Amway, Harvard, and positive MLM Network Marketing press…

by louabbott on October 5, 2013

It’s challenging  to find positive news about the MLM or Network Marketing industry, particularly in the mainstream press.

Amway China thrivesIt’s even harder to find articles in places like “The Washington Post” that also do a decent job of recognizing the differences between legitimate multilevel marketing (MLM) companies, which are legal, and pyramid schemes, which are illegal.

I have spent a lot of time writing, talking, and teaching about this over the years.  (See my video that now has over 370,000 views: Illegal Pyramids vs. Legal Multilevel Marketing MLM Companies.)

illegal pyramid schemes vs. legal MLM or network marketing businesses

Watch the video – now with over 370,000 views.

Take some time to read at least the paragraphs I have put in bold that I think contains lessons for all network marketers aiming for more professional knowledge of the industry.  Also interesting, note how Amway is promoting positive government relationships and education about the legal issues mentioned above.

Amway thrives in China, with Harvard’s help
By Bloomberg News, Published: October 4

On a sweltering July in the inland Chinese city of Hefei, 1,000 people whistle and clap as Cao Yuchao tells them about Amway, the household-products giant named after the “American Way.”

. . .

Since its founding in small-town Michigan in 1959, Amway has pitched its direct-sales system — a corporatized version of peddlers going door to door — as a path to wealth and happiness. Now, its “American Way” depends increasingly on China, which accounted for almost 40 percent of parent company Alticor’s $11.3 billion in global revenue last year. That’s remarkable, considering that China banned direct selling 15 years ago, endangering Amway’s growth.

Amway won back its place in China by changing its business model and opening stores. It also improved its reputation by teaming up with the United States’ most prestigious school: Harvard University.Amway IBO in China

In a program bankrolled by Amway at a cost of about $1 million a year, Harvard’s John F. Kennedy School of Government has been training Communist apparatchiks known as Amway fellows. Since it started in 2002, the program has brought more than 500 Chinese officials to Cambridge, Mass., to study public management for a few weeks. They also visit Amway’s headquarters in Ada, Mich.

In a country where nothing is more valuable than guanxi, the term for the connections considered crucial to doing business, Amway has supersized its network thanks to Harvard. Though there are no public lists of participants, Bloomberg Markets identified 50 alumni through references in résumés in official publications and on Web sites.

. . .

Also on the list are two officials who became heads of provincial branches of China’s Food and Drug Administration, which approves the sale of nutritional products and cosmetics, Amway staples. Another alumnus is a former official in the agency that polices direct selling.

Since the program began, Amway’s sales in China have surged more than fourfold. The turnaround is all the more striking because Amway — a company dogged around the world by accusations that it’s a pyramid scheme — won over Chinese officials in part by painting itself as a crusader against such abuses. Pyramid schemes lure people to join a business that grows mainly by recruiting people rather than by selling products.

Harvard has benefited from its association with Amway. The program has raised the profile in Asia of the Kennedy School, whose mission is to train enlightened public leaders and which was less well known there than the university’s vaunted business school.

The Amway fellows get to put the prestigious imprimaturs of Harvard and its partners in China — a policy research arm of China’s State Council and Tsinghua University — on their résumés. (Of 20 fellows Bloomberg contacted, three declined comment and the rest didn’t respond to interview requests.)

Scott Balfour, vice president and lead regional counsel for Amway in Asia, says the Harvard program is just one of many the company is involved in.

“We’d have the same success without this program,” he says. “I don’t think this is a linchpin of our success, but we certainly are very proud of it.”

Amway’s guanxi with officials is impressive, says Corey Lindley, who helped Provo, Utah-based Nu Skin Enterprises establish its skin-care direct-selling business in Asia and spent four years in China for the firm. “You have to build relationships with the government, and Amway has been a master of that,” he says.

Local government ties

Anhui, the province in which Cao presided over the July rally, shows how strong Amway’s ties to local officials can be. Hefei, 250 miles west of Shanghai, in July announced the winners of its Amway Cup, which solicited cartoons and poetry illustrating illegal pyramid schemes. The contest was sponsored by the city government, including the local Administration for Industry and Commerce, which polices direct selling.

In 2011, the province staged Anhui Sword, a campaign to combat pyramid sales schemes. In four months, the province shut down 1,302 pyramid schemes involving about 7,200 people, provincial officials announced that December.

The top official at a news conference announcing the campaign was Anhui’s vice governor, Tang Chengpei, according to another news release. Tang, who has since been promoted to provincial party secretary, was a 2002 Amway fellow.

Amway, which was founded in 1959 by Richard DeVos and his friend Jay Van Andel to sell a liquid household cleaner, has become a global giant. It employs more than 21,000 people in 100 countries and territories and sells 450 products through a network of more than 3 million “independent business owners,” its term for its non-employee sales force.

. . .

Therein lies a gray area, Keep says. In legitimate marketing, the main purpose is to make sales to the consumer. In a pyramid scheme, salespeople are primarily rewarded for recruiting others, he says. Telling the difference between the two requires transparency about how much of salespeople’s earnings ultimately come from selling to consumers vs. to recruits, he says. Amway says it doesn’t break down sales in that way.

“The traditional plan, which operates in most of the world, can’t be deemed a pyramid, because no one earns a thing based on the act of recruitment,” says Michael Mohr, Amway’s general counsel and secretary. “Benefit is only accrued based on the sale of product. That has been misunderstood.”

. . .

 Ban on direct selling

China banned direct selling in April 1998. The timing was lucky, Wong says, because China had begun negotiations to enter the World Trade Organization and didn’t want to be perceived as shutting down U.S. companies.

Later that year, China agreed to let Amway and other international companies continue operating, with modifications, including opening stores. Amway also began manufacturing in China and advertising there.

“We needed to demonstrate that Amway would be a long-term honorable corporate citizen in China,” Doug DeVos, Amway’s president, wrote in an article chronicling the company’s China experiences that was published in the April issue of the Harvard Business Review. The article doesn’t mention Amway’s connection to the Kennedy School.

China isn’t the only place Amway has had crises. In the United States, the Federal Trade Commission investigated the company in the 1970s for price fixing and misrepresentation of the potential profits salespeople could make. The FTC in 1979 found that Amway was not a pyramid scheme but ordered the company to stop making misleading earnings claims and fixing prices and to disclose information on the average income for its salespeople.

Read the full article here.

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{ 4 comments… read them below or add one }

Roberto October 7, 2013 at 1:13 pm Thumb up 0 Thumb down 0

I have recently seen allot of negative comments in forums about Amway concerning their marketing tools and how their top leaders make more money from pushing the tools than from product sales.

Reply

David Steadson October 8, 2013 at 8:19 am Thumb up 1 Thumb down 0

Roberto,

That is a myth promoted by a few Amway critics. A very small number of to Amway leaders make more from tool sales than product sales, but usually only because they have expanded their companies to provide tools to Amway groups other than their own. Even the granddaddy of the tools companies, Dexter Yager, stated on 60 minutes some years back that he makes more from Amway than from his tool company (Internet Services).

Reply

Michael Eisbrener October 7, 2013 at 11:10 am Thumb up 0 Thumb down 2

To all those who have failed … quit the program they joined. Good news and bad news. The bad news first. The number of people who go to all the trouble to acquire a real estate license or insurance license…. only 5% pay for the second years license! I have spent a decade looking and reviewing and taking every imaginable marketing course offered.

Design matters! Joyce is 100% correct. The current systems, in my view, are highly designed marketing funnels geared to FIND, by sorting and sifting, the 1 or 2 percent who CAN achieve success. The rest…. well a few break even and the vast majority… even in China do NOT earn a livable income… BY DESIGN.

That will change …. or the industry will disappear. The industry will NOT disappear.

Reply

louabbott October 7, 2013 at 9:54 am Thumb up 2 Thumb down 0

Understood, Joyce. In my experience, most of the people that enter the top 5% or so of earners have personally sponsored a minimum of 50 people – regardless of the comp plan. Some have sponsored 100+ and still not achieved good growth.

Marketing a plan by saying “all you have to do is get 2 [or 3. whatever], then they will get 2 then they will get 2” etc., is simply a lie. This lie (and others) sets people up for failure, unmet expectations, disappointment, and results in a negative reputation for the industry.

The good news is, it does NOT have to be done that way.

Reply

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