South Korean cosmetic makers battle Chinese knockoffs

The Korean cosmetic industry has grown fast thanks to eager Chinese consumers, but the K-beauty boom has given rise to another booming business in the key market: counterfeits.

Over the past years, Korean cosmetics have become frequent and common targets in the black market as they have gained popularity among fans of Korean dramas and celebrities.

China is by far the largest source of phony cosmetics bearing Korean brand names, though it is nearly impossible to pin down the scale of the problem due to the massive number of goods and the difficulty in detection and authentication.

Counterfeit goods are distributed through various channels, including flea markets, kiosk malls or vendors in China, but online market places have extended their reach beyond its borders.

"Major brands are concerned about knockoffs because they hurt their image and profits, but trade of counterfeit goods remains vibrant despite crackdowns on the practice," said Chung Whan-woo, a China market researcher at the Korea Trade-Investment Promotion Agency (KOTRA), said.

Calls for the ramping up anti-counterfeit efforts have grown as Korean companies are rapidly expanding their market presence in China for sources of new growth beyond the saturated domestic market.

South Korea's cosmetics exports to China doubled on-year to US$1.08 billion in 2015, which accounts for nearly 40 percent of total global sales, according to the Korea International Trade Association. South Korea is the second-largest cosmetics exporter to China following France.

The problem is especially prevalent in online market places, leaving not only Korean companies and other foreign brands in a losing battle to keep copies of their products off the thriving market.

At Taobao, China's major online shopping place that allows anyone with an ID to set up a shop, several AmorePacific Co.'s cushion pacts, its best-selling item, were listed for lower than the sales price at official stores.

Prices of the Guerisson 9 Complex Cream, a horse oil moisturizing cream, by Korean brand Claire's also varied, with some being sold at half the official price. Although some of the items were clearly knock-offs, shops were also selling high-quality-looking goods as genuine products.

Several retailers stressed their products are "100 percent authentic," presenting receipts from Korean stores and duty-free stores. Some even share information on how to tell authentic products from fake ones.

In response to the widespread practice, major brands and authorities have sought ways to better trace fake goods produced and distributed at home and abroad. AmorePacific, South Korea's No. 1 cosmetics maker, has operated an anti-counterfeit team under the Chinese branch to monitor bogus cosmetics and crack down on knockoff stores.

Its investigators buy products sold at cheaper-than-market prices online to gather evidence and track the distribution routes, while visiting knockoff stores bearing its brand names.

Once investigators discover laboratories for fake goods, they contact Chinese law enforcement authorities to raid the factories to show that they are serious about the matter.

In September, AmorePacific raided a factory in Guangzhou to confiscate 47,000 pieces of fake goods and suspended the operation of unauthorized Sulhwasoo, Hera and Laneige stores. The Hera brand had not even officially launched in China.

On Thursday, AmorePacific and Chinese e-commerce Alibaba signed a memorandum of understanding (MOU) to cooperate in monitoring fake cosmetics and suspend their operations. 

"Through this MOU, the two companies will step up efforts to crack down on confiscated cosmetics sold online," Kwon Su-jung, intellectual property counsel at AmorePacific, said. "We will take active steps to support healthy growth of the Chinese e-commerce market and protect customers' rights."

Despite all these efforts, brands say it is nearly impossible to stop all bogus products because the counterfeit business is so lucrative to just let it go.

"When authorities ramp up anti-piracy efforts, the counterfeiters stop doing this for a while. But a few months later, they resurface and open up another store," Choi Cheol-seung, an official at the Korea Intellectual Property Office (KIPO), said.

"Although the Chinese government has expressed willingness to curb counterfeit goods, it is nearly impossible to crack down on all products. Even if authorities crack down on some factories and seize items, it's just the tip of an iceberg."

Cosmetic brands worry that replicas not only hurt their image but also pose health risks to consumers as they are directly applied onto their faces, lips and eyes.

"Cosmetic companies go through tough safety tests, but counterfeiters make products in poor condition, mostly imitating designs and formulas," Hong Soo-ji, a public relations official at Tonymoly, said. Tonymoly's fruit-shaped creams have spawned several replicas in China.

While fake goods may be cheaper than the original products, costs of potential health risks may be much bigger than bargain hunters may think.

Last year, British police warned that counterfeit versions of leading brands such as MAC and Benefit have been found with dangerous levels of lead, mercury and even cyanide. Thailand's Food and Drug Administration also issued a warning on fake Korean cosmetics loaded with harmful chemical ingredients.

In response to growing concerns, Korean authorities have also stepped up efforts to trace bogus cosmetics and protect the copyrights of Korean brands.

They say such moves have become more important as a free trade agreement with China has taken into effect last month to facilitate trade between the two nations.

"As more fake cosmetics are sold in the global market under Korean brand names, we have stepped up cooperation with Chinese officials to share cases and help them screen out fake goods," Lee Hyo-jin, an official at Korea Customs Office, said.

Last month, customs office chiefs in South Korea, China and Japan held a tripartite meeting to discuss ways to cooperate intellectual property rights protection and law enforcement at their respective immigration check points.

The KIPO also vowed to help Korean companies to register their products in Chinese customs office to encourage law enforcement officials to crack down on fake items.

The office has established 11 intellectual property monitoring desks in six nations, including China, the United States, Germany and Japan. It plans to open another in Xian to beef up monitoring in inner mainland Chinese cities.

"Having imitated products can be seen as evidence that Korean cosmetics are making names for themselves in the beauty industry, but the problem should be kept under control to a certain level for consumers and the national economy," KIPO official Choi said. (Yonhap)

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