CHINA'S DIRECT SALES BAN STYMIES MARKETERS: AMWAY, AVON, OTHERS EXPECTED TO WORK RESOLUTION WITH OFFICIALS

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[hong kong] The Chinese government's recent ban on direct selling is threatening major investments in the country by U.S. marketers Amway Corp., Avon Products and Mary Kay Inc.

Unless government authorities repeal the April 21 ban by Oct. 30 or a compromise is reached, the marketers only will be allowed to operate in retail stores.

"Given the Chinese government's directive to all direct sellers to modify their mode of operations, we are now working to change our distribution system in China," said Dick DeVos, Amway's president of Asia Pacific, based here.

In 1997, Amway generated sales of $178 million through 80,000 distributors in China. Avon's 50,000 sales representatives chalked up $75 million in sales.

DIRECT SALES BAN NOT FIRST

This is not the first crackdown on direct selling in China, where an estimated 20 million Chinese work in the trade. In late 1995, the government ordered a halt to direct sales because of increasing fraud; last year, an estimated 570 unlicensed operators were shut down.

The current ban is a response to other illegal activity in the field.

Also targeted are home-party sales, seen as a potential threat to political power in China. Emotionally charged and dynamic presentations by charismatic sales leaders are seen by authorities as too similar in spirit to political activism.

MARKETERS NOT WORRIED

Direct-marketing experts downplayed the impact of the ban.

The ban "doesn't overly worry us, as the ban is on direct `selling,' not direct `marketing' as we practice it," said John Goodman, regional director of OgilvyOne Asia/Pacific, the Hong Kong unit of the Ogilvy & Mather Worldwide-owned direct shop.

He added that U.S. direct sellers probably will negotiate a compromise to an outright ban. Several already have offered to assist the Chinese government to stop illegal operations that have hurt the overall industry.

"It'll take some time," Mr. Goodman added, "but I can't imagine them seriously giving up on a market so large."

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