VnEconomy News – Special Reports: Spreading their wings

▪ THANH NGA
14:50 (GMT+7) - Tuesday, May 25, 2010
Over the last few years MLM enterprises in
Vietnam have really started to create a market.

As at the end of 2009 there were 32 operating

MLM companies with 700,000 distributors and
around 1,000 product lines. Photo: Viet Tuan.

Multi-level marketing (MLM) has been developing

in Vietnam and has seen increased participation by domestic and international companies. Also
known as network marketing, it’s been common around the world for more than 60 years.
According to the World Federation of Direct Selling Associations (WFDSA) in the 53 countries
with direct selling sectors total sales revenue has amounted to some $115 billion, with the
number of participants increasing to 65 million. Activities are most developed in the US, Japan,
Brazil, South Korea, and Germany.

The MLM business first appeared in Vietnam in 1998. According to the Vietnam Competition
Authority under the Ministry of Industry and Trade, the business model has developed
significantly in the last five years. The number of registered MLM enterprises stands at 45, both
local and foreign, in many cities and provinces throughout the country. Local companies tend to
be less experienced and base their activities on those of foreign companies.

As at the end of 2009 there were 32 operating MLM companies with 700,000 distributors and
around 1,000 product lines. Enterprises sell food, cosmetics, and household items, with food
enterprises accounting for over 80 per cent of the total. Most products are imported from foreign
countries. Some large MLM groups are now present in Vietnam, like Amway, Avon, and Oriflame
in cosmetics, Herbalife, Noni Vina, Vina-link Group, Eternal Sunshine Company and Kim Do
Corporation in food, and TIANSHI Light Company Limited and Viet-Am international JSC in
household commodities.

Sales revenues in 2009 reached VND2.1 trillion ($110 million), for an increase of 150 per cent
against 2008. MLM companies contributed nearly VND660 billion ($35,000) to the State budget,
and donated VND5 billion ($263,000) to social and charity activities. “The MLM model is suitable
for people who have knowledge but not much capital,” said Mr Nguyen Xuan Hoang, Chairman of
the Vina-Link Group. “Vietnam is strong in its community culture, which creates close and broad
relationships. This is ideal for the development of the MLM model.” The Vina-link Group is one of
the developing MLM companies in Vietnam, specialising in food and winning the trust of
consumers.

Agreeing with Mr Hoang, Ms Truong Thi Nhi, General Director of the Aloe Trading Company
Limited (ATC) and Chairman of the Vietnam MLM Association (MLMA), said that Vietnam has
great potential in the MLM business as it has plentiful human resources and food sources. Not to
mention its population of 86 million.

Oriflame, a famous company in MLM in cosmetics, has been in Vietnam for six years. It has had
four main branches, in Ho Chi Minh City, Hanoi, Can Tho and Da Nang, with 42,000 consultants
nationwide. According to Mr Hamid Parsa, General Director of Oriflame Vietnam, its revenue in
2009 increased more than 50 per cent against 2008. “We believe that with the MLM business
model we can save a lot of unnecessary expenses, which is difficult in the traditional retail
model,” he said. “Consumers can buy our high quality products at cheap prices.”
The Avon Cosmetics Company has a presence in more than 100 countries around the world. In
Vietnam it has operated for six years and developed a marketing network in many cities and
provinces with its beauty care products. According to Ms Nguyen Thi Ngoc Dung from Avon
(Vietnam), Vietnam is a developing country so new business models can find success to be
difficult. But it is clear that MLM has been gradually developing. “Avon focused on ordinary people
and the middle class, who are in the majority,” she said. “Consumers have a lot of choice, and
Avon look to quickly supply them with the best quality products.”

The MLM model does create a great many jobs. According to Ms Dung, they range in age and
knowledge and are both men and women. “MLM clearly creates employment, raises incomes,
improves the quality of life and increases revenues to the State budget and social welfare,” said
Ms Tran Dieu Huong, Secretary General of the Vietnam MLMA. Mr Hamid said that the Oriflame
Company maintains a commitment to provide high quality products to consumers and create
opportunities for members. It plans to offer employment opportunities to 50,000 people over the
next 12 months.

But MLM still has some disadvantages, of which management is just one. In 2005, Decree No
110/2005/ND-CP on MLM management was issued by the government and, together with the
Competition Law in 2004, partly formed a legal framework to protect companies and distributors.

But some illegally operating MLM enterprises appeared. They defrauded and abused the trust of
consumers. According to the Vietnam Competition Authority, 13 MLM companies have ceased
operations and one has had its licence revoked. Some do not comply with legal provisions,
affecting the interest of consumers and giving the model a bad reputation.

In order to manage MLM activities better, the Vietnam MLMA was established on March 31 and
plays a key role in helping MLM enterprises comply with the law. Ms Nhi said that the association
will help MLM enterprises to improve their capacity so that they will create professional MLM
networks. The association will join other like bodies in the region and the world, and will
coordinate with State management bodies to compile policies relating to MLM to create a healthy
competitive environment for all MLM enterprises.

Ms Dung from Avon said that founding the Vietnam MLMA was necessary to protect the rights of
members and consumers. MLM enterprises have their strong and weak points, so in joining the
Association they can limit their weakness and enhance their strengths. It will not only improve
business results but also provide good management.

The Director General of the Vietnam Competition Authority, Mr Bach Van Mung, said that the
Vietnam MLMA is the link between MLM companies and State management authorities. The
association will collect and forward opinions from member enterprises to relevant State
authorities.

But much more needs to be done to further develop the MLM model. MLM enterprises must
consider their reputations and ensure product quality. More detailed legal documents need to be
completed to protect consumers and improve awareness among the community. But with annual
growth of some 150 per cent, the potential of MLM can’t be denied.