India witnessed a major boom in direct selling business since the mid 1990’s ‘s but in 2006 the first challenge came in Andhra Pradesh when the police booked the businesses accusing them of indulging in activities that came under Prize Chits and Money Circulation Scheme. In a few years time William Scott Pickney, Managing Director of Amway and two of his colleagues were arrested in 2013 in Kozhikode for allegedly duping members of the sales network in Wayanad district.
The company was also blamed for over charging of products and not giving refunds. This completely eroded the confidence of independent distributors and thereafter the entire industry witnessed gloom. Kerala was the first state to implement guidelines for the direct selling industry in 2012 which was followed by the India Government issuing guidelines in 2016 by the Food and Consumer Affairs Ministry came out with a set of guidelines for the smooth functioning.
Now seven states have implemented the India Government guidelines for direct selling industry. Kerala has become the first state to set up a monitoring committee for the industry to ensure that pyramid schemes or money chain business does not thrive under the banner of direct selling industry. Various industry bodies such as ASSOCHAM have recognised the huge employment potential of direct selling and has urged governments to follow the India Government guidelines to promote the industry.
Sajeev Nair, a former Diamond Distributor of Amway and Monavie who was also arrested earlier by the Kerala Police during their crackdown against multi-level marketing companies is now a leading management consultant and mentor. He feels that direct selling business was always legal in India but some pyramid schemes or money chain schemes spoiled the entire show. He welcomes the government move to set up a monitoring committee and he feels that it may pave the way for an independent regulatory authority for direct selling business just as in insurance, stock broking and mutual funds.
Excerpts from an interview with Sreekumar Raghavan of Corporate Ethos:
#You were involved in direct selling business since late 1990s and the India Government guidelines were issued only in 2016? So in the intervening period how was this business carried out?
In 1995 direct selling industry started in India. Direct selling is different from direct marketing. In direct marketing, a company appoints sales representatives and they directly market and sell to customers.Foreg. Eureka Forbes, Aquaguard, AMC Cookware. In this case the company directly raises an invoice in the name of the customer. In direct selling, the company supplies products to a commission agent or independent distributor who in turn sells to customer. In 1998, Amway launched in India and industry made a major take off. There was phenomenal growth in this business all over India and especially in Kerala.Here people had apprehensions about traditional business that required huge investments.This is a business that doesn’t require any money to start.
Amway used to charge registration fees of Rs 4200 and they used to give products worth Rs 2400. Amway had got Foreign Investment Promotion Board (FIPB) clearance and there was nothing unusual or illegal about their business. It was witnessing a boom until 2006 when in Andhra Pradesh the business started facing challenges with State Police alleging that it came under the Prize Chits and Money Circulation Scheme (Banning Act 1978). Amway and others had a tough time and they went to Supreme Court. Since there was a registration fee the authorities said it was part of a money chain. The companies withdrew the registration fee and now charge only Rs 950 for the training pack.
In Kerala, the business was normal for a long time. We did two major events in Kerala with 50,000 independent distributors in Kochi right under the nose of the police authorities. The Nutralite supplement was declared as medicine by Drugs Controller and Amway was not allowed to sell it.Later that restriction was removed. In 2011, a Superintendent of Police in Wayanad decided to take action as lot of small companies doing network marketing or direct selling were actually doing pyramid or money chain schemes. This flourished as fast money is an attraction for many people.
Amway tried to educate the public and government to curb such unscrupulous operators. The police decided to crackdown against even genuine direct selling businesses when they could easily spot the bad apples and stop them. I feel there was an agenda behind the police crackdown.
Direct selling companies approached the then Kerala Chief Minister Oomen Chandy who patiently heard us and told the DGP to stop carpet bombing the direct selling industry instead of catching the illegal ones. But the police continued to see direct selling business as violators of the law even after the State Government issued guidelines for this business in 2012 for the first time in the country.They reiterated that law has nothing to do with the guidelines, the business would fall under the Prize Chits and Money Circulation Scheme. We told them that it is legal across the world, and rest of India.
I was arrested and Amway’s CEO was exhibited in front of the media as a criminal while Mr Sachin Pilot, Corporate Affairs Minister at that time also felt that it was unfair as it could affect Indo-American relations. Amway CEO was put in Kalpetta jail- it was ruthless and brutal against someone who was 65 years old at that time.There was some agenda behind these incidents but we have no clue.
Lakhs of people became unemployed and demoralised and mainstream media also went against us. The law and order machinery has the resources to investigate against any business or individual. Amway CEO came to Kozhikode to make a statement and he was immediately arrested as a case was filed against him in Kalpetta.The government was mute witness to legal machinery going haywire intent on destroying an industry. Independent Distributor community now have trade unions which is good because they can take up any issue with the government through them.
Any way it is good that Central Government worked on the guidelines because incidents such as arresting a foreign national could create a bad name in international relations.
# What is your view on the monitoring committee being set up by Kerala Government?
My fear is that even with monitoring committee it may not be possible to keep an eye on all the companies in this business. Only when a problem crops us up they may be monitored. What is important is that along with the monitoring committee the government should create awareness campaigns among consumers with industry bodies such as ASSOCHAM, FICCI and CII and it should be major campaigns not isolated ones held in some places. In Malaysia there are 6000 direct marketing companies and also in China there is huge growth in this business. Some people may be joining it only to buy products at a discounted price but there are a lot of people in those countries who are doing business. In China lot of people like selling and many of them may be distributors of some product or the other. The common man has to identify the right companies; normally when independent distributors market to a common man they discuss the prospects of making money and incentives. Many distributors don’t know the background of a company or the products they sell. Many people don’t know the difference between a private company and public limited company. Unemployment is becoming a major problem and this can become an employment opportunity for a lot of people. According to KPMG, the value of the industry that are members of IDSA (Indian Direct Sellers Association) is currently at Rs 7000 cr and would grow to Rs 70,000 cr. But now professionals are not coming into this business as in 1990’s as they are scared of it after all these legal issues.
#What has to be done to make this business regain the lost glory?
It was always a legal business and it is not that something illegal has suddenly become legal after the issuance of guidelines or setting up of monitoring committee. But the legal authorities think that all of them are in pyramid schemes or money chain business. Many of them marketed themselves saying that their schemes were similar to Amway or Modicare and could help distributors make more money. From the independent distributor level, the low entry barrier with minimal or no investment is good but for companies there should be entry barriers fixed by the government.
#Amway, Modicare and others tried to rope in more independent distributors telling them that sales is something anybody can do? But aren’t people endowed with some talent and skills that may be creative, technical, managerial and not necessarily sales oriented?
People make money either based on talent or skill. Most of what makes us succeed in life are based on skill such as sales, communication, sewing, accounting, cooking among others. The definition of a skill is that it can be acquired or imparted. In my 20 years in the industry I found that lot of professionals working in sales came into this but there were several others who had not done any sales but did exceptionally well. But companies need to train their distributors to avoid overselling and mis-selling. May be the Kerala Government Monitoring Committee can insist that independent distributors need to undergo stipulated hours of training and for companies may be they could insist on bringing a minimum of Rs 10 cr as capital.
In 2011, we had suggested the formation of an Indian Director Sales Regulation Authority and because of the volume of the business and number of people involved in it should happen some time in the future. May be the government couldn’t straight away think of such an authority. Now with the monitoring committee in place, they can study the issues and that can help in creating of the regulatory authority.Now anybody can source products from a contract manufacturer, set up a business plan for multi-level marketing giving hope to people that they could become crorepatis in a short time.
#Do you think the fall in Direct Selling business may have helped in the growth of online business?
To an extent it may be true because now buyers have one more option to buy products without going to the shop or mall. They can order online with an App or on a computer. Some direct selling companies have seen new opportunities emerging in this area and they have started selling the same products online.The convergence of direct selling and ecommerce may be a good business model.