Johnson & Johnson is rumoured to be in advanced talks to buy up Beijing-based Dabao Cosmetics a move that could give the company a valuable footing in what is currently a huge growth market.
According to reports in the Shanghai Oriental Morning Post, an industry insider said that the companies have made an agreement with regards the sale that is now undergoing regulatory approval.
Niether company has confirmed or denied the press reports, but with state regulatory approval of buy-outs involving foreign companies often proving to be a long and arduous process, it may be some time before the deal is officially acknowledged.
The newspaper report also said a senior executive at Dabao could not categorically deny the news report, although Johnson & Johnson officials have refused to make any comment.
Dabao a leading player on the China skin care market, with a number of brands that compete along with the largest players on the market. Currently Dabao is estimated to be the third largest skin care provider in China, behind Unilever and Proctor & Gamble respectively.
Dabaos skin care products are marketed at the mid- to low-end market range in China, thus appealing to the growing number of women, and a hand full of men, who are beginning to invest increasing amounts of time and money on their skin care routines.
Its biggest selling ranges are its night creams, skin lightening products, anti-aging creams and under-eye creams.
For Johnson & Johnson, the move to buy up Dabao could represent rich pickings in a market segment that is already showing huge growth rates on the back of the growing consumer spending power.
It also follows a trend, whereby large multinational companies are moving in to buy up producers of mid- to low-range cosmetic and toiletries products in an attempt to expand their footing on a rapidly evolving segment of the market.
According to the Kline Group, growth of skin care products in China during the period 1999 to 2003 was modest at 9.8 per cent.
A lot of this market growth came from the premium end of the market, which was the first to really develop in China. However, as wealth is now starting to filter down to greater numbers of Chinas estimated 1.3 billion population, it seems that even richer pickings could be in sight at the lower end of the market.
It is this impetus that has helped push cosmetics market growth well into double figures in the last couple of years and is likely to sustain growth at this kind of levels should current economic conditions continue to prevail.
China Investment Consulting says that currently market growth within the cosmetics segment is running at 13 per cent and is estimated to be valued at CNY68bn (6.6bn).
Johnson & Johnson has already established itself in the medical, health care and general personal care market, but the purchase of Dabao would be its first big move into the mid- to low-end cosmetic market.
Currently it has eight registered businesses in China, including Johnson & Johnson China and Johnson & Johnson Medical.