Avon and Amway Reopen in China--Under New Rules
Amway Corp., Avon Products Inc. and Mary Kay Corp. are back in business in China after being sidelined in April by a government ban on direct selling.
But new rules mean that Avon ladies can’t come calling the way they used to: The U.S.-based direct-marketing giants must open retail stores. Sales agents can still take orders and deliver products door-to-door, but under a government measure designed to keep salespeople from being saddled with unsold wares, they no longer have to buy the goods from the company before trying to resell them.
Avon opened retail and wholesale outlets June 15, and Amway resumed operations Tuesday with special permission to use their sales representatives for service and delivery but not direct selling. Mary Kay has received an unofficial go-ahead from the government to reopen and says it expects official approval soon.
“The purpose of the ban was to cull the bad ones and keep the good ones in order to protect the consumer, but these last three months, we have all been heavily impacted,” said Chadwick Chien, Mary Kay’s financial controller in Asia. “But we all knew that sooner or later we would get back to business.”
The Chinese government banned direct selling April 22, complaining in a directive that such practices spawned “weird cults, triads, superstitious groups and hooliganism.” Multilevel marketers typically develop a network of sales agents who buy products at a discount and resell them, earning bonuses through commissions and by bringing new people into the company.
Avon introduced the practice in China in 1990, followed by Amway, Mary Kay, Tupperware and Sara Lee, firms that found it to be a successful marriage of American-style entrepreneurial spirit and Chinese networking. U.S. Trade Representative Charlene Barshefsky went to bat for the companies after the ban, pointing out that together they have invested at least $120 million in plants and offices in China and enlisted more than 2 million salespeople in their networks.
Their success spawned thousands of imitators, including a fair share of fraudulent types selling everything from fake gold to potency pills. After the ban’s implementation, at least 10 people were killed in protests in Hunan province, where thousands of people were stuck with motorized foot massagers and magic health potions they had bought and suddenly could not sell.
While the April directive was largely designed to weed out the fly-by-night operators, the multinational companies were reined in as well. In a meeting with Barshefsky in April, Chinese Trade Minister Wu Yi reportedly accused the companies of breaking rules against selling imported products--they are only allowed to sell wares manufactured in their Chinese plants--and illegally recruiting students as sales agents.
The government also objected to motivational meetings that reward top sellers and recruit new ones. Official media compared the gatherings--at which people sang and chanted company slogans--to “religious cults.” The People’s Daily complained that the meetings encouraged “excessive hugging,” and Mary Kay had to replace references to “God” in its company tenets with the word “faith.”
But the companies offered Chinese citizens a chance to make money independently in a time of mass layoffs in the country. That, combined with their significant investment, has made the government unwilling to shut the giants out completely. The new regulations state that only enterprises with an overall investment of $10 million or more may employ sales agents.
Amway said it resumed operations Tuesday in 14 provinces and four cities with 1,100 full-time employees, about 200 fewer than when it closed after the April ban.
The widely publicized shutdown has hurt the company financially, said Herbert Ho, director of Amway China. The company’s net sales in China for the first half of 1998 were $65.2 million, and annual sales are projected to be much lower than the $178 million reported for 1997.
Mary Kay’s Chien said that the firm had lost about half of its 8,500-strong sales force and will not match last year’s $25 million in sales, but is ready to be running full speed.
“Our operations never really ceased. We could stay open for returns and could keep selling products for personal use,” Chien said. “The government opened one eye and closed one eye. That’s how business is done here.”