We’ve seen that as growing numbers of women in emerging markets (EM) enter the labor force, they have increasing influence on household spending.

One of our key investment themes, a “Focus on Women,” seeks to take advantage of this trend by finding companies that tap into female empowerment, aspirations and consumption.

In a previous blog post we discussed aspirational spending, particularly addressing women’s spending on healthy living and childhood education. Beyond these, rising female wealth increases demand for innovative companies that sell the types of products women want to buy.

In this blog we will discuss one big area of female consumption that stands at the intersection of increasing female demand and increasing innovation―Beauty.

Korea New Center of Asian Beauty

Korea is one of the EM countries benefitting most from increased demand for beauty and skincare products. We believe Korea has now surpassed Japan to become the new center of beauty in Asia. The ascendancy of Korean popular culture―specifically music and television―has made Korean beauty aspirational. Additionally, Korean products are typically less expensive than those from Japan but are viewed as being just as good or even better. The result has been strong skincare sales in Korea and around Asia, especially in China.

Globally, the trend in skincare is towards increasingly sophisticated products―“cosmeceuticals” ―that include high-quality active ingredients women believe will actually improve the long-term look and condition of their skin. EM women are no different in their demands. For this reason, we’ve invested in Korean cosmetic and skincare active ingredients maker Cosmax.

Established in 1992, Cosmax is a contract manufacturer for Korean, Chinese and multinational cosmetics companies. Its nearly 150 clients include world-class companies such as L’Oreal and Johnson & Johnson. Inside and outside the industry, Cosmax has a reputation for high quality active ingredients, particularly in China. This is evidenced by Chinese cosmetic companies’ use of “Made by Cosmax” marketing to distinguish their products, attract customers and earn premium pricing. Cosmax has experienced healthy growth in Korea and China. We expect it to continue to benefit from rising consumer demand and the ability to increase market share with global and regional skincare makers.

Growing Demand for Cosmetic Injectables

Another growing area of beauty-related spending in Korea is cosmetic injectable procedures using both botulinum toxins and dermal fillers. Korea is fast becoming the cosmetic surgery capital of the world, with growing demand from both locals and tourists.

One of the leaders in the Korean injectable market is drug developer Medy-Tox. While it began as a seller of a Botox replica at discount prices, Medy-Tox has now innovated botulinum toxin in a way that we believe solves some of the problems associated with Botox (it contains animal derived ingredients which could cause an allergic reaction in some patients and it is in powder form requiring saline titration which may result in treatment variances). Medy-Tox’s new best-in-class toxin for cosmetic procedures is called Innotox. It was approved by the Korean FDA in 2013.

While Medy-Tox has suffered some market share losses in 2016 due to higher demand than production capacity, we expect the company to regain share after its new factory opens in the first half of 2017. We also believe that through its partnership with Allergan, the maker of blockbuster drug Botox, Innotox will be launched onto the U.S. and European markets over the next several years. Innotox is currently in clinical trials in the U.S., Europe and China. We believe Medy-Tox is a strong example of an innovative EM company’s ability to succeed first in its domestic market, then in its region and then finally the developed world.

We believe the Beauty trend is durable because the use of skincare and cosmetic products in Developing Asia is still low on a global perspective and because we understand that once a woman finds a product she believes improves her skin, she is unlikely to trade down. For these reasons, skincare in particular has a low elasticity of demand and should continue to be an interesting area for investment in innovation.

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