With the turbulent regulatory environment for the direct selling industry in China, the November 2005 announcement that Amway China Co. Ltd (ACCL) had over $2 billion in sales for the second consecutive year is significant for the multilevel direct selling giant, Amway Corporation. China remains the leading market of their worldwide operations even though direct selling was banned in 1998. Their success can be attributed to responses by the corporate and local management for adapting during the ten years of business operations in China. Eva Cheng, chairwoman of Amway (China) and an executive vice-president of Amway Corporation, told a press conference in Guangzhou, “We have been told to shut down five times and to change our way of doing business four times. We depend on product quality more than our business license.”
New regulations in December 2005 will pose further modifications to the Amway business model in China. “Despite the uncertainty, ACCL performed admirably,” said Steve Van Andel, Chairman of parent company Alticor. “We continue to examine our future options in China in light of the new rules, which have yet to go in effect. We are very optimistic that China will continue to be our strongest performing market.”
The Company Profile
Founded in 1959, Michigan-based Amway Corporation is a large direct selling company of personal care, home care, nutrition and commercial products. It is a wholly owned subsidiary of privately-held Alticor, Inc. that operates primarily through Amway Corp; Quixtar Inc.,a North American Web-based business opportunity; and Access Business Group LLC, a product development, manufacturing and logistics provider to Amway, Quixtar and other companies. Alticor Inc. and its family of companies reported sales of $6.4 billion for the performance year ending August 31, 2005. Amway operates in more than 80 countries in Asia, Africa, Europe and the Americas. Products offered include brands such as Nutrilite vitamins and food supplements, Artistry skin care and color cosmetics, eSpring system, Magna Bloc therapeutic magnets and SA8 laundry system. Access Business Group manufactures Amway’s brand products in facilities in Ada (Michigan), Buena Park (California) and Guangzhou (China).
Amway’s products and services are marketed through more than 3 million independent business owners (IBOs) and sales representatives worldwide through a multilevel direct selling model. Direct sales, as defined by the World Federation of Direct Selling Associations, is “a process involving the marketing of products and services directly to consumers in a face-to-face manner, away from permanent retail locations.” Annual worldwide sales in this sector are nearly US $90 billion, half of which are in the United States and Japan. In the United States, approximately 80% of direct sales are by multi-level marketing organizations, where salespeople are paid not only on their own personal sales, but also on the sales of other salespeople whom they recruit and train through up-line and down-line relationships. History of Involvement in China
Amway (China) Co., Limited incorporated as a joint venture in 1992 and opened a 152,000 square foot manufacturing plant in the Guangzhou Economic and Technical Development Zone on January 18, 1995. The Amway operations in the People’s Republic of China are part of Amway Asia Pacific Ltd., a publicly traded company until becoming privately owned in 2000, that encompasses Amway businesses in Hong Kong, Macau, Malaysia, New Zealand, Taiwan and Thailand. Initial manufacturing for the Chinese market included five homecare household cleaning products, with personal care products introduced throughout the year. Amway China commenced sales operation in the Guangdong and Fujian provinces in April 1995. Following the multilevel direct selling model of Amway, a minimum monetary investment of approximately US$85 for married...