Final amway

AMWAY IN CHINA : ADAPTING TO CHANGING ENVIRONMENT

INTRODUCTION

• Since its introduction by Avon in the late 1980s,a total of 2,300 direct-selling 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 optimists’s 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.

• 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 Avon’s early success,Amway,Mary Kay,and other U.S. direct sellers began to tickle into China in the early to mid-1990s.

The Growth of Direct Selling in China

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

• First,the country’s 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 people’s cultural characteristics and the country’s 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

• Amway’s 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 company’s 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 China’s entry into WTO - Chairman of

Amway Steve Van Andel – chairman of US Chamber of Commerce – promoted China’s 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 China’s 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 China’s 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 YOUPRESENTED BY:-

SARANBIR SINGH ANAND

RIZU GUPTA

SANCHIT SAXENA

RAVIT SINGH

KUSHAGRA RAJVANSHI

ANSHIKA GUPTA

REVIKA SHARMA

MAHAK GUPTA

SAKSHI KADYAN