Panel Discussion on International Regulation Richard Holwill, Vice President- Public Policy, Amway India Enterprises Pvt. Ltd. Mark-e-Dir: Bringing Market to Consumers Wednesday, 17 th April, 2013 New Delhi

Richard Holwill Vice President – Public Policy Amway Corporation

 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. 3

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. 4

 Recruiting Scams  High-pressure sales and Recruiting.  Inventory loading.  False earnings claims.  Corporate stability.  Restitution. 5

 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. 6

 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. 7

 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. 8

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. 9

 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. 10

Confirming the Promise  Companies promise to “buy-back” inventory.  Can they really do so?  Some countries are satisfied by examining a company’s 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. 11

We also hear very specific concerns in India  Quick and Easy Money.  Compensation systems.  Product Prices.  Cultural considerations.  Resolution of complaints. Restitution of loss. 12

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 13

 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. 14

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. 15

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. Amway’s 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. 16

 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. 17

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

Thank You For Your Time