Amway in China: a Case of Corporate and Brand Reputation Essay

With the turbulent regulatory environment for the cover merchandise diligence in china, the November 2005 announcement that Amway chinaware Co. Ltd (ACCL) had over $2 billion in gross gross gross gross gross revenue for the second consecutive year is significant for the multilevel aim swaping giant, Amway Corporation. chinaware remains the steer market of their worldwide operations even though pack merchandising was banned in 1998. Their victor can be attributed to responses by the corporate and local management for adapting during the 10 years of note operations in china. Eva Cheng, chairwoman of Amway (mainland China) and an executive vice- electric chair of Amway Corporation, told a press conference in Guangzhou, We flip been told to shut down tail fin times and to change our way of doing business four times. We depend on produce quality more than our business license.New rulers in declination 2005 will pose further modifications to the Amway business w arning in China. scorn the uncertainty, ACCL performed admirably, said Steve Van Andel, Chairman of p bent company Alticor. We pass on to get a line our future options in China in light of the brand-new rules, which have yet to go in effect. We argon very optimistic that China will stay on to be our strongest performing market.The attach to ProfileFounded in 1959, Michigan-based Amway Corporation is a large direct exchange company of ain wangle, home dish out, nutrition and commercial products. It is a wholly owned creation soldier of in camera-held Alticor, Inc. that operates primarily through Amway Corp Quixtar Inc.,a North American Web-based business luck and Access ancestry Group LLC, a product development, manufacturing and logistics provider to Amway, Quixtar and separate companies. Alticor Inc. and its family of companies reported sales of $6.4 billion for the performance year ending exalted 31, 2005. Amway operates in more than 80 countries in Asia, Africa, Europe and the Americas. Products offered take give aways much(prenominal) as Nutrilite vitamins and food supplements, Artistry skin care and color cosmetics, eSpring system, Magna axis vertebra therapeutic mag wages and SA8 laundry system. Access logical argument Group manufactures Amways tick off products in facilities in Ada (Michigan), Buena Park (California) and Guangzhou (China).Amways products and services are marketed through more than 3 one million million million independent business owners (IBOs) and sales representatives worldwide through a multilevel direct sell model. put sales, as defined by the World Federation of now change experiences, 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(prenominal) of which are in the United States and Japan. In the United States, approximately 80% of di rect sales are by multi-level marketing organizations, where salespeople are give 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. fib of Involvement in ChinaAmway (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 Peoples 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 embarrass 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. hobby the multilevel direct selling model of Amway, a minimum monetary investment of approximately US$85 for married couples and individuals was required to certify their own business. New distributors received procreation and support from their sponsors and were encouraged by motivational programs and incentives. The total sales to the network that the distributor helped recruit, train and run was considered in calculating bonuses. Thousands of sales representatives registered during the stolon years, bringing Amways net sales in China to $178 million for fiscal year 1997.Until the 1990s, direct selling was not an established method of distribution in China. Chinese officials interpreted the margin for direct selling, chuanxiao, as passing products from one degree of participants to another layer of participants, with the product price increase at severally layer which is not a factual representation of the business model of roughly direct selling companies. Mean turn, illegal smuggling of trade pro ducts, mussiness imageings to recruit salespersons and get-rich-quick schemes generated at decennarytion of Chinese officials, resulting in the first national regulation on direct selling in 1994. These regulations stressed on preventing deceitful activities and set limits on advertising for recruits and compensation for introducing new sales representatives. In 1998 after numerous attempts to address violations of the chuanxio regulations, and two highly publicized scams in Huizhou City and Xingsha the State Council pastureed all direct selling companies to block up operations, disband distributor networks, clean up debts, and modify its sales method. rejoinder to restriction on direct sellingForced to restructure the business, Amway worked with the Chinese officials to implement a model that would allow sales representatives to continue community in the business. While we will have to make a bod of changes in how we operate, in all of our discussions with the Chinese go vernment it was essential that we hold the foundation of an independent sales displume to service our customers, said Richard DeVos, president of Amway Asia Pacific.Under the approved plan, Amways product distribution centers throughout China became retail locations with Amway branded products marked at retail price. Once a Chinese consumer bought Amway products for two consecutive, they became privileged customers who buy Amway products at a 15 percent discount for their personal use. These privileged customers could apply to Amway to be sales representatives to buy Amway products directly from the retail stores at the full price, paying with the customers cash and delivering the products to customers. They received a 15 percent commission on sales to their customers.By establishing 180 company-owned retail locations by 2005, the plan allowed an estimated 180,000 direct sellers to continue to operate within what the company terms a mode of selling through shops, positivistic th e use of sales representatives. However, the approval to continue business stipulated that sales representative income was based on individual results, not those of the team a move intended to limit the attraction of forms of direct selling that might lead to pyramid frauds. In anticipation that the regulations may change, sales representatives continued to introduce others to the business while not receiving commission from their sales. finished obtaining appropriate business licenses, approximately 80,000 sales representatives became veritable agents whose compensation included both team performance and their own sales.Corporate SponsorshipsAmway continued its usance of involvement with the community through corporate sponsorships that enhanced its reputation in China. By the end of Aug 2005, Amway China supported over 1,800 charity projects in the areas of children, health and environmental protection. These projects resulted in earning over 1,200 honors and awards. The China Charity Association granted the company the award of Exemplary Benefactor to Social bene aspect in 2002.For environmental initiatives, the Chinese Ministry of Land and Resources awarded Amway China the title of pose Enterprise for Protecting Earths Resources in 2002. Other rewards include Star Enterprise to Contribute to the Public Welfare by China Children and Teenagers Fund, Advanced Enterprise for Excellent After- gross sales Service and Product Quality by China General Chamber of Commerce in 2003. In 2004, part (Chinese Edition), listed Amway China as one of the Most Admired Companies, Most authoritative MNC, and Most Influential Brand.Brand PositioningAccording to John Parker, important Marketing Officer of Amway Corporation, Amway views their product portfolio in terms of the way in which products support the business opportunity to enable the independent business owners to recruit, to retail, and to determine for higher award levels. Without multilevel direct selling i n China, the focus is on creating a portfolio of products and brands with a price/value relationship that allows sales representative to succeed in developing customers. Amway China produces and markets more than clx products, including Nutrilite( food supplements, Artistry( skin care and cosmetics, personal care and home care products.To make the brand more visible and make it easier for the sales representatives to sell products to the customer, Amway China invested over 30 million US dollars for advertising in 2005. Amway broadcast films of Artistry cosmetics and Nutrilite nutrition products in 1,500 business buildings throughout China and more than 4,000 liquid crystal display televisions in Shanghais underground carriages. Artistry was the title sponsor bringing The Phantom of the opera to Shanghai. Sponsorship of the first health runs to take place in China has coined the term Nutrilite Health Runs for what most countries would call 10K or marathons. For the Chinese, the Nutr ilite brand has become identical with fitness and activity.According to the Euromonitor, Amway China was the fourth largest company in cosmetics and toiletries sales in 2005 with a 5% market share overall. The cosmetic brand Artistry was second in overall cosmetic brand share, with 4.3%, almost following Procter & Gambles, Olay brand with 5%. It is the second largest in Color Cosmetics with 7.5% market and brand share in all regions of China. In the over-the-counter health care category, Amway held an overall value share of nearly 19%, far exceptional that held by the next closest competitor.Amway was the top performing player in vitamins and dietary supplements in China, capturing over 25% of vitamins and dietary supplements in 2004. Nutrilite, was the leading brand with value share of more than 13%, including the best selling brand Nutrilite Protein Powder, and its multivitamins and other dietary supplements, such as calcium and seek oil. In the home care products, Amway Chin a is not a major player, with 0.1% of the overall market, however have brand recognition and share in laundry care and dishwashing products. The laundry detergent, SA8, is ranked ninth in the nation with 0.5% brand share and Dish Drops is ranked eleventh with a 1.1% brand share.Commitment to product development for the Chinese market includes seven laboratories for quality assurance and two research and development centers in Guangzhou and Shanghai. The Company has been awarded the Advanced Technology Enterprise for three times from 1996 to 2002. In 2004, Amway increased its investment in China by US$120 million to set up a research and development center in Shanghia to explore introducing herbal medicinal elements to its products. Continuing lobbying for resumption of direct selling in ChinaRecognizing the large potential of direct selling in China, Amway participated in efforts of the American Chamber of Commerce, the US-China Business Council, and the World Federation of Direct marketing to lobby for Chinese participation in the World portion out Organization (WTO). Most importantly, Amways chairman Steve Van Andel addressed the U.S. domicil Ways and Means subcommittee to urge Chinas accession, in order to normalize trade relations with China on a permanent basis as well as to gain trust from Chinese government. Chinas accession into the WTO in 2001 was expected to help rectify the environment for direct sales in the country. China committed in their WTO agreement to allow market access for wholesale or retail trade services away from a fixed location, requiring China to to the full open up the direct sales market by declination 11, 2004.After much delay, the new regulations announced in September of 2005 stand direct selling in China with a number of restrictions. The most detrimental to the multinationals in the market is that the new law defines all multi-level marketing compensation structures as illegal chuanxiao. The new regulations also impo se training restrictions that all salespersons will be required to pass an examination and be certified, as well as limit sales representative compensation to 30% of personal sales. Three other requirements to obtain approval include 1) three years of foreign operating experience before beingness allowed within China 2) service centers in every province where product is sold and 3) a minimum bond of 20 million RMB plus 15% of monthly sales up to a maximum of degree Celsius million RMB.Upcoming challengeAmway China admits that the renewal to comply with the new regulations will take time given their position as the largest direct selling company in China, with 50% of the market and more than ten times the sales volume of competitor Avon. The company can continue operating under its current approval while evaluating changes needed to meet the expectations of the Chinese government and therefore are not concerned that Avon was first to receive approval from the Ministry of Commerce to engage in direct selling in China. Under the new legislation, sales representatives may sell products foreign of a fixed retail location, providing Amway representatives further opportunities to generate sales. Additionally, lifting restrictions on imported products may allow Amway China to access over 450 kinds of goods from its parent company.The act ban on multilevel direct selling will be the most challenging aspect of Amways response to new regulations. Amways success worldwide relies on a motivated sales force through multilevel compensation. One authorized sales agent of Amway in China is quoted as saying We still face a wide challenge in China, because multilevel marketing is where the real profits lie. The 180,000 Amway sales representatives in China look for the company leadership to consider their interests while pursuing solutions that meet the new regulations. Eva Cheng states We will review the nature of the authorized agents jobs and make whatever modifications are necessary to ensure the companys marketing activities are not open to allegations of chuanxiao.Questions for Discussion1. Who are the stakeholders for Amway in China? How would a stakeholder analysis help in developing a communication strategy? What is your recommendation for a communication strategy during this transition period?2. Why is it important for Amway to be good corporate citizen in China? Can doing good overcome negative or imprecise perceptions of the direct selling industry in China?3. To what degree has Amway convertible its brand globally? How has it adopted its promotion strategy to local conditions in China?4. What options does Amway have to address the new regulations on direct selling in China? What are the advantages and disadvantages associated with each?SourcesAmway Fact Sheet, Alticor Fact Sheet, Amway China Fact Sheet. Amway Regulates Agents in China Market. Alestron (March 8, 2006) Amway StartsPromotion in China. Alestron (May 14, 2004) China on Verg e of Opening Vast Market for Direct Selling. Nutrition Business Journal 10, 4 (2005) 9-12. Chung, Olivia. First Law of Direct Sales A Clear Ban on Multi-Level Marketing in China ordain Mean Harder Times for Amway and Avon. The Standard, September 26, 2005. Cosmetics and Toiletries in China (June 2006). Euromonitor. Direct Sales in China. Washington, DC World Federation of Direct Selling, 2005. Gee, Pauline. Fighting fit amway has had to persevere in China but its determination to succeed there means it now holds an enviable position. (Country Report China). Soap, Perfumery & Cosmetics Asia (Nov 2002) 15(1). Ho, Herbert H. The Development of Direct Selling Regulation in China, 1994-2004. Washington, DC The US-China Business Council, 2004. Household Care in China (October 2005). Euromonitor.Jun, Lin, and Rebecca Karnak. At Last, Progress on Direct Selling. China Business Review, Nov/Dec2005. MacLeod, Calum. Chinas New Rules Open Door to Amway, Avon, Others. USA TODAY, November 30, 20 05. nonprescription(a) Healthcare in China (December 2005). Euromonitor.Ostroff, Jim (1998), Amway Slated to Resume Its Operations in China., WWD, clxxv (144), 28(1).