Amway plans R&D centre in Shanghai

China Daily/June 19, 2004

Amway, the global consumer goods giant, will put more eggs in the Chinese basket which has already risen to become its largest market worldwide and will soon open for direct-selling.

The company signed a memorandum of understanding on Friday with the Shanghai Zhangjiang High-Tech Park to set up a research and development centre, according to Steve Van Andel, chairman of Alticor Inc, Amway's parent company.

The R&D centre will undertake global development of Amway products and study how to add herbal medicine to its range.

The centre is another milestone for the company's expansion in China. Amway increased its investment in China by US$120 million last year.

The investment funded the expansion of food and nutrition supplements production at its manufacturing plant in Guangzhou, and increased Amway's paid-up capital in China to more than US$220 million.

The US-based company will continue its expansion in China as the market rises within Amway's global structure, said Andel.

The Chinese market is now Amway's largest, with revenue reaching 10 billion yuan (US$1.2 billion) last year.

Increasing the number of Amway retail outlets, from the current 120 to 180 by the end of the year, is also on the list.

The new outlets will be mostly located in second-tier cities in China.

These moves come as Amway prepares for China's up-coming lifting of a ban on direct-selling.

China is expected to lift the ban and set down rules for distribution models within the third year of its accession to the World Trade Organization.

A draft regulation on direct-selling companies is due for public comment in September, according to officials from the Ministry of Commerce.

The rules will be introduced before December 11,meeting the deadline for China's commitments to the WTO.

Andel said he expected the new rules to stipulate a threshold for companies entering the industry to maintain order.

And a direct-selling association should be set up to help monitor implementation of the rules, he said.

Andel met with officials from the Ministry of Commerce and the State Administration of Industry and Commerce during his visit.

His peers at other direct-sales companies such as Avon and Nu Skin have also recently visited China.

China imposed a ban on direct sales in 1998, saying it was hard to differentiate direct sales from so-called "pyramid sales," which had led to widespread fraud, consumer losses and social disorder.

Ten foreign-funded direct sales companies were allowed to continue their operation in China after the 1998 crisis, but they had to change their sales model to selling goods through retail outlets and "non-employee" sales representatives.

The companies usually sell without fixed outlets, but the transition has been successful and they achieved quick growth in China.

The business of direct-selling has been developing quickly around the world and has a market value of US$85.58 billion and a sales force of more than 47 million.