Where now for Russian manufacturers?

- Last updated on GMT

Related tags: Cosmetics, Russia

In the last five years, the Russian perfume and cosmetics market
has been the fastest growing in the world. Sales have increased by
20-25 per cent a year in Russia in comparison with the sales growth
in western countries, which has barely reached 3 per cent. Russia
is therefore an extremely attractive base for the development of
todays cosmetic industry.

For the past decade many European transnationals have expanded into Russia, for example Beiersdorf, L'Oreal and Procter & Gamble. In the last two or three years these companies have quietly began manufacturing products at Russian factories.

To compete with the foreigners, Russian companies have been forced to perfect their business methods, involving everything from quality control, marketing, and clear market positioning, the very things that western companies excel at today. Only a few Russian companies have succeeded in mastering these methods, namely Kalina, Faberlic, and Nevskaya Kosmetika.

The majority of Russian cosmetics companies are no longer able to compete with western and leading Russian producers. Instead they are trying to produce innovative products to take over unique market niches. According to specialists, a real innovation boom is underway at Russian cosmetic companies.

In fact, this innovation boom is world-wide because cosmetics are not able to satisfy the increasing demand for solutions to particular beauty problems, therefore cosmetics are converging with pharmaceuticals. Where the two meet, a popular direction in cosmetology has appeared, often called parapharmaceuticals or cosmeceuticals. These are the fastest growing market segments, expanding by 40 to 50 per cent a year.

Russian producers see parapharmaceuticals as a more appropriate direction for innovation. Cosmetics companies that don't want to risk using highly active ingredients and don't have enough resources to buy cutting-edge formulas have created milder versions of cosmeceuticals, parapharmaceuticals. They use less active ingredients and treat concrete problems like dandruff, acne, and blackheads. This segment looks the most promising for many Russian companies.

Nonetheless, it seems unlikely that Russian innovations will be capable of competing with western products. Despite the fact that every third Russian cosmetics company is announcing innovations, the majority of them on closer inspection can hardly be called revolutionary.

"What Russian companies are currently offering as innovations are perhaps good products, but were invented twenty to thirty years ago, you need millions, if not tens of millions, to develop a cell-based product and you won't see a return on that money for a while," says Igor Ushakov, general director of Astera.

Without the money Russian companies are left to create innovative products by finding new combinations of well-known ingredients. This is precisely what Faberlic, Green Mama, Emansi, and other progressive companies are doing.

But the majority of Russian companies are not able to compete with transnationals on the marketing front either. It seems more likely that Russian manufacturers will have no choice but to incorporate themselves into transnational business plans.

Some Russian companies are already working in this direction knowing that no expense is spared when it comes to the multinationals buying patents. With L'Oréal buying 50,000 patents a year it would appear that this is the best if not the only way forward.

Related topics: Market Trends

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