Beijing — During a recent trip to China, Fred Langhammer, president and chief executive officer of Estee Lauder Cos., was so impressed with the degree of the market’s development in the past five years that he’s in a mood to expand.

“We are evaluating the possibility of establishing an affiliate,” he said, after returning to New York from a trip to Beijing. Lauder has been operating an office out of Hong Kong for years, but the company now is considering an entry into the center of the action. “We are in a building mode,” Langhammer added. It was only his second trip to the country.

During his trip to China, Langhammer received the Marco Polo Award in ceremonies in the Great Hall of the People in the Chinese capital. The award is the highest honor given in China to a foreigner and is jointly presented each year by the People’s Republic of China and the Volunteers of America. Previous recipients include John Kluge of Metromedia International Group, Ralph Larsen of Johnson & Johnson and former President George H.W. Bush.

While the company spends approximately $100 million per year on components from Chinese suppliers, its cosmetics business remains in the early development stages, just as the entire market has yet to emerge on a serious scale. The first Estee Lauder counter opened for business in 1993, and the company has just 25 doors operating today in the country — 13 for Estee Lauder and 12 for Clinique. Industry sources estimate that Lauder does $7 million to $10 million at wholesale in China. The counters are located in department stores in China’s five largest cities.

“We are building a strong foundation with Estee Lauder and Clinique,” said Langhammer. “We aren’t focusing on any other brands right now. There might be freestanding stores in the future — possible with MAC — but our priority is to establish Clinique and Estee Lauder.”

The company is taking a long-term view. “We are more interested in where we’ll be in five to 10 years, and I think we’ll be tremendous because what I’ve seen here, in terms of progress, is truly extraordinary. I lived in Japan in the late Sixties and Seventies, and I saw the transformation there. It doesn’t compare to what’s going on here.”

He said that China’s entry into the World Trade Organization will help speed up internal progress and foreign investment.

“The WTO will help make things more transparent and help [clear] some of the regulatory and legal issues,” he said.

Such topics were at the forefront of talks between Langhammer and Chinese government officials, notably from the Ministry for Public Health. “We had some good dialog,” said Langhammer. “They recognize that the status quo is not in the spirit of the WTO. Of course, there will be requirements [to do business in China], but these should be streamlined so as not to be prohibitive, so that costs aren’t passed on to the consumer.”

Indeed, prices are a big issue in China, where tariffs have kept the company’s products out of reach for most citizens. Langhammer, however, believes this is temporary. “For a vast number of people in China, lifestyles will dramatically improve over the next 10 years. And as that takes place, they will look for more sophisticated products.”


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