Amway finding fortune in Asia

China is especially lucrative for firm

Detroit Free Press/October 22, 2004
By Jewel Gopwani

It was founded with a name that blends the words American and way.

But these days, Amway -- part of Ada-based Alticor Inc. -- considers itself an Asian company, with nearly 70 percent of its sales coming from the region.

Alticor posted $6.2 billion in sales for the 2004 fiscal year, which ended Aug. 31. That's a record $1.3-billion jump for the company, compared with the year before. Alticor, which is privately held, would not disclose its net income.

But based on its total revenue, Alticor would rank as Michigan's third-largest privately held company, according to the Free Press Private Reserve report. Automotive conglomerate Penske Corp. of Bloomfield Hills and retail giant Meijer Inc. of Grand Rapids rank first and second.

Besides China, the company also operates its Asian business from India, Thailand, Malaysia, Singapore and other countries.

But most of Alticor's increased business comes from China, where its direct seller, Amway China Co. Ltd., doubled its sales to a little more than $2 billion.

"I think it's a model that fits right in with the Chinese culture," said Alticor Chairman Steve Van Andel.

Economists say that's due to the mix of economic growth and unemployment in the country.

Among the 20 largest economies, China is growing the fastest, with a 9.3-percent jump in gross domestic product in 2003. It's expected to grow 9 percent this year.

At the same time, it grapples with high unemployment, which has been estimated as high as about 10 percent.

"There would be a lot of people who would find this very attractive work to do," said China expert Kenneth Lieberthal, a professor of international corporate strategy at the University of Michigan School of Business Administration.

Amway looks different in China than it does everywhere else in the world, mainly due to restrictions the Chinese government has placed on direct sales companies.

Amway has more than 130 retail stores in China, a component the government required of direct sales companies to prove their legitimacy.

The company's sales representatives, 130,000 of them in China, can only pitch products within a certain vicinity of the stores. Amway's sales agents don't usually sell to gatherings of more than about two dozen people and don't sell in homes.

The rules are a long way from the country's ban on direct selling in the late 1990s, which slowed Amway's growth when it started its China operation in 1995.

But since the ban was lifted, Amway has had trouble keeping up with demand. The company has plans to expand its 141,000-square-foot factory in Guangzhou, where the company makes all of the 180 products it sells in China.

The factory has 3,300 employees. Amway directly employs about 13,000 people worldwide.

While the government has replaced its ban on direct sales with temporary restrictions, it has stopped companies from recruiting sales representatives until it develops more permanent regulations.

Van Andel is optimistic the new regulations will work for his company.

The regulations "begin to define what the direct-selling industry will look like in China, that there can be an open playing field for people to compete," Van Andel said.

Amway recently opened a shop in Tibet and expects to expand to 200 stores in China by the end of the year.

The company has also advertised aggressively in China, with TV ads and by sponsoring the country's Olympic diving team.

The company also posted updates of China's Olympic medal tally on ad space it purchased on bus shelters.

In the United States, instead of advertising, Amway offers incentives to the 340,000 sales representatives in the country.

But in China, advertising created demand for the company's Nutrilite line of nutritional supplements, which grew 55 percent this year. Amway's beauty products also are top sellers in China.

Other products selling fast in China are Amway's protein supplement powder and vitamin C supplements, which were in high demand during the severe acute respiratory syndrome (SARS) scare.

"We happened to be in the right place at the right time with our vitamin C products. That gave us broad visibility as well and also increased our demand overall," Van Andel said.

While most of Alticor's story is in China, the company also grew in the United States. Alticor's Web-based selling arm Quixtar Inc. posted $1.1 billion in sales.

That move has delivered a new generation of sales representatives, Van Andel said. In the United States, the average age of an Amway sales representative has dropped 10 years to 33.