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Home >> Business
UPDATED: 09:03, December 01, 2006
Direct sales deadline today, firms still waiting
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Several major foreign-invested firms are waiting for the final approval of their direct selling businesses in China, without which they may have to close down, as their operations are considered illegal as of today.

Direct selling giants such as Amway, Mary Kay, and Perfect have not gotten licences for direct selling from the government, though they applied earlier this year.

If they fail to obtain them before December 1, according to an announcement by the Ministry of Commerce and the State Administration for Industry and Commerce, they are liable to heavy fines or closure.

The Chinese Government in 1998 gave 10 foreign-funded direct selling enterprises a transition period, during which they were allowed to conduct their business in the model of fixed stores plus employing sales representative to sell their products. That grace period ends today.

According to the website of the Ministry of Commerce, up to yesterday only two of those 10 direct selling companies have obtained licences.

The two firms are Avon, the world's biggest direct seller of beauty products, and For You, a manufacturer of health products.

China's direct selling regulations, which came out in December 2005, forbid pyramid-style selling, a traditional business model for direct sellers.

Among the eight companies who have not been authorized by the government, Tupper, Menard and Naris have pulled out of the direct selling market in China. Amway, Mary Kay, Daylight, Sunhope, and Perfect have made adjustments to their business models to meet the requirements of China's direct selling regulations.

"These companies are undergoing a transition process. They are working on new structures," said Liu Zhong, a lawyer focusing on direct selling with the Beijing Dacheng law firm.

The major difficulty for the firms, according to Liu, is "how to change the 'multi-level' selling mode into the 'single' level, which is required by the direct selling regulation."

He said the waiting not only increases operational costs, but "enterprises will have to transform their distribution team, which can be a very complicated process, and means the government will need a much longer time for the investigators to grant licences."

Amway has a distribution team of 180,000 people across China.

The Ministry of Commerce has been cautious in giving the licence.

In September, it revoked the license of Zhen-Ao Group for its false publicity and bidding materials.

"We give the licence to an enterprise when we think it is mature," said an official from the Ministry of Commerce.

A spokesperson from Amway said they were still waiting and refused to make any comments before the deadline. Mary Kay, another makeup and cosmetics maker based in the United States, seems to be optimistic about their future.

"We are working closely with the government bodies, and are quite confident that we can get the licence, sooner or later," said Mary Kay's spokesperson Zhou Liyu, although he did not mention a date.

According to Zhou, Mary Kay has turned its 6,000 regional distributors into formal employers, and has built a service network throughout China with over 1,000 stores.

Avon, the first company to obtain the licence, now has a network of around 6,000 stores with nearly 30 million sales representatives.

Except for Avon, who has branches in 32 provinces and cities, the other direct sellers with licences can only carry out business in one or two regions. Nu Skin, another cosmetics manufacturer from the United States, for instance, has operated mainly in Shanghai since getting authorization in July.

The company is now preparing to recruit an army of 3,000 to 5,000 part-time direct sellers in Shanghai by next year. Expansion plans also include opening 40 more specialty shops across the country, bringing the total to 200 by next year.

"We advocate the concept of healthy direct sales," said Qiu Jinyun, president of Nu Skin China. "With China's direct sales in its infant stage it is really important to pursue a sound and sustainable development pattern."

Source: China Daily

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