Artisanal Cosmetics Manufacturing
Artisanal Cosmetics Manufacturing
Business Model Description
Invest in B2C, women-led, natural, export-oriented cosmetic businesses that are using agricultural byproducts to make uniquely Mongolian, handmade, organic cosmetic products.
Mongolian Cosmetics Cluster NGO, founded in 2019, is an association to enhance the growth and competitiveness of its member organic and natural cosmetic manufacturers locally and internationally. The cluster has 15 members, selling their products in European Countries. It also participated in the EU-funded Trade Related Assistance of Mongolia (EU TRAM) project (total funding is USD 4.5 mn). (11)
Lhamour LLC is a social enterprise established in 2014 that produces natural skincare products through zero-waste production. It has distributors in 10 countries. The company employs marginalized communities and uses sustainable raw materials. It received 2020 Japan's Sustainable Cosmetics Awards. Lhamour benefited from EBRD support and funding from the Women Entrepreneurs Finance Initiative. (14)
Helen made LLC (Helen), formed in 2017, is a cosmetics and skincare company. It exports its natural based products and organic exfoliating soaps - which have a wool felt wrapper enclosing, a ball of soap made from sheep tail fat and other natural incredients - to Germany and other European countries. (15) Helen is one of the participating businesses which received support from EU TRAM project.
Expected Impact
Investing in artisan cosmetic businesses which utilize livestock by-products and natural ingredients will support economic diversification and export.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Mongolia: Ulaanbaatar
Sector Classification
Food and Beverage
Development need
Mongolian economy is undiversified and lags in promoting innovation. The agriculture sector which contributes to 6.6 percent of total export and 13 percent of GDP, has significant potential to accelerate the economy and economic diversification. (1) It needs to enhance the enabling environment for agribusinesses, promoting productivity. (2)
Policy priority
"Vision-2050" aims to diversify export-oriented agricultural products that support a green economy, with the target to increase the percentage of the processing industry in total export from 17 to 50 by 2030. Under its Policy Phase I, it aims to support employment, business models and skills, as well as to improve the competitiveness of small and medium-sized enterprises (SMEs). (3)
Gender inequalities and marginalization issues
Agriculture production is a critical source of livelihood for many rural Mongolians, who often rely on herding and crop cultivation for their income. Also, Micro, Small and Medium-sized Entreprises play a critical role in the Mongolian economy, comprising 77 percent of total registered businesses, 72 percent of the total workforce, and 17.8 percent of GDP. (4)
Especially, women contribute to a large share of MSMEs in Mongolia. For instance, over 60 percent of MSME owners are women and they often lack of access to finance. For example, if women do not have named ownership of assets, they may not qualify for loans where the collateral is required. (5)
Investment opportunities introduction
The agriculture sector contributes to 13 percent of the GDP and employs one-third of the country's workforce. After the mining sector, Mongolian agribusiness was identified as a good medium-term opportunity for attracting new investment, offering value proposition for investors. (6)
Key bottlenecks introduction
The majority of the sector suffers from low productivity and low climate resilience, and would benefit from advanced technologies with processing equipment to support export oriented agri businesses. (6) Also, infrastructure and services for processing and exporting agri-products are inadequate.
Food and Agriculture
Despite the livestock sector contributing to 80 percent of agricultural production, 40 percent of livestock by-products such as fat, leather, and wool are devalued and discarded annually. There is a potential opportunity to address this issue by supporting local businesses that produce export-oriented organic cosmetics with livestock by-products while promoting sustainable development. (7)
Policy priority
The Government of Mongolia aims to introduce innovation to increase profit per animal, the level of primary processing of agricultural raw materials and the production of value-added products. (8) National Programme on SME Support aims to increase productivity and employment by improving competitiveness in the market. (9)
Gender inequalities and marginalization issues
Majority of cosmetic business owners, employees and agrilcultural suppliers are women. The cosmetic industry plays an important role in women's economic empowerment and informal industry. (10)
Investment opportunities introduction
EU-funded Trade Related Assistance of Mongolia project found that cosmetic products have a great potential for economic diversification and to enter European cosmetic market.(11) The European market for natural cosmetics is expected to grow by 6 percent annually. (12) Additionally, main export segment of Mongolian organic cosmetics products is Asia. (13)
Key bottlenecks introduction
Cosmetic businesses, especially MSMEs have difficulty accessing finance needed to scale up their production and marketing efforts for international markets. Key challenges relate to underdeveloped legal framework, traceability of raw materials with animal origin, lack of testing laboratories and technical advancement. (13)
Agricultural Products
Pipeline Opportunity
Artisanal Cosmetics Manufacturing
Invest in B2C, women-led, natural, export-oriented cosmetic businesses that are using agricultural byproducts to make uniquely Mongolian, handmade, organic cosmetic products.
Mongolian Cosmetics Cluster NGO, founded in 2019, is an association to enhance the growth and competitiveness of its member organic and natural cosmetic manufacturers locally and internationally. The cluster has 15 members, selling their products in European Countries. It also participated in the EU-funded Trade Related Assistance of Mongolia (EU TRAM) project (total funding is USD 4.5 mn). (11)
Lhamour LLC is a social enterprise established in 2014 that produces natural skincare products through zero-waste production. It has distributors in 10 countries. The company employs marginalized communities and uses sustainable raw materials. It received 2020 Japan's Sustainable Cosmetics Awards. Lhamour benefited from EBRD support and funding from the Women Entrepreneurs Finance Initiative. (14)
Helen made LLC (Helen), formed in 2017, is a cosmetics and skincare company. It exports its natural based products and organic exfoliating soaps - which have a wool felt wrapper enclosing, a ball of soap made from sheep tail fat and other natural incredients - to Germany and other European countries. (15) Helen is one of the participating businesses which received support from EU TRAM project.
Business Case
Market Size and Environment
USD 50 million - USD 100 million
5% - 10%
As of 2019, cosmetic products worth USD 2.4 mn were produced locally. (13)
In 2021, Mongolia imported about USD 58 mn worth cosmetic and sanitary products. (13) European natural cosmetics market was valued at around USD 4 bn in 2019. (12).
Indicative Return
20% - 25%
20% - 25%
According to cosmetic cluster business owners, profit margin of domestic cosmetic products range from 20-30 percent. (10) The annual sale of organic cosmetic products is at USD 16 mn. (17) Most cosmetic cluster companies are startups or micro-businesses with less than USD 30000 annual sales except 30-year of history companies. (10)
Investment Timeframe
Medium Term (5–10 years)
According to cosmetic cluster business owners, investment timeframe is medium term. (10)
Ticket Size
USD 500,000 - USD 1 million
Market Risks & Scale Obstacles
Business - Supply Chain Constraints
Business - Supply Chain Constraints
Market - High Level of Competition
Impact Case
Sustainable Development Need
By leveraging the value of livestock by-products, local businesses can not only generate additional income for the local economy, but also promote sustainable development and reduce waste in the livestock sector.
MSMEs suffered the most during the recent global crisis. Domestic industries can play a key role in economic revival. Many agricultural products, including cosmetic raw materials and livestock byproducts, are exported without value addition, resulting in minimal returns for rural agricultural families and businesses.
Gender & Marginalisation
MSMEs play a critical role in generating employment and income, particularly as service providers for the poor and marginalized groups. Better utilizing livestock byproducts can improve the livelihoods of herders and cooperatives, increase their income, support environmentally sustainable practices, and reduce waste.
Cosmetic industry employs largely women and owned by female entrepreuner (10), thus growth of businesses in this area can result in women empowerment with improved status in society.
Expected Development Outcome
Availability of sustainable products will help consumers make more responsible decisions while supporting the local economy. As of 2020, unemployment rate is ~12.6 percent for youth aged 15-29 years (7 percent in general). (18) Expansion of domestic industries and business will generate more employment opportunities for the youth.
Utilizing livestock byproducts and natural ingredients could also promote environmentally sustainable practices and reduce waste in the livestock industry.
Gender & Marginalisation
Supporting women-owned domestic cosmetics businesses will increase the income of women entrepreneurs and employers, as well as rural and suburban agricultural suppliers and herders thereby contributing to reducing poverty and promoting gender equality.
It is expected to create a sustainable source of income for small-scale livestock farmers and suppliers, especially women who may face gender-based barriers to market access and lack access to finance and technology.
Primary SDGs addressed
9.2.1 Manufacturing value added as a proportion of GDP and per capita
1) Manufacturing's value added to GDP - 7.6 percent in 2020. 2) Share of processing industry in total export - 17 percent
1) No target defined, as of January 2023 2) Share of processing industry in total export to 50 percent by 2030
8.1.1 Annual growth rate of real GDP per capita
Percentage of manufacturing industry within total GDP - 10.9 percent. (3)
Percentage of manufacturing industry within total GDP - 14.6 percent by 2030. (3)
5.5.2 Proportion of women in managerial positions
38.9 percent
No target defined, as of January 2023
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Indirectly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Outcome Risks
Competition from larger cosmetic brands, limited distribution channels, and limited marketing budgets, could adversely impact the businesses, as well as limit their entry into foreign markets. The small size of the market may make it challenging for businesses to achieve economies of scale, further increasing the outcome risk.
Regulatory barriers to exporting, such as tariffs, trade restrictions, or product safety requirements, could impact the businesses' ability to reach new markets.
Gender inequality and/or marginalization risk: Women entrepreneurs in Mongolia face difficulty in accessing finance and investment opportunities, which could limit their ability to grow their businesses and compete with larger brands.
Impact Risks
The small size of the market, high costs of infrastructure and lack of brand recognition could make it difficult for businesses to achieve rapid growth with value-added products.
Gender inequality and/or marginalization risk: Lack of regulation and control may result in exploitation of MSMEs at the hands of profit-making companies and middlemen.
Impact Classification
What
Improved access to reliable, locally sourced cosmetic products that are free from harmful chemicals and toxins can have a positive impact on the health of consumers and the environment.
Who
Population benefits from improved access to locally sourced products; farmers and suppliers benefit from improved income; women-owned cosmetic businesses benefit from improved export income.
Risk
The small size of the market and lack of brand recognition could make it difficult for businesses to achieve rapid growth.
Contribution
Promoting sustainable cosmetics businesses that utilize livestock byproducts for export and generate additional income for potential 160,000 herders and suppliers.
How Much
Reduce the waste in livestock sector as currently 40 percent livestock byproducts are wasted. By increasing export-oriented cosmetics products, Increased % of processing industry in total export.
Impact Thesis
Investing in artisan cosmetic businesses which utilize livestock by-products and natural ingredients will support economic diversification and export.
Enabling Environment
Policy Environment
Vision 2050 aims to support employment, business models, and skills, as well as improve the competitiveness of small and medium-sized enterprises. (3) "National Program of SME Support" aims to increase productivity and employment by improving competitiveness in the market. (9)
With the objective to establish favourable and sustainable environment for production and export, "Mongolia Export" Program targets to increase the share of agriculture based products in total exports from 8.1 perent to 16.2 percent by 2022. (19)
The Minister of Food, Agriculture, and Light Industry (MOFALI) will be responsible for overseeing the policy measures aimed at promoting the export of livestock, raw materials and products.
Financial Environment
Financial incentives: Local agricultural products are exempt from export tax. Government-funded, consessional loans are available for SMEs from the Development Bank of Mongolia. In addition, there are concessional green loans offered to SMEs to support funding sustainable business activities.
Fiscal incentives: Herders who provide raw materials such as sheep wool to domestic industries receive a small amount of financial incentive of USD 0.58 per kg. (22)
Other incentives: According to Law on Investment, non-tax incentive 12.1 will be provided to support the financing of innovation projects and to guarantee the financing to produce export-oriented innovation products. (23)
Regulatory Environment
Mongolia adopted the Law on Organic Product Standardization in 2016 and standardized the certification and labeling. The Law is currently being reviewed with the involvement of the FAO.
Export-related regulations: 1. European Union Cosmetics Regulatory Requirements EC 1223/2009; 2. Council Directive 87/357/EE on the harmonization of consumer health and safety requirements of the Member States of the European Union 3.COMMISSION REGULATION (EU) No 655/2013 laying down common criteria for the justification of claims used in relation to cosmetic products
4. Regulation (EC) No 1272/2008 on classification, labelling and packaging of substances and mixtures 5.REGULATION (EC) No 1069/2009 laying down health rules as regards animal by-products and derived products not intended for human consumption
Currently, more than 40 Mongolian standards (MNS) are implemented in cosmetics industry, 75.6 percent of which were approved before 2010. Thus, there is an urgent need to approve special laws and legal documents for the trade and production of cosmetic products. (20)
Marketplace Participants
Private Sector
Cosmetic cluster businesses: Helen made LLC, Lkhamour LLC. Investors: European Bank for Reconstruction and Development
Government
Ministry of Food, Agriculture and Light Industry (MOFALI), Ministry of Health; Ministry of Foreign Affairs
Multilaterals
European Union, Food and Agriculture Organization (FAO)
Public-Private Partnership
Mongolian National Chamber of Commerce and Industry (MNCCI)
Non-Profit
Mongolian Cosmetics Cluster NGO
Target Locations
Mongolia: Ulaanbaatar
References
- (1) National Statistics Office (NSO). (2022). Gross Domestic Production. https://www.1212.mn/mn/statistic/statcate/573052/table-view/DT_NSO_0500_001V1
- (2) World Bank. (2022). Mongolia Business Environment and Competitiveness Assessment Report: Implementing Business Environment Reforms for Economic Recovery. https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099540012122228801/p1774630d45d190e80b39e05e68d6e5c93e
- (3) The Government of Mongolia. (2020). Long-Term Development Policy of Mongolia "Vision-2050". Phase I (2021-2030). https://legalinfo.mn/mn/detail?lawId=211058&showType=1
- (4) Asian Development Bank (ADB). (2020). Sustainable Recovery Options for Mongolia’s Micro, Small, and Medium-Sized Enterprises. https://www.adb.org/publications/msmes-informal-sector-mongolia-covid-19-impacts
- (5) United Nations Development Programme (UNDP) in Mongolia. (2021). Integration of Gender-Responsive Financing practices in Mongolia's Financial sector. https://www.undp.org/sites/g/files/zskgke326/files/2022-07/ENG_Integration%20of%20Gender%20Responsive%20Financing%20Practices%20in%20Mongolia’s%20Financial%20Sector_2021.pdf
- (6) International Finance Corporation, World Bank Group. (2018). Mongolia Investment Reform. https://www.ifc.org/wps/wcm/connect/8fbd4a65-c979-4cbc-858f-ca27677d30e7/Mongolia+Investment+Reform+Map+2018.pdf?MOD=AJPERES&CVID=mnSnUQT
- (7) Food and Agriculture Organization (FAO) in Mongolia. (2020) Programmes and projects. https://www.fao.org/mongolia/programmes-and-projects/fr/
- (8) The Government of Mongolia. (2020). Vision 2050 - Mongolia's Long Term Development Plan. https://legalinfo.mn/mn/detail/15406
- (9) The Government of Mongolia. (2019). National Programme of SME Support. https://legalinfo.mn/mn/detail?lawId=209747&showType=1
- (10) Cconsultation meeting with Mongolian Cosmetics Cluster NGO
- (11) EU-funded Trade Related Assistance of Mongolia project (TRAM). (2019). News on Mongolian cosmetics manufacturers to enter the European market. http://tram-mn.eu/mongolian-cosmetics-manufacturers-to-enter-the-european-market/
- (12) Centre for the Promotion of Imports (CBI). (2022). What is the demand for natural ingredients for cosmetics on the European market? https://www.cbi.eu/market-information/natural-ingredients-cosmetics/what-demand
- (13) Cosmetics Products. Ministry of Food, Agriculture and Light Industry (MOFALI). https://www.mofa.gov.mn/branch/hungun/61791aa1acc8eb0a8c236cd9?fbclid=IwAR2k5yc1fE4boyrWw1qem6QwdzXaJj3w0BPsQ8dYSGEPWN-VNG4oManDo_E
- (14) European Bank for Reconstructions and Development (EBRD) News. (2022). EBRD supports Mongolia’s first natural skincare brand. https://www.ebrd.com/news/2022/ebrd-supports-mongolias-first-natural-skincare-brand.html
- (15) Nikkei Inc. (2022). Article: Mongolian entrepreneurs exploit cheap wool for new products. https://asia.nikkei.com/Business/Startups/Mongolian-entrepreneurs-exploit-cheap-wool-for-new-products?fbclid=IwAR3_g9NsmB_eSMqZHGAT9kA_siVs3MfyUh3GeWKvPxU-rA1kislgjxMh6r4
- (16) Statista. (2022) Natural Cosmetics – Europe. https://www.statista.com/outlook/cmo/beauty-personal-care/cosmetics/natural-cosmetics/europe
- (17) Cosmetic Clusters of the Mongolian National Chamber of Commerce and Industry. (2022). Survey on domestic cosmetics market.
- (18) National Statistic Office of Mongolia (NSO). (2020) Labour Force Survey and Household census data. https://www.lorinetfoundation.org/wp-content/uploads/2022/05/ENG_Youth-Employability-Landscape-Study_Lorinet-Foundation_2022.pdf?fbclid=IwAR1zbbAjL5LABFQCWh5ov0vH8LccmGC5xa1o1BfcoGhEqXHkCRRrdp4zyn8
- (19) The Government of Mongolia (2018). Mongolia Export Programme. https://legalinfo.mn/mn/detail?lawId=208719&showType=1
- (20) Mongolian National Chamber of Commerce and Industry (MNCCI). (2022). Export Guide for Cosmetics Products https://www.mongolchamber.mn/resource/mongolchamber/File/2020/02/11/uqogt7oy7cnw97xi/Goo%20saihan%20export%20final.pdf
- (21) World Trade Organization. (2021). TRAM Output – 2021 Trade Policy Review Government Report. http://tram-mn.eu/tram-output-2021-tpr-government-report/
- (22) The Government of Mongolia. (2019). Resolutions to provide cash incentives to breeders and herders who procure and supply sheep and camel wool to national factories. https://legalinfo.mn/mn/detail?lawId=210140&showType=1
- (23) The Parliament of Mongolia. Law on Investment. https://legalinfo.mn/mn/detail/9491