【Article】

Effects of Inbound Visitors on Domestic Prices:
Comparison of Cosmetics Markets of Japan and Taiwan

外国人観光客の国内物価への影響：
化粧品市場の日台比較
Joseph Chiao-sen Chang
張喬 森
MATSUBARA Kiyoshi
松 原
聖Contents
1. Introduction
2. Trend and Consumption for Inbound Tourism in Japan: Focus on Shopping for Cosmetics
2.1 Background
2.2 Inbound Visitors and Research Questions
2.3 Consumption Data for Foreign Visitors in Japan
2.3.1 JDS Data
2.3.2 JTA Data
2.4 Data for Cosmetics
2.5 Final Words
3. Trend and Consumption Power of Inbound Tourism in Taiwan - Focus on Shopping for
Cosmetics
3.1 Background
3.2 Research Questions
3.3 Data and Method
3.4 Findings
3.4.1 Trend and Key Markets
3.4.2 Overall Expenditure
3.4.3 Shopping Expenditure and Proportion
3.4.4 Shopping Trend of Cosmetics
3.4.5 Price Trend of Cosmetics
3.5 Final Words
4. Comparison of the Two Inbound-Host Countries and Remarks(Abstract)
We examine the development of inbound tourism in Japan and Taiwan based on
various data. We first introduce changes in the number of foreign visitors and theresearch questions to be considered. We then describe data sources for consumption by̿ 5 ̿『商学研究』第36号

foreign visitors and offer some observations on overall consumption and, specifically, theconsumption of cosmetics. Finally, we state our findings on prices and consumption of
cosmetics. As this work does not analyze the data using econometric tools, we finish bydiscussing how it might be extended.
Keywords: Japan, Taiwan, Inbound Consumption, Cosmetics, Domestic PriceJEL Codes: F14, F60, Z30
1. Introduction
Inbound tourism is now among the most important economic and social issues inJapan and Taiwan. This study explores various data relating to the consumption behaviorof tourists inbound to these two countries, in particular, the consumption of cosmetics andwhatever impact it has on the domestic price. Our analysis may shed light on theeconomic impact of inbounds, especially those from China, on the economies of Japan andTaiwan. Sections two and three below consider the inbound markets in Japan andTaiwan respectively. Section four compares the two countries.
2. Trend and Consumption for Inbound Tourism in Japan: Focus on Shopping for
Cosmetics
2.1 Background
Inbound tourism in Japan has been growing, and this growth accelerated in the 2010s.
Inbound tourism also has had various effects on Japanese society, both positive andnegative. This section explores the evolution and consumption activities of inboundtourism in Japan. For consumption, we focus on the Japanese market of cosmetics,
because of our interest in the impact of inbound tourism on domestic prices.
Theoretical studies, following the pioneering work of Copeland (1991), analyze theeffects of inbound tourism on the domestic economy in general equilibrium settings. The
focus of these works is on welfare and/or terms of trade, and the effect on domestic prices
is not clear. Moreover, these works assume that inbound visitors increase demand for
nontradables. Inbound visitors may increase demand for tradables as well, however, as
we shall see.1
Few studies have explored empirically the effects of inbound tourism on domestic
prices. Espinet et al. (2011) examined the prices of 149 products in Catalonia, Spain,
including many are food items and beverages, and compared prices in tourism
jurisdictions with those in non-tourism ones. They found that the differences are notsignificant. Tkalec and Vizek (2016) constructed panel data for new EU member
countries and candidates in order to study the effects of tourism activity on price levels.
They found that tourism activities increase the overall price level, especially prices ofrecreation and culture, and hotels and restaurants.
In this section, the development of inbound tourism in Japan is examined using『商学研究』第36号

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various datasets. In subsection 2.2, changes in the number of foreign visitors are shownand two key questions are raised. In subsection 2.3, two data sources concerning
consumption by foreign visitors are described, and some observations made on the overall
consumption and the consumption of cosmetics are shown. In subsection 2.4, price andinbound consumption of cosmetics are considered. This paper does not analyze the datausing econometric tools, thus finally, some suggestions for how this work could be
extended are made.
2.2 Inbound Visitors and Research Questions
Figure 2-1 shows the number of inbound visits in the years 2003 to 2018, and theirrate of growth. The number of inbound visits in 2018 was more than thirty million,
which was six times greater than in 2003. The number has increased steadily except for
2009, in the aftermath of the global financial crisis, and 2011, when the Great East-Japan
earthquake and the resulting Fukushima Daiichi nuclear accident took place. From 2012
to 2016 the growth rate was more than 20%. A major factor underlying such a large
increase in inbound visits may have been promotion policies by central and local
governments, although this is not discussed below.
Figure 2-1: Inbound Visits and Growth Rate
35.0

50.0

30.0

40.0
30.0

25.0

20.0
20.0
10.0
15.0
0.0
10.0

-10.0

5.0

-20.0
-30.0

0.0
2003200420052006200720082009201020112012201320142015201620172018
Number of Inbound Visits (Millions: left)

Growth Rate (right)

Source: Japan National Tourism Organization, “Numbers of Inbound Visitors and Outbound Japanese.”

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Figure 2-2 shows the proportions of five key inbound-source countries. The numberof South-East Asia is the sum of the numbers from six ASEAN countries. The total
proportion of East-Asian and South-East-Asian countries has been increasing. China has
increased its proportion substantially, but other countries have not greatly reduced theirs;
in fact, some countries have increased their shares, which may be a consequence ofeconomic development in (South) East-Asia and appreciating exchange rates.
Based on these observations about inbound visits, the following questions are raised:
1. What is the consumption power of these inbound tourists? Has it changed over
the years? If so, how has it developed?
2. On which items do inbound tourists spend most? Has any trend been observed,
especially for cosmetics? If so, how does it affect domestic prices of cosmetics?
Concerning the second question, there are many casual observations about the
shopping behavior of Chinese visitors; this paper will examine whether such observations
are true using actual data.
Figure 2-2: Proportions of Key Inbound-Source Countries, 2003-2018
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
South Korea

China

TaiwanHongKong

South-East Asia

Notes.
1. Source: same as that for Figure 2-1.
2. The number coming from South-East Asia is the sum from the following six countries:
Thailand, Singapore, Malaysia, Indonesia, Philippines, and Vietnam.

『商学研究』第36号

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2.3 Consumption Data for Foreign Visitors in Japan
In Japan, at least two types of data on consumption by foreign visitors are available.
One dataset is collected and released by the Japan Department Stores Association (JDS
data hereafter) for monthly sales of duty-free items in their member companies’ stores.
The other type is compiled by the Japan Tourism Agency (JTA data hereafter), based onquarterly interviews of foreign visitors at seaports and airports in Japan. In thissubsection, the two types of data are examined and commented upon. JDS data aredescribed in 2.3.1, and JTA data are described in 2.3.2, with some comparison of the two.
2.3.1 JDS Data
The Japan Department Stores Association displays data on duty-free sales and related
figures from its member department stores in its monthly press release. The Associationshows approximate numbers of sales and paying clients. For instance, in its press releaseof July 23, 2019, total duty-free sales and number of paying clients in June 2019 were“about 28.33 billion yen” and “about 458 thousand clients.” Department stores are major
places besides chain drug stores and discount stores where foreign visitors buy duty-free
items, so the data is an important source of information on consumption by foreign visitors.
Figure 2-3: Duty-Free Sales per Store and Sales per Paying Client, October 2014-June 2019.
90

400

85

350

80
300

75

250

70
65

200

60
150

55

100
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50

Left: Duty-Free
Sales per Store(Million Yen)

Year-MonthDFS/Stores

DFS/Clients

Right: Duty-Free
Sales per Client(Thousand Yen)

Source: Japan Department Stores Association, “Trends of Duty-Free Sales and Customer traffic of the Month”(issues of October 2014-June 2019).

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Figure 2-3 shows two time series of monthly duty-free sales. One series is per store
and the other is per paying client from October 2014 to June 2019 (left and right axes
respectively). The reason why these standardized numbers, i.e. monthly duty-free sales
divided by the number of department stores or by the number of paying clients, rather than
the sales value per se are used is to exclude possible scale effects of increasing stores or
inbounds.2 The duty-free sales per store (dark-gray graph) first increased and thendeclined sharply, reaching a low in September 2016 and then increasing, with somecyclical movements peaking around April each year. The sales per paying client(light-gray graph) also increased at first and then declined sharply, with a bottom in July
2016, after which it increased to the end of 2016 and then moved up and down cyclically.
In other words, these two sales numbers moved fairly similarly up to the end of 2017.
After that, sales per store have risen while the sales per client have moved cyclically.
This difference in behavior between the two sales numbers may be significant in Japan,
although the sales per store also decreased from 2015 to 2016, suggesting that events inthese years played special roles in the consumption by foreign tourists in Japan.3
Figure 2-4: Sales of Consumables per Store and per Paying Client, October 2014 - June 2019.

40

200
180

35

160
30
140
120

25

100

20

80
15
60
10

40

Sales per Store(Million Yen)

Con/Stores

Year-Month

Source: same as that for Figure 2-3.

『商学研究』第36号

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Con/Clients

1906

1904

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20
Sales per Client(Thousand Yen)

Figure 2-4 shows time series of monthly duty-free sales of consumables such as
cosmetics and food per store (dark-gray graph), and per paying client (light-gray graph),from October 2014 to June 2019 (left and right axes respectively). For the sales per paying
client, because the total number of foreign visitors who paid for consumables or other items
is unknown, the total number of all paying clients is used for standardization instead.4
Unlike Figure 2-3, i.e., the overall duty-free sales, the two numbers both have increasing
trends during the sample period. Sales of consumables show the same cyclical movements,
with peaks in or near to April each year, as the total duty-free sales in Figure 2-3.
The upward trend of consumables sales shown in Figure 2-4 may reflect changes in
the items most preferred by foreign visitors. Table 2-1 shows how the favorite items forforeign visitors have changed. At the beginning of the sample period (October 2014),
luxury items such as high-end brand-name goods and women's fashion accessories(shaded by light gray in the Table) were highly ranked (first and second respectively),while cosmetics were ranked fourth. Consumables such as cosmetics and food are shaded
dark gray in the Table. In the middle of the sample period (December 2016), theseluxury items fell several places, and consumables climbed the chart and caught up with oreven surpassed these luxury items. This tendency was stronger by the end of the sample
period (June 2019), when cosmetics and food were ranked first and third respectively.
Table 2-1: Changes of Most Favorite Items among Foreign Visitors and the Share of Consumables toTotal Sales.
Rank/Month-Year
October 2014
December 2016
June 2019high-end brand-name1
cosmetics
cosmetics
goods
women's fashion
high-end brand-namehigh-end brand-name2accessories
goods
goods
women's fashion
3
women’s clothes
foodaccessories
women's fashion4
cosmetics
foodaccessories
children's clothing
5
household products
women’s clothes
and toys
Share of Consumables (%)
12.1
32.2
47.4
Source: Japan Department Stores Association, “Trends of Duty-Free Sales and Customer traffic of the Month”(issues of October 2014, December 2016, and June 2019).

Among foreign visitors, consumables and other reasonable-price items haveincreased in importance while luxury items such as high-end brand-name goods andwomen's fashion accessories have decreased. Such changes may have led to stagnationin sales per paying foreign visitor and increased total sales per store in Figure 2-3.5 Table
2-1 also shows the proportion of consumables to the total sales. The increasing share of
consumables also shows the rising importance of these items for foreign visitors as well as
department stores in Japan. During the sample period, i.e. about five years, the share of
consumables grew almost fourfold, and is now almost half of the total sales.
The number of consumable sales in Figure 2-4 also stagnated in 2016 (as in 2015 for̿ 11 ̿

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the consumable sales per store), as did the numbers of total duty-free sales in Figure 2-3.
Figures 2-3 and 2-4 and Table 2-1, therefore, suggest that specific months and years might
be important when analyzing the consumption behavior of foreign tourists visiting Japan.
2.3.2 JTA Data
Figure 2-5 shows the sales of cosmetics and perfumes per foreign buyer. The data
sets are from a quarterly survey conducted by the Japan Tourism Agency (JTA data).
These data sources are widely used by the Japanese government and others such as media
when considering foreign tourism in Japan.
The numbers are averages weighted by the number of visitors by region/country, and are
not per capita numbers such as those in Figures 2-3 and 2-4 in 2.3.1 (JDS data). It istherefore likely that they were influenced by a large number of visitors from specificcountries such as China and South Korea. For instance, in its October-December 2017
survey, the five countries whose number of visitors buying cosmetics and perfumes were thegreatest are: South Korea (1,134), China (999), Taiwan (434), Hong Kong (126), andThailand (105) (numbers of purchasing visitors in parentheses). These five countries arealso ranked in very similar order by the number of foreigners visiting duty-free counters of
department stores in October and November 2017, according to press releases by the Japan
Department Stores Association for these two months. In Figure 2-5, these five countries
collectively had almost a 90 % share of the number of buyers in the survey for this period.
Figure 2-5: Sales of Cosmetics and Perfumes per Foreign Visitor (Yen), 2010 2nd - 2017 4th.
33,00031,00029,00027,00025,00023,00021,00019,00017,00015,000Notes.
1. Source: Japan Tourism Agency, “Consumption Trend Survey for Foreigners Visiting Japan”(issues of April-June of 2014 to October-December of 2017).
2. The numbers are averages weighted by the number of visitors by region/country.

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During the sample period, the classifications of regions and/or countries werechanged twice, making continuity of the numbers problematic. Fortunately, JTA data isalso an important source of information on the consumption of foreign visitors. JTA
examines many kinds of expenditure by foreign visitors during their trips to Japan as well
as shopping for cosmetics (transportation, accommodation, shopping of many other goods
and services, etc.) and also by country of origin. With JTA data it is possible to observe
and analyze the behavior of foreign visitors more deeply than with JDS data, as shown in
Figure 2-7 below.6
In Figure 2-5, from the second quarter of 2010 to the second quarter of 2013, thenumber of sales moved up and down in half-a-year or year periods. During this period,
two large events occurred: the Great East-Japan earthquake and the deterioration of therelationship between Japan and China. In Figure 2-5, two large plunges during thisperiod may have been due to these events. From the second quarter of 2013 to the third
quarter of 2014, the number of sales was fairly stable. It then increased rapidly until thesecond quarter of 2015, becoming stable again until the second quarter of 2016, following
which it fluctuated.
Figure 2-6: Comparison of Two Consumption Datasets, 2014 4th - 2017 4th.
35,000

Sales perClient (Yen)

30,00025,00020,00015,00010,000

5,000
4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17

2Q17

3Q17

4Q17

Quarter-Year
JTA data

JDS data

Sources: same as those for Figures 2-4 and 2-5.

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Figure 2-6 compares the consumption data from JDS (light-gray graph) and JTA(dark-gray graph) during the three years from the fourth quarter of 2014 to the fourth
quarter of 2017. For the JDS data, the numbers are changed from monthly to quarterly
values by taking a three-month aggregate for comparison with JTA data, which are basedon quarterly surveys. Except for similar increasing trends in 2014 and 2017, the two
consumption numbers moved quite differently. The JTA data did not change very muchduring the three years, especially from the second quarter of 2015 to the second quarter of
2016, whereas the JDS data show a clear increasing trend. Because of this difference, the
JTA numbers are higher than the JDS numbers, apart from 2017. Factors such as
different proportions of foreign visitors and classification of goods (JDS data includes
food) may be responsible for these differences, but further analysis is needed.
Figure 2-7: Shopping Expenditure and Proportion of Daily Expenditure
200,000

Shoppping
Expenditure(yen)

180,000

Proportion of
Daily
Expenditures
(%)

60.0

50.0
160,000
140,000

40.0

120,000
30.0

100,000
80,00020.0
60,00040,000

10.0

20,0000.0

02Q2010 2Q2011 2Q2012 2Q2013 2Q2014 2Q2015 2Q2016 2Q2017 2Q2018

Quarter/Year

Korea Expenditure
Korea %

Taiwan Expenditure
Taiwan %China Expenditure
China %

Notes.
1. Source: Japan Tourism Agency, “Consumption Trend Survey for Foreigners Visiting Japan” (issuesof April-June of 2014 to 2018).
2. The survey asked inbounds about their expenditures during their visit to Japan. The items
examined were accommodation, food and drink, transportation, entertainment, shopping, and others.

『商学研究』第36号

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Figure 2-7 reveals another perspective available from JTA data but not JDS data.
This figure shows daily expenditures for shopping by persons inbound from three
countries, South Korea, Taiwan, and China, and the ratios of shopping to total expenditure(bar graphs and line graphs respectively). All inbounds were from East-Asian countries,
but their expenditure patterns were quite different. First, Chinese spent most on
shopping, especially during the mid-2010s, followed by Taiwanese and Koreans. Second,
for Chinese and Taiwanese, the proportions of shopping were relatively high. Finally, for
inbounds from these two countries, either the expenditures or the proportions (or both)began to decrease from the year 2014 or 15. This observation supports the notion of a
“Chinese shopping spree” (Baku-Gai in Japanese) of limited duration.7
2.4 Data for Cosmetics
The observations in the preceding subsection show the importance of cosmetics as a
shopping item for visitors from China and other Asian countries, and show how thisimportance has increased, especially in the second half of the 2010s. In the present
subsection, movements of the consumer price index of cosmetics in the 2010s areobserved, and compared with changes in cosmetics consumption by foreign visitors.
Figure 2-8: Consumer Price Index of Cosmetics, January 2010 - February 2019.
103
102
101
100
99
98
97
96

201001
201004
201007
201010201101
201104
201107
201110201201
201204
201207
201210201301
201304
201307
201310201401
201404
201407
201410201501
201504
201507201510201601
201604
201607
201610201701
201704
201707201710201801
201804
201807
201810201901

95

Source: e-Stat (the Portal Site of Official Statistics of Japan).

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Figure 2-8 shows time series for the consumer price index (CPI) of cosmetics fromJanuary 2010 to February 2019 (2015 = 100). For the first three years (2010-12) itshowed a negative trend, which may reflect the negative impact of the global financial
crisis in 2008 and the slump in the Japanese economy after the crisis. From 2013 it
began to increase, due possibly to depreciation of the Japanese yen, and in 2014 it made asudden jump. This jump may have been due to an increase in consumption tax rate from
5 to 8 percent from April 1 of that year. After a three-year stable period (May 2014 to
May 2017), it has since been increasing.
From 2014, except for the jump at the beginning, the time series for the consumer
price index of cosmetics has a similar trend to that of duty-free sales of consumables(cosmetics and foods) per paying client, based on JDS data (Figures 2-4 and 2-6),
especially for the last two years. Figure 2-9 shows time series of CPI and sales ofconsumables from October 2014 to February 2019. The sales of consumables (dark-graygraph) and CPI of cosmetics (light-gray graph) exhibit different trends for the first three
years; whereas the sales of consumables increased steadily, CPI stagnated. From the
beginning of 2017, however, both numbers show similar increasing trends.
Figure 2-9: Sales of Consumables per Paying Client and CPI of Cosmetics, October 2014 to February 2019.
102.5

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10000

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5000

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Left: Sales ofConsumables (Yen)Consumables/Clients

Sources: same as those for Figures 2-4 and 2-8.

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Right: CPI of
Cosmetics

Year/Month̿ 16 ̿

CosmeCPI2.5 Final Words
This section has considered the evolution and consumption activities of inboundtourism in Japan, based on various sources of data. For the latter, it shows theimportance of cosmetics and its possible impact on the domestic price of the item. The
July 2019 press release of the Japan Department Stores Association says that owing to
product adjustment by cosmetics manufacturer (s), missed profit opportunities were likely.
This statement suggests that, in order to analyze the Japanese cosmetics market, its supply
side, market structure, and other factors such as business practice must be taken into
account. Moreover, time series analysis may show the extent to which (inbound)consumption and price of cosmetics are correlated. Comparison of Japanese data with
Taiwanese data (in Section 4) is an interesting complement to the present analysis.
3. Trend and Consumption Power of Inbound Tourism in Taiwan - Focus on
Shopping for Cosmetics
3.1 Background
Inbound tourism into Taiwan has been growing and making an impact on thedomestic economy, given the spending power of the inbound markets of the various
source countries. This section considers the evolution and consumption activities ofinbound tourism in Taiwan, with a detailed analysis of the product category of cosmetics.
3.2 Research Questions
To learn about the consumption activities of foreign visitors to Taiwan across time,
we explore changes from 2008 to 2018, observing the trend of inbound visits and related
consumption power in Taiwan. We ask the following questions:
1. Where are the main sourcing countries of inbound tourists? How has this changed in
the observation period of the recent decade?
2. What is the consumption power of these inbound tourists? Has it changed over theyears? If so, how has it developed?
3. What is the daily expenditure of inbound tourists, now and previously? What
proportion of their expenditure is given over to shopping? Has any trend been
observed, especially in cosmetic sales?
3.3 Data and Method
To address these questions, we set up a dataset for empirical observations concerning
inbound markets. We chose the time frame 2008 through 2018, to take into account the
impact of the critical new inbound market, China. It was in 2008 that visits of mainland
Chinese began their startling growth with the arrival of the first tour group by the first
direct charter flight.8 Furthermore, China has been the main sourcing country for theisland of Taiwan, despite a decline in some years.
Our main data sources are the publications of Taiwan governmental offices, including
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the Tourism Bureau, MOTC, and the Department of Statistics, MOEA. Specifically, we relyon the annual survey, “Consumption and Trends of Visitors to Taiwan,” to create our dataset.9
From this dataset, we derived an estimate of daily expenditure of inbound visitors on
cosmetics, based on daily expenditure, the proportion of daily expenditure on cosmetics
per visitor, and their length of stay in Taiwan.
For the total sales of cosmetics in Taiwan, we were unable to find statistics. We,
therefore, used a substitute measure, the retail sales of the pharmaceutical and medical goods
and cosmetics in specialized stores, published by the Ministry of Economic Affairs,10 which
also stated the cosmetic price index of items. Together, these measures facilitated an analysisof the effects of inbound visitors' shopping on the sales and price of cosmetics.
Using this extended dataset, we studied inbound markets in Taiwan and theirexpenditure, and were able to shed light on the following issues:
1. Inbound Visits, Growth and Key Markets
2. The trend of Overall Expenditure and Expenditure per Visit
3. Shopping Expenditure
4. Shopping Trend of Cosmetics
5. Price Trend of Cosmetics
3.4 Findings
In this subsection, we present our findings for each of the five headings above, using
various data.
3.4.1 Trend and Key Markets
Inbound tourism in Taiwan has been growing and having a greater effect on thedomestic economy. Figure 3-1 gives an overall picture of trends and growth in the inboundmarket. It began at a small size of nearly four million at the beginning of the observation
period (2008) and reached almost ten million in 2014, a 1.6-fold increase in six years. The
average annual growth during this time was a strong 17.3%, with an average annual
increase of one million visitors to Taiwan.
Statistics for subsequent years show weakened growth, however, at around 5 % in2015 and dwindling to a mere 0.5 % in 2017. There was a very weak rebound in 2018,
which ended with a historic high of more than eleven million visits.
In short, the statistics reveal that inbound tourism underwent very strong growth in
the last decade, but growth has slowed down sharply in recent years.
To discover more about the development of Taiwan’s tourism, we considered the main
source countries from which visitors inbound to Taiwan come. Figure 3-2 traces theevolution of the structure of the key inbound markets in Taiwan. Japan, Hong Kong/Macao,
and South-East Asian Countries, plus Korea, were key players at the start, but a new player,
China, quickly entered and soon dominated the market. China easily replaced Japan as the
top market in 2010 and has advanced its strength since. It also occupied a dominant positionof more than 40% of inbound visits to Taiwan in 2014 and 2015.
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Figure 3-1: Inbound Visits & Growth
120.0

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10.0

20.0
0.0

0.0
2008

2009

2010

2011

2012

2013

2014

Total Visits (100K)

2015

2016

2017

2018

growth %Notes.
1. Source: Tourism Bureau, Ministry of Transportation and Communications, R.O.C. (Taiwan), “Visitor
Arrivals by Residence,” in Annual Report on Tourism Statistics (Years of 2008-2018).
2. We prepared the figure by calculating the data series found in the source.

However, the Chinese market then began to shrink, especially in 2016 and 2017, theearly years when a pro-independence party came to power in Taiwan. This shrinkage was
replaced by a mild and steady increase from Japan and other neighboring countries, suchas Korea and various South-East Asian countries.
The structure of the key inbound markets of Taiwan is not fixed. Although its key
markets remain unchanged, key market players rise and fall. China, as a new market, playsa critical role in the growth of inbound tourism on the island but also contributes to suchvolatile effects.
3.4.2 Overall ExpenditureWith the high growth of inbound visits, there should be a corresponding growth in
expenditure. Indeed, our data show that overall expenditure underwent high growth in theearly years of the observation period (2008-2014) but slowed after that before rebounding
in the final year studied (2018). Why is that?
To answer this question, we explored the average expenditure per visit. The findingshows that after the expenditure per visit reached a peak (US$1,818) in 2011, it then felland did not bottom out until 2018, at US$1,238; this represents a sharp decrease of 26.4%(-$480) (See Figure 3-3). More visitors do not imply greater expenditures when they eachspend less.

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Figure 3-2: Structure of Key Inbound Markets
100.0
90.0

㸣

80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
2008

2009

2010

2011

Hong Kong/Macao

2012

China

Japan

2013

2014

Korea

2015

2016

2017

South-East Asia

Notes.
1. Source: Tourism Bureau, Ministry of Transportation and Communications, R.O.C. (Taiwan), Annual Survey
Report on Consumption and Trends of Visitors to Taiwan (Years of 2008-2018).
2. We prepared the figure by calculating the data series found in the source.
Figure 3-3: Expenditure for Inbound Market
16,0002,000

14,000

1,800
1,600

12,0001,400

10,000

1,200

8,000

1,000

6,000

800
600

4,000

400

2,000

200
0

0
2008

2009

Total annual

2010

2011

2012

2013

expenditures (US$ million)

2014

2015

̿ 20 ̿

2017

2018

Expenditure per visit/vistor (US$)

Notes.
1. Source: same as that for Figures 3-1 and 3-2.
2. We prepared the figure by calculating the data series found in the source.

『商学研究』第36号

2016

It is possible that the so-called “Baku-Gai” Chinese buying behavior is a factor in thissituation. To investigate this hypothesis, we compared the average daily expenditures per
visitor between all visitors, Japanese visitors, and Chinese visitors. Our analysis tells that
although the expenditures of all visitors and Chinese-visitors show a similar wavy pattern,Chinese expenditure varies on a larger scale. Its total amount is also much larger, and this
explains the spending power of Chinese inbound visitors (Figure 3-4).
3.4.3 Shopping Expenditure and Proportion
Overall, the shopping amounts and proportion of all three groups decreased over theobservation period, having increased in the early years (See Figure 3-4).
Chinese visitors had the highest aggregate spending, and Japanese were higher than
the average visitor before 2010 but lower after that. Chinese shopping fits a bell-shaped
curve, with an extended half on the right after the peak of $160 in 2011 and 2012 and an
end of low $105, whereas for Japanese there was a dwindling curve, with a peak at $77 in2009 and an end at $39.
To analyze the extent of preference for shopping other than the daily expenditure on
items such as lodgings, meals, and transportation, we looked at shopping as a proportionof daily expenditure. As observed in other host countries, such as Japan, Chinese visitors
were strongly attached to shopping (ranging between 40% and 60%), much more than any
other visitor group. For Japanese, their preference for shopping was less than the averagefor visitors (with an early peak of 28.7% in 2009 and dwindling to 17. 8% at the end).
Figure 3-4: Shopping Amount and Proportion of Daily Expenditure180.0070.0%

US$160.0060.0%

140.0050.0%

120.00100.00

40.0%

80.00

30.0%

60.00

20.0%

40.00
10.0%

20.00
0.00

0.0%
2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

All AmountJapan Amount

Mainland China AmountAll %Japan %

Mainland China %Source: same as that for Figure 3-3.
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『商学研究』第36号

3.4.4 Shopping Trend of Cosmetics
For our comparative study with Japan, we focus on spending on cosmetics byinbound visitors. The aim is to elucidate the relation between inbound expenditure on
cosmetics and the total sales of cosmetics in the retail industry (See Figure 3-5).
There was a rapid linear growth of inbound visits in the earlier years, and the annual
expenditure due to these visitors grew elastically before reaching an extremum in 2015
and fluctuating since. Estimated figures for inbound visitors’ spending on cosmetics
started in the study period at just $99 million, but soon skyrocketed to a billion-dollar
market in 2014, a 10-fold growth in just six years. Although it dropped to just below $760
million in 2017, it rebounded back to a historic high of $1.12 billion in 2018. The
attraction of cosmetics is enduring and strong.
Figure 3-5: Annual Expenditure by Inbound Visitors on Cosmetics or Perfumes
12,000,000

VisitsUS$1,200,000,000

10,000,000

1,000,000,000

8,000,000

800,000,000

6,000,000

600,000,000

4,000,000

400,000,000

2,000,000

200,000,000

0

0
2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Number of Inbound Visitors (visits)
Annual Expenditure of Inboud Vistors on Cosmetics or Perfumes

Source: same as that for Figure 3-3.

『商学研究』第36号

̿ 22 ̿

How resilient is inbound visitors’ expenditure for cosmetics, as suggested above? Weanalyzed the proportion of their expenditure on cosmetics against retail sales of cosmetics
in specialized stores, to estimate the development of the contribution to the retail industry
by the inbound market (Figure 3-6).
The ratio of inbound visitors’ expenditure on cosmetics to retail sales of cosmetics inFigure 3-6 traces matches the form of Figure 3-5, although with more moderation. There is
still a great increase in the early years and then a fall and rebound, whereas there is abackdrop of a relatively stable total retail sales of pharmaceutical and medical goods taken
together with cosmetics in specialized stores. Total retail sales, as a benchmark, suggest avery weak variation around or below $5 billion in the first three years, followed by ahigher plateau in the next six years within the range of $5.4 to $5.6 billion. In the lastyears of the study period, sales continued to tilt upward, in contrast to the sharp drop in theinbound visitors’ spending contribution to the retail industry.
Overall, given the proportion of retail sales since 2012 (Figure 3-6) and the amountof expenditure reaching a billion dollars, the contribution of the inbound visitors' spending
is significant. It might, however, undergo ups and downs in the future for economic,
cultural, and political reasons.
Figure 3-6: Retail Sales of Specialized Stores and Cosmetics Spending by Inbound Persons (%)
7000.0

US$ million

%

25.0

6000.020.0
5000.015.0

4000.03000.010.0

2000.05.0
1000.0
0.0

0.0
2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

TW Retail Sales of Specialized Stores (US$ million)
Inbound Cosmestics Spending against Retail Sales (%)

Notes.
1. Sources: Same as that for Figure 3-3, and Department of Statistics, the Ministry of Economic Affairs, R.O.C.
(Taiwan), Statistics Monthly of Sales of Wholesale, Retail, and Food Services (issue of December 2018).
2. We prepared the figure by calculating the data series found in the sources.

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『商学研究』第36号

3.4.5 Price Trend of Cosmetics
To examine the price trend of cosmetics, we analyzed the time-series data for the
price index of cosmetics and medical goods, obtained from the Directorate-General of
Budget, Accounting and Statistics, Executive Yuan, Taiwan. This analysis shows a cyclicalupward trend within the band between 98.5 and 100.05 until 2016, and a sharper increase
after 2017 until the latest year of the study, reaching 102.02, a record high of theobservation period (with 2016 as 100; see Figure 3-7).
Figure 3-7: Price Index of Cosmetics and Medical Goods
103

102

101

100

99

98

97

96
2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Notes.
1. Sources: Directorate-General of Budget, Accounting and Statistics, Executive Yuan, R.O.C. (Taiwan),Price Statistics Monthly (issues of December 2008 and September 2019). The Executive Yuan is theexecutive branch of the ROC government, headed by the premier. The premier is directly appointed by
the president, while other members of the Executive Yuan Council, or Cabinet—including the vice
premier, ministers, chairpersons of commissions, and ministers without portfolio—are appointed by thepresident of the Republic upon the recommendation of the premier.
2. We prepared the figure by calculating the data series found in the sources.

『商学研究』第36号

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To examine correlations between the price trend and expenditure by international
visitors, we juxtaposed the price data series with the average shopping expenditure on
cosmetics by international visitors per visitor (See Figure 3-8). In contrast to the priceindex, the expenditure did not share the cyclical-like feature of the price index; it
underwent only a single cycle with an increasing slope before the peak in 2013, thendecreased until 2017 before rebounding in 2018. Furthermore, the price index headed
down and crossed the increasing upward trend of the expenditure between 2009-2011 andthen crossed it again heading upwards while expenditure fell in the period 2015-2017,
even though both shared increasing trends in other years. We find no correlation between
these two data streams.
3.5 Final Words
The growth of inbound tourism in Taiwan motivated our study to gain a deeper
understanding of the development of the inbound tourism market. Using reliable data
sources, we created a time-series annual dataset from 2008 through 2018. Our study showsthat inbound tourism in Taiwan grew strongly in the earlier years of the study, andcontinues to grow in recent years, but more slowly. The structure of the inbound market
evolved with the coming of tourists from China, who quickly took the dominant position
but then also decreased in recent years. Nevertheless, they have still replaced Japanese at
the apex of inbound tourism on the island. There is a significant flow of tourists to Taiwan
from other neighboring countries such as Japan, Korea, and South-East Asian countries.
Figure 3-8: Price Index of Cosmetics and Medical Goods and Average Inbound Expenditure of
Cosmetics per Person per Visit
103

US$

140

102

120

101

100

100

80

99

60

98

40

97

20

96

0
2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Price Index of Cosmetics and Medical Goods
Average Expnditure of Cosmetics or Perfumes per Person per Visit

Sources: same as those for Figures 3-6 and 3-7.

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『商学研究』第36号

As for consumption by inbound tourists, this reached a peak around 2014 and 2015
and decreased sharply after that. The decrease in Chinese tourists and their purchasing
power is obvious.11 A further reason is that the expenditure per person per visit has analmost linear decrease since 2011.
In our focus on shopping for cosmetics, in contrast to the decrease in total
expenditure, inbound visitors show a strong and steady commitment to retail sales ofcosmetics, making it an attractive and promising market that has now reached a billion
dollars.
Our study offers a deeper understanding of the development of inbound tourism in
Taiwan. Future research may extend to other countries and products. Furthermore, a causal
analysis with rigorous empirical methodology will clarify the factors that cause the growthof inbound tourism and their impact on the domestic economy.
4. Comparison of the Two Inbound-Host Countries and Remarks
In conclusion, we have compared the inbound markets in Japan and Taiwan. In bothcountries, numbers of inbounds have increased rapidly (Figures 2-1 and 3-1). In bothcountries, visitors from China, South Korea, and Southeast Asian countries make up large
proportions of visitor numbers (Figures 2-2 and 3-2). Overall expenditures of inbounds
have increased in both countries, but per capita expenditure has stagnated or evendecreased (Figures 2-3 and 3-3). The data also suggest that, for both countries, inbounds
from China are more committed to shopping than those from other countries (Figures 2-7
and 3-4). In particular, among expenditure items, cosmetics have gained in importancein both countries (Figures 2-4 and 2-5 and Table 2-1 for Japan; Figures 3-5 and 3-6 for
Taiwan). Finally, the consumption of cosmetics by inbounds and the domestic price ofcosmetics are correlated in both countries (Figures 2-9 and 3-8), although further analysis
would assist in clarifying this correlation.
The present analysis reveals many similarities between the inbound markets of thetwo countries, especially in cosmetics. The cosmetics market in each country warrants
further examination; for instance, the substitutability of cosmetics made in the twocountries and South Korea for (Chinese) inbounds has not been explored in the present
analysis.
Finally, as our analysis confirms, China has a large impact on inbound markets inboth countries. Japan and Taiwan both have sensitive political relations with China; also,
when one country has a problem with China, it may affect the other country either
positively and negatively, i.e., one country may be a substitute or complement for the other,or the problem might be wider. Further analysis of such correlations would be
beneficial.12『商学研究』第36号

̿ 26 ̿

Notes.
1
Yanase (2017) asserts that models should be extended to encompass differentiatedgoods in monopolistic competition. For the theoretical analysis in a dynamic setting,see Hazari and Sgro (2004).
2
The number of department stores included in the data has doubled, from 46 in October
2014 to 93 in June 2019. Only the total number of stores is available from the press
release of the Association, and the distribution of the stores is not shown, althoughmany department stores are located in large cities such as Tokyo and Osaka.
According to the Association, the total number of department stores in 2019 is 204.
By prefecture, Tokyo has 30 stores, and Osaka has 18 stores.
3
Miyajima (2016) points out the effects of exchange rates, deregulation of duty-free
items, and the visa-waiver policy of the Japanese government.
4
It might be possible to estimate the total number of foreign buyers of consumables
using the proportions of consumables in relation to the total duty-free sales, but such ad
hoc estimates are not used in this paper.
5
Sales of some items, especially luxury ones, may nevertheless experience seasonality(cyclical movements in Figures 2-3 and 2-4 support this hypothesis). For instance, theranking of December 2014 was as follows:
1. high-end brand-name goods
2. women’s fashion accessories
3. women’s clothes
4. men’s clothes & fashion accessories
5. cosmetics
Comparing the ranking of October (in Table 2-1) and December 2014 may suggest that
Christmas sales apparently increased the importance of luxury items in this year.
6
The survey also asked foreign visitors about their expenditures before coming to Japan.
7 Baku-gai or the so called explosive shopping is a special word popularly used in theJapanese media since 2014 to describe the impressive spending power of Chinese tourists
in Japan. See Chiezo of the Asahi Shinbun (online database of the newspapaer) for
details.
8
Cross-strait direct transportation was banned prior to 2001 for political reasons. In 2005,
officials of China and Taiwan approved direct charter flights to certain cities. The first
tour group of Chinese tourists by the first cross-straits direct charter flight finallyarrived in Taiwan in 2008.
9
Our main source is a survey (“Consumption and Trends of Visitors to Taiwan”) conductedannually by the Tourism Bureau, Ministry of Transportation and Communications of
Taiwan. We collected statistics from annual editions between 2008 and 2018.
10
This measure also includes sales of pharmaceutical, medical goods, food and otheritems, even though cosmetics sales is said to comprise more than half of the total sales.
In addition, inbound visitors might make their purchase in other retail channels, such as
department stores, duty-free stores and others, which are not included in this measure.
11
A cause often suggested is the hand of the Chinese government behind their outboundtourism. In the case of Taiwan, the phenomenon of ubiquitous Chinese tourism weakened
after the pro-independence party came to power in Taiwan, as observed earlier above.
According to various sources, the decrease occurred for group tours in the early years, then̿ 27 ̿

『商学研究』第36号

12

at the individual level; beginning this summer (2019), the latter was prohibited.
For possible extensions of the analysis for each country, see subsections 2.5 and 3.5.

References
1. The Asahi Shinbun, Chiezo (in Japanese).
https://database.asahi.com/help/jpn/chiezo_sousa01.html
2. Che, Chong Ming (2013) “Panel Threshold Analysis of Taiwan's Outbound Visitors,”
Economic Modeling, Vol. 33, pp. 787-793.
3. Copeland, B.R. (1991) “Tourism, Welfare, and Deindustrialization in a Small Open
Economy,” Economica, Vol. 58, pp. 515-529.
4. Department of Statistics, the Ministry of Economic Affairs, R.O.C. (Taiwan),
Statistics Monthly of Sales of Wholesale, Retail, and Food Services (issue ofDecember 2018) (in Traditional Chinese).
5. Directorate-General of Budget, Accounting and Statistics, Executive Yuan, R.O.C.
(Taiwan), Price Statistics Monthly (issues of December 2008 and September 2019) (inTraditional Chinese).
6. Espinet, Josep-Maria, Modest Fluvià, and Ricard Rigall-Torrent (2011) “The Impact
of Inbound Demand on Price Levels in Tourism Municipalities: Empirical Evidence
from Catalonia,” Tourism Economics, Vol. 17, No. 1, pp. 159-189.
7. Executive Yuan, R.O.C. (Taiwan), “Structure and Functions.”
https://english.ey.gov.tw/Page/E43650B2CB14861B
8. Goodrich, Jonathan N. (2001) “Tourism and Development in Mountain Regions,”
Journal of Travel Research, Vol. 30, No. 9, pp. 468–469.
9. Hazari, Bharat R. and Pasquale M. Sgro (2004), Tourism, Trade, and National Welfare,Elsevier.
10. Japan Department Stores Association, Trends of Duty-Free Sales and Customer traffic of
the Month, various issues (in Japanese). https://www.depart.or.jp/press_release_other/
11. Japan National Tourism Organization, Numbers of Inbound Visitors and OutboundJapanese, (in Japanese). https://www.jnto.go.jp/jpn/statistics/visitor_trends/index.html
12. Japan Tourism Agency, Ministry of Land, Infrastructure, Transport and Tourism,
Consumption Trend Survey for Foreigners Visiting Japan, various issues.
http://www.mlit.go.jp/kankocho/en/siryou/toukei/syouhityousa.html
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http://www.mlit.go.jp/kankocho/en/kouhou/general.html
14. Lee, C. K., T. Var and T.W. Blaine (1996) “Determinants of Inbound Tourist
Expenditures,”Annals of Tourism Research, Vol. 23,No. 3, pp. 527-542.
15. Miyajima, Takayuki (2016) “Background of Decelerating Inbound Consumption and
Future Prospect,” Mizuho Insight, Mizuho Research Institute, June 23 (in Japanese).
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Strategic Alliances and Impact of Consumer Price Index on Tourist Arrivals: The Caseof Malaysia,” TOURISMOS: An International Multidisciplinary Journal of Tourism,『商学研究』第36号

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17. Statistics Bureau, Ministry of Internal Affairs and Communications of Japan,
Consumer Price Index: available at e-Stat (the Portal Site of Official Statistics ofJapan). https://www.stat.go.jp/english/data/cpi/index.html
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要旨 
本稿では日本と台湾それぞれの様々なデータを用いて、両国における外国人観光の発展
および、外国人観光の拡大が両国の国内物価、特に化粧品価格に与えた影響を論じる。最初に外国人観光客数の変化を示し、本稿におけるリサーチ・クエスチョンを提示する。さらに外国人観光客による消費に関するデータを説明し、外国人観光客による消費全体、そして外国人観光客による化粧品の消費に関する観察結果を提示する。続いて化粧品の価格と消費に関する我々の発見を説明する。最後に本稿では計量分析を行っていないため、本稿における研究の拡張について議論する。以上の構成で日本、台湾それぞれについて論じた後、最後に両国の比較を行い、東アジア全体の観光市場の視点から、さらに今後の研究方向を議論する。
キーワード：日本、台湾、外国人観光客による消費、化粧品、国内価格

謝辞 
本稿は日本大学商学部付属商学研究所共同研究「国内物価の変動要因の実証分析」（代表：池野秀弘教授）の研究成果の一部である。張及び松原は匿名の 2 名の査読者からの、そして松原は第 56 回名古屋国際経済研究会 NIESG 参加者からの有益なコメントに深く感謝する。本稿の誤りはすべて著者に帰する。

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『商学研究』第36号