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VnEconomy News Special Reports: Spreading their wings

THANH NGA14:50 (GMT+7) - Tuesday, May 25, 2010

Over the last few years MLM enterprises in

Vietnam have really started to create a market.

As at the end of 2009 there were 32 operatingMLM companies with 700,000 distributors andaround 1,000 product lines. Photo: Viet Tuan.

Multi-level marketing (MLM) has been developingin Vietnam and has seen increased participation by domestic and international companies. Alsoknown as network marketing, its been common around the world for more than 60 years.According to the World Federation of Direct Selling Associations (WFDSA) in the 53 countrieswith direct selling sectors total sales revenue has amounted to some $115 billion, with thenumber of participants increasing to 65 million. Activities are most developed in the US, Japan,Brazil, South Korea, and Germany.

The MLM business first appeared in Vietnam in 1998. According to the Vietnam CompetitionAuthority under the Ministry of Industry and Trade, the business model has developedsignificantly in the last five years. The number of registered MLM enterprises stands at 45, bothlocal and foreign, in many cities and provinces throughout the country. Local companies tend tobe less experienced and base their activities on those of foreign companies.

As at the end of 2009 there were 32 operating MLM companies with 700,000 distributors andaround 1,000 product lines. Enterprises sell food, cosmetics, and household items, with foodenterprises accounting for over 80 per cent of the total. Most products are imported from foreigncountries. Some large MLM groups are now present in Vietnam, like Amway, Avon, and Oriflamein cosmetics, Herbalife, Noni Vina, Vina-link Group, Eternal Sunshine Company and Kim DoCorporation in food, and TIANSHI Light Company Limited and Viet-Am international JSC in

household commodities.

Sales revenues in 2009 reached VND2.1 trillion ($110 million), for an increase of 150 per centagainst 2008. MLM companies contributed nearly VND660 billion ($35,000) to the State budget,and donated VND5 billion ($263,000) to social and charity activities. The MLM model is suitablefor people who have knowledge but not much capital, said Mr Nguyen Xuan Hoang, Chairman ofthe Vina-Link Group. Vietnam is strong in its community culture, which creates close and broadrelationships. This is ideal for the development of the MLM model. The Vina-link Group is one ofthe developing MLM companies in Vietnam, specialising in food and winning the trust ofconsumers.

Agreeing with Mr Hoang, Ms Truong Thi Nhi, General Director of the Aloe Trading CompanyLimited (ATC) and Chairman of the Vietnam MLM Association (MLMA), said that Vietnam has

great potential in the MLM business as it has plentiful human resources and food sources. Not tomention its population of 86 million.

Oriflame, a famous company in MLM in cosmetics, has been in Vietnam for six years. It has hadfour main branches, in Ho Chi Minh City, Hanoi, Can Tho and Da Nang, with 42,000 consultantsnationwide. According to Mr Hamid Parsa, General Director of Oriflame Vietnam, its revenue in2009 increased more than 50 per cent against 2008. We believe that with the MLM businessmodel we can save a lot of unnecessary expenses, which is difficult in the traditional retailmodel, he said. Consumers can buy our high quality products at cheap prices.

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The Avon Cosmetics Company has a presence in more than 100 countries around the world. InVietnam it has operated for six years and developed a marketing network in many cities andprovinces with its beauty care products. According to Ms Nguyen Thi Ngoc Dung from Avon(Vietnam), Vietnam is a developing country so new business models can find success to bedifficult. But it is clear that MLM has been gradually developing. Avon focused on ordinary peopleand the middle class, who are in the majority, she said. Consumers have a lot of choice, andAvon look to quickly supply them with the best quality products.

The MLM model does create a great many jobs. According to Ms Dung, they range in age andknowledge and are both men and women. MLM clearly creates employment, raises incomes,improves the quality of life and increases revenues to the State budget and social welfare, saidMs Tran Dieu Huong, Secretary General of the Vietnam MLMA. Mr Hamid said that the OriflameCompany maintains a commitment to provide high quality products to consumers and createopportunities for members. It plans to offer employment opportunities to 50,000 people over thenext 12 months.

But MLM still has some disadvantages, of which management is just one. In 2005, Decree No110/2005/ND-CP on MLM management was issued by the government and, together with theCompetition Law in 2004, partly formed a legal framework to protect companies and distributors.

But some illegally operating MLM enterprises appeared. They defrauded and abused the trust ofconsumers. According to the Vietnam Competition Authority, 13 MLM companies have ceasedoperations and one has had its licence revoked. Some do not comply with legal provisions,affecting the interest of consumers and giving the model a bad reputation.

In order to manage MLM activities better, the Vietnam MLMA was established on March 31 andplays a key role in helping MLM enterprises comply with the law. Ms Nhi said that the associationwill help MLM enterprises to improve their capacity so that they will create professional MLMnetworks. The association will join other like bodies in the region and the world, and willcoordinate with State management bodies to compile policies relating to MLM to create a healthycompetitive environment for all MLM enterprises.

Ms Dung from Avon said that founding the Vietnam MLMA was necessary to protect the rights ofmembers and consumers. MLM enterprises have their strong and weak points, so in joining theAssociation they can limit their weakness and enhance their strengths. It will not only improvebusiness results but also provide good management.

The Director General of the Vietnam Competition Authority, Mr Bach Van Mung, said that theVietnam MLMA is the link between MLM companies and State management authorities. Theassociation will collect and forward opinions from member enterprises to relevant Stateauthorities.

But much more needs to be done to further develop the MLM model. MLM enterprises mustconsider their reputations and ensure product quality. More detailed legal documents need to becompleted to protect consumers and improve awareness among the community. But with annual

growth of some 150 per cent, the potential of MLM cant be denied.