▲ Actress Song Hye-kyo. Provided by laneige.com.

Despite all the gloom and doom about South Korea’s economic distress, there is one emerging industry that is beating the odds. It is none other than Korea’s beauty industry that has become a dominant force in Asia and is seeking to gain a foothold in the global market. Although some might be skeptical about the longevity of this up-and-coming industry, K-beauty seems to be so much more than short-lived media hype.

Just as the novelty of K-pop starts to wear off as the K-pop market is becoming over-saturated, a new phase of K-wave has dawned. Yes, the K-beauty boom might not be as sensational and publicized as K-pop, but its prospect seems highly promising with still much more room to grow.

Before delving further into its success story, however, let’s trace back the history of South Korea’s beauty industry. Until recently, it relied exclusively on domestic demand and was thus considered to be limited in its potential in comparison to other export-oriented industries. This also translated into a high degree of elasticity, meaning it was directly affected by the state of the domestic economy and consumer spending.

However, the Korean cosmetic industry started to veer off this trajectory starting in 2007, as it gradually became more inelastic, which indicated that cosmetic products were increasingly being

perceived as more of a necessity than a luxury good. This shift in perception became more conspicuous during the 2008 global financial crisis and thereafter. Its year-on- year growth rate hovered around 10 percent, while most other consumer-goods industries saw a modest 3 to 4 percent growth.

 

Such robust growth has only accelerated since then as domestic cosmetic giants continue to outdo themselves. Most notably, AmorePacific has recorded a whopping 419 billion won in operating profits in the first quarter of 2016, which equates to a 30.7 percent increase from a year earlier. Coming in second, LG Household and Health Care’s operating profit in the first quarter was 233 billion won, another record for the conglomerate.

▲ Korea’s trade balance and cosmetics exports. Provided by koreaherald.com.

The Power of K-pop and K-drama

So what is the secret behind the success of K-beauty? For one, the mind-blowing popularity of K-drama and K-pop in Asia, particularly China, has catapulted Korean beauty brands into a global phenomenon. The psychology behind this is simple. Fans who are mesmerized by the Korean celebrities’ beauty try to emulate their looks by using Korean beauty products.

In fact, the ripple effect of Korean celebrities in terms of their market power is astronomical. The latest craze over the Korean drama Descendants of the Sun, which is estimated to have an economic effect of more than one trillion won, is one clear example. The A-list actress Song Hye-kyo’s performance in the drama series has led to a tenfold increase in Laneige’s sales over a period of just one month.

 

Technological Advances

On the other hand, the K-beauty boom also owes its success to advances in innovative technology and marketing, coupled with reliable quality. Several brands introduced products infused with botanical ingredients such as green tea, snail extracts, and volcanic cluster, while pursuing an eco-friendly and natural image. In turn, such strategy has attracted many foreign customers ranging from Chinese to American, who are drawn to a natural brand image.

Besides skincare products, K-beauty is also making waves in the makeup segment of the global cosmetic industry. The latest example after the success of Beauty Balm (BB) cream is the spread of the so-called “cushion foundation.” This relatively new form of makeup, which is essentially foundation with a different packaging and application, was first developed in Korea and became such a hit that even global cosmetic brands, such as L’Oréal and LVMH, have also launched similar products shortly thereafter.

 

Obstacles Down the Road

Nevertheless, K-beauty still has a long way to go. “At this rate, the success of K-beauty is unlikely to be sustainable after five years or so,” says Professor Kim Ju Duck (Department of Make-up Design, Sungshin Women’s University). One of the reasons for such concern is that Chinese firms are rapidly catching up to their Korean counterparts. “They are aggressively recruiting Korean researchers to develop new technology,” he explained.

In addition, more support from the government is sorely needed. “Because makeup has traditionally been classified as a luxury good, government support for R&D has been severely limited,” Professor Kim added. On top of this, the industry is further tied down by red tape imposed by the government. One example of such red tape is the so-called “Advertisement Verification Policy” that restricts companies’ freedom of advertising their products.

So how can the flame of K-beauty be kept alive? Professor Kim explains that the key is “product differentiation,” thereby setting Korean beauty products apart from others. To that end, he suggests that the best-case scenario is to pursue hanbang cosmetics, which refers to skin care products made up of oriental herbal ingredients. Based on Korea’s unique branch of medicine, researchers have created functional products that specifically target aging skin. Moreover, he pointed out the stem cell technology as another option that could differentiate Korean products.

All in all, the spread of K-beauty has been nothing but spectacular and offers a glimpse of hope for South Korea’s struggling economy as the government aims to secure a top seven position in the global market. Indeed, there are hurdles to overcome, but they are by no means insurmountable, judging from the technological ingenuity of Korean cosmetic brands so far. Still, because there is only so much that hallyu can do for K-beauty, the government’s decisive role in keeping the momentum is of a critical importance.