Unilever purchased a majority stake in Carver Korea for $2.71 billion from Goldman Sachs and Bain Capital. Carver Korea is one of the fastest growing cosmetics companies in Korea and this acquisition highlights how Korean beauty products (K-Beauty) are gaining a global foothold while causing many global companies to focus on more localized teams and shorter development cycles.
Asian Markets Are the Largest Consumer of Personal Care Products
Unilever is one of many global cosmetics companies who’s strategy shifted to allow regional operations to have more independence and power – and the acquisition of Carver Korea is a step in realizing the goal. Unilever wants to capture the Asian market by acquiring and building up a localized Asian team instead of trying to develop and release products from the U.S.
The Asian cosmetics market has become the largest in the world and it possesses an estimated CAGR of over 6.7% until 2018, which greatly outpaces the rest of the world’s growth. In particular, South Korea punches far above its weight class in terms of consumer requirements and global influence. The country possesses some of the most discerning customers and has the fastest shifting trends. In a survey done in 2014, urban South Korean women use an average of 27 cosmetic products a month and men use half that number. In addition, South Korean consumers have among the highest spending per capita across Asia, where the average South Korean woman spends twice as much as American women. The total beauty product market is projected to grow from $15.5 billion in 2017 to $16.7 billion in 2018. This means products that can survive in the crucible of South Korea are likely to become international successes.
K-Beauty’s Global Reach
As of 2016, the largest personal beauty market in the world shifted for the first time from the U.S. to China – and the growth has not slowed. Morgan Stanley estimates that the Chinese market will grow to encompass 19.85% of the global market by 2018 up from the 19.1% it makes up today. Most importantly, foreign brands make up 60% of the Chinese market and account for nearly 90% of sales, the majority of which are K-Beauty products.
The acquisition of Carver Korea marks the turning attention of U.S.-based and global cosmetics companies – the focus has shifted away from pleasing American consumers into capturing the Chinese and Korean consumers. This means key development, research, and testing positions will become more Asia-focused, likely leading to waves of jobs shifting abroad. Already, global companies have taken to poaching top South Korean talent in order to bring product development and research practices in-house.
Local Operations and Faster Release Cycles
Historically, global companies have had difficulty keeping up with the rapidly changing trends in Asian markets. Research by the Department of Commerce found that American skin care products lead in trust and quality whereas K-Beauty leads in trends. This is due largely to the more restrictive legislation the US has in comparison to the South Korean market, making it difficult for US companies to be competitive with international businesses when they need to jump through many more regulative hurtles.
Carver Korea offers Unilever a way around the cumbersome testing process in the U.S. The company offers Unilever a base of operations in South Korea where all research, development, and testing can be done, essentially sidestepping U.S. legislation. This means that much talent will need to be moved or acquired abroad in order to keep up with the ever-increasing demands of China and South Korea.
Unilever is not alone in this approach – its competitors have been engaging in an arms race of acquisitions and partnerships as well as active recruitment of Korean talent. In particular, the Chinese personal beauty market has been actively poaching Korean employees in an effort to lift the Chinese market to a level comparable to that of South Korea –– which will make the landscape even more competitive in the future. In the past, Unilever has been trailing behind most Korean beauty companies in recognizing and capturing the trend-driven market, but the acquisition of Carver Korea offers the first step for the company’s goal of building up a local South Korean corporation.
The Next Wave of Outsourcing
The focus on the Asian market signals a shift in priorities – company strategy is now focused on expanding Asian operations and recruiting local talent to get a stake of the rapidly-growing Asian market. Unilever’s entrance into K-Beauty signals the intensity of the Asian arms race. American and international brands have already begun pursuing a strategy that focuses on growing out local operations through acquisitions or partnerships. Brands such as L’Oreal and ULTA Beauty have moved many jobs abroad to develop their own K-Beauty products or bringing K-Beauty products back to sell in America. This trend hints at a dramatic shift in the industry and will likely lead to many jobs moving abroad.