Why Amway and China Are a Good FitBy
Rose Yang is an Amway believer. The fiftysomething Shanghai resident sells full-time for the Ada (Mich.) direct marketer of vitamins, detergents, and skin creams. She's recruited her mother, aunt, sisters, sisters-in-law, and daughter to the Amway banner. "I can't help myself," says Yang, dressed in a tweed jacket and matching scarf.
Yang's enthusiasm is testimony to the turnaround in Amway's fortunes on the mainland. Amway salespeople started selling door to door in China in 1995. Soon after, fly-by-night operations imitating Amway's direct sales techniques sprang up. Their eventual collapse sparked riots. Beijing felt uneasy for another reason: Direct selling seemed custom made to spread religious beliefs or political dissent. The government banned all direct sales companies, including Amway, in 1998.
Amway hung on, opening actual stores to show its commitment to the market. Executives made numberless trips to Beijing before the government relented in late 2006 and let Amway agents sell directly to consumers again. "The No. 1 attribute you need when you do business in China is patience," says Amway (China) Chairwoman Eva Cheng.
Privately held Amway now has 237 shops in China, 160,000 direct sales agents, and $3 billion in revenue, making China its top market (worldwide sales are $8.4 billion). At an R&D center in Shanghai, 60 technicians work on new products. Cheng is spending $100 million on marketing.
Amway's corporate culture—the name is short for American Way, and company executives in the past have been major supporters of the Republican Party—might seem out of place in a country ruled by Communists. But President Doug DeVos (whose brother Dick was the unsuccessful GOP candidate for Michigan governor in 2006) says there's "a good cultural fit." Many Chinese like Amway's entrepreneurial hustle. And consumers, concerned about product safety after well-publicized scares involving locally made products, prefer getting sales advice from a friend. "Because China is a fairly low-trust environment, word of mouth becomes a big component when deciding what to buy," says Ben Cavender, senior analyst with China Market Research, a Shanghai consulting firm.
Over the years various authorities around the world have questioned Amway's business practices. The Federal Trade Commission investigated it for running a pyramid scheme, but concluded the charges were unwarranted. British regulators tried to shut Amway down for allegedly misrepresenting the amount of money new recruits could earn. A court eventually found in Amway's favor. Even today, though, Beijing forbids teachers, doctors, and civil servants from becoming direct sales agents. Unlike in the U.S., Amway salespeople in China can't get a cut of sales made by agents they recruit.
The restrictions aren't a drag on Amway, but renewed competition is a concern. Archrivals Avon Products (AVP) and Mary Kay are ramping up their direct sales forces. Women of China: When the doorbell rings, be prepared for the sales pitch.