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Amway and Mary Kay get in on the China direct sales act

By Simon Pitman , 07-Dec-2006

As the China market for direct sales opens its doors to more and more international companies, the number of players trying to tap into what is tipped to be a thriving growth market has swelled after US businesses Mary Kay and Amway receive trading licenses from Chinese authorities.

The licensing was granted by the Ministry of Commerce and was subsequently reported by a number of China new services, including the state run agency Xinhua. Amway has confirmed the report, but privately-owned Mary Kay has still made no official acknowledgement of the agreement.

Direct sales cosmetic players are racing to tap into world-beating market growth in the China market. Many key players, including Mary Kay and Avon, have big expectations of the China market, which could well become the single biggest market for them in the space of a few years if growth if economic growth continues at current rates.

 

The re-emergence of the direct sales market comes after the China government was forced to open up its market for direct sales businesses to foreign companies in an effort to comply with obligations relating to agreements with the World Trade Organization.

 

Avon Products became the first international cosmetic direct sales company to be granted licensing in China back in February, 2006, following a rash of dubious pyramid schemes that led the authorities to place a ban on door-to-door sales in the country in 1998.

 

Since gaining its licence Avon has gone on to increase its China payroll from around 70,000 employees at the beginning of the year to a figure that is expected to exceed 200,000 by the end of the year.

 

The authorities have subsequently granted licenses to both US direct sales player NuSkin and Swedish player Oriflame, as well as other smaller international and national direct sales cosmetic players.

 

The stipulations laid down by the China authorities in order to obtain licenses have been tough, requiring market capitalization of at least CNY 80m ($10.2m), together with proof that operations have been fully compliant with China business laws.

 

But the leading international players believe the struggle to obtain licensing should prove to be worth it.

 

With growth in the both the China economy as a whole and, more specifically, the country's cosmetics market, the direct sales segment is expected to expand rapidly as consumers spend their new-found wealth on products they believe will enhance their appearance and fall in line with fashion trends.

 

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