Panel Discussion on International Regulation Richard Holwill, Vice President- Public Policy, Amway India Enterprises Pvt. Ltd.

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Panel Discussion on International Regulation
Richard Holwill, Vice President- Public Policy,
Amway India Enterprises Pvt. Ltd.

• Mark-e-Dir Bringing Market to Consumers
• Wednesday, 17th April, 2013
• New Delhi

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MARK E DIR Bringing Market to
ConsumersIdentifying Problems Tailoring
Rules to Prevent Problems

• Richard Holwill
• Vice President Public Policy
• Amway Corporation

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The WFDSA Code of Ethics

• A consensus document setting out standards of
  conduct for companies and salespeople.
• Member companies MUST comply.
• Has Extra-Territorial Effect
• It applies to DSA Member Companies in India.

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Regulatory Trends

• Country Regulations track the WFDSA Code.
• Originally, designed to protect CONSUMERS.
• Now designed to protect DISTRIBUTORS.
• This B2B focus recognizes that distributors are
  consumers of a BUSNISS OPPORTUNITY
• Minimal Investment
• Money-back guarantee on unsold inventory
• Prevent exaggerated earnings claims.

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Drivers of the Code and the Law

• Recruiting Scams
• High-pressure sales and Recruiting.
• Inventory loading.
• False earnings claims.
• Corporate stability.
• Restitution.

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Preventing Recruiting Scams

• Also known as Pyramid Schemes.
• No payment for the act of recruiting.
• Recruit 100 people but no one makes any money
  unless and until someone sells product.
• Bonus payments to Upline Distributors must be
  linked to product sales.

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Addressing High Pressure Sales and Recruiting

• Contract May be Cancelled within 14 days of
  initiation.
• Company must provide a 100 refund for
• Enrollment fee
• all product and,
• training materials.
• Different buy-back rules apply beyond the cooling
  off period.

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Attacking Inventory Loading

• Inventory buy-back provisions imposed to let
  distributors resign and return product within one
  year of purchase.
• Buy-Back must be stated in both the contract and
  promotional literature.
• Restocking Fee may not exceed 10.
• Must includes sales kits if a sales-kit purchase
  is required.
• Must include training material.

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False Claims

• The WFDSA Code states that
• Companies and salespeople cannot engage in
  deceptive....recruiting.
• No statements likely to mislead.
• No misrepresentation of actual or potential
  sales or earnings.
• The Code relies on a reasonable man standard to
  determine if a claims is likely to mislead.

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Enrollment Fee

• Allowed to off-set administrative cost of a new
  contract.
• Must be a minimal amount.
• Needed to distinguish a distributor from a
  customer.
• Without it, impossible to compute average
  distributor income.
• Refundable in cooling-off period.

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Corporate Stability

• Confirming the Promise
• Companies promise to buy-back inventory.
• Can they really do so?
• Some countries are satisfied by examining a
  companys paid in capital.
• Malaysia requires a license for direct selling
  companies.
• Still other countries require companies to post a
  bond adequate to cover outstanding sales.

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Concerns in India

• We also hear very specific concerns in India
• Quick and Easy Money.
• Compensation systems.
• Product Prices.
• Cultural considerations.
• Resolution of complaints. Restitution of loss.

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Quick and Easy Money

• The term is used in the Prize Chits Act.
• The regulatory solution must consider two
  cross-cutting concerns.
• Is this Quick and East Money to the Company?
• Could be addressed by limiting enrollment fee to
  a de minimus amount.
• Without a Fee
• No distinction between consumers and
  distributors.
• Impossible to document distributor income.
• Government must allow an Enrollment Fee without
  judging it to be quick and easy money to the
  Company

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Compensation Systems

• Direct selling companies out-source sales and
  sales-management.
• Value of sales-management services must be based
  on and paid from product sales.
• Must include opportunity for upward mobility.
• New distributors can break-away and become
  financially independent of the sponsor.
• Commission percent increases as the volume and
  value of products sold.

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Product Prices

• Why do product prices seem high?
• Is price used to trick distributors?
• Are distributors buying product to earn a higher
  percentage bonus?
• Products dumped in a secondary market are an
  indication that they are overpriced.
• Products must meet the test of the marketplace.
• The value of a product can be proven only by the
  price it commands in the market.
• If it sells at distributor prices, that price is
  justified.

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Cultural Concerns

• Does direct selling conflict with Indian
  values?
• Does direct selling push a distributor to abuse
  relationships with family and friends?
• Consider the case in Korea.
• Confucian Ethics oblige family to honor a
  request from a relative.
• Amways response The relative has an obligation
  to sell only products that are the highest
  quality.
• Amounted an internal campaign to stress this
  aspect of Confucian Ethics.
• Amway is now listed as among the most respected
  companies in Korea.

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Resolving Complaints Restitution of Loss

• Companies are eager to resolve complaints.
• Cannot do so if they are unaware of them.
• Use the IDSA Code Administrator to
• Record the complaint and notify the company
• Demand restitution from the company and
• If not forthcoming turn the matter over to
  governmental authorities.
• Many countries have similar procedures for
  complaints that go to authorities.
• Such a policy could work in India.

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What Next For India?

• The Union Government sees the problem.
• The Prize Chits and Money Circulation (Schemes)
  Banning Act, 1978.
• Not intended to address product sales systems.
• Internal Trade is the purview of States
• State guidelines and regulations are useful
• But dont adequately address the investment
  aspects of direct selling.
• Ideal Solution New legislation defining and
  regulating direct selling and direct selling
  compensation systems.

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Countries with Direct Selling and/or Anti-Pyramid
Specific Laws
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Thank You For Your Time