Amway Case Study

1. Amway’s history began in 1949 by richard devos and jay van andel of nutrilite

After 10 years : 200 distributors in US midwest

1961: American Way Association (Amway) was official establishment

1962: enter Canada market

End of 1962: Product line is cosmetic (>200) ;  100000 contributor ; annual sales increas 12 times

1970s: enter europe and asia market

1979: FTC concluded that amway’s operation is an illegal pyramid scheme

1980 reach 1billion $ revenue

1980s ,1990s : expand globally but face of growing hostilities from a number of source

1986 : french government concluded investiation in to amways’ operation was dangerous mind-control cult and fraudulent business

1996: amway was rank 22th in forbes500 largest private company

2004: Amway operation in >80 contries , 3.6 million business owner

Amway in China:

 April 1992, Amway China – JV between Amway Asia Pacific & Guangzhou Economic Technological Development Zone

• Company was required to produce in China as well
• Setup a manufacturing plant - $100 million-  in Guangzhou - three years
• In April 1995, Amway officially began operations in China
• Business grew rapidly
• By 1997, 80,000 distributors in Amway network in China – sales $178 million

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1. “We will expand  not by selling more per store but by opening more store”, Richard DeVos

Amway provides equal opportunity to all people to further their own achievement through personal effort and initiative. Opportunity to those who have special skills, education, capital to invest

1. Amway is a network of direct sellers, as independent business owners (IBOs)

IBOs not only conduct sales but also recruit new sellers

1. Swot

Strength:

High growth rate

Monetary assistance provided

Lowed labor cost

Weakerness:

Investment in research and development

Small business unit

Opportunity:

Growth rate and profitable

Growing demand

New market, global market

New acquistion

Threats

Ricing cost of raw meterial

Financial capacity

Cash flow

Government regulation

Competitors

Avon, Mary Kay, Sunrider

P&G, Unilever, local companies

1. April 21 1998 – Chinese Government imposed a ban on all direct selling operations

• Stop pyramid scheme and other fraudulent businesses in China. October 31 was deadline to withdraw from the market to register revised plans

• To continues operations companies had to open retail or wholesale operations

Amway’s was incurring huge losses, millions of dollars a month

1. Solution

Strategic response

• Goods will be sold in retail outlets and through sales representatives
• Income of sales distributors will be based on direct selling done by them only
• Same Distribution centers served as retail outlets for the company
• New Amway China worked closely and positively with Chinese administration
• Amway also monitored the size, ticket price, frequency of training sessions and meetings in different cities
• March 2001, meetings by Amway distributors in Beijing and Shanghai – high admission fees
• Amway China suspended the distributors license
• Amway suspended certification to new sales representatives and stopped all promotional and sales meetings
• Company retained 310 business managers and 800 business directors
• Amway managing its sales representatives with firm hand
• Amway gave periodic reports to government about company’s operations, including training, accounting and human resource

• Result of changing:
• Yuan 2.3 million in taxes
• Yuan 30 million as charitable contributions
• 13% of the distributors were unemployed and hired and trained by Amway
• Since 2002, sales has reached $700 million, four times before the ban
• March 2003,  sales from China one seventh of global revenue will surpass revenue from USA market

1. Conclusion:

To attain a win-win situation,the government should listen carefully to the opinions of genuine foreign and local direct sellers to derive a mutually agreed-upon set of regulations for the industry.