Selling, Beijing's Way
Never seen an Amway store? There are 200 in China
Among the incongruous scenes in Chinese cities like Shanghai and Beijing are little stores selling the wares of Amway, Mary Kay, and other companies that normally rely on an army of foot soldiers to peddle their products. For seven years, the Chinese government banned these direct-sales companies from using chains of individuals to sell cosmetics, household cleaners, and other goods from their homes. So, to avoid missing out on the growing Chinese market, the companies radically shifted their business models. For the first time, they opened up stores and factories, absorbing the higher costs, and some reported taking huge losses.
"I am always running into friends who have been to China and they say, 'We saw your store,'" says Truman Hunt, CEO of Nu Skin. Despite running about 160 stores in China, he says the Utah cosmetics and nutrition company lost money there. "It has been a very long-term project," says Hunt, who is also head of the World Federation of Direct Selling Associations, about the waiting game that Nu Skin and others have played.
Door to door. Now the wait is over. Direct-sales companies are trying to cash in on China's year-old rules letting them implement some of the methods they use in other countries, including traditional door-to-door sales. In network marketing, as direct sales is also known, independent contractors sell a company's goods in person and on commission. Typically, they earn more by signing up other salespeople.
Still, China will keep a short leash on direct sellers, and the companies won't be able to dismantle stand-alone stores and factories. China continues to shut out foreign sellers. That's a blow to high-powered sales reps like Pat and Marguerite Sung of Potomac, Md. The couple won't disclose their Nu Skin income, but in 1993 they hit the "blue-diamond" level for those with over $1 million in sales.
Direct-sales companies say, however, that their efforts in China haven't been a waste. Hunt calls Nu Skin's stores "an investment in our future," a way of familiarizing Chinese consumers with the company's products.
Network marketing is big business, generating $102.6 billion in sales and employing 58.6 million people globally in 2005, according to the WFDSA, and Asia is fertile ground. While the United States accounts for the biggest chunk with $30.5 billion in sales, Japan comes in second with $23 billion in sales, and South Korea is third with $8 billion. Those numbers made China attractive for direct sellers.
For years, direct sales went unregulated in China, and unscrupulous sellers set up pyramid schemes alongside legitimate players. Some bankrupt middlemen, unable to sell goods they'd bought in advance, staged demonstrations. As a result, in 1998 the government cracked down, allowing only 10 network marketers to stay.
These companies had to tie sales to stores and, like other enterprises, make their products in China. The companies responded in different ways, testing out new moves that they used only in China. Relatively cheap real estate made it possible for American companies to build factories and set up shop in prime locations such as shopping malls or ground-level storefronts.
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