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Avon moves to enhance presence in China
By Liu Jie (China Daily)
Updated: 2004-03-22 08:32

Avon (China) Co Ltd will acquire the stake of its Chinese partner - Masson - for US$50 million to become a solely foreign-funded enterprise in China.

Presently Avon, the world's leading direct-sales cosmetics group, Masson, a Guangzhou-based private company, and several individual shareholders have 75 per cent, 20 per cent and 5 per cent stakes in the joint venture (JV), respectively.

"We have reached an agreement and are waiting for approval from the relative governmental department," said Gao Shoukang, president of Avon.

Andrea Jung, chairwoman and chief executive of Avon since 1999, says the company plans to introduce new product lines to the Chinese market next year.[newsphoto]
Gao said the move aims to allow Avon and Masson to concentrate on their key businesses and optimize the product mix.

"We are working for a strategy that places China at the centre of our growth," said Gao. But he declined to disclose Avon's further investment plans and sales network expansion timetable in China.

"We have done very well in this market for the last several years," said Gao.

As a well-known direct seller of beauty products, the company has 5,500 boutiques across China covering both business hub cities as well as smaller urban centres, and it has more than 700,000 members in its client club.

During Andrea Jung's first trip to Beijing in October, she said Avon Inc was planning to add another 500 boutiques to its sales network in China over the next few years, in a move to further cement its leading position.

Jung, Avon chairwoman and chief executive since 1999, said: "We are also planning to introduce new product lines to the Chinese market in 2005, and possible investment for new production bases in the future."

A rule governing direct sales is being drafted by the Ministry of Commerce and the State Administration for Industry and Commerce at the moment. It is expected to be issued by the end of the year, insiders say.

"Avon's acquisition is perfect timing for its further business expansion, as the new regulation could smooth the way for global direct sales companies," said Li Fei, a professor at Tsinghua University who specializes in commerce and industry.

Huang Benjian, Guangzhou Masson Co Ltd chairman, said the stake shakeup is the result of Avon and Masson's differences over re-investment for the JV.

"Avon (China) has been in the red for over 10 years and just reached a balance last year," said Huang.

"Avon's ambitious expansion plan in the coming few years will need a huge amount of money, which we cannot afford."

There is no animosity over the move, as Avon can look to penetrate markets nationwide and Masson can devote itself to the pharmaceutical, dental care and additive sectors.

According to Li, the acquisition has been allowed by China's market liberalization.

"In the early stage of China's opening process, besides policy restrictions, foreigners depended on their Chinese partners to become familiar with the local market and expand sales networks," said Li.

"Along with liberalization of the market and China's entry into the World Trade Organization, global players are able to operate in China in line with international practices and the environment here has become similar to that of developed nations."

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