AMWAY IN CHINA : ADAPTING

TO CHANGING ENVIRONMENT

INTRODUCTION
Since its introduction by Avon in the late 1980s,a total of 2,300 directselling firms has risen in China by 1997,employing as many as 20
million Chinese citizens and generating a sales volume of $2 billions.
The investments of Avon,Amway,and Mary Kay alone totaled $200
million in China just before the ban.
The consequences of the sudden ban on direct selling include a
turnaround in the optimistss view and the emergence of a series of
related problems

Salespeople from various affected multimarketing networks,unable to

return merchandise to disreputable direct-selling firms for proper
refund,grew desperate and angry.Riots broke out in several central
Chinese provinces and resulted in more than 10 deaths and 100
injuries.

The Growth of Direct Selling in

China

Direct selling was first brought into China in the late 1980s,when
Avon was permitted to establish its venture there.
In practice,some equate direct selling with multilevel marketing,in
which a direct-selling firm often uses some form of compensation
to enable its distributors or sales personnel to make money on
the sales of people they recruit,as well as on those recruited by
recruits. In Chinese,these recruited salespeople are often
referred to as xia xian,or downlines in the sales network of their
distributors.
Attracted by Avons early success,Amway,Mary Kay,and other
U.S. direct sellers began to tickle into China in the early to mid1990s.

Several factors account for the rapid growth of direct selling in China:

First,the countrys logistical backwardness, particularly in rural

areas, offered promising opportunities for the development of
various modes of direct marketing.
Second,when compared with most local brands, increasingly
affluent Chinese customers have been constantly impressed by
foreign brands.
A third frequently cited factor in the growth of direct selling in China
involves the Chinese peoples cultural characteristics and the
countrys unique institutional settings.
Still others point to such factors as close-knit family ties,clan
relations,and connections guanxi as major contributors.
To some enthusiastic Chinese,direct selling holds out not just a
job,but also an opportunity to develop and succeed in their careers.

About Amway

Founder Richard De Vos and Jay Van Andel perfected direct selling
Employs direct distributors , called independent business owners
(IBOs)
IBO sell product and sponsor new IBOs
IBOs receive income from their own sales and also from the sales of
the sponsored distributors.
Responsibility of proactive IBOs
Perform functions associated with management
Organize meetings and events
Co-ordinate distributors
Devise incentive programs for recruits
Marketing Amway products and Business Model

Multi level Marketing

MLM structure of Amway similar to illegal pyramid
structure
Amway faced problems in USA, France and South Korea
Illegal pyramid structure
Emphasis on selling distributorship rather than products
High entry costs

Amway worked hard to distinguish itself from illegal

pyramids
No high entry cost and no emphasis to purchase large
inventories
Refunded legitimate claims and repurchased stocks from
distributors

Amway China
April 1992, Amway China JV between Amway Asia
Pacific & Guangzhou Economic Technological
Development Zone
Company was required to produce in China as well
Setup a manufacturing plant - $100 million- in
Guangzhou - three years
In April 1995, Amway officially began operations in China
Business grew rapidly
By 1997, 80,000 distributors in Amway network in China
sales $178 million

Amway : Indirect competitors

P&G and Unilever
Local Chinese companies
Increase consumer acceptance invited
Olympic diving champion Fu Mingxia to
endorse the Nutralite line of nutritional
products

Amway and MLM in China

Amway had little control over the selling
and recruitment practices of its IBOs
IBOs developed their own power base and
began marketing unrelated businesses
through their original Amway network
Some IBO launched own versions of
network marketing model true pyramid
schemes

Amway China
April 21 1998 Chinese Government imposed a
ban on all direct selling operations
Stop pyramid scheme and other fraudulent
businesses in China
Steve Van, Chairman of Amway Asia Pacific
discussed with Chinese Government for some
sort of compromise agreement
Amways was incurring huge losses, millions of
dollars a month

Amway China and Changing

Environment
Choice To keep its business model
(since in its 4o years history company had
never altered the business model) and
give up its investment in China and lose
Chinese market forever
OR
Reinvent its business model

Changing Political & Economic

Atmosphere

1998 - Chinese economy suffering due to harsh trade policies

imposed by developed nations including US
Less orders, low on cash to allocate salaries, large industrial
corporations forces to trim labour force.
Doors were open for direct selling business easy to operate and
quick return
Laid off workers drawn to direct selling companies
Distributors seldom used the products
Products used as samples to persuade relatives and friends to join.
IBOs emphasized profits plans - perceived as best way to motivate
potential recruits
Focus shifted from selling products to recruiting
Popularity increases - distributors distorted the business Model

 Fraud and deception maximum in 1998.

Leaders in Direct selling business mesmerized the
peasants during huge rallies success stories and
promises to wealth
Chanting slogans of affirmation and asking them to
believe that they will succeed.
Taught skills for developing customers and asked to
invite friends and relatives to join business
Most of the business were scams
Recruits to pay high fees
After several days rally organizers will fee with the
money to start in another town

 Victims often lost their life savings , fell into depression

and often driven to suicide
Situation went out of control in April 1998, when
Government announced the ban.
October 31 was deadline to withdraw from the market to
register revised plans
To continues operations companies had to open retail or
wholesale operations
Company should have invested $10 million and produce
goods for sale
Necessary to have customer service and return and
refund policies

Impact of Ban on Direct selling

companies : Avon
Entered in China in 1990
Negotiated a deal with Government to
operate as Wholesaler to Chinese retail
stores
Convert 75 supply branches into retail
outlets
Rescue its investment and save its retail
force
Avon counters accounts for 75% sales
and 25% through retail stores

Impact of Ban on Direct selling

companies : Mary Kay
US based company provider of skin care
products
Organizational Structure - Independent sales
directors to Independent beauty consultants
Mary Kay operates through combination of
agencies and subsidiaries in the country
Each subsidiary is a registered corporation
Mary Kay 48,000 beauty consultants who
directly sell its products

Impact of Ban on Direct selling

companies : Sunrider
Another US company household and
personal care products
After ban gave up the direct selling model
and began selling through retail outlets
Reorganization unfavorable 3,000 retail
stores bring one seventh revenue
Sunrider lags far behind Amway and Avon
in terms of reputation

New Regulations : Strategic

Response
Amway operations halted after the ban
Agreement with the government and company
resumed operations on 21 July 1998
Government accepted the revised plan
Goods will be sold in retail outlets and through sales
representatives
Income of sales distributors will be based on direct
selling done by them only
Same Distribution centers served as retail outlets for
the company

New Regulations : Strategic

Response

New Amway China worked closely and positively with Chinese

administration
Amway also monitored the size, ticket price, frequency of training
sessions and meetings in different cities
March 2001, meetings by Amway distributors in Beijing and
Shanghai high admission fees
Amway China suspended the distributors license
Amway suspended certification to new sales representatives and
stopped all promotional and sales meetings
Company retained 310 business managers and 800 business
directors
Amway managing its sales representatives with firm hand

New Regulations : Building Political

Capital

Amway gave periodic reports to government about companys

operations, including training, accounting and human resource
Yuan 2.3 million in taxes
Yuan 30 million as charitable contributions
13% of the distributors were unemployed and hired and trained by
Amway
Since 2002, sales has reached $700 million, four times before the
ban
March 2003, sales from China one seventh of global revenue will
surpass revenue from USA market

Reasons behind Success

Localization of employees
Localization of Business Model
Localization of production and Raw Material
Localization of R&D $1.5 million investment in R&D in
china
Support for Chinas entry into WTO - Chairman of
Amway Steve Van Andel chairman of US Chamber of
Commerce promoted Chinas accession into WTO
Active community development - Financial and human
support to community development in arenas of human
service, education, environment, art, culture and sports

Facing the future

Amway had developed

New competencies with localized business model
Good relations with government
Positive public image
Model for successful Globalization and adaptation to a foreign
market
Amway hoped that situation will change after Chinas entry in WTO
After entry, Government, began new round of crackdown on illegal
business
No impact on Amway due to its new business model
At end of 2003, legislation pending in government al allow return of
direct sales in China
Government o reinforce laws to govern the direct selling industry
Amway was successful in China due to its localization strategy

Conclusion.
To attain a win-win situation,the government should listen carefully to
the opinions of genuine foreign and local direct sellers to derive a
mutually agreed-upon set of regulations for the industry.
If officials at various levels of the country can closely observe these
regulations and monitor their implementation effectively,China will not
need to maintain a blanket ban on direct selling to eradicate pyramid
scams.
From another perspective,labor-intensive direct selling complements
Chinas current enterprise reforms well banning it is likely to induce
more unemployment or even social unrest.
Perhaps what the Chinese government needs to tackle the abuses of
direct selling is more effective regulations and supervision,not a blanket
ban.

THANK YOU
PRESENTED BY:SARANBIR SINGH ANAND
RIZU GUPTA
SANCHIT SAXENA
RAVIT SINGH
KUSHAGRA RAJVANSHI
ANSHIKA GUPTA
REVIKA SHARMA
MAHAK GUPTA
SAKSHI KADYAN