Later this week, import tariffs for cosmetic goods will be reduced by 30 to 40 per cent in an attempt to tackle rising inflation, which currently stands at 8.5 per cent.
Although inflation is a concern for the Asian country, its economic outlook remains strong as it plans to build on economic growth of 8.2 per cent last year. The president of the World Bank was certainly upbeat about Vietnam's economy yesterday, calling it a development success story.
The cosmetics market is flourishing having seen average annual sales growth of 14 per cent between 2001 and 2006, according to a recently published Euromonitor report.
Such strong growth is partly a reflection of Vietnam's low starting point; the current value of its cosmetics market is only €388m.
However, the Euromonitor study suggested that Vietnam's cosmetic market would continue to grow so long as the economy remains on track, because the country's large youth population is driving the growth.
"Vietnam, with a booming economy and fashion-conscious youth market, is Asia-Pacific's lesser-hyped beauty market prospect," said Diana Dobson from Euromonitor.
Breaking the Vietnamese beauty market into sectors reveals that the strongest growth lies in non-essentials, although they still only make up a small percentage of the total market. For example, sales of colour cosmetics grew by 20 per cent last year but they still only account for three per cent of the cosmetics market.
Euromonitor warned that in spite of the opportunities, companies wishing to enter the Vietnamese market would face stiff competition. Unilever, Proctor & Gamble and Colgate-Palmolive have already captured half of the market, beating other foreign rivals for customer loyalty. L'Oreal and Johnson & Johnson collectively have only achieved a seven per cent market share.
However, the changing nature of the retail landscape may open up the beauty market to other players. Currently, over 40 per cent of cosmetics trade takes place in outdoor markets, but they are losing out to retail stores, direct sellers and the internet. The direct selling firm, Oriflame, recently mentioned Vietnam in its second quarter results as a market that had seen particularly high growth.