The journalists were unrelenting at a September 5 press conference at Amway China's headquarters in Guangzhou.

Reporters quickly fired questions about the uncertainties facing the company under the new Regulations on the Administration of Direct Selling, to be issued by the government on December 1.

The charismatic spokesperson on hand, Eva Cheng, said that Amway will happily meet all the requirements of the new regulations. She confidently explained that her company will continue to grow in China.

Cheng said Amway was prepared to deal with zero sales growth in the current business year from July. The company wouldn't if revenues dropped 10 per cent be surprised once it begins restructuring its sales network to fit with the new regulations.

Amway has 180,000 active sales representatives (SRs) in China. Many used to belong to different groups led by the company's authorized agents (AAs).

The new regulations do not permit sales teams, so all AAs and SRs are to be merged into one.

Anyone familiar with the company's growth obsession, however, could tell that Cheng was just being modest.

One of her key lieutenants says that the company would continue to focus on growth at the same level as previous years. Last year's annualized growth stood at 70 per cent.

"Since we came to China, we have been told to shut down five times, and to change our way of doing business four times," says Cheng, as if to clear any doubts about the company's persistence.

The company managed to grow despite being categorized somewhere between an economic cult and an exemplary foreign enterprise. Cheng added that new nutritional products will be launched early next year.

"We depend on product quality more than our business licence," she said at the press conference.

Despite all the changes Amway will have to make to its sales networks, the company nonetheless welcomes the new regulations and the legal status it finally provides. A relatively clear line has been drawn between direct sales and pyramid schemes, a kind of financial scam involving multi-level selling and re-selling.

The regulations are an improvement on past policy, but nobody knows what will happen next.

The changes will probably require considerable outlays, Cheng admits. The company will evaluate and plan over the next few weeks and will prepare to register its new business with the government.

Amway had foreseen that there would be restrictions on its SRs prior to the release of the new regulations. It is already operating an international training and e-learning system, Cheng says.

Amway has been doing business in China for more than a decade and has 180,000 active SRs. Its sales revenue, according to company sources, went from 6 billion yuan in 2002 to 10 billion yuan in 2003. It hit 17 billion yuan in 2004.

Direct selling is a hot business in Asia, and it's growing in China. With the legal environment clearing up, direct sales are set to explode over the next few years. This is also why Amway must launch new products while also spending heavily on compliance.

One difference between Amway and its competitors is that the company is more recognizable and has a longer history in China. The combination of a local reputation and an extensive network give the company its edge. Amway must use this network to get a handle on the market before competition flares up.

It is rumoured that in some areas Amway agents fearing the forthcoming flattening of its double-tier network are defecting to competitors.

It is the quality of products and services that will win over the long-term, Cheng says. Most consumers, however, are still under the impression that all direct sellers basically sell the same products - mainly nutritional goods and personal care products. Every company has doctors and specialists endorsing their products on its websites.

The real key to success is for companies to distinguish themselves from the competition, and Amway cannot afford to delay this.

On the domestic front, Tianjin-based Tiens claims to have up to 9 million SRs in 180 countries, although it has yet to reveal actual numbers.

Like many privately owned enterprises in China today, Tiens is trying to expand from its core area and diversify into other industries, including hotels and schools.

Apart from Avon, Los Angeles-based Herbalife has been one of Amway's recent international competitors in China. The NASDAQ-listed company has a regional head office in Shanghai, and began to build production facilities in Suzhou, a city in the Yangtze Delta, in 1999. It turned to network expansion in 2002, and it offers weight management products, nutritional goods and cosmetics.

Herbalife says it is one of the five top direct sales companies in the world, and reported its 2003 global sales revenues at US$1.8 billion.

Utah-based Nu Skin Enterprises, which is listed on the NY Stock Exchange, also has divisions specializing in digital merchandise, personal care products and nutritional goods. The company's former chief financial officer (CFO), Corey Lindley, moved to Shanghai in 2002 to oversee its operations in the Chinese mainland, Hong Kong and Taiwan.

Nu Skin's main production facilities are near Shanghai, and it has established 140 sales outlets.

A Malaysian-invested direct seller, Perfect China, has its head office in Zhongshan, a city near Guangzhou, Its main network is in the southern provinces, but its main assets are in Yangzhou, a city in the Yangtze Delta.

Information on Perfect China's investors and global revenues is not available, and access to its Chinese language website is limited.

Industry sources say that there are approximately 60 more companies in the industry, with investors from both the Chinese mainland and overseas. If all of them receive direct sales licences and start copying each others' strategies to sell similar products, the market should explode within the next few years. The question is whether companies like Amway are ready.

(China Daily 09/12/2005 page8)