ICT tool and its impact on development on technical society, e gov project

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http://www1.american.edu/ted/amway.html
"Amway" Goes Astray In China

Amway is a multi-level marketing (MLM, also known as network marketing) company founded in 1959.
The company's name is an abbreviation of "American Way. Its product lines include personal care
products, jewelry, dietary supplements, water purifiers, air purifiers and cosmetics as well as other
products from top brands.

Amway is one of the largest international direct selling companies and entered China in 1995. Their entry
into the Chinese market resulted in big profits and high potential for future growth. However, in 1998
the Chinese Government declared a ban on direct selling which threatened a substantial market for
Amway. The reason the Chinese government decided to prohibit direct selling is because they believed
Amway's direct-selling techniques could spread heretical religion and the start of secret societies.
Chinese officials believed the ban was totally necessary because Amway's distribution and marketing
policies were indicative of illegal activities.

The original intent of Amway's founders was to create a business using a novel means of product
distribution that facilitates entrepreneurialism, understanding of economic management, and economic
independence among its associates (i.e. distributors; the term currently in use is Independent Business
Owners, or IBOs).
Amway's marketing structure is based on personal connections in order to recruit new salespeople, called
distributors. These are independent agents who rely on close connections such as family, friends and co-
workers as customers. To move up the hierarchical ladder, a successful agent will sell more and more
products through this network of people. The circle gets bigger and bigger as one distributor is suppose to
recruit others to join Amway. The pyramid and recruiting method which Amway distributors use has been
branded for cultic recruitment.
The Chinese government became frightened of the potential chaos Amway's direct selling technique
could cause in China. The Chinese government's concern involves Amway's system of independent
networks and door to door sales techniques. Amway's emotional motivation meetings scared Chinese
officials of possible social chaos.
The government's opposition toward direct-sales businesses also originated from the concern that giant
mass organizations could become alternatives to China's Communist Party and could challenge loyalty to
the party.
This fear may possibly be justified given the fact that Chinese society was standardized under the
communist party for many years and Chinese people were already prone to become homogenous under
a new concept as the one that Amway suggested.
In addition, in the Chinese society where "face" is almost everything, a business that relies on
connections can be complicated. The Chinese invented the phrase, "It's not what you know; it's who you
know", so the fact that connections and personal relations serve such an complex part of Chinese culture,
could explain why China's officials took such drastic actions in April of 1998 by cutting off all direct Amway
sales and recruiting methods.
There have been severe criticisms of Amway's multilevel business model. Although, its promoters claim
that it is a business model that is growing in acceptance, and that success will come to anyone who
believes in the system and adheres to its methods, it is mostly based on deceptive marketing that plays
upon social and personal needs rather than its ability to meet any consumer needs.
This market grows significantly in times of economic transition and globalization. Promises of quick and
easy high income, low time requirements, small capital investments and the linking of wealth to happiness
also play in this market setting.
Retailing directly to friends on a one-to-one basis requires people to drastically change their buying
habits. They must restrict their choices, often pay more for goods, buy inconveniently and engage in
business relationships with close friends and relatives.
Multilevel marketing's growth does not reflect its value to the economy, customers or distributors, but the
high levels of economic fear, insecurity, wishes for quick and easy wealth.
The commercialization of family and friendship is a negative element in the society and very harmful for
individuals involved. People do not appreciate being pressured by friends and relatives to buy products.
Making money in multilevel marketing requires extraordinary time commitment as well as considerable
personal skill and persistence. Beyond the hard work and talent required, the business model consumes
more areas of one's life and greater segments of time than most occupations. Consequently, there is no
free time once a person enrolls in multilevel marketing system.
Multilevel marketing is not true self-employment. Some multilevel marketing companies forbid distributors
to carry other companies' products. Most multilevel marketing contracts make termination of the
distributorship easy and immediate for the company. Multilevel marketing distributors are not
entrepreneurs but joiners in a complex hierarchical system over which they have little control.
According to the above, a multilevel marketing company could not be a threat to EU country, as in the EU
on the one hand there is a lot of companies and choices a consumer can make based in their needs and
preferences and on the other hand people are not feeling afraid or insecure in the society at the same
extend as in China. So, these companies can not present a risk for the social order. Whereas in China
which since 1990 was through a transform from a strictly communist political state to a liberated financial
and economic system Amway's multilevel marketing could indeed cause a political chaos, as Chinese
people craved for self-employment and easy profits.
In 1998, after abuses of illegal pyramid schemes led to riots, the Chinese Government enacted a ban on
all direct selling companies, including Amway. After negotiations, some companies like Amway, Avon,
and Mary Kay continued to operate through a network of retail stores promoted by an independent sales
force. Although multi-level payments were still banned, it is alleged that Amway didn't significantly alter its
pay scheme and justified them as payments for services
Under pressure from the United States, Beijing agreed to change its laws when it joined the World Trade
Organization in 2001. China's continuing refusal to permit multilevel marketing "might seem conservative
to some people", but the authorities are worried that pyramid sales could resurface and consumers could
suffer.
Although China offered to let several of the "approved" direct selling companies continue to operate by
selling their product in conventional retail outlets, this did not appease Amway at that time.
Amway had invested $100 million in a manufacturing plant in Guangzhou, and had plans for another $25-
30 million investment in Shanghai. This reality can explain why the Chinese government easily adapted to
the claim of the U.S. Trade Representative about the multilevel marketing model.