People's Republic of China
Bans All Direct Sales: Amway Reopens as a Retailer

On July 21, 1998, Amway reopened for business in China.The government accepted their revised business plan to sell only in retail outlets. Customers can receive discounts by paying a small annual fee, similar to buying a membership in a wholesale club. Goods will be sold by "sales representatives," many of whom will be former distributors. They will theoretically operate from the retail establishments.

The process of transferring product from Amway to the end consumer will involve some bookkeeping hanky-panky. Since direct sales are forbidden, "sales representatives" are supposed to have orders from customers before picking up any product from the Amway retail outlets. Theoretically, Amway will retain ownership of the product until it reaches the customer's hands. However, according to one news report, confusion among former distributors is widespread. Most will probably continue to do business as usual, telling the retail center they are purchasing goods for themselves and then re-selling them to customers on the rare occasions where there actually is an end consumer. (This will also make it impossible for a customer to return a product he's unsatisfied with.)

Following notice of the ban on direct selling last April, Amway insisted that they would not switch to a retail store business model. Richard Holwill, Amway's director of international affairs, ruled out selling his product through retail outlets, as was proposed by official media.

"This is not acceptable. We will not compete with distributors in retail shops but we will make modifications to our sales plans to help meet China's concerns," Holwill insisted. Ninety days later, Amway is operating solely from retail outlets.

Amway claims that they are "the best business opportunity in the world." Over the years they have insisted that the only way they do business is through their distributors. If they can switch so easily into a retail mode in China, what's to stop them from doing it in other markets?

Last spring, the government of the People’s Republic of China issued an order banning all direct selling on the mainland. News of the ban, which went into effect on April 21, caused Amway Asia Pacific (AAP) stock to plummet.

According to a March 30 article in the South China Morning Post, Beijing has decided that "the social and economic damage of direct marketing outweighs the benefit." The same article states that, "National Industrial and Commercial Bureau (NICB) fair trading bureau chief Li Bida told state television direct selling was bringing calamity to the nation and the people." A notice from the State Council further claimed that, "Criminals have used direct selling to set up sects and cults, spread superstition and carry out illegal activities, affecting the country's social stability."

Although China offered to let several of the "approved" direct selling companies continue to operate by selling their product in conventional retail outlets, this did not appease Amway at that time.

Amway has invested $100 million in a manufacturing plant in Guangzhou, and had plans for another $25-30 million investment in Shanghai.

It would appear that some of the issues surrounding MLM which triggered the ban are the same issues which are being raised in the North American courts and on the internet. Deceptiveness during the recruiting process, expensive "investments" in tools for teaching, training and motivation, and accusations of cultlike activity have been leveled in both countries. Most of the accusations claim deception and fraud by distributor leaders and their motivational organizations. While most of the suits do not allege that Amway itself deceived distributors, they uniformly accuse the corporation of failing to enforce its own rules and of knowingly allowing the organizational leaders to engage in the questionable business practices. Internet sites provide a wealth of evidence agreeing with the legal claims.

The same motivational organization leaders who are under attack in North America, primarily Dexter Yager and Bill Britt, have a strong presence in China and do a brisk business in providing motivational tapes, books, and functions to Chinese distributors. This, and not the Amway business, is their primary income source.

Read what Yager's AMO, InterNET Services Corp., has to say about the changing business in China.