[Exclusive] Cosmax Establishes Malaysian Subsidiary... Accelerating Southeast Asia Expansion

Slowing Sales Growth in China Accelerates Expansion into Southeast Asian Markets
Southeast Asia's Rising Economic Levels Boost Demand for Color Cosmetics

Cosmax, a cosmetics manufacturer and original design manufacturer (ODM), has officially established a corporation in Malaysia. Given the strong growth of its existing Southeast Asian subsidiaries in Thailand and Indonesia, this move is understood to be an effort to accelerate local market penetration.

Cosmax China. Provided by Cosmax.

According to the Financial Supervisory Service's electronic disclosure system on the 19th, Cosmax set up an official corporation in the Kuala Lumpur area of Malaysia in July. The corporation is a 100% subsidiary of the Indonesian corporation. The head of the corporation concurrently serves as Jeong Min-kyung, the head of the Indonesian corporation.

Until now, Cosmax had only operated a sales office in Malaysia. Typically, companies operate offices locally to assess business feasibility before going through processes such as obtaining approval to establish a corporation and then setting up a local corporation. Cosmax appears to have recently completed the establishment of the corporation, judging that Malaysia, sharing a similar cultural sphere with Indonesia, could show comparable growth. The decision to establish it as a subsidiary of the Indonesian corporation was based on the expectation of synergy, given that both countries share the Islamic halal cultural sphere.

A Cosmax official stated, "It is true that we recently established an official corporation in Malaysia," adding, "However, this does not mean that we plan to build a factory to produce products immediately." Cosmax plans to maintain the current model of receiving orders from Malaysian clients and manufacturing products at its Indonesian factory before delivering them locally for the time being.

Cosmax's establishment of a corporation in Malaysia is aimed at diversifying overseas sales. As of the third quarter, Cosmax has local corporations in China (Cosmax East), the United States (Cosmax West), Japan, Thailand, and Indonesia, in addition to Korea. The largest overseas markets in terms of sales are China and the United States, but due to prolonged poor performance, the company plans to grow its Southeast Asian markets to compensate for sales.

In fact, looking at Cosmax's third-quarter performance, domestic sales increased by about 20%, while sales in China and the U.S. both declined. China recorded sales of 114.4 billion KRW, down 7.5% compared to the same period last year, and the U.S. recorded 32.5 billion KRW, down 11.8% over the same period. Consequently, the sales share by region also decreased. The sales shares of China and the U.S. dropped by 5 percentage points and 2 percentage points respectively compared to the third quarter of last year, standing at 22% and 6%. Other regions include domestic (including Japan) at 66%, Thailand at 2%, and Indonesia at 6%.

Furthermore, it is expected that the China and U.S. markets will be difficult to recover in the short term. The China market recorded its first sales decline in the second quarter. The main reasons are consumers holding back spending due to the economic downturn and a decrease in orders from online clients caused by a slowdown in online channels. Additionally, profitability has deteriorated due to rising labor costs. The U.S. market is also experiencing a decline in sales due to delays in acquiring new clients and the loss of some existing clients. Researcher Baek Song-yi from Mirae Asset Securities analyzed, "Uncertainties in the U.S. and China persist," adding, "Consumer sluggishness continues in China, and new orders in the U.S. market are appearing more slowly than expected."

On the other hand, the atmosphere in the Southeast Asian market is different. As the economic level in Southeast Asia rises year by year, cosmetics consumption is rapidly increasing. The Indonesian corporation is recording double-digit sales growth. As of the third quarter, the Indonesian corporation's sales amounted to 32.3 billion KRW, about 20 billion KRW more than the Thai corporation, another Southeast Asian subsidiary, which recorded 11.1 billion KRW. Notably, this figure surpassed the U.S. corporation's sales of 32.5 billion KRW for the first time, ranking third in sales by region after domestic and China markets.

Cosmax expects sales to grow rapidly as Malaysia's income level rises and local brands continue to emerge. A Cosmax official explained, "As more people are able to consume cosmetics, sales of color cosmetics are rapidly increasing, with a ratio of basic to color cosmetics at 6 to 4," adding, "Recently, the market for baby and children's cosmetics has also emerged." Additionally, Cosmax plans to actively secure orders from global companies operating in Indonesia and Malaysia to further increase sales. Regarding the Thai corporation, there are plans to actively expand the sales network to Cambodia, which is close to Vietnam where the office is located.