing Henkel to sneak in.
'All this you read about Chinese consumers not being sophisticated, it's nonsense. If I don't offer the product, you can't buy it. We must bring excitement, all these dimensions are there to be satisfied and we do it.'
Although Schwarzkopf is Henkel's biggest global seller with annual sales of Euro1.3 billion ($12 billion), its local China brands such as Guang Ming and Kemeng are still the backbone of the business, he says.
When it comes to marketing in China, the company takes a novel approach, too. 'We don't do above-the-line media. We apply it a bit differently. You won't see a deodorant advertisement for Fa on television but you will on bus television where people are sweating.'
Also, uniquely to Asia, he puts beauty advisers in shops for Schwarzkopf in India and China. 'We're using the brand itself as the marketing tool.'
Henkel's children's brand, HaiErMian, ranks No2 behind the giant Johnson & Johnson in China, with creams and shampoo for kids.
Even here, Henkel finds a way in. 'Our packaging is unique. It's like a mushroom, with mushroom characters, which obviously Johnson & Johnson would never do but it keeps a promise of fun to kids. I don't have kids but I know they want fun,' he says.
Henkel sees the future as following its niches in China, such as colouring. 'Now we are opening up a new hair-treatment market, there are no giant battles, just a few smaller brands to compete with.'
Part of the vision is to add excitement to other categories against the big guys. 'There's not a lot they can do [being bound in global strategies] but we can give an edge to the competition,' he says.