Guangdong Cosmetics Manufacturers Reacting to Consumer

UNCLAS SECTION 01 OF 02 GUANGZHOU 000966 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ETRD ECON PGOV CH SUBJECT: Guangdong Cosmetics Manufacturers Reacting to Consumer Product Safety Concerns ¶1. (U) SUMMARY: Cosmetics manufacturers in southern China are acutely aware of heightened consumer product safety concerns. One manufacturer told congenoffs that local authorities lack capacity to enforce safety and quality standards. However, some firms are taking steps on their own to help foreign customers feel more confident in their products. END SUMMARY. Cosmetics Makers Trying to Clean Up Their Act -------------- ¶2. (SBU) In an August 29 meeting, Ren Jie, the owner of Guangdong Irene Cosmetics Co. Ltd, told us that the cosmetics industry in China had been shocked by the flurry of consumer product safety problems and had since made changes to improve their quality assurance processes. According to Ren, Irene Cosmetics, with revenue in excess of USD $10.6 million, is China's largest perfume exporter to the U.S., and the fourth largest exporter of perfume to the U.S. in the world. Ren noted that officials with China's Administration of Quality Supervision and Inspection and Quarantine (AQSIQ) were taking product safety issues very seriously because they feared losing their jobs should problems arise under their jurisdictions. Ren believes that quality control in the industry will improve in response. Talking the Talk, But Can They Walk the Walk? -------------- ¶3. (SBU) Despite heightened concerns, Ren told us that the capacity to enforce safety and quality standards was still lacking. He explained that AQSIQ's local subordinate office, the Guangdong Entry and Exit Inspection and Quarantine Bureau, is supposed to test every batch of export products but is unable to do so because it is severely understaffed. Irene Cosmetics takes it own product samples and sends them to the agency. Ren said AQSIQ doesn't bother to check his firm's export containers, allowing him to export on his good reputation. Raising Quality to Meet Customer Demand -------------- ¶4. (SBU) Ren cited an example of how Irene Cosmetics has improved product quality in response to a request from a U.S. client. The firm introduced an additional purification process for the alcohol used in perfumes after a request by the company that sells Brut. The U.S. client requested this enhancement stating that the outdated equipment used in China's domestic alcohol manufacturing did not produce sufficiently pure alcohol. Irene Cosmetics initiated a secondary purification process combining a chemical and a boiler distillation step. Ren highlighted his advantage over competitors as the only Chinese perfume manufacturer with an alcohol boiler on the factory's campus. Colornow Strives For U.S. Export Business -------------- ¶5. (SBU) The owner of Colornow Cosmetics Co., a small Guangdong based cosmetics firm, manufacturing mostly hair products, is also acutely aware of the consumer product safety concerns as he strives to secure orders from U.S. buyers. Frank Fang, Colornow's owner, told congenoff that over half of the firm's output is exported to international markets, but he has yet to export goods to the United States. Colornow is currently in the final stage of selection to fill a bath gel order for Target. The factory has passed the facility inspection, the testing of the first batch of product, and now hopes to receive the order this November. Fang feels that a few bad apples have made it hard on small manufacturers like him, who, he says, maintain high quality standards for reasons of national pride and because they simply have too much to lose. ¶6. (SBU) However, Fang also indicated that some smaller export customers do little due diligence and testing of products made by Chinese manufacturers. He described how he had met foreign trade partners through internet forums. Some of these customers made an initial inspection visit but thereafter used a testing agency to ensure product quality and safety. Trusting Suppliers -------------- ¶7. (SBU) Colornow places a high degree of confidence in single supplier of ingredients. Croda Ltd, a global specialty chemical company headquartered in the UK, is Colornow's only supplier for almost all of its inputs. Fang commented that many other local cosmetics producers also rely on Croda. He told congenoff that Croda is well known in China, actively promoting their products by hosting events usually attended by 100-200 business people. He deems Croda, with their worldwide production bases and international certifications to be trustworthy. However, Mr. Fang admits that has GUANGZHOU 00000966 002 OF 002 no idea where Croda's ingredients are produced and performs only limited testing on the ingredients they supply. The High Price of Quality Control Failure -------------- ¶8. (SBU) Colornow became sensitive to the importance of product quality standards after a bad experience with a new product shipped to the Netherlands. His customer rejected the shipment because it was defective. Fang cited improper humidity and temperature control in production as the cause. It was an expensive lesson, as Fang had to compensate the client. Since then he has been assessed and certified by SGS, a leading third-party inspection company that follows U.S. FDA standards, and he has attained ISO 9001:2000 certification. In addition, his firm pays to have its products tested by SGS periodically to make sure that they meet international standards. Different Standards May Be Harmful to Chinese Consumers -------------- -------------- ¶9. (SBU) Both cosmetics manufacturers indicated that there was a double standard in production and product safety standards for domestic goods versus those for export. In addition to frequently changing taste in packaging and preference for larger sizes among western consumers, Irene's Ren explained that safety standards were much higher for cosmetics sold abroad. When asked where his greatest concern lies in cosmetic product safety, he identified skin whitening creams, a staple in any Chinese cosmetics aisle, as the greatest risk. Ren said that the active ingredients in these products are most likely unsafe and could cause health problems and skin damage. Because of these concerns, he no longer produces any products with skin whiteners. Colornow's Fang explained that because Chinese customers perceive foreign products to be of higher quality, his firm's professional line of hair care products sold exclusively in China are conspicuously packaged and labeled completely in English. The Chinese directions for product use and ingredients list are discretely printed on the inside of the box. JACOBSEN