The sales from agents’ shops are counted as personal volume, he says. Under Chinese law, Balfour adds, “networks and groups are not allowed,” so Amway structures its business differently than in the rest of the world.
China’s regulations stipulate that “the remuneration paid by the direct-selling enterprise to its direct salesman shall be calculated only based on the income of the products sold to the consumers.”
In Beijing, framed photos of Amway executives with Chinese leaders going back to Jiang Zemin plaster the wall at Amway’s office, which takes up the 11th floor of a building across the street from the Ministry of Commerce.
“We have a fabulous government relations team, and the origin of that is that we were really born out of a crisis,” says Audie Wong, president of Amway’s business in China. “We had to solve crises over and over again.” Wong, 61, joined Amway in Hong Kong in 1981.
The crisis came in 1998. Amway meetings like the one in Hefei made the Chinese authorities nervous because they feared the gatherings might be a cover for religious or other rallies, says Herbert Ho, a former Amway China executive and the author of a 2004 U.S.-China Business Council report.
Entrepreneurs with fraudulent sales schemes also brought scrutiny, Ho’s report says. In one notorious case in a town in Guangdong province, a Taiwanese company persuaded farmers to buy a foot massager for 3,900 yuan — about eight times the regular price — and pay 800 yuan to join its sales force, it says.
Participants rioted when they realized they’d been scammed. Similar incidents of social unrest triggered an official backlash, according to the report.
Ban on direct selling
China banned direct selling in April 1998. The timing was lucky, Wong says, because China had begun negotiations to enter the World Trade Organization and didn’t want to be perceived as shutting down U.S. companies.
Later that year, China agreed to let Amway and other international companies continue operating, with modifications, including opening stores. Amway also began manufacturing in China and advertising there.
“We needed to demonstrate that Amway would be a long-term honorable corporate citizen in China,” Doug DeVos, Amway’s president, wrote in an article chronicling the company’s China experiences that was published in the April issue of the Harvard Business Review. The article doesn’t mention Amway’s connection to the Kennedy School.
China isn’t the only place Amway has had crises. In the United States, the Federal Trade Commission investigated the company in the 1970s for price fixing and misrepresentation of the potential profits salespeople could make. The FTC in 1979 found that Amway was not a pyramid scheme but ordered the company to stop making misleading earnings claims and fixing prices and to disclose information on the average income for its salespeople.