Title: Cosmetics Market Brief - 2005

For Cosmoprof 2005

INDONESIA

The Indonesian market for cosmetics reached an estimated $880 million in

2004, an increase of 15 percent from 2003. Although political and security
uncertainties are continuing to inhibit economic growth, consumers lifestyles,
growing health consciousness, awareness of personal grooming, introduction of
new products, and growth of modern retail outlets should lead to positive growth
in the cosmetic sector. Given this, coupled with a population of 220 million
people, Indonesia offers good potential business opportunities for U.S.
cosmetics.

Market Overview

Industry sources estimate that the total market for cosmetic products in Indonesia
increased 15 percent from $765 million in 2003 to $880 million in 2004. The
cosmetics import market has also grown significantly from 2003 to 2004. Total
imports of cosmetics were valued at $50.8 million in 2003, and increased to
$102.4 in 2004. This sharp increase (more than double the size of 2003) was in
large part driven by a change in the import tariffs from 0-5 percent resulting from
AFTA (Asean Free Trade Agreement). This agreement encourages multinational
companies, like Proctor & Gamble and Johnson & Johnson, to restructure and
relocate, in an effort to find more economical ways to achieve efficient sourcing
and supply systems.

The cosmetics market in Indonesia is highly competitive. Domestic

manufacturers supply most of the local demand. Imported cosmetics represent
11.6 percent of the market. Major players in the imported cosmetics are the
U.S., U.K., Germany, France, and Japan. People who can afford to buy
imported cosmetics are high to mid level income groups, a total of about 20
million people in Indonesia.

U.S. cosmetics are well regarded in the high-end market, and they are well
positioned in the Indonesian market place. Indonesian women and men are
image-conscious. They are knowledgeable about the quality of different U.S.
brands; they exhibit strong preferences; and they tend to become loyal to one
brand. Reputation and name recognition continue to drive cosmetics purchases.
Many consumers are willing to pay a higher price for well-known branded
products, which convey higher social status.

Spa businesses and related product lines have become popular in Indonesia,
creating a new avenue for marketing products. Presently, local products
dominate the market for skin and body care. However, there are increasing
opportunities for spa aromatherapy supplies, because local producers lack the
research capabilities to develop good quality products.

The potential for men’s cosmetics and toiletries is large. Business executives
and celebrities are concerned with their personal grooming and they have a
strong desire to look distinguished. Spas and salons offering treatment programs
for executives and celebrities have increased in numbers. The men’s personal
care segment, such as skin care products for anti-wrinkle and sun protection
have shown increased demand in recent years.

Statistical Data

Estimated Market Size of Cosmetics

(In US$million)

2003 2004 2005

Imports 50.8 102.4 117.7
Local Production 884.0 983.8 1100
Exports 169.9 206.2 226.8
Total Markets 764.9 880.0 990.0
U.S. Imports 3.4 5.2 5.6

Best Sales Prospects:

1. Skin Care Products: Whitening products, anti aging products, moisturizers

2. Sun Screen Products
3. Massage Products used in spas for skin treatment

Distribution

In Indonesia, cosmetics are sold through specialty stores, drug stores,

department stores, direct marketing such as door-to-door selling, multi-level
marketing such as sales through “member gets member”/referral program, and
beauty salons. U.S. exporters wanting to sell their cosmetics products in this
market should appoint a local distributor that will conduct the registration
process, and introduce the products to the market.

Regulatory Regime

Government Regulations

The National Agency of Drug and Food Control (Indonesian acronym BPOM),
regulates the cosmetics industry. Imports of cosmetics must comply with
Indonesian Law. Sales of cosmetics products are regulated through the
Directives to Register Cosmetics stated in the “Stipulation on Registration
Implementation” and through the Decision of BPOM No. HK 00.05.4.1745, dated
May 5, 2003.

Registration of imported cosmetics can be done only by local distributors that

have authorization from overseas manufacturers.

There are no formal import barriers on cosmetics. The import duty for cosmetics
is 10 percent plus 10 percent VAT and 10 percent sales tax on luxury goods.
Rates are 0-5 percent for products originating in ASEAN FTA members.

Manufacturers or importers must register all cosmetics whether locally produced

or imported with BPOM. Likewise, the manufacturer or importer must fulfill the
criteria for registered cosmetics regarding the safety, quality, packaging, and
labeling of the products. Labeling must contain honest and complete information
that is not misleading and must not contain unwarranted claims. Products should
be of good quality, use proper manufacturing methods, and use only safe
materials outlined by the BPOM.

Documents required to register cosmetics in Indonesia include:

- The formula and manufacturing process,
- Raw material specifications,
- Finished product specifications and usage,
- Labeling and samples

The foreign company must also provide the following documents:

• Letter of Distributorship Agreement: appointing the local company as the
agent or distributor.
• Letter of Authorization: from the foreign manufacturer requesting the agent
or distributor to register product(s).
• Certificate of Free Sale: stating that the particular products are produced
and marketed in the United States in general conformity with U.S.
requirements.

Cosmeceuticals

The global cosmetic industry has begun to use the word “cosmeceutical” to refer
to cosmetic products that have drug-like benefits. Although the FDA
acknowledges that “cosmeceutical products” exist in the market place, the FDA
does not have this category in the Federal Food, Drug and Cosmetic Act.
Generally, BPOM uses FDA regulations as a benchmark. BPOM’s regulations
do not include a separate cosmeceutical category of products. BPOM considers
products as either cosmetics or drugs.
Further information on BPOM registration procedures can be obtained from:

Dr. Niniek Soedijani

Director of Traditional Medicines, Food Supplement and Cosmetic
Badan Pengawasan Obat dan Makanan – BPOM
National Agency of Drug and Food Control
Jalan Percetakan Negara No. 23
Jakarta 10560, Indonesia
Tel. (62-21) 424-4819
Fax. (62-21) 424-5203

For more information on the market and Department of Commerce’s services for
U.S. exporter, please contact:

Sharon Chandra
Commercial Specialist
Embassy of the United States
U.S. Commercial Service
Wisma Metropolitan II, 3rd Floor
Jl. Jendral Sudirman Kav. 29-31
Jakarta 12920, Indonesia
Tel. (62-21) 526-2850
Fax. (62-21) 526-2855
E-mail: Sharon. Chandra@mail.doc.gov