With the tumultuous past behind, multilevel marketers look to the future for real returns on their investments.
Companies such as Amway and Mary Kay have demonstrated that there is a significant amount of profit to be made through MLM and retail sales in China. Newcomer Nu Skin is eager for involvement in this market and has already committed more than $US80m of investment for a position in the market (Anderton, 2002, par. 7). As the leading MLM companies increase their momentum in the Chinese-marketplace, they must spend large amounts of money and time to push past the learning curve and obstacles that must be overcome to successfully pioneer the industry. These pioneered paths create a trail that can be more efficiently utilized by other companies that wish to pursue a similar course. Large companies have already done the majority of the work and are now positioning themselves for greater payoffs. Now is the time for emerging MLM companies to join in the Chinese MLM market.
Signs of Opportunity
The changing economic climate in China and the major investment positioning of leading MLM companies are clear signs of pending opportunity and profit in China. For years China has been working toward a more open market. Within the past year, two of the greatest milestones in China’s market history have occurred. The first was China’s accession in the WTO in December of 2002. As part of WTO accession, China must open its banking, insurance, telecommunications, agricultural sectors and more (“A Dragon Out of Puff,” 2002, par.2, 6). The second major milestone included the successful transfer of congressional and presidential power in 2002 and 2003 (“A Dragon Out of Puff,” 2002, par.3, 9, 11).
Major player investment is another indication of the ripening situation. In June, 2003, Amway announced an additional US$100m investment in their Chinese operations (“US Businessman,” 2003, par.1), and in January 2003, Nu Skin announced their investment of US$80m dollars in their China operations. Nu Skin also announced expected yearly revenues to reach US$300m by 2007.
Accession into the WTO was seen as a major step towards lifting the ban on MLM companies in China. “As part of China’s pact with the World Trade Organization, restrictions on direct selling will be decreased by December, 2004” (“Nu Skin China,” 2002). Unfortunately the announcement of those revised policies did not meet the Chinese government’s original December 11, 2004 deadline, and MLM companies were forced to continue operating under the strict conditions of the 1998 policies. In more recent developments, however, it was announced in September 2005 that China was soon to lift its ban. “The State Council, Cabinet, of China has approved in principle new draft rules on direct selling management and banning pyramid selling, lifting the countries 7 year ban on direct selling” (“Breakthrough in Direct Selling,” 2005 par.1).
Although this policy remains to be approved, it does offer good indications for reduced investment costs and change in the marketplace. This recent policy indicates a higher allowed commission payout, 30% as opposed to the previous 25% and an end to a requisite number of fixed stores, at least one, as opposed to one in each active province. Also advantageous is a new limit to registered capital, raising the limit to approximately US$10m. (“Breakthrough in Direct Selling,” 2005 par.1). These changes have signaled a slowdown in investments from major companies such as Amway and Nu Skin, “We will not be obliged to open shops in every city.” (Li, 2005, par.4) The policy is expected to be approved by the end of the year, although no one is holding their breath.
Let the money itself speak for the opportunity in this market. By the end of August 2005, Amway reported to have reached US$2b in sales and Nu Skin predicts its year-end sales to reach over US$120m. If the ban on MLM companies is lifted, numbers are expected to be much higher (“Direct Sellers May Get a Foot in China’s Door;” 2005).
To maximize the probability of success in China, a firm must use both Western and Chinese methods in its business strategies. The Chinese government and its people are eager to learn more about Western business marketing strategies and management. Likewise, Western firms that wish to succeed in China must actively learn and implement Chinese social and cultural factors into their strategies (“Who Will Help Her Find Her Way in China?,” 2003 p. 5).