Early September: Mei Ren Shu cafe, in the Hankyu Department Store, Taipei. Alex Lo, president of Uni-President Enterprises, and Ray Chen, president of President Chain Store Corporation, are leading a group of top executives from the Uni-President Group, including five beauty-related subsidiaries such as spa center operator Being Corporation and drugstore chain Cosmed, in a rare meet-and-greet with the media.

"I'm sure very few people know that our group's beauty products post annual sales in the order of NT$30 billion," Lo notes proudly.

Lo is wearing white trousers, white golf shoes, and a purple dress shirt with an orange necktie. The other five top executives have also chosen fashionable neckties in five different bright colors. By courageously donning more colorful, stylish outfits, the executives want to demonstrate the group's commitment to a livelier, lovelier style.

One week later: the VIP lounge of Breeze shopping mall. A cheerful Wang Ruey-yu, chairwoman of Formosa Biomedical Technology Co., is celebrating the 10th anniversary of her company's Forte cosmetics brand. Currently, Forte products are sold at around a dozen dedicated counters across Taiwan. Sales have been growing at an annual rate of 10 to 20 percent. Meanwhile, Wang's company has also set up an office in Shanghai in preparation of entering the Chinese market.

"The past ten years were very tough. But I also hope everyone can cast aside the myth that Taiwanese products are sure to lose out to international brands," remarks Wang proudly.

For a long time, the ground floors of Taiwanese department stores were firmly in the hands of international cosmetic brands. Now, however, the sales counters of homegrown cosmetic brands such as Dr. Wu and Forte have moved front and center. On beauty blogs and cosmetic ratings websites, Taiwanese brands like Naruko and "de" have been creating considerable Internet buzz. All of a sudden, the cosmetics industry, never regarded as an economic driver, is riding the upswing as companies transform from contract manufacturers to brand makers.

Growth through the Roof

Lai Huey-min, skin care specialist at the Biomedical Technology and Device Research Laboratories of ITRI, has collated figures for exports and imports of cosmetics to and from Taiwan. Lai, who is also in charge of the Ministry of Economic Affairs' development plan for the cosmetics industry, found that cosmetics imports have been shrinking since 2006, whereas exports of Taiwanese cosmetics have been growing rapidly.

The export to import ratio continued to decline from 5.46 in 2006 to 3.59 in 2012. Possible explanations include weakening domestic demand and import substitution. But what deserves greater attention is that exports of Taiwanese cosmetics increased during the same period.

Customs statistics show that the value of exports of cosmetics steadily increased between 2006 and 2012 from NT$5.4 billion to NT$11 billion. On top of that, the compound annual growth rate stood at 13 percent during this seven-year period.

"You won't find another industry in Taiwan that posted compound annual growth between 10 percent and 15 percent," notes Lai with considerable excitement. "The cosmetics industry even escaped the financial tsunami unscathed."

Taiwan's domestic market for cosmetics and skin care products is estimated to be worth NT$100 billion to NT$120 billion.

In the past, many Taiwanese cosmetics manufacturers produced for well-known international brands or even developed skin care formulas for them, thanks to their contract manufacturing experience and good manufacturing practices.

After two or three decades as contract manufacturers for large brands, these companies have accumulated top quality capabilities in manufacturing, R&D and product design.

As a result, more and more companies are mustering the courage and confidence to launch their own brands. They are no longer satisfied with marketing their products as "Made in Taiwan," but want to advertise themselves as "Taiwanese brands."

City Color

Full ODM Line-up Leads to Brand Advantage

At fashion shows in New York this summer, celebrity visitors found City Color brand cosmetics in their goodie bags.

Few people know that this brand, which raked in US$8 million in sales in the United States last year, is made by Tair Jiuh Enterprise (TJ Group) in Tainan's Rende District.

TJ Group began 33 years ago as a maker of cosmetic brushes, reaching a domestic market share of 70 percent at the time.

Ten years later, the company established a factory in China, manufacturing, developing formulas and planning marketing and sales for established or open-shelf brands.

Some companies even place their own labels on TJ Group's generic OEM products and sell them directly, without any modifications. The group has customers on every continent around the globe.

The showroom at company headquarters, located in a remodeled residential building, holds a vast array of decorative make-up items, shimmering eye shadow, glossy lipstick and shining nail polish in dozens of colors.

Today, TJ Group has four factories in China's southern Fujian Province. Their products account for 90 percent of cosmetics exports from Fujian Province, amassing US$60 million in annual revenue.

Considerable flexibility and low costs are the company's competitive advantages, which it built in 30 years as a contract manufacturer. TJ Group offers its customers more than just production services, taking care of planning, R&D, manufacturing, pricing and market positioning.

Some two years ago, the company decided to aggressively develop its own brands and launch them in the American and European markets.

"I feel there's a lot of room for development," declares chairman George Chen with a resounding voice that belies his rather short stature. "We help many customers plan their projects. Basically, we're the ones doing the whole job for them, so we should be able to do it ourselves.

"Right now ODM still accounts for more than 80 percent of our revenue. Our own brands account for only 20 percent," Chen explains. "We hope that in three or four years we can turn this ratio upside down."

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 'de'

Raw Chemical Supplier Turns Beauty Brand

Aside from manufacturing prowess, for some Taiwanese makers longstanding experience in the chemical raw materials business provides an entry ticket into own-brand cosmetics.

Half a century ago, Taipei's wholesale district rose to prominence behind the Taipei railway station. Back then, a dozen suppliers of chemicals and raw materials were located along Tianshui Road.

One of them was First Chemical Works. In its early days the company sold more than 3,000 chemical raw materials. The company's selection was so vast that they acquired a saying in the chemicals market: "If you can't find it here, you may not be able to find it."

More than 20 years ago, when the company's second generation of owners took over the business, they decided to make some changes, and began to import essential oils, plant oils, and floral waters. They also started teaching the public how to create homemade soaps, candles and skincare products from raw materials. When the guru of Asian beauty care Yu-Lin Niu, who later founded the cosmetics brand Naruko, wrote his first book on homemade cosmetics in 2001, he also turned to First Chemical for his supplies.

Subsequently, homemade cosmetics became a big fad. After marrying into the owner family, Gail Huang, who sports a short straight bob with bangs, entered the family business as vice president. The craze for homemade cosmetics perfectly matched First Chemical Works' strengths as a raw material supplier, she recalls. Backed by half a century of experience, they knew the properties of all chemical substances like the back of their hands. Since they did not need to go through a network of distributors to sell their cosmetics, they were able to offer them at affordable prices that attracted consumers.

In 2004 the company launched its own cosmetics brand "de," selling its products online. They also rented a handicraft store on Taipei's Yanping North Road, where they opened a flagship store. The blackened façade of the 70-year-old building stands in stark contrast to the store's spotless, white interior. Huang revamped the old store into a fashionable showroom for the company's cosmetics.

Now a total of 14 outlets have been established. At department stores such as Tonlin or Hankyu, "de" often outsells famous international brands. It has become one of the top three department store cosmetics brands in Taiwan.

Solone

Internet Buzz Revives Traditional Brand

In recent years, the rise of the Internet has helped Taiwanese manufacturers surmount the greatest obstacle to building their own brands: marketing resources.

Solone is one of the Taiwanese cosmetics brands that owes its commercial success to Internet fame.

Solone's star product is a waterproof eyeliner, which sold more than 2 million units last year alone. As much as 70 percent of company revenue stems from exports. The eyeliner pencil, which has a price tag of NT$149, has conquered the market in Australia, China, New Zealand, Singapore and the United States.

Huddled away in a residential area behind Global Mall in New Taipei City's Zhonghe District, Masacy Co. Ltd, the corporation behind the Solone brand, actually looks back on a 34-year-long history as a contract manufacturer.

Over the years, Masacy developed a number of hit products such as the first eyebrow pencil that did not need to be sharpened, because the wood could be peeled off instead. It also once produced a mascara that sold 20,000 pieces in a single month. But back then Masacy did not directly sell to the customer: it manufactured what the distributors wanted.

"We did not know what kind of value we could create for the consumer," explains third-generation general manager Alan Huang, who took over the family business in 2009.

Whenever Masacy released a new product, its distributors immediately rolled it out island-wide. Sometimes, when a product flopped, the company had already produced the next batch because it had not gotten timely feedback from its marketers.

As a result, the company had to shoulder double losses from the return of unsold stock as well as the newly produced inventory that never made it into the stores.

"When we made a profit, it was a small one, but when we suffered losses, we lost big," recalls Huang.

At one time Masacy had accumulated NT$30 million in debt. Joining the family business after finishing his compulsory military service, Huang experimented with a series of new products, and learned to take into account consumer wishes and provide stable quality.

Crucial for the company's success was his adopting a new way of market research by directly communicating with customers. He began to test consumer reactions first in his own store before asking popular beauty bloggers to test the products and review them on their sites. Based on their responses and suggestions, he would overhaul his products accordingly.

Now Huang can rest assured that when his distributors put the products on retailers' shelves they have already passed the test of cosmetics-savvy consumers and gained considerable consumer satisfaction and popularity. Moreover, new products are now released to distributors only in limited quantities so that in the event of a product flop the company is not inundated with unwanted return merchandise.

Masacy also frequently participates in cosmetics fairs and trade shows to interact with consumers. Huang even demands that overseas distributors join the shows, jointly manning the booths.

Huang, who in the beginning rather accidentally got involved in the family business, is increasingly confident that Taiwan's homegrown cosmetics industry is internationally competitive. He points out that Taiwanese consumers are demanding and sophisticated, but also very tolerant: They readily accept that an eyeliner pencil can cost NT$19, but also might come with a much higher NT$680 price tag.

"When you want to build a brand here in Taiwan, you need to ensure good quality, but you also need to compete with low-price products," remarks Huang. "If we can win the hearts of Taiwanese consumers, why shouldn't consumers all over the Chinese-speaking world accept us?"

MasKingdom 

Products with a Story

Taiwan's brand cosmetics used to be marketed as daily necessities with an excellent quality-price ratio and high quality. But with booming tourism, many brands are reinventing themselves as souvenirs with creative appeal, emphasizing product design, storytelling and memories.

In early September, the new Eslite Spectrum Songyan Store in the Songshan Cultural and Creative Park had opened for trial operation for less than a month. Tucked away amid the counters and shelves with designer shoes on the first floor of the store, is a small space of less than 10 square meters, its walls lined with beautifully packaged facial masks.

Each product comes with uniquely designed packaging and an exquisitely told story.

MasKingdom is a new brand launched last year by Michelle Sung, president and CEO of TenArt Biotech Limited. In the past, Sung, who studied medicine, developed skincare formulas and conducted tests herself. The company's cosmeceuticals brand ERH, which emphasizes use safety, is a hot-seller on the Internet in 27 countries.

MasKingdom products are made with extracts from Taiwanese flowers or fruit and vegetables. Promoting a product narrative, in combination with artfully designed packaging and short video clips distributed over the Internet, increases the customer's emotional attachment to the brand on top of the rational benefit of good quality.

The petite, stylish Sung has her sights set high. A good product with rational benefits such as good quality and functional attributes can generate stable growth, she points out. But this in itself cannot compete with major international brands when it comes to marketing resources. Therefore, Sung decided to concentrate on the facial mask niche, with the aim to become the world's No. 1 brand.

"I want to build Taiwan's top brand. I won't lower my ambitions to merely manufacturing in Taiwan," declares Sung with undisguised aspirations.

So far, MasKingdom has developed 360 kinds of facial masks, featuring different ingredients and distinct packaging. A recently launched new product category, foot masks, is also a hit with consumers.

MasKingdom has just closed deals with distributors in Macao, the Netherlands and Canada. Next year Sung plans to open a store in Shanghai. Sung's declared goal is "to have a brand flagship store in every big city around the world" to put Taiwanese cosmetics on the world stage.

Once specializing exclusively in manufacturing products "Made in Taiwan" for famous international brands, Taiwanese cosmetics makers are building brands of their own. In the process, they are helping downstream suppliers to move up the value chain.

MasKingdom's packaging involves artistic pictures and graphics in a myriad of colors, which proved quite a challenge for the company's printing services supplier. Before the first masks hit the market, Sung had to put up with losses of several million New Taiwan dollars due to misprints. But as the print shop gradually lived up to Sung's ambitious demands, producing high-quality results, its ability to serve high-end customers improved accordingly.

Once serving as the world's factory, Taiwan managed to establish "Made in Taiwan" as a hallmark of quality. Now the cosmetics industry is taking Taiwan to a higher level – creating distinctive brands through the power of beauty.

Translated from the Chinese by Susanne Ganz