In this article, our Managing Partner, Nguyen Van Phuc will analyze the challenges facing domestic cosmetics businesses with the rapid development of cross-border cosmetics business. The article was published in The Saigon Times No. 15-2024, dated on April 10, 2024. Below is the English version:
Nowadays, ordering cosmetics from foreign e-commerce platforms or websites of foreign cosmetics companies is no longer a foreign concept for Vietnamese consumers. The easy access to foreign cosmetics provides Vietnamese consumers with many choices in terms of design, quality, and price. This helps consumers feel more comfortable in choosing the right product for them. However, the rapid development of cross-border cosmetics business not only poses many challenges to domestic cosmetics companies, as they face great competitive pressure from foreign cosmetics lines, but also poses a complex management problem for relevant authorities.
(Source: The Saigon Times)
1. A fertile but competitive ground for business
Cosmetics have become an extremely important commodity in today's society, where beauty and health care needs are increasingly prioritized by consumers. Along with consumer needs, the cosmetics business has long been a fertile ground for many companies selling these products. Given the characteristics of products used directly on the body, consumers often tend to choose the best products within their means. Capturing this mood, cosmetics companies are always under pressure to create the best and trendiest products to serve customers. Currently, in order to trade cosmetics, enterprises can choose forms such as producing cosmetics for sale to the market or importing cosmetics from reputable markets in the world such as Korea and Japan, Europe.... Whatever the form, businesses need to comply with many certain conditions and procedures before putting products into business in the Vietnamese market. However, with the development of e-commerce activities in recent years, the operations of many cosmetics companies in Vietnam are facing great challenges. This challenge comes from the fact that Vietnamese consumers now have too easy access to foreign cosmetics instead of using only domestic products or buying only imported foreign cosmetics. It is undeniable that buying cosmetics through foreign e-commerce platforms or directly from the websites of foreign cosmetics companies brings convenience to consumers, but this convenience can cause disadvantages to domestic companies.
As mentioned above, in order to put cosmetics on the market, domestic enterprises, whether producing or importing cosmetics, must go through certain procedures, which is not only time-consuming, but also burdens the administrative costs of the enterprise. In some cases, the competitive pressure in the cosmetics industry is measured only in days, and the products that are put on the market must constantly update trends. Having to go through administrative procedures delays the rapid development of new product lines. However, from a quality management and consumer health perspective, this is understandable. Meanwhile, when consumers buy cosmetics on foreign e-commerce platforms or websites of foreign cosmetics companies, the purchased cosmetics go almost directly to Vietnamese consumers without going through any administrative procedures in Vietnam, except for customs procedures. With this advantage, consumers can quickly buy trendy products in the world without waiting for businesses in Vietnam to officially launch them. This creates a change in consumer habits, which in turn poses a great challenge to domestic cosmetics companies.
2. Not just a business problem
Althoug it creates great competitive pressure for domestic cosmetics companies, the impact of cross-border cosmetics business does not stop there. The introduction of foreign products into the Vietnamese market also needs to be more strictly controlled by the relevant authorities. Currently, foreign cosmetics not only do not have to go through cosmetic declaration procedures, but also do not have to undergo post-sale inspection, as these products are already sold directly to consumers. Therefore, there is almost a gap in quality management for a special product like cosmetics, where these cross-border products are not subject to any control. In fact, if cosmetics are purchased from cosmetics shops in Vietnam or Vietnamese e-commerce platforms, consumers can go to these shops or at least to Vietnamese e-commerce platforms to solve quality problems or, more seriously, health problems caused by cosmetics. However, when buying from foreign e-commerce platforms or directly from foreign business websites, it is very difficult or even impossible for consumers to solve the problems that arise. Therefore, the problem of protecting the rights of domestic consumers is also posed to the relevant authorities.
In addition, customs and tax policies on cross-border domestic trade are also a difficult issue for relevant authorities, compared to the import of cosmetics from cosmetics companies in Vietnam. At present, customs control and tax calculation for goods traded through cross-border e-commerce are not regulated by a specific legal framework, except for customs and tax regulations for imports. Regarding customs regulations in the field of cross-border e-commerce, the Government has been planning for a long time to develop a Decree regulating customs management for export and import traded via e-commerce ("Draft Decree"). However, the Draft Decree has not yet been approved and applied in practice. As a result, competent authorities still face many practical difficulties in customs and tax management for imports traded via e-commerce in general and cosmetics in particular.
3. Create a fair playing field for businesses
The trend of purchasing cosmetics through foreign e-commerce platforms or websites of foreign cosmetic companies can be considered inevitable in the age of information technology and e-commerce development. However, in order for this activity to be really well managed, ensuring consumer convenience and at the same time promoting economic development, the author believes that the relevant authorities should soon make appropriate additions and adjustments to the regulations governing this activity.
(Source: Internet)
Firstly, with regard to quality control activities, the current regulations and the expected regulations in the Draft Decree, which will be updated on December 17, 2021[1], almost completely ignore quality control activities for cosmetics purchased by consumers directly from abroad. Specifically, according to the provisions of Point B, Clause 1, Article 13 of the Draft Decree, imports traded through e-commerce have a customs value of each item in the order of VND 2,000,000 or less, or more than VND 2,000,000 for single imports (excluding goods subject to quarantine, goods under the control list of the Ministry of Culture, Sports and Tourism), exempt from licenses, conditions and professional inspection for 01 order/day and not more than 04 orders/month for each organization or individual. Thus, when this regulation is put into practice, cosmetics in this case will not be subject to specialized inspection, will not be required to carry out cosmetic declaration procedures, and will not be subject to post-inspection. In order to control product quality and avoid the risk of counterfeit, illegally copied and poor quality goods affecting consumer health, the author believes that competent authorities should focus on quality control of cosmetics at the stage when these goods are imported into Vietnam, based on the same criteria as the procedures for declaration of imported cosmetics.
Secondly, in terms of import duties. According to the provisions of Article 29 of Decree 134/2016/ND-CP, goods whose customs value is less than VND500,000 or whose total import duties are less than VND50,000 are exempt from import duties. However, according to Article 14 of the draft Decree, the cases of goods exempt from import duties have changed in the direction of expanding the possibility of exemption from import duties. Specifically, imports traded through e-commerce will be exempt from import duties if (i) the customs value per order is VND2,000,000 or less; or (ii) the customs value per order is more than VND2,000,000 but the total import duty payable is less than VND200,000. Thus, this creates price pressure on domestic cosmetics enterprises because import duties also affect the selling prices of cosmetics of these enterprises to a greater or lesser extent. However, unlike the quality control of cosmetics, which must be implemented more strictly because of the safety of cosmetics, the author believes that tax exemption for low-value cosmetics purchased from abroad is reasonable because this regulation is aimed at consumers. However, in order to harmonize the interests of domestic cosmetic enterprises, the author believes that it is necessary in the draft regulation to limit the total value of tax-free goods in one year for an individual/organization with cross-border online goods trading activities, thereby limiting the situation of splitting orders to enjoy tax benefits.
In conclusion, the early review, revision and promulgation of a decree regulating the customs management of export and import trade through e-commerce is extremely important in the coming period. Above all, along with the development of any economic activity, the state must promptly have corresponding policies to promptly regulate these activities, in which the cross-border cosmetics business is also no exception. In this context, promoting the development of cross-border e-commerce while ensuring a fair playing field for businesses is what domestic cosmetics businesses are still looking forward to.
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