Direct sales reps lobby for market
SHANGHAI - Guilt by association is a daunting business obstacle.
How do you change a sketchy reputation you didn't earn?
That's the perception problem facing Utah natural products companies who sell lotions and vitamins and tropical juices door-to-door as they pursue coveted direct sales licenses from the Chinese government.
Collectively - and with repeated gentle hints from Gov. Jon Huntsman Jr. and aggressive lobbying by the American Chamber of Commerce and the Foreign Commercial Service - they are trying to erase the too-recent memory of unscrupulous pyramid schemers who decimated parts of China with financial scams in the 1990s.
But in a country where consciousness is measured in millennia, progress takes years.
Dissecting the success of Provo-based Nu Skin, executives from Nature's Sunshine, Tahitian Noni, USANA and XanGo believe they have hit upon a solid strategy: Build a factory. Open stores. Hire workers. Eventually, get a license. But each step is excruciatingly slow.
So most are simply happy to attend ceremonial meetings this week with government officials, shake hands and perhaps mention the name of their company, hoping it sticks in a head here or there.
"The Chinese way is always step by step," said Manny Menendez, a consultant for XanGo. "China never opens up their markets all at once. They want to make sure the market is ready."
For Nu Skin, the market is more than ready. Company executives worked six years before opening a store. Four years later, they are selling eye shadow and protein powder and dandruff shampoo in 160 stores in the toniest shopping areas from Beijing to Guang Zhou. In August, Nu Skin received its direct sales license for Shanghai. And next month, the company will begin hiring up to 5,000 direct-sellers who will work from home the way Nu Skin distributors do everywhere else in the world. In 10 years, the company has invested $100 million in China.
"I don't want to discourage anyone," said Nu Skin Vice President Richard Hartvigsen, "but it's a long-term process to do business in China."
The motivation, of course, is the country's estimated 1.3 billion potential customers. For Nu Skin, Asia represents more than half the company's sales - Japan is about 45 percent of the total.
But China has reason to loosen up, too, according to Neil Offen, president of the Direct Selling Association in Washington. Last year, direct-selling companies accounted for $102 billion in sales worldwide - $30 billion in the U.S., where one in four households has someone who has signed up to sell. Before China banned direct selling in 1998, the companies had invested $500 million in the country. The country lifted the ban as a requirement of joining the World Trade Organization, but specific rules are still being worked out.
Currently, 20 companies are waiting to receive direct sales licenses in China. XanGo executives are studying China. After three years of operation in the country, Noni has opened a factory in Guang Zhou and seven retail stores to sell its juice. The company will wait until early next year to submit an application. Nature's Sunshine and USANA managers eventually plan to apply.
The licenses rank equally with intellectual property protection as the top two issues of discussion between Chinese government officials and American business promoters.
"We are aggressively chasing this issue. We have a big slice of the market," said Frank Joseph, a commercial officer based in the U.S. Embassy in Beijing. About 80 percent of the companies pursuing direct selling licenses in China are based in the United States.
Throughout the week, Huntsman has been pleading their case with carefully worded endorsements. "They are making a remarkable effort to enter the marketplace correctly," he told Vice Chairman of the National People's Congress Cheng Si-wei in a meeting earlier this week.
He made the same gentle argument with Shanghai Mayor Han Zheng on Thursday. "They are here to succeed. But they are also here to play by the rules," he said. "We are making an effort to get this relationship right between Utah and China."
Still, the companies battle misperceptions and real government fears of traditional direct-selling tactics. For example, direct-selling companies are notable for their massive conventions, where thousands of distributors gather to get pumped by company "heroes." Such mass gatherings and hero worship worry Chinese officials focused on social stability.
Nu Skin China President Frankie Kiow says the company has adjusted its practices to avoid bruising those sensitivities, limiting training meetings to less than 20 and not enlisting "heroes" to inspire the distributors. He believes the government will liberalize its policies as Chinese consumers become more "sophisticated."