Suppliers gear up for challenging year

An Expert's View about Medical, Health and Cosmetics Products in China

Last updated: 27 Jun 2012

Makers are updating selections to reach more markets and ensure continued growth.

China’s health and personal care industry is facing a year characterized by weak external demand. Many suppliers expect revenue, especially from the EU and the US, to be relatively flat in coming months. Although there are companies anticipating overseas sales to remain on an upward track, these are mostly midsize and large operations that have the resources to adjust faster to market changes.

Several enterprises are seeing clients in the US and the EU placing smaller orders or making purchases less frequently. A number of buyers are also asking for lower prices and longer payment periods.

Rising labor costs raise another critical concern. Minimum wages in China have been climbing at double-digit levels annually for the past three years, with rates varying by city and province.

For instance, the standard for full-time workers in Shenzhen, Guangdong province, went up more than 13 percent this year to about $238 per month. For part-time personnel, hourly payments were set at $2.10.

The growing strength of the domestic currency poses another challenge to the industry. In the past six months, the yuan-US dollar exchange rate went from 6.40 to roughly 6.30. This has caused markups in quotes and in effect, weakened the sector’s price advantage overseas.

Makers expand customer base

Faced with the weaker purchasing ability of key export markets, most companies are strengthening their presence in areas with a higher growth potential. These include South America, the Middle East, Asia and non-EU countries. Makers will, however, continue to increase penetration of the US and the EU. Demand in the two areas remains large even with the anticipated slowdown.
To boost competitiveness in target markets, and thereby ensure continued growth, businesses are strengthening their capability to deliver high-performance, cost-efficient models that are both ergonomic and visually appealing. Large companies, in particular, are beefing up allocations for market research and product development to expand and update selections.

A part of the bigger budget goes into hiring top-notch technical personnel. Many enterprises are offering greater-than-average salaries to attract competent senior engineers. A few manufacturers are cooperating with Zhejiang University and other academic institutions in China and abroad to develop new technologies.

A growing selection of health and personal care products serves as proof of the industry’s strengthening R&D capability. Buyers will see more economical releases and high-end models as makers strive to expand market reach.

The first will be characterized by simple structures and basic functions. Upscale products will have luxurious designs and higher technological value.

Besides expanding up- or downmarket, many enterprises are paying attention to new segments. Makers of electric razors, for example, are rolling out more models for women. Not only is demand for these products growing, there is also less competition since most enterprises focus on variants for men.

To reduce the impact of the yuan’s appreciation on margins and prices, some suppliers are adopting it as a trade settlement currency. In addition, a number are engaging in forward foreign exchange contracts.


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Posted: 12 April 2012, last updated 27 June 2012

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