The move will see the creation of the Joint Venture Company (JVC) which will incorporate intellectual property from both Swallowfield and Jahwa, a subsidiary of a Chinese toiletries player.
Boost European sales Swallowfield will have exclusive access to European markets for JVC's products in addition to holding a 10 percent stake in the business and a seat on the executive board.
The UK-based company hopes the deal will provide new sales opportunities in Europe as well as expanding its global presence and strengthening margins.
Its results for the revious quarter show sales figures suffering from an increasingly competitive environment and the company hopes expanding its global reach may go some way to improve the situation.
"Above all the joint venture agreement is part of our ongoing strategy to increase revenues by being a global provider of solutions to the international cosmetics and toiletries sector and to reduce our cost base," said Swallowfield CEO Ian MacKinnon.
Furthermore, the company noted that further collaboration with the Chinese market would help to assure customers of the quality and safety of products that Swallowfield already source and produce in the region.
Earlier this year the company opened a production facility in Tabor in the Czech Republic thereby increasing the company's presence in Eastern Europe and lowering production costs.
"The labour costs are approximately a third of those in the UK for the type of work that will be undertaken in our new operation, thereby providing a significant net saving," said CEO Ian Mackinnon.
Expand services to increase profitability
The company's second strategy to improve profitability involves expanding its service offerings to customers.
Swallowfield hopes that offering market analysis, formulation, design and packaging development will complement the product manufacturing, sourcing and logistics services it already provides.
The company's last published results are for the quarter ending 12 January and although sales figures slipped 8.5 per cent to £23.5m (€30.7), net profit was bolstered by the sale of the company's warehouse in Lowmoor to £1.59m from £0.25m in the last year's quarter.
Swallowfield's non-executive chairman, Shena Winning, said: "Despite a weaker economic outlook for 2008, the increasing operational and financial strength of the company puts us in a strong position for the future."