A little effort and a lot of patience can go a long way, and the way to adapt to a slowly evolving market is to slow down and grow with it.

Over its seven years in China, leading international direct sales company Nu Skin Enterprise has shown that the best way to gain a footing in a new environment is to give it time.

"We've learned a lot about local consumers, and it has helped us tailor our corporate system and products to suit the opening market," says Frankie Kiow, president of Nu Skin (China) Daily-Use & Health Products Co Ltd.

The company has opened more than 140 retail outlets throughout China since it entered the market in 1998, largely because direct selling has been restricted.

"We'll keep opening stores even after the direct sales ban is lifted," says Kiow.

The government announced earlier this month that restrictions on direct sales would end in December.

"But we understand that this will be a gradual process. Retail outlets will still play an important role for us," Kiow says.

Nu Skin will have 200 stores by the end of this year. Its first outlet opened in 2000.

The new government regulations lower the number of fixed stores required to enter the sector. Direct sales firms previously had to open at least 10 retail stores in different cities within a province, or 10 stores in one municipality before they were granted licences.

The company plans to continue opening new locations.

"Retail outlets are image builders, and they can provide better service," says Kiow.

The company has also begun opening stores in second-tier cities such as Jiaxing and Lishui in Zhejiang Province, and Yibin in Sichuan Province.

Nu Skin will initially focus its direct sales operations on economically strong areas such as Shanghai, Zhejiang, Jiangsu and Guangdong.

"We will submit the application soon," says Kiow. He is confident that Nu Skin will be included on the first list of authorized direct sellers.

The company is adjusting its operations to help familiarize its sales representatives to the new environment. This includes modifying the remuneration plan and investing more in sales training programmes.

All of its sales reps are full-time, insured employees on salaries.

"We might eventually hire part-timers," Kiow says.

The company is also looking at ways to build its brand identity in the opening market.

These changes may slow the company's short-term growth in China, if recent performance is any indication.

Revenues increased 8 per cent to US$64.1 million in the second quarter this year, mainly due to gains of 13 per cent in Taiwan and 15 per cent in Hong Kong. On the mainland the results were less impressive; the company is still adapting to the new sales environment.

"Our sales reps will need a few months to get used to the new plan. We feel it's best not to look for sequential growth in the third quarter, but return to it in the fourth quarter instead," says Truman Hunt, Nu Skin's president and chief executive officer (CEO).

The company says the internal transformation will improve long-term prospects and that this still is only the beginning of its experience in China.

"Direct sales are going to open the door to a huge new market. We expect sales in China to reach 3 billion yuan (US$370 million) in three or four years," Kiow says.

He adds that the company was wise to get an early start in China seven years ago, a dark period for the industry.

The government banned direct selling in 1998, almost immediately after Nu Skin acquired a local company to establish its Chinese operations. The government said it was difficult to differentiate direct sales from fraudulent pyramid schemes.

Ten foreign-funded direct sales firms were permitted to continue selling after the ban, but they had to sell their products through retail outlets and "non-employee" sales representatives.

Nu Skin was new to the market then and was not on the list. It had to become a purely store-based business.

The Utah-based firm opened its first international retail store and first manufacturing facility outside the United States in Shanghai in early 2000.

"We started with a mass market line and a local brand specially designed for the Chinese market, as an experiment to see if it would work," Kiow says.

He says the early start put Nu Skin in a good position to resume direct sales.

This year its total sales in China will reach 1 billion yuan (US$123 million), up from 10 million yuan (US$1.2 million) in turnover in 2000.

In June the company opened a health product factory in Shanghai in anticipation of changes in the market.

"It is the right time to expand Nu Skin's nutritional product business. It should help us take things to a new level in China."

Nutritional products under its Pharmanex brand and cosmetics together account for half of Nu Skin's global sales, which hit US$1.2 billion last year. In China, however, its nutrition business is much weaker.

The company expects sales of nutritional products in China to account for 30 per cent of the total this year, and half of total sales in the next three or four years.

Kiow expects more local companies to enter the sector in the future, but he believes increasing competition will expand the market.

"Not everyone can succeed in this business. It really is an illusion that direct sales always generate huge profits," Kiow says.

(China Daily 09/12/2005 page8)