Ah Kwong & Friends

By KEISUKE OKADA
Staff writer

For direct-selling giant Amway Co., China is fast becoming its most lucrative overseas market, far surpassing sales in the massive yet troublesome Japanese market.

After some 10 years of operations, Amway’s annual sales in China are nearing 200 billion, yen or almost twice those in Japan and even those in the United States, where the company was founded, and are likely to reach the 300 billion yen mark in the foreseeable future.

“You only have to look at China and at how many people there are there to get an idea of what the future looks like,” said Steve Van Andel, chairman of Amway’s parent company Alticor Inc., headquartered in Ada, Mich.

“There is plenty of room for growth in China,” he said in a recent interview in Tokyo with The Japan Times.

Given Alticor’s consolidated annual sales of more than 600 billion yen a year for fiscal 2004, which ended in August last year, the prospective Chinese share in the parent company’s business could likely reach 40 percent to 50 percent.

Van Andel, however, admitted that doing business in China is not easy.

“We are in 57 different markets, and 57 different markets means 57 different cultures. We offer similar business opportunities to each market. But it needs to be done a little differently for each culture. They like to view the world through different eyes. Trying to interpret that for 57 different cultures gets a little complicated,” he acknowledged.

Amway markets its beauty and health products through networks of individual distributors, not through conventional wholesalers and retail outlets.

Individuals serve as distributors, or what it calls independent business owners (IBOs). And they create their networks of distributors to sell products directly to consumers while benefiting from returns, or bonuses, based on achievements.

In China, the Amway direct-selling method has yet to be established as local distributors sell products through retail stores.

“They didn’t have direct-selling regulations. And we’ve been a proponent ever since we went into China of making sure they would draft some,” he recalled.

But the situation is finally changing. As part of its commitment to the World Trade Organization, China enacted the regulations on Nov. 1.

“We’re very happy because those regulations legitimize direct selling in China. We have to adapt our business to those regulations, but at least we’ll have regulations that define what is an ethical business and what isn’t,” he said.

Turning to Amway’s 26-year-old Japanese operation, Van Andel emphasized that Japan is one of Amway’s largest markets, about the same size as the U.S. one. But its history here has not been without problems.

As in China, Amway’s Japanese operation grew in its initial years until annual sales hit a peak of 212 billion yen in 1996. Then came a crisis.

Amway distributors’ misdeeds, such as illegitimate disposal of inventory excess among distributors and inappropriate recruitment of new distributors, were criticized by the media. The issue was brought to a Diet committee on consumer problems in 1997.

The negative publicy resulted in a sharp decline in Amway’s sales in 1997 and business continued downward for seven straight years until 2003 when its annual sales amounted to 103 billion, yen almost half the amount in 1996, when sales peaked.

Alarmed, Amway management resorted to a series of corrective or preventive measures to regain public trust. For instance, the company imposed a ban in 1999 on the placement of orders for products and distribution of bonuses among distributors so that each distributor had to deal directly with Amway Japan. In 2000, Amway introduced a new membership status, “Kaudake (Buy-Only) Club,” for consumers who want to purchase Amway products without involving themselves in sales activities.

Amway’s reform efforts have paid off.

In fiscal 2004, Amway Japan logged its first year-on-year sales increase in eight years — 111 billion, yen up 7.6 percent over the previous year. In the first six months of 2005, sales amounted to 57.9 billion, yen with a 5.3 billion yen pretax profit.

“If you look at sales, we are certainly down from our peak. We focused over the last few years on consumer protection. We’ve implemented a lot of education and training for our distributors to make sure they understand how to operate an Amway business,” Van Andel said. “We’ve been through a flat period, and we are starting to come back,” he stressed.

The Japan Times: Nov. 7, 2005
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