European cosmetics makers have been active in acquiring local brands in the past few years to expand in the world's third-largest cosmetics market. Jing Wei / for China Daily

Coty Inc, the world's largest fragrance company and fifth-biggest cosmetics manufacturer based in France, has agreed to acquire a majority stake in Chinese skin care company TJoy Holdings Ltd for about $400 million (302 million euros), making it the largest among a flurry of similar acquisitions in recent years.

The Coty bid, like those made by other European and American cosmetics houses, is widely seen as an intensifying fight by foreign firms to expand their share of the fast-growing Chinese market. In the past, the competition was focused mainly in major cities - Shanghai, Beijing and, to a lesser extent, Guangzhou.

Now, contestants are carrying the fight to the secondary cities and, at a later stage, to the towns further west from the prosperous coastal regions, dominated mainly by less expensive local brands.

Taking over the more successful local brands, therefore, is a key strategic move by foreign cosmetics firms in their quest to explore new markets in China's interior provinces. Zhang Bingwu, a renowned business review columnist, says that acquiring daily-cosmetics companies such as TJoy is a shortcut for international brands entering the Chinese market.

Suzhou-based TJoy is a perfect target for acquisition, industry experts say. Founded in 1995, the company has been expanding at a pace that seems staggering even in an industry that is used to breakneck growth. In less than 10 years, TJoy has grown a sales network of 20,000 outlets around the country from Shanghai in the east to Qinghai in the deep west.

But experts familiar with the cosmetics industry in China say that sales of TJoy have been shrinking in recent years. The company's sales in 2009 fell 10 percent from 2008, resulting in sagging profit. Failing to come up with a hit product, the company began looking for partners to help rejuvenate its brand image.

At one time, the company was reported to have sought a cooperative agreement with Shanghai Jahwa, a leading healthcare product maker. That apparently fell through after the company began talks earlier this year with Coty on the share sale. Before the acquisition was confirmed last week, TJoy launched Pure Planet Extract, developed in collaboration with Coty, in October.

Zhuang Wenyang, founder and chairman of TJoy, says he is confident the transaction will bring a "promising" future for his company. "With the international network and marketing expertise of Coty, TJoy will be in a much stronger position to grow its market share," says Zhuang.

Contrary to expectations, Lin Li, TJoy's marketing director, predicts that changes will be gradual after the transaction, which is expected to be completed in January 2011. "We are still holding a significant minority stake and retain a say in the company," he told a local newspaper. "There will be no major changes in the existing workforce."

Coty, with annual sales of more than $4 billion, made a splash in the Chinese market in 1996 with the acquisition of Yue-Sai, founded by its charismatic chairperson Yue-Sai Kan.

But the French company seemed to have lost its China drive in 2004 when it sold both Yue-Sai to rival L'Oreal and the rights of the adidas brand of cosmetics in the China market to Shanghai Jahwa. The company is seeking to return to the China market at a time when its traditional markets in Europe and the United States are taking a hit from the lingering financial crisis.

Fu Ye, a PR manager for Coty, says the operation of TJoy will merge with the operation of the Coty group after the deal is completed. Zhuang will remain on the board of Tjoy but the CEO of the Chinese company will be appointed by Coty.

"The TJoy brand will be retained and we will pay equal attention to the development of each brand," says Fu.

Gu Jun, deputy secretary-general of the China Commerce Association for General Merchandise, predicts that there will be much room for growth at TJoy after the acquisition. "TJoy is wise enough to aim at keeping its brand instead of selling the entire company to Coty."

Foreign cosmetics and healthcare manufacturers have been active in local brand acquisition in the past decade. L'Oreal of France, Beiersdorf of Germany and Johnson & Johnson of the US have all bought controlling stakes in Chinese cosmetics firms.

At the beginning of 2004, L'Oreal spent only 50 days in integrating Mininurse, a skincare brand of Shenzhen-based Raystar Cosmetic Co, helping L'Oreal gain access to the middle- and low-end markets with about a 90 percent recognition among Chinese consumers. Retaining its original sales channels and adjusting its formulation, L'Oreal gave Mininurse a more dynamic look and helped its position in China.

L'Oreal's purchase of Yue-Sai also allowed the international company to acquire more than 800 outlets in 240 cities and a Shanghai factory to tap into China's medium-end makeup market.

"The acquisition was an outstanding opportunity to speed up our growth in the Chinese market," says Lindsay Owen-Jones, L'Oreal's chairman and chief executive officer.

The acquisition of Yue-Sai and Mininurse has obviously helped with L'Oreal's expansion in China. According to Euronomitor International, the L'Oreal Group took up 4 percent of the market share in the beauty and personal care section in 2009 in China, making it the top European cosmetics company in China.

"International cosmetics giants are now trying to take control of the local brands in China via acquisition, aiming to dominate the cosmetics market," says Chang Yizhi, researcher at China Investment Consulting.

While experts are worried over the future of Chinese brands, international brands acquiring Chinese brands may be good news to some customers. Fu Bo, 26, an administrative employee working for the government of Suzhou, a neighboring city of Shanghai, welcomes the international brands.

"I have more confidence in the European cosmetics brands for they promise better quality as far as I am concerned. For Chinese brands being injected with international vitality is good news both in terms of quality and brand promotion, but I will not probably give a try to the hybrid at present as a consumer. It is safer to test them after the market gives positive feedback," says Fu.

"After these Chinese cosmetics undergo repacking and reformulation, they may seem more attractive to us. But it would be better if they do not raise their prices once they are merged with the international brands."

While acquisition is one means for some brands to penetrate the Chinese market, some other European brands are taking their time in their expansion in the market, meticulously establishing more branches and stretching their market network.

Clarins, a top French cosmetics company specializing in skincare products and fragrances with more than 16 percent of the market share in France, entered China in 1990. But it was not until 2002 that the company saw traction in the Chinese market, with rapid growth from 2007 to 2009.

"According to Beauty Research, a beauty blogging website, Clarins rose to be the No 8 cosmetics brand in China in 2009 while it had a ranking of 12 or 14 in the early 2000s," says Alan Zhong, brand manager of Clarins China.

"Though we are still no match for leading brands such as Lancome, Estee Lauder and Christian Dior whose annual revenue amounts as much as 1.5 billion yuan (170 million euros), we reached a total revenue of about 300 million yuan in 2009 and the number is expected to reach 400 million yuan by the end of this year."

Clarins has been keeping an eye on the growth of Chinese consumers although the company has been keeping a low profile in China compared to other brands. People who are relatively wealthier, who are target consumers of Clarins, have been multiplying in recent years, as Clarins observes.

"The number of our consumers, as well as their consumption ability, has risen by 20 percent as a whole in the past five years," says Zhong.

With three SPAs and 83 retail stores scattered in about 35 cities in China, Clarins is thinking of diverting its development focus from developed coastal cities in southeast China to cities such as Nanjing and Hangzhou and third-tier cities such as Hohhot and Urumqi.

Despite the fact that Clarins shares much in common with Chinese culture such as the strong belief in herbs, European companies still face some difficulties in China, especially in sales channels.

"The Chinese government has been quite reasonable with overseas brands coming into China. But for a family business such as Clarins, we still have much to learn with regard to explore the market here. In Europe, people frequently go to pharmacies for cosmetics while in China a department store is the first choice when it comes to buying cosmetics. Therefore, European companies have to adapt to this consumption habit when they want to build a strong brand image and better understand the customers here," says Zhong.

"After these Chinese cosmetics undergo repacking and reformulation, they may seem more attractive to us. But it would be better if they do not raise their prices once they merge with the international brands."

According to the 2010 China Cosmetics Industry Development Trend Blue Paper issued earlier this year, the sales of cosmetics in China exceeded 140 billion yuan in 2009, 7.7 percent up compared with the previous year, making China the third largest cosmetics sales market only next to the US and Japan.

While acquisition is one means for some brands to penetrate the Chinese market, some other European brands are taking their time in their expansion in the market, meticulously establishing more branches and stretching their market network.

Clarins, a top French cosmetics company specializing in skincare products and fragrances with more than 16 percent of the market share in France, entered China in 1990. But it was not until 2002 that the company saw traction in the Chinese market, with rapid growth from 2007 to 2009.

"According to Beauty Research, a beauty blogging website, Clarins rose to be the No 8 cosmetics brand in China in 2009 while it had a ranking of 12 or 14 in the early 2000s," says Alan Zhong, brand manager of Clarins China.

"Though we are still no match for leading brands such as Lancome, Estee Lauder and Christian Dior whose annual revenue amounts to as much as 1.5 billion yuan (170 million euros), we reached a total revenue of about 300 million yuan in 2009 and the number is expected to reach 400 million yuan by the end of this year."

Clarins has been keeping an eye on the growth of Chinese consumers although the company has been keeping a low profile in China compared to other brands. People who are relatively wealthier, who are target consumers of Clarins, have been multiplying in recent years, as Clarins observes.

"The number of our consumers, as well as their consumption ability, has risen by 20 percent as a whole in the past five years," says Zhong.

With three skin spas and 83 retail stores scattered in about 35 cities in China, Clarins is thinking of diverting its development focus from developed coastal cities in southeast China to cities such as Nanjing and Hangzhou and third-tier cities such as Hohhot and Urumqi.

Despite the fact that Clarins shares much in common with Chinese culture such as the strong belief in herbs, European companies still face some difficulties in China, especially in sales channels.

"The Chinese government has been quite reasonable with overseas brands coming into China. But for a family business such as Clarins, we still have much to learn with regards to exploring the market here. In Europe, people frequently go to pharmacies for cosmetics while in China a department store is the first choice when it comes to buying cosmetics. Therefore, European companies have to adapt to this consumption habit when they want to build a strong brand image and better understand the customers here," says Zhong.