Category Archives: International Business

Rupert Murdoch China and Dan Jones… Pieces of Global Conquest

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I’ve been out for a while enjoying the stresses and joys of a growing family.

It looks like there’s also some growth going on in Rupert Murdochs corporate family. It looks like Rupert has all but sealed the deal to purchase Dan Jones. There’s a great MSNBC article here.

As a small business owner and entrepreneur, one of the first questions I ask myself when I see a move this is, “Why?” Why does Mr. Murdoch really need to own the business news giant? Although the Bancroft family has long said they wouldn’t give in to Rupert’s questionable motives, a stock price 65% above posted price was helpful to change their minds. Rupert Murdoch is currently the 32nd richest man in America… but his motives could go far beyond his eg0-sized Manhattan apartment.

Rupert’s company, News Corp, has recently made significant headway in China. Home the largest and fastest growing middle class in the world, this communist-capitalist society has a very long (and censored)journalism history. Murdoch’s alleged business biases are no concern for this awakening country. As News Corp. prepares to enter this reliable financial information vacuum, a name that carries the longevity and responsibility of the Walls Street Journal would provide the perfect platform for swift and deep market penetration.

This could certainly become a lot of centralized influence in our growing society. The jury is still out on whether or not Rupert will keep things unbiased. History is a great indicator of future performance and absolute power can corrupt absolutely. But who knows, maybe this media mogul will prove us wrong once again… We’ll have to see.

Can a business-man not be a hit-man?

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I just finished reading the book, Confessions of An Economic Hitman by John Perkins.

It was a fascinating novel with a very basic and well supported premise: Giant corporations work with the government to secure large contracts and make lots of money.

As a student of international business and development, I find myself torn in his analysis. I do agree with his logic that we could spend more money on relief and less on defense contracts. I do agree that the greed of giant corporations is creating a significant imbalance in world perceptions. I do not completely know (yet) if giant MNE’s are really such a bad thing. What about the shrinking world of Thomas Friedman? Don’t more McDonalds means less wars? Although I do question John’s zealous efforts to label himself as an Economic Hit Man, I believe the patterns he discussed do exist. I’m still struggling with the complete assault on Friedman economics.

I think before going into more analysis I need to read some of the basic documents of the United States of America, to get a more clear understanding of the ideals that John Perkins frequently made reference.

I do not endorse this book as revolutionary truth, but it is a thought provoking read for anyone involved in business. John Perkins does a great job to illustrate the three major relationships that exist in all business ventures, big or small, domestic or international: The interworkings of Companies/Products, Governments and Consumers/Workers.

Really though I would enjoy to hear the thoughts and experiences of others…

China Recalls… Conspiracy or Conciousness?

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Toy trains covered in lead based paint. Tires missing important radial gum safety precautions. Are these really some sort of elaborate conspiracy to put stress on China in times of abrasive trade with the US? Or simply a case of American QC keeping better track of what’s coming from China. In a recent nytimes article I just read, Chinese seafood has also been banned.

While working in commodities plastics for a number of years, I ordered a lot of product from Thailand and China. My Asian partners warned me to be very careful with Chinese goods, indicating the sigma of Chinese qc was very large—Especially in subsequent shipments after the first 2 or 3 orders. Of course I also ran into some significant problems with Thai materials suggesting that China is not alone in its problems.

I think anyone who has traded from overseas would agree that monitoring product quality can be very difficult. (Anyone who is seriously considering starting some sort of import business from China or any part of the world for that matter needs to pay special attention to QC–and even include frequent QC confirmation trips in their budget). Chinese, Thai or otherwise, it requires management and exercised controls. While there very likely could be a hint of bias against the steady trade giant, I won’t deny that claiming some shipments or recalling the items is a necessary step to improving the products from China… It will also lead to higher prices and more fierce competition among other developed nations…

Murdoch and China News…

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I have always been fascinated by news and mass communication agencies. I’ve felt that if I were to try to develop a media company that the news, or a book store, (newspaper distribution) might be an angle to get in.

I read an article in the New York Times today that talked about how media giant Rupert Murdoch had been working for years to get into China and it finally looked like he was making headway.

The article makes brief mention about how much schmoozing needed to take place for Murdoch to even begin making headway in China. The brief mention of his Mainland China wife leads to even bigger allusions to the steps taken behind the scenes to make things happen in the Middle Kingdom.

Rupert Murdoch has built such an incredible media enterprise. (Here’s a brief summary to give more background to the Murdoch Family History. He’s really beat the odds to get as far as he has and I wouldn’t at all put it past him that he’ll be able to take it another step further… Even all the way to the Middle Kingdom.

Managing Security Challenges in Southeast Asia

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To start a success business in Asia or to bring an existing business to Asia requires a very good grasp of the culture you are working with. Culture is more than just the language they speak, or the clothes they wear. (Those are perhaps the least important things to grasp). Understanding history, religion, customs and manners can speak worlds regarding your intent and your hope. As an international studies major in college, I had a great opportunity to study global systems. One that I found extremely interesting was the multi-demensional integration issues of Southeast Asia. Especially as it pertained to global security.

The broad definitions and encompassing pressures that accompany the War Against Terrorism has left very little room for any nations of the globe to remain neutral, “Fence Sitters.” The necessity for international-interdependent communication and diplomacy has increased pressures for regions throughout the world to create a more unified and cooperative security network. This is especially true for the countries of Southeast Asia, as scattered terrorist cells flourish among elusive jungles and uncoordinated government efforts to stop them.

Efforts to coordinate regional security are not new for the countries of Southeast Asia. Emerging from the alliances of the Cold War, several Track I and Track II diplomacy efforts have been developed. These “official” and “secondary” efforts have developed into significant entities that currently shape significant policy making within the region. As coordination between this diplomacy develops, military spending and action have also escalated in the area, resulting in direct and sometimes semantically indirect cooperation from U.S. forces.

Although Southeast Asian terrorist groups are largely “home grown” and not necessarily part of an international terrorist network, the risks of drug trafficking, scattered attacks and information dissemination remain a sizeable and significant front in the War Against Terrorism. By orchestrating an appropriate balance between Track I and Track II diplomacy and cooperative military action, Southeast Asian nations will be able to develop and strengthen their infrastructure to eliminate the terrorist groups and poor policies that currently exist.

TRACK I DIPLOMACY IN SOUTHEAST ASIA

ASEAN emerged from the Cold War looking for a new basis from which to develop international security measures. Bilateral treaties with the U.S. and the Five-Power Defense arrangement that existed in Asia were inadequate to meet the growing needs of “non-military” issues, such as transnational crime, environmental hazards and illegal population movement. Moreover, a number of different international defense issues such as maritime policy and nuclear weapon development remained largely unresolved. (p. 6) The ASEAN Regional Forum (ARF) was developed to bridge this gap and provide a forum of resolution for these complex matters.

Complexities within the ASEAN-Northeast Asian relationship have been largely serviced by the diplomacy of the ARF. Although ASEAN states remain the host and directing voice of all ARF meetings, the neutral ground provided by the ARF has allowed China, Japan and Korea an opportunity to voice concerns and provide helpful transparency regarding their actions. Although China has been suspicious and slow to accept full legitimacy of the ARF, a number of additional countries have stepped up to join the ranks, bringing global membership to twenty three countries, thus creating the most comprehensive security forum in the world. (p. 9)

Like ASEAN, decisions within the ARF are made by consensus and therefore can take a considerable amount of time to bring about resolution. Fear that countries will be pressured into making policy has also inhibited members from taking official minutes or having public hearings. This results in a very weak direct impact of the ARF on policy development.

TRACK II DIPLOMACY IN SOUTHEAST ASIA

The original ASEAN countries, Indonesia, Malaysia, the Philippines, Singapore and Thailand had a number of Track II institutions already in place before the formation of the ASEAN alliance. It was clear early on however, that the ASEAN and ARF alliance was unable to handle a large number of security issues and a more developed Track II involvement would be useful. This diplomacy surfaced under the identity of the ASEAN Institute of Security and International Studies (ISIS), which drew from the region’s top academics, businesses, journalists, past politicians and other specialists. Regular meetings and international involvement lead the development and unification of a number of different Track II institutions to form the Councils for Security Cooperation in the Asia Pacific (CSCAP). Formed in 1993, CSCAP constitutes the broadest Track II security organization in the world (p.11).

CSCAP meetings are based on national delegations with no guarantee of continuity. Funding must be fronted by the nations interested in the discussion at hand. Direct results from the conferences are often identifiable, thought nearly always subtle.

THE FUTURE OF TRACK I AND TRACK II DIPLOMACY INTEGRATION

As the Track II counterpart to the ARF, CSCAP often debates regarding how much of its agenda should lead or follow the ARF. Much of the information generated or collected from CSCAP meetings is supplemented material for the ARF and other Track I diplomacy entities. Although CSCAP and ARF often take different approaches to their proposed security solutions, the existing preventive diplomacy maintains a unified call for non coercion and both find numerous ways to cooperate and develop together. Cooperating key leaders among the ARF and CSCAP have achieved several significant milestones and show ever increasing signs of achieving even greater and more significant achievements to come.

Although CSCAP and ARF both work hard to avoid any involvement in domestic affairs, it becomes increasing difficult to separate international from domestic, when so many unkempt and disruptive internal issues spill out into other countries.
Although difficult to separate, the important and almost inescapable role of Track I and Track II diplomacy in domestic/international issues is especially transparent in the current fight against terrorism taking place in Southeast Asia. The added component of military and police force bring an ever increasing importance to the diplomacy that Track I and Track II entities such as ARF and CSCAP can offer.

THE CURRENT SITUATION REGARDING THE FIGHT AGAINST TERRORISM

As the War Against Terrorism continues throughout the globe, Southeast Asia has become a significant battle front. Southeast Asian terrorists groups are, for the most part, domestic threats, although scattered attacks and embryonic efforts at intelligence sharing within the region has begun. The reaction by Southeast Asian states to the U.S. War Against Terrorism ranges from enthusiastic endorsement to quiet backing. Specific concern lies with the domestic and political sensibilities of the Muslim members of the ASEAN nations. Malaysia and Indonesia are slow to fully support U.S. efforts, with Indonesia specifically refusing to incarcerate or even recognize known terrorist groups and activities.

The broad and varying rubric of terrorism allows ample room for adaptation and opportunity for each nation. Many Southeast Asian countries have fully embraced the war against terror, seizing the opportunity to weaken the ruling party’s opposition under the name of global cooperation and cleansing of terrorism.

MULTI-LATERAL COOPERATION

The broad and complex factors involved in the War Against Terrorism are far too complicated and elusive to be tackled by any single country. Bilateral action with the U.S. and multi-lateral action with countries of the region, are sensitive but necessary steps.

Countries such as the Philippines have embraced cooperation with the U.S. by providing military space and joint training operations. In an effort to limit the shadow cast by U.S. forces, joint training such as Balikatan 02 provides the Philippine military with U.S. leadership and training without officially exercising direct military force. Similar programs are enjoyed by Thailand and Singapore through the Cobra Gold joint training program.

Arguably the most significant influence however, lies in the ability of the region to coordinate intelligence operations and security policies. Current political and social infrastructures are unable to handle to the logistics of a full-scale, unified-multi-lateral security system. It is important that existing structures are strengthened and in some cases, rebuilt to meet the critical need. Organizations such as the ARF and CSCAP, which have stepped up the level of involvement since the September 11th attacks, will continue to play a key role in the development of these international security measures.

CONCLUSION

Coordinated efforts between ARF and CSCAP have made slow, but significant progress in the development of regional defense policy. Although Southeast Asian terrorist groups are largely “home grown” and not necessarily part of an international terrorist network, the risk of drug trafficking, scattered attacks and information dissemination remain sizeable and a significant front in the War Against Terrorism. Efforts of the US government to achieve a limited level of involvement in military and policing operations in Southeast Asia with programs such as Cobra Gold and Balikatan 02, have also made a significant marked progress in the development of international security. While current infrastructure and systems of many Southeast Asian countries remain a breeding ground for terrorist activity and security failures, some improvement has been seen. The role of Track I and Track II diplomacy is increasingly important as peaceful and stable solutions regarding international security in Southeast Asia are approached. By orchestrating an appropriate balance between Track I and Track II diplomacy and cooperative military action, Southeast Asian nations will be able to develop and strengthen their infrastructure to eliminate the terrorist groups and poor policies that currently exist.

Call for Social Entrepreneurs Plans

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I have always been fascinated by business models which successfully integrate profitable business practices that measurably improve society.

Worldwide Book Drive doesn’t quite fit the criteria for this socially responsible business plan competition primarily because we don’t have any graduate students on the team. It is of course a minor technicality which could certainly be remedied, but not realistically before the deadline in less than 24 hours. .. That is… At least the cost doesn’t outweigh the benefit at this point.

I’m interested to see how things turn out with the Global Social Venture Competition. Should be fun to see who wins…

Multilevel Marketing Companies in China: The Full Report

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For the past few days I’ve been posting excerps from my Honors Undergraduate Thesis. Things have been changing very quickly in China recently, especially for MLM.

Often considered a cult by the Chinese Government, (like the Falun Gong), the Chinese government is departamentally trying to deal with the 10 Billion dollar industry in China.

In the meantime, MLM companies are doing what they can to catch up with Amway and take advantage of the situation before anything else changes.

If anyone is interested in my full thesis and references, let me know. I’d be happy to see what I can do to make that available.

Forecasting the future of Multilevel Marketing In China

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The future of MLM in China is a complicated scenario, best understood when described through the experience of seasoned professionals.

Initial research identified a number of specific obstacles faced by nutraceutical MLM in China. Although these obstacles were identified in the literature, the relevancy of these findings in regards to those actually involved in the industry was questioned. Are the major obstacles and solutions the same as identified through my initial search of the literature? What are the real concerns for industry experts? What can we expect for MLM companies in China in the upcoming years?

To make a reliable analysis and prediction of the market requires a keen understanding of the complex variables of the industry. Existing literature may often be the result of looking for a persuasive angle and may put unfair emphasis on some variables while ignoring others. For this reason it was decided that open-ended interviews with industry experts would be extremely useful to identify what they felt were the most relevant concerns of the industry itself. Interviews with these experts would help to identify important themes, future expectations and proposed methods of how to deal with those themes and future expectations.

To explore these questions, it became important to identify qualified industry experts who could provide useful insight on the subject. Some of the necessary elements to make educated analysis and prediction of the industry include a strong understanding of the history of MLM companies in general and, more specifically, the history and dynamic of MLM companies in China. To obtain a balanced representation, it was important to have a representative American-Sino business perspective, a representative perspective from a company that is working to emerge as a successful MLM company in China and a representative of Sino-American business perspective. Although representative perspectives from well-established companies were considered for this part of the study, they were not included due to fact that their performance is well documented and the results of their decisions can already be seen. The emphasis of this research is the adaptation of the new companies that expect to enter China after the passing of the Direct Marketing Law; therefore a representative response from a company that has been in China for less than year was considered to be more relevant.

To obtain these perspectives my research required a minimum of three respondents. The first respondent needed to be very familiar with the American culture of business and regulatory business processes of nutraceutical MLMs entering into China. This respondent should be a native-born American who has a keen understanding of the dynamics of Chinese history and the MLM industry in China.
The second respondent needed to be familiar with the inner workings of an MLM company moving into China. This respondent needed to be the key decision maker for a nutraceutical MLM company that has penetrated into China within the past 18 months.

The third respondent needed to provide a Sino-American perspective, as counterpoise to respondent one. This respondent represents the native Chinese, or Sino-American perspective. This respondent should be very familiar with the Chinese culture of business and regulatory business processes of nutraceutical MLMs entering into China. This respondent should have significant experience and a strong understanding of the history of MLM companies in China and the current programs of successful and failing MLM in China.

Bios of Selected Respondents
Dan Mabey. Dan Mabey was the Director of International Business Development for the State of Utah for 14 years. During his tenure, Mabey helped numerous MLM companies penetrate into international markets. These companies included Nature’s Sunshine, Usana, Nu Skin, and more. Mabey has worked closely with a number of trade companies and organizations such as China Council for the Promotion of International Trade (CCPIT), that deal specifically in China. Under Mabey’s coordination, the international business development during the 2002 Winter Olympic Games was one of the most successful games in recent history. After leaving the state in the summer of 2002, Mabey established an international consulting firm, where he works with large companies who are trying to penetrate the US markets. He also works with US companies that intend to penetrate international markets. China remains one of Mabey’s major focus regions.

Dan Zhu. Dan Zhu is the Vice President of Chinese Operations for Tahitian Noni International. Originally from the People’s Republic of China, Zhu came to America nearly 15 years ago. Zhu has worked with Tahitian Noni International for more than 7 years and was one of the primary engineers behind the development of their payout and commissions model. Zhu currently oversees all operations for Tahitian Noni International in the People’s Republic of China.

Shawn Hu. Shawn Hu was born in Beijing, China. Hu is a political strategy consultant for a number of large institutions in the People’s Republic of China and the US. In addition to serving on a number of academic and Beijing Olympic appointments, Hu remains an active player in the Chinese MLM industry. Hu has been involved in advising MLM companies about the Chinese market for more than 10 years. As a major player in the MLM policy talks in 1998, Shawn helped to push policy through that allowed certain companies the ability to continue with modified operations.

After identifying the individuals who would be the best respondents for this study, the next step was to obtain an interview. Coordinating schedules with these industry experts required patience and flexibility. These individuals are out of the country for many months at a time or are residents of China. By contacting these individuals far in advance (months in some cases), I was able to coordinate schedules and interview them in their homes or offices.

I first recorded the interviews on audio tape and digital format. Afterwards I typed up a transcript of the interview for more thorough analysis. To assist in the process of summary and review I compiled the interviews together in a single document according to the interview question. After compiling each of the interviews from the respondents I studied the interviews and summarized them into a single simplified format with a paragraph for each interview question. I then proceeded to analyze the summarized interviews for emerging themes from the interviews. These themes help to illustrate what issues are most important to MLM companies and what we can expect for the future regarding MLM companies in China. I have included the questions and the summarized responses in this research paper, to provide a strong basis for the conclusion of my research paper as I compare it with my original research of the literature and identify emerging concerns and predictions of nutraceutical MLM companies in China.

Research Questions
These interviews were designed to allow relavitely smooth transitions to help answer the following questions:
• What is the biggest obstacle for nutraceutical MLMs in China?
• What are the more specific obstacles in terms of government, media, social perceptions and existing marketing channels?
• What are the best strategies for overcoming these obstacles?
• What are your predictions for the future of nutraceutical MLM companies in China?
• What should nutraceutical MLM companies do to be successful in China?

The Interview
The following is a summary of the interviews with these industry experts. These industry experts were briefed on the purpose of the interview and were given the freedom to not answer any question with which they did not feel comfortable. Because of the nature of the interview, I found it was necessary to meet with Mabey and Zhu in their offices. In the case of Mr. Shawn Hu, the only available time he had to meet was in between making house calls with his different clients and so I met with him at his home. For simplicity and ease of review, I compiled the responses together with the correlating questions. Below is the complete list of questions with the summarized responses. (For a complete transcript of their interviews, please see the attached interviews in the Appendix.)

Identifying Obstacles
Q: What is the greatest obstacle for nutraceutical MLMs and their penetration into the Chinese market?
The Chinese government and its policies are recognized as the greatest obstacle for nutraceutical MLMs. The entire regulatory process is difficult to comply with. In addition to the nature of the policies themselves, the inability for the central and provincial governments to agree and keep policy announcement deadlines has remained an ambiguous target for companies to comply with.
Q: What is the specific obstacle limiting government relations (government to private business relations)?
Building the proper relationship between MLM companies and the government is a problem. It may be seen as a dissonance of culture and values. Americans do not seem to want to take the time and commit the resources the Chinese feel are necessary to build the proper relationships. Correlating policies and actions among the myriad of different provincial and central government figures is a problem. The government wants stability and the nature of MLM seems to threaten the government’s perspective of peace and harmony with the communist directives.
Q: What do you recognize as the biggest obstacle for (traditional news and public relations) media and nutraceutical MLMs?
It is a new industry with a bad beginning in China. The government still has very strong control of the media. Because of heavy abuses, the government and subsequently the media have had a very bad perception of MLM companies. As long as the government’s perspective of the media is negative it can be assumed that media will continue to have a wary eye as well. Companies such as Amway have worked diligently to change this image. Amway has strategically sponsored a number of programs for renowned academic organizations and nonprofit groups. Amway is helping to improve the public image MLM but there are still negative effects that linger.
Q: Can you identify any obstacles in using existing distribution channels such as retail stores and other structures and hierarchies such as work groups and governmental organizations as a form of distribution?
Existing distribution channels are not nearly as efficient for existing MLM companies. Normal retail distribution does not provide the education and differentiation that these products thrive from. Using existing outlets or distribution chains provides a more stable system for the Chinese government to keep tabs on the MLM companies and their compliance with regulations. Without that, the government is uncomfortable.
Q: Can you identify any specific social obstacles for MLM in China?
MLM is a misunderstood industry in China. The Chinese are not used to an MLM system. Culturally speaking, the Chinese tend to think very big, and in MLM companies not everyone can be big. This competition can lead to problems. Even in America, MLM companies have trouble keeping people from making untrue claims; these same problems exist in China, only in an exponential way. This creates a trust issue, which is a compounded problem when one takes into account the pressures that are involved in having friends and family as the customer base.
Overcoming Obstacles
Q: What do you feel is the best strategy to overcome obstacles of dealing with the government?
Create partnerships and strong relationships with the people involved in the regulatory issues of the marketplace. It is important to educate the government about MLM companies. This is what the Direct Selling Association (DSA) is doing. MLM companies need to recognize the importance of using a fully developed political strategy that identifies licenses and key political figures. It is helpful to use advocates who can manage and overlook the political relations side of China.
Q: What can a company do to overcome obstacles in dealing with the media?
Understand that China is a country that uses propaganda, that is, the open use of media to directly or indirectly benefit the sponsor. Understand propaganda. Use propaganda. Make sure you are consistent in your story with the media. Get good external affairs managers. Companies should everything possible to educate the public and the media. Identify how MLMs help society. Develop the proper strategic relationships with the appropriate media and publicity contacts. Amway has more than 400 representatives countrywide who focus primarily on relationship management of the political and social culture of China.
Q: What do you feel a company can do to overcome obstacles of using existing distribution channels?
MLM companies are not really trying to overcome those obstacles right now. They are trying to separate themselves from them. Going retail would cause MLM companies to lose the competitive edge that comes through a direct sales network. In addition to losing the ability to direct sell the product, the expenses and overhead of stores are a very difficult thing to carry. Companies that are trying to pursue that route, need to identify the current players, especially those that are government-owned. Teaming up with those would provide quick and effective penetration. Also identify new channels that are being created and be able to flow into those channels. It is important for MLM companies to differentiate themselves as much as possible.
Q: What are some steps a company might take to overcome the obstacles of social perception regarding multilevel marketing?
To the degree the government influences social perception, a company should work to overcome the stigma of being an outsider by partnering with some of the more traditional aspects of China. It is important to educate the individuals about the reality behind any get rich quick schemes. It is important to be involved in charity work and building schools. Companies need to focus on building their image for the government and individuals. Remember to give back to society. Companies should work to be recognized as a legitimate and upright company. It is important to recognize that the Chinese government views MLM much like a religion. A company should work to make sure their model is not perceived as a religion. A company would be wise to invest the time and money into a fully developed political and social game plan with an accompanying manager.
Future Predictions
Q: What are your predictions for the next 5-10 years for MLMs in China?
It is nearly impossible to predict more than 2 or 3 years. China will continue to become a more affluent marketplace. There will continue to be a greater disparity between the wealthy and the poor. China will continue to progress rapidly in terms of its academic and manufacturing capabilities. The next few years will remain turbulent and dynamic for MLM companies as the government tries to solidify its plan. It will take some time for the government and its people to accept MLM as a legitimate model for doing business. MLM companies should brace themselves for very restrictive policies while China’s market continues to ripen and become more attractive. The policies will continue to open more and more over the next 3 to 5 years, though they certainly will never be wide open. It is likely companies will see types of regulation that include the number of representatives for a certain area of space or number of people. It is very likely companies will see a limit on the people who can attend training meetings. Companies need to expect the government will maintain a good amount of control. There may be one or two other companies that make it up there, but Amway will certainly continue to dominate the market in 5 years. Anything after 5 years is pure speculation. After 10 years the sky is the limit. It is possible that it might be more standardized and accepted, similar to other countries such as Taiwan.

Q: What do you predict will be the policies of FDI and MLM’s ability to market in China?
Restrictions on activity based on FDI are expected to lighten up significantly. In addition to the continually improving MLM company to government relationships, other macro events are affecting things. With all of the pressure from foreign governments to float their currency, China will progressively slow down in its consumption of FDI. Unionization and increased difficulties managing investments in China will likewise discourage foreign companies from investing at their current levels.
Q: Can you identify any specific landmarks or milestones that will have an effect on the development of MLM in China?
The first would be the introduction of MLM into China in the first place. The next would when the government shut down MLM operations and then reopened, allowing only 10 companies to operate in a very modified fashion. The acceptance of China into the WTO was a very big event. Another event would be December 11th, 2004, when the policy that was supposed to come out did not come out. Some predict the 2008 Beijing Olympic Games will indirectly impact the perceptions of MLM in China. The actual announcement and acceptance of the complete regulations will be a very big deal.
Q: How do you feel the Olympics will affect multilevel marketing in China?
There are mixed feelings as to the level of influence the Olympic Games will have the MLM industry in China. It is very possible that having the games in Beijing will speed up much of the construction and policy development that needs to happen to prepare them for the games. Many industry professionals feel that with increased global exposure and pressure, the 2008 Olympics will become a leverage point for the US government and other government’s agencies to increase the flexibility and openness of the Chinese market even further.
Q: Can you see any major setbacks in the future for MLM companies in China?
Any bad actor could foul up the marketplace for the rest of the companies. Companies should do what they can to police and regulate the industry on their own. If the government is forced to do it, it could be very detrimental to the industry. After the first big wave of MLM companies begin to operate in China, the government will need to adjust to this business. This period will probably produce some negative feedback and will require some restructuring, and it will pick up again. We can expect a similar cycle to occur after the Beijing Olympics. There will certainly be some fallbacks, but the industry is expected to continue to develop and climb.
Suggested Strategies
Q: What do you feel well established nutraceutical MLM companies are doing to help them be so successful in China right now?
Tremendous investments of time and money have been the key. Successful companies have been there for at least 10 years. Amway is perhaps the best example of a company that hung in with the most to lose when other companies backed down to hedge their risk. Successful companies have really looked at this as a long-term proposition. They have built good relationships with central and provincial government players. Successful companies have worked hard to build their image and their strategic positioning for when the direct selling laws applicable to MLM companies are announced. In addition to those issues, the most successful nutraceutical MLM companies have really tried to stick closely with that which they do best, that is, network marketing. Companies that have drastically changed their model, such as Avon, have not done nearly as well.
Q: If you were to suggest a simplified penetration strategy, what would you suggest?
Understand what it is that other companies are doing—what works and what doesn’t work. Perhaps one the easiest models would be to ride the coat tails of other bigger companies that have already forged a path. Invest in a facility in Beijing. Do what can be done to locally produce the product. Locate in a specialty zone to qualify for 15% taxes. Create favorable relationships with local government and drive taxes down even lower. Companies need to study their model very carefully and make sure it is adapted to the Chinese market. Develop a business model that gives political relationships as much stress and planning as the financial numbers.
Q: Can you identify a few specific penetration points?
Beijing, Shanghai, Shenzhen. Most companies will want to set up in Shanghai because it is considered to be China’s window to the outside world; however, Beijing could offer some very strategic benefits by developing the right relationships with government officials. Shawn Hu stated, “If you know how to play Chinese politics, then you go where the Chinese government is really encouraging the type of growth and interaction that MLM companies can provide. That way, you can get into still relatively large cities and you can have the full backing and even additional support of the government.”

Q: Are there any words of wisdom that you might have for other MLM companies to prevent them from falling into any setbacks?
Don’t underestimate—it is a big market worth the investment. Be prepared to spend the time and money necessary. At least 40% of a company’s budget should be spent on PR alone. Have a team in place that can help adapt to the political and social climate in China. Take the time to develop a strategy that covers relationships with government and social perception and media resources and existing or developing distribution channels. A company should do what they can to demonstrate real staying power and long-term investment. Be prepared to ride out the hard times for the long term benefit.
Q: Is there any specific type of public relations strategy that you feel would be most effective in dealing with China?
Do not hire an outside Chinese. Hire a Beijing Chinese. Hire someone who has actually been in the market who knows both sides of the market. Remember to localize your campaigns. The most recognized PR efforts right now involve building schools. Focusing on helping the growing problem with unemployment is another important angle. It is important that MLM companies begin to develop a more centralized focus and have the ability to dig deeply into the social fiber of the society.
Q: Any additional suggestions or comments?
Be patient! MLM is very new in China. It will take some time for the government and society to assimilate and adapt. Once the government sees how much it can trust MLM companies, it will develop more tolerant policies. China wants people to have jobs, but more importantly, the government wants stability. MLM is a rapidly growing industry in China.

The Next Step for Multilevel Marketing in China

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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).
Balanced Approach

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).

The Balance of Economic, Political and Social Systems

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Effective penetration into the Greater Chinese Market for any company, though especially MLMs, requires a balanced approach.

Aside from direct incentive and leverage of political guanxi, a strong government relationship is made possible through obtaining positive support of the people. This public image can be obtained through direct public contact or the influence of newspapers, television and other forms of media. When relationships with the public are supported by the media, marketing channels that exist from the present bureaucracy become useful—of course permission to use these marketing channels requires cooperation and assistance from the Chinese government. Middle Kingdom Group (MKG) LLC, a marketing company comprised of experienced Chinese and Western business and government consultants, makes the point that by efficiently balancing these interdependent relationships, efficiency in business will result. In MKG’s business proposal for market penetration into China, four key components are recognized: strong government relations, cooperative use of media, cooperation with social culture and synergism with existing marketing channels (“Who Will Help Her Find Her Way Around China?” 2003, p.4). In meeting with representatives from a Utah-based MLM company, Dan Mabey, former Director of International Economic Development for the State of Utah and member of MKG, recognized that existing MLM companies are making use of the previously mentioned key aspects of successful business in China, but very few, if any, are doing a very good job of it (personal communication, November 21, 2003).

Government Relations
The inseparable relationship of business and government in China places government relationships at the forefront of importance. The mounting pressure from the WTO and the growth of retail based MLM companies in China are creating an environment in which the government may respond with additional legislation and direction. Although the Chinese-MLM environment has drastically changed in the past 22 years, the government’s role has not. To secure product registration, product protection and operation expansion, support from the government is imperative. These relationships can be built by direct government interaction or indirect leverage of guanxi.

Media 
Media have tremendous influence in China. To gain a positive image in the public eye is extremely helpful. Negative press was one of the key factors that led to the ban on direct selling (“When the Force is Against You,” 1998, p.5). Positive press could have helpful effects. An example of helpful media coverage can be found in one of China’s most prominent papers, Xinhua. Recent articles highlighted Amway’s successful social-improvement donations programs and praised a publicly announced US$120m increase in their China operation’s investment (“Amway Supports Welfare Causes in China,” 2003, par.4; “US Businessman Values China’s Investment Environment,” 2003, par.1). This type of media hype is excellent for gaining positioning and placement of public support in the Chinese marketplace. Media are especially effective when used to highlight the less ostensible characteristics of a company, such as the number of employees, their attitudes towards the company and products and the help of the company itself to its immediate community.

Social Culture
China is losing its anticapitalist sentiments of the past and now opening to Western capitalist ideologies and culture. Companies that can be perceived by the people as being a benefit to society will help to create an image of cooperation and progressiveness. This mentality is in conjunction with words of Deng Xiaoping, Mao Zedong’s influential successor, “It doesn’t matter whether the cat is black or white, as long as it catches mice.”(“Who Will Help Her Find Her Way Around China,” 2003 p. 5) This expression can be applied to the role of capitalism in helping society (i.e. it does not matter whether one uses communism or capitalism, but what does matter is that society is helped).

Amway has been very active in demonstrating its benefit to China. In 2002 Amway sponsored more than 246 public welfare programs, totaling over US$1.8m. One of Amway’s more recent programs includes a simple program where donation boxes will be set up in nearly 100 of its national branches. The donations are distributed toward children’s education and other welfare programs (“Amway Supports Welfare Causes in China,” 2003).

Marketing Channels
China’s communist government relies on extensive hierarchy and committees to function. Geographic and ethnic differences in the Chinese system require a unique network of administration throughout the country. The close relationship of government and business, coupled with the practice of guanxi, create several exclusive networks throughout China. Many of these quazi-business/government marketing channels provide a strong and well-defined foundation to be utilized in the market.

These market channels can be illustrated in the distribution of cellular phones in China. China now claims to have over 250 million mobile phone users (“China’s Cell-phone Users,” 2003, par. 1). Dan Mabey, former Director of International Economic Development for the State of Utah, is keen to point out that the price of phones and service is far more than even the above average Chinese citizen can afford. Rather it is through the ministry of communication and the budgets of other budgets of government ministries and large firms that such pecuniary consumption is possible. The citizens do not buy the mobile phones; the government does (Dan Mabey, personal communication, November 21, 2003). Tapping into other markets that have strong ties to government ministries provides a large market base with enough capital to purchase the products.