Philosophy is a unique company based in Phoenix that produces wholesome skin care and beauty products conveying inspirational messages. Using retro imagery and lowercase letters, Philosophy symbolizes simple pleasures. Given its strong values and consumer satisfaction, Philosophy may look to expand globally, with China's growing economy and consumers presenting opportunities. While China has a competitive cosmetics market dominated by multinationals, Philosophy's products appealing to Chinese preferences could find success there. Partnering with local companies knowledgeable in Chinese markets and channels could help Philosophy navigate regulations and capitalize on the industry's continued growth in China.

1. expansion into China:
There exists few companies in the Phoenix area that are quite as unique,
imaginative and wholesome as philosophy. Founded on the aspiration to
"bridge the gap between what was offered in doctors' offices and retail,"
philosophy features products like "shower for
the cure" and "hope in a jar," reflecting its
charitable and inspirational characteristics [4].
Using all lower case letters, and classic retro
style pictures of children, philosophy
symbolizes the simple things in life [4]. It
would come to no surprise that such a company, based on strong moral
values and quality products boasting excellent consumer satisfaction, might
have its eye on growth and globalization. China, with its booming economy
and increasingly connected consumers, might be just the place to stage
philosophy's expansion into the global market.

2. the business environment
economy
China is the world's third largest economy and is predicted to takeover Japan
in a number of years [1]. When it comes to foreign direct investment, China
has the second highest inflow in the world and fifth highest outflow. Specific
to the cosmetic industry, China has become the
second largest cosmetic market in Asia and eighth
largest in the world [2]. If philosophy were to
enter China, it would be competing with over
4,000 manufacturers, including over 1,200
multinationals and at least 400 state-owned enterprises [2]. Although there
are many domestic firms competing in China's cosmetic industry,
multinationals claim 80% of the market share [2]. With such a competitive
market, companies need to be able to differentiate their products and
connect with the consumers, and having timely market information is key.
Although the Chinese cosmetic market is already large on a worldwide scale,
the economic growth in China has increased not only the population's
income, it has increased awareness of their appearance, and is expected to
continue in this trend. For this reason, the cosmetic market has larger
growth potential than many other industries in China [2]. So, not only will it

3. grow steadily with China's growth, the cosmetic market has yet to see its
consuming potential fully released.
Large, multinational companies benefit from their advantages in quality and
flexibility in capital spending, and currently dominate the market share.
However, local firms competing on price and utilizing their thorough
understanding of the culture and complicated marketing channels cannot be
overlooked [2]. Future success may rely more and more on a deeper
understanding of the Chinese market and market segmentation, and less on
advertising spend.
culture
Cosmetic companies in China are inevitably different
than those in America. One factor is that Chinese
women prefer skin whitening effects in their cosmetics,
while Westerners tend to favor the tanned skin look [2].
In this regard, philosophy's gentle formulations would fulfill the preferences
of the Chinese people with few, if any, modifications.
Chinese consumers, like a growing number of Westerners, prefer natural
ingredients to be used in their cosmetics [2]. For this reason, China's

4. consumers are likely to embrace philosophy's results-driven, medically-
based, "good-for-skin" products.
Aside from the products, philosophy's company culture would pique the
interests of Chinese consumers and workforce. Symbolism and subtlety are
values the Chinese people have, and these come through in various places,
including companies they own and operate. The lower-case lettering and
sweet pictures of children used by philosophy symbolize the simple pleasures
in life; they inspire better days and the belief in miracles and beauty in
everyone [4].
The philosophy, and products, of philosophy seem to be “China-compatible”
because the products are subtle, use healthy ingredients, and appeal to the
cultural love of symbolism. One additional aspect philosophy could benefit
from would be products and manufacturing processes in line with traditional
Chinese medicine. Traditional Chinese medicine and herbal medicine have
been prevalent in the Chinese culture for thousands of years, and is making
a comeback in recent times as an alternative to Western science and
medicine.

5. laws
Since China opened its doors to international commerce in
1978, the country has steadily promoted reform and
welcomed foreign investment. In 2001, China entered the
World Trade Organization, and in doing so, reduced its import tariffs, further
encouraging multinational firms to do business in China. China's tax policy
was adjusted in 2006 to levy higher taxes on energy consuming products
and luxury products, and remove consumption tax on daily necessities such
as shampoo and bath lotion. The tax for some premium cosmetics was
increased to 30% (from the original 8%) [2]. This was aimed at boosting
the development of China by favoring the low and mid-range cosmetic
companies. Although the higher consumption tax on premium cosmetics
causes the prices to increase, target consumers of high-end cosmetics are
less price-sensitive and thus the tax is not expected to significantly reduce
demand for such products.
One obstacle philosophy will have to overcome is in certifications of imported
cosmetics. Specifically, they would be required to obtain a certification from
the Ministry of Health and another from the General Administration of
Quality Supervision, Inspection and Quarantine. The two issuing
departments do not consult each other on certification standards, so a

6. product can pass in one department and not in the other [2]. With all the
redundant and ill-defined regulations, the process can easily take over six
months. Partnering with a Chinese company or developing good
relationships in China may help to overcome these hurdles.
the state of the industry
The most successful companies in the
Chinese cosmetic market are
multinationals, including L’Oreal, P&G,
Shiseido, and Estee Lauder [3]. While
some local companies, such as Shanghai
Jiahua United Co. and Jiangsu Longliqi
Group, are holding their own in the market, China has yet to contribute a
cosmetic company with a global reach [2]. Only recently, a cosmetic brand
in Jiangsu Province, Xiefuchun, entered into an agreement with Wal-mart.
The 179-year-old brand hopes to sell its products in around 150 malls.
Growth can be seen in another cosmetic manufacturer, 147- year-old
Kongfengchun, based in Zhejiang Province, as it has opened over 70 stores
since 2008 [2]. In Beijing, Miqi is now finding success in its homeland after
enjoying a strong export market in Japan for some time [2]. With such a
vast consumer base and low per capita consumption of cosmetics, the
cosmetic market in China has plenty of room to grow, and is expected to

7. grow faster than the Chinese economy as a whole. Other influences will
accelerate this growth, such as increasing influence of the western world,
rising purchasing power and an escalating consumerism culture. If
philosophy wants to capitalize on this growth, this is the time to get in,
before the market explodes.
potential partnerships
Shanghai Jiahua United Co. is the leading
domestic cosmetic company in China, and "is
considered to be the only local cosmetic
company that can compete with
multinationals." General manager Jiannin Qu
attributed the company's success to strong
market segmentation. Shanghai Jiahua’s well-
known brand "Baicaoji" makes claim that it
practices traditional Chinese medicine and uses
ingredients based in herbal medicine [2]. The functional cosmetic line, with
functions such as repair, cure, maintenance, care and isolation, fit well with
philosophy's line of products. It would be easy to see a line extension in
philosophy's future to include products based in the principles of herbal and
traditional Chinese medicine.

8. Another possible partner would be Jiangsu Longliqi Group, whose claim to
fame is its channel construction. A survey of more than 20 villages with a
population ranging between 100 and 1000 showed that about 50% of the
stores sell Longliqi's products [2].
While its premium, high quality products will face heavy competition from
the local, low-end companies, understanding the market channels and
further channel construction in China will give philosophy a huge competitive
edge on the other multinationals. For this reason, partnering or entering in
a mentoring relationship with one such firm would be pivotal in philosophy's
success in China. In addition, such a partnership would enable philosophy to
develop products with herbal ingredients or based in traditional Chinese
medicine, appealing to even more of the local markets, and potentially to
global markets as well.
recommendation
The cosmetic market in China is poised to burst in the very near future, with
huge growth potential for all players. Furthermore, a company that can
leverage its capital to spend on advertising will go far.
Quality products in the high-end segment, aligned with the
desires of Chinese consumers, will also contribute to the
success of cosmetic companies. These factors will primarily

9. benefit multinational companies. However, a thorough understanding of
market segments and channel construction in China will be crucial to the
success of cosmetic companies in this highly-competitive market. While
local companies are best suited to compete on price, this knowledge would
be of great benefit to a company competing in the high-end segment like
philosophy.
The recommendation, then, is to enter China with a partnership or mentor
relationship that will help philosophy build the localized knowledge it needs
to succeed. The products and company culture of philosophy, as we've
seen, need to be tailored very little to fit the demands of Chinese
consumers, although a line extension to include traditional Chinese medicine
may also increase philosophy's success.
references
[1] "Economy of the People's Republic of China". Wikipedia.
http://en.wikipedia.org/wiki/Economy_of_the_People's_Republic_of_China
[2] "Chinese Cosmetic Market Overview". 14 Nov 2006. Frost & Sullivan.
http://www.frost.com/prod/servlet/market-insight-top.pag?Src=RSS&docid=86897413
[3] "Essential and Illustrative Report on the Chinese Cosmetics Market out Now". 10 July
2008. BusinessWire. http://www.businesswire.com/portal/site/home/permalink/?
ndmViewId=news_view&newsId=20080710005508&newsLang=en
[4] “philosophy official site”. Accessed 7 May, 2010. http://www.philosophy.com
Personal Reflection

10. I believe it was Doug Cougle who said that when Americans come to China for the first
time, they think they know everything; when they come a second time, they are ready to
write a book; and when they come a third time, they realize they don't know anything.
This being my second visit to China, I must have skipped a step somewhere, because I
found that I came back with more questions than answers. I attribute this to my
exposure to the variety of educational resources; from the movies, books, class
discussions and case studies, as well as my personal mentors. I think I was more
prepared to learn what it is I don't know than most visitors to China.
While I thoroughly loved and enjoyed what I saw of Beijing, Suzhou and Shanghai, it
seems as though each city has its own histories, traditions, dialects, flavors, perhaps
even their own cultures. The four cities I have visited (Dengfeng being the other city I
visited previously) in two visits to China barely represent the tip of the iceberg. There
are so many booming cities, and each of them have their own culturally significant
historic sites, stories and customs. It’s almost overwhelming how much there is to learn
about China, and this is just one aspect that I intend to focus on.
Economy of China
Whether you look at the numbers, listen to the stories or visit the companies of China, it
is clear that the economy is growing at a rapid pace. The real GDP growth rate has
been between 8% and 12% since 2000 (1). Doug Cougle at Intel cited that there were
800 million residents of rural China and only 200 million were needed to maintain the
agriculture business. So China is basically attempting to urbanize 600 million people.

11. He related this to building a city of Chicago every month for several years. That kind of
growth is difficult to comprehend, and the social implications are even more so.
The visit to COFCO was eye-opening in many ways. One of the questions asked was
in regards to plans for exporting COFCO's wildly popular brand of wine, The Great Wall.
From an American perspective, it seemed like a fair question to me, but Mr. Chi
responded that China was growing so rapidly, they couldn't even keep up with the
growing demand for wine in China. He emphasized they first must be able to meet the
Chinese demand before considering exports. I got the same impression from Fosun
Pharma; that if China is one of the largest markets in the world and growing, then the
focus is on China, and rightfully so. It was as if, to these companies, globalization
doesn't mean multi-national; to globalize and grow is to be in China.
Key Learnings
One big take away from this class is that Chinese companies are much more than a
place of work to their employees. Historically, we learned that the danwei, or work
groups, assigned living accommodations, and even had the right to approve or deny
marriages and having children (2). While the new capitalist China has diverged from
this tradition, with many young professionals buying their own homes now, Chinese
people are still much more connected to their employers than in America. Bob Boyce,
the owner of Blue Frog exemplified this when he talked about how, after contemplating
what to do about his high turnover rate, he developed a method of managing his
business he called family style management. The keys to this management style were

12. a sense of belonging, discipline, opportunity and a place of home. His employees
needed to feel valued in the organization, and they needed to know that there was room
to grow with it and within it. They also needed to have standard processes and rules to
abide by, rules that were enforced. And because many of them were from rural cities,
the company took a more involved approach to their personal lives by planning trips and
events to make them feel more at home. He said that the people they work with were
their only friends in a lot of cases, and this was their new family and their home away
from home.
A common theme in the company visits was that retaining talent, especially in the mid-
or senior management level, is one of the biggest challenges companies in China face.
This seems especially true of companies in the Suzhou Industrial Park; both Emerson
and Honeywell speakers stated that their middle managers are often offered positions
for two or three times their current pay. Ericcson, also, talked a lot about talent
development. Intel noted that there was a gap between junior managers and people
capable of being senior managers, but that this problem was not limited to China.
My Career
As a relatively ambitious person, I had my education and the first few years of my
career pretty well charted out early on. But beyond a few years after graduating with my
MBA, my plans are not set in stone. I've envisioned myself doing many things, from
rising up the corporate ladder in a big company, to starting my own supply chain
consulting firm, and even wilder dreams like creating a home furnishings design

13. company or developing a TV series on business concepts. I never seriously considered
permanently moving to another country, but after this trip, I am inspired to do so. There
are a lot of things to consider, and a lot of research for me to do, but this trip may very
well have changed the course of my career.
Perhaps opening a supply chain consulting company in China would be more
successful than in the US, for example. Afterall, the market in China is nearly infinite,
and the US market is already saturated with consulting companies. What's more,
Chinese companies are still developing and could greatly benefit from such services,
whereas some consulting companies in America have given the industry a bad
reputation. This is one opportunity I may consider for my own career, recognizing,
however, that more experience and studying Mandarin are pre-requisites for such a
pursuit.
There is also something to be said about the sophisticated, modern tastes displayed in
companies like Li Ning and COFCO. I could do very well by developing my design
brand in China, bearing in mind the growing industries and modern architecture, and the
growing population of Chinese with discretionary incomes.
My Cultural Intelligence
As I mentioned, I returned from this trip with more questions than answers, and I think
that exemplifies my increased awareness. That is not to say that I lack knowledge
about the Chinese culture and other cultures; I feel I have learned a great deal about

14. both China and the world, but much of my education has been through books, films,
articles and case studies. From my experiences in China, I have created a list of even
more topics that I would like to read up on and learn more about. Also, it has become
very apparent to me that, since China is growing so quickly, material can become
outdated faster than normal, so I recognize the importance of continuing to read and
learn about business and news in China.
In terms of mindfulness and awareness, I'll be the first to admit that there are still times I
was caught off-guard because I went into "auto-pilot", and was rudely awakened when
things weren't as I expected them. The concept of personal space is one such concept
I've made assumptions on. People in China seem to have a very different concept of
personal space, so it was easy for me to think they were being rude when they pressed
against me in crowds. I don't know the background on this difference, but I suppose it’s
not hard to understand that, with millions of people in several cities, and perhaps a
scarcity of resources in rural areas, people are eager to get where they are going, and
their concept of in-group and out-group makes them a little more indifferent to strangers
than westerners.
Putting my knowledge and mindfulness to work, I believe I've developed behaviors and
skills to accommodate cultural differences, during this trip and previous trips to Asia.
Learning the language would definitely help me fit in better, but even beyond the
language barrier, I have so much more room to grow.

15. References
1 GDP growth in China 1952-2009. 27 Dec 2009.
http://www.chinability.com/GDP.htm
2 Seligman, Scott D. "Chinese Business Etiquette". 1999.