While many so called multilevel marketing companies or MLMs fail to impress, and many time simply fail, Amway has achieved new records in annual sales, even during a world-wide business slow down.
Here’s an informative excerpt from Fortune Magazine:
How has Amway survived? Turns out, the direct-selling business is booming in China.While from a corporate viewpoint, no one can argue with Amway’s unparalleled success, as a real opportunity for their Independent Business Owners (IBOs), many in the industry out side of Amway believe that other companies and business models have much easier, friendlier, and more lucrative compensation plans.
Amway has weathered the economic crisis well, and it’s been profitable for the last couple of years. Its parent company Alticor announced that it did $8.4 billion in sales for 2009, up from $7.1 billion in 2007, and “Amway comprises the vast majority of those sales,” according to Amway’s chief financial officer, Russ Evans.
Amway is positioned to do well in China thanks in part to efforts by the U.S. government to open the doors there. The Chinese government restricted direct-selling companies in the early 1990′s, when the country was beginning to liberalize its economy — the government was nervous that citizens would get burned by Ponzi schemes.
The U.S. government, meanwhile, had been pushing for American direct-sellers to be allowed to compete in China. The effort was part of an ongoing negotiation with the Chinese government to allow American companies access to the foreign market. In 2006, China lifted some of its policies against companies like Amway.
That’s when “the Chinese government allowed the direct sellers to really go to town,” says Charles Skuba, an international marketing expert at Georgetown University’s School of Business. “The China market lends itself very well to this model.”
The model works like this: Amway sells products to people, who sell them to customers — usually friends or acquaintances. Amway provides kits to train people about how to start their own business, and modern-day versions include information online and in iPad apps. In some markets, Amway gives bonuses to sales representatives who recruit others, and new recruits give a portion of their sales to people higher up the chain.
That wouldn’t fly in China, where the government was already wary of the direct-selling model, so Amway shaped its business to earn the government’s trust. The company opened its first physical stores so that sales representatives could display products. It also cut off the food chain, so representatives there don’t earn money from their recruits’ sales.
Why direct-selling works in China
Amway’s business took off. A big reason is because word of mouth matters in China, where counterfeits have traditionally been a big problem. “Family and friends are high influencers in the decisions that people make in terms of all kinds of choices,” Evans says.
This is especially true for nutritional products, which are in high demand in China and other emerging markets. The company’s best-selling product in China is a protein powder designed for children. Amway’s business model lets the company reach consumers of all economic classes, says Skuba, and lower-income buyers in particular need nutritional supplements. “The Chinese consumer tends to be more brand conscious than in many other countries in the world,” he says. “They associate foreign-branded products with quality products and value.”
The company reaches a growing population of young sales reps, Skuba says. “Amway’s direct-selling business, their model and the opportunities it provides for a highly-motivated young sales force, really tap into where China is today. China may be the most entrepreneurial country in the world.”
For me personally, as a lover of Internet marketing, I would never want to work with a company with such restrictive Policies and Procedures. It would seem to violate my very sense of what “independent” actually means. And, I love the idea of multiple streams of income.
