Chief executives from Avon and Amway, both giants of American direct sales, have been making high-profile visits to Beijing and other cities, each saying encouraging words in the hope of shaping upcoming regulatory changes that could legalize their direct selling techniques, at least to a degree.
Avon chief executive Andrea Jung met Vice-Premier Wu Yi in May and Steve Van Andel, chairman of Amway parent Alticor, met with several senior government officials in June.
Both companies talked about making new investment commitments. Avon, which launched China operations in 1990, said it was thinking about establishing new production bases. Amway announced it would expand R&D operations, building a second center in Pudong to complement its Guangdong facility. The central government, with one eye on the unemployment needle, was unlikely to have missed the connection.
The two companies between them have generated thousands of jobs in China. Avon's worldwide sales force, for instance, runs to 4.4 million. Strictly speaking, they are "representatives", not employees, and that has been a problem for the Chinese authorities.
Direct selling requires armies of independent salespeople trudging from door to door with their sample cases jammed with spot removers and lipsticks and order forms.
Yet in China, door to door sales have been banned since problems with sales agents and payments led to disturbances in several Chinese cities in 1998. But Amway and Avon have continued to expand anyway, which makes their story all the more astonishing. Judged on sales, both Amway and Avon have become enormously successful in China. Despite a ban on house calls, both firms crafted workarounds, changing their approach to match China's regulation-infested terrain.
Instead of ringing bells in doorways across China, Avon enticed consumers out of their homes to visit "beauty boutiques", 5,500 of them at last count, and beauty counters at department stores, of which there are now 1,600.
In 2003, Avon posted US$157 million sales in China and hopes to drive sales up to US$400 million by 2007. But for all this Herculean effort, the mainland generates only 5% of Avon's global US$6.8 billion sales. Total up their boutiques and counters and divide their China sales figure by 7,100 and revenue per outlet comes to only US$22,000 a year.
In this respect, privately-held Amway is way ahead of Avon. It claims 2003 China sales of US$1.2 billion (RMB 10 billion), 20% of its global revenues.
In most markets, independent Amway sales distributors buy Amway products, mark them up and sell them. In China, sales reps take orders, sell the goods at full retail price, pick them up at distribution centers and deliver them – and take a 15% commission.
Little wonder Chinese regulators were suspicious when Amway first came calling. According to the Amway way, "ambassadors" worked under an incentive plan that credited them with a portion of sales made by people they recruited. They also receive bonuses for sales made by recruits their recruits recruit.
After several tries at writing rules to contain pyramid sales in the mid and late '90s, China threw up its hands and the State Council issued a blanket ban in early 1998. China promised to revisit direct sales as part of its commitment to the WTO, which explains current efforts to draft a new direct sales law. Work, in fact, began last September and Avon, Amway, Mary Kay and other direct sellers have been increasingly vocal in their views since.
Consumers may yet go through a bottle or two of floor cleaner before anyone sees the final results of the drafting process.