Direct Sales in China in 2021. Market Overview, Top Companies, Trends

TMO Group TMO Group

It has been about 30 years since direct sales entered China in the early 90s. It was a tumultuous journey, with multiple ups and downs — from legal crackdown and strict legislation on one side to explosive growth and the “golden decade” of direct sales on the other.

Latest development came in 2019 in the form of so-called “Hundred Days of action” — a series of measures aimed at ending illegal practices on the health products market. It is still early to say if “100 days” will result in stagnation of direct sales in China or will result in a healthy growth in a more civilized ecosistem.

Can a direct sales company enter the Chinese market if it doesn’t have a direct selling license? What’s the path to success like for the companies that do have a license? In this article we will look in depth at the direct sales market — from a brief history tour to latest news, from top players to possible trends.

Brief history of direct sales in China

The history of direct sales in China begins in the early 90s. Interestingly enough, we can even pinpoint the exact date, when the direct sales concept was officially introduced: 14th of November 1990. On that memorable Wednesday, with the approval of the Guangzhou Bureau of Industry and Commerce, Avon established a joint Sino-American company Guangzhou Avon Co., Ltd. The era of direct sales in China has officially begun.

It was a risky decision: Chinese international relationships in 1990 were rather tense and China was considered an unstable economic environment by Western countries. Moreover, Avon wasn’t in the best of shapes itself. The company was suffering from low earnings and found itself under the threat of a takeover. Venturing into China was one of those “make it or break it” moves for the New-York based cosmetics enterprise.

As you are reading this thirty years later, you may have guessed, what was the result of this dicey move: enormous success. By 1997, Avon’s revenue in China would have reached 1 bln RMB (that would be around 125 million USD according to the exchange rate of that time, which is about 200 million in today’s dollars).

Seeing this dizzying success, Avon’s competitors rushed into the country too. Unfortunately, it attracted not only fair-willed enterprises, but a bunch of con artists also — from both the US and Taiwan. That, combined with the rapid growth of the Chinese economy and dire lack of regulations, soon turned the direct sales market into a scam-ridden chaotic mess.

Intervention came in 1994, when the State Administration for Industry and Commerce issued a number of regulations forcing direct sales companies to register and follow certain rules. These were followed by the “Notice on Prohibiting MLM Business Activities”, issued by the State Council in 1998, that effectively banned MLM in China.

As a result, 10 foreign-invested companies were allowed to continue to operate with the “shop + salesman” approach. Direct sales market has entered its first quiet period.

A special opportunity in 2001 restarted the Direct Sales industry, China successfully joined the World Trade Organization (WTO). A clear promise in the terms of accession was to “open up shop-free sales within 3 years.”

In 2005 the Chinese government lifted the ban, but with a set of provisions aimed to allow only legitimate direct sales. Most notably, “Regulations on Direct Selling Management”, issued by the State Counsel treated direct sales and MLM as two distinctly different industries.

MLM was defined through usage of such staple pyramid practices as upfront investment in product; absence of return and refund policies; compensation, based on the size of the “the network” — people joined via invitation of a particular member. Direct sales model, on the other hand, does not use these methods, it establishes safeguard policies that protect the consumer and recruit individuals to promote the product among peers.

While MLM is outlawed, direct sales are recognised as a legitimate business model and offered some legal protection. 2005 turned out to be the first year of the new direct sales era in China.

Large players started to return to China. According to new regulations, to enter the Chinese market, a company has to have certain registered capital and put down 20 million RMB in deposit (about 3 million USD). Besides, it had to get a license from the Ministry of Commerce — 92 licenses were issued in 2006.

Despite these strict measures, the market proved to be hungry for direct sales: from 2006 to 2007, the market grew 61%. Since then, the direct selling industry has entered its “Golden Decade”.

Yet, the direct sales market was not in the clear. Every now and then certain companies tried to push the legal boundaries too far, operating ever so close to what is considered MLM, rather than “direct sales”.

It all culminated in January 2019 when the prominent company Quanjian Group was accused of using MLM practices in operating its 20 billion yuan business empire. Owners were arrested and the company ended up in sharp decline.

The “Quangjian incident” ushered in a new wave of regulations that ended “the golden decade” of direct sales in China. Administration of Market Supervision, together with other administrative bodies launched the “Hundred Days Action” program, which suspended some of the direct sales licenses and introduced more strict controlling measures for the industry.

But despite all the regulations, the direct sales market is thriving. There is a huge unsatiated demand for health and beauty products that are traditionally promoted via direct sales model. The size of China’s direct sales market is estimated to reach 280 billion yuan in 2021, and is expected to exceed 300 billion yuan in 2023.

The history of direct sales in China is a bumpy ride, and it is far from being over. It is and will continue to be in the center of attention for big international and national enterprises, as well as millions of Chinese consumers.

Direct sales licenses: getting and “borrowing”

The turbulent history of direct sales is going through its still phase now. So much so, that the Chinese government completely ceased issuing new direct selling licensing. But the desire of customers to get products and the desire of entrepreneurs to satisfy that demand is not that easy to stop.

There are quite a few companies, both at home and abroad, wistfully eyeing the fertile Chinese market. And wherever there is a will, there is a way: although there is no official procedure in place to get the licence and enter the Chinese market, there is a way to tiptoe around this legal obstacle: “License Borrowing”.

In 2009 an eCommerce company “Hong Kong Winalite Group Inc” merged with “FOR YOU GROUP”. One of “For you”’s subsidiaries, a Shanghai company named Shanghai Fudi Health Technology, was one of 23 lucky holders of a direct sales license. This way, Yuelnag managed to bypass the legal scope of China’s “Regulations on Direct Selling Administration” and completed the first direct sales transaction under “borrowed” license.

In a similar way, in 2010 the American company USANA acquired a direct selling company China-Baby Care and its business in 21 Chinese cities, successfully entering the Chinese market.

There are a few companies on track to obtaining direct sales licenses through similar acquisitions, for example an American nutrition and beauty company Vasayo. It still remains to be seen, however, if getting the license in such a costly and roundabout way is worth it.

Top 5 foreign direct sales companies in China

1. Nu Skin (如新)

Country of origin: United States
Founded: 1984 in Utah, USA
Licensed in China since: 2006
Revenue in China (2020): 550 million USD
Share of global revenue: 22%, largest market
Registered capital: 30.07 million USD

Since its founding in 1984 Nu Skin became one of the biggest direct sales companies in the world, selling their products in over 54 countries in America, Europe, Africa and Asia and generating over 2 billion USD in revenue. Nu Skin was one of the first companies that obtained a Chinese direct selling license.

Nu Skin products include personal care products and dietary supplements. Recently the company added hairdressing beauty and tools line Boost Beauty. Nu Skin always emphasized its products and products’ quality as a cornerstone of the brand.

Nu Skin is well aware of the importance of social media marketing, especially in China. They collaborate with a number of KOL/KOCes to establish their brand influence. Nu Skin, together with AliBaba Cloud build a social platform Nu Town (星享城). Nu Town provides Nu Skin’s customers with not only eCommerce services but also offer a range of social media functions.

2. AmWay (安利)

Country of origin: United States
Founded: 1959, in Michigan, USA
Licensed in China since: 2007
Revenue in China (2020): 2.5 billion USD
Share of global revenue: 29%, largest market
Registered capital: 126.1 million USD

AmWay probably does not need a lengthy introduction. Specializing in health, beauty, and home care products, it is one of the largest direct sales companies in the world. It is also one of the oldest — it was founded in 1959 in Michigan. In recent years, when the competition with younger direct sales enterprises gets more and more stiff, AmWay embraced the strategy of “experience, digitalization and rejuvenation” to continue holding its high positions in the market.

Let’s unpack this. “Experience” part comes with Amway sharing its knowledge in health and nutrition with the Chinese public. More than 200 “experience centers” are being set up across China. In 2021 Amway, in collaboration with China Health Education Center, China Center for Disease Control and Prevention, Chinese Nutrition Society and other authoritative organizations unveiled “Health Promotion Science Base” in Hangzhou.

“Digital” part of the strategy comes with the fact that 90% of the transactions Amway customers make are made online, 80% of which are made from mobile devices.

Finally, Amway attempts to build rapport with the young consumers through community building is the “Rejuvenation” part of the strategy.

Pandemic seems not to have affected the company negatively, on the contrary, according to Yu Fang, President of Amway China, consumption of nutrition health products, especially its health nutrition brand – Nutrilite experiences double-digit growth. In 2020, there were more than 100 new products to be introduced on the market.

3. Oriflame (欧瑞莲)

Country of origin: Sweden / Switzerland
Founded: 1967 in Stockholm, Sweden
Licensed in China since: 2007
Revenue in China (2020): 120 million EUR
Share of global revenue: 12%, second largest market after Russia (16%)
Registered capital: 26.11 million USD

Oriflame is a Swedish direct sales company that focuses on beauty and personal care products. Most of the company’s sales come from skin care related items. Or at least that was the case until the year 2019, when Oriflame began expansion into the world of health products.

Oriflame places great importance on digitalization, providing a wide range of online tools to their customers and sales representatives. In China it launched a China business support plan to reduce the difficulty of assessment and provide entrepreneurial fund rewards. It even includes automated pre-approval of financial support for new recruits.

4. Herbalife (康宝莱)

Country of origin: USA
Founded: 1980 in California, USA
Licensed in China since: 2007
Revenue in China (2020): 800 million USD
Share of revenue in China: 15%, second largest market, after the USA (24%). China was the largest Herbalife’s Market up until 2018
Registered capital: 14.166.667 USD

Herbalife is a world-leading direct sales company, specializing in nutrition and weight management. Started from California in 1980, it now has branches in more than 90 countries and regions around the world, including China.

Shanghai became the home of Herbalife China’s headquarters, but this is not all. In September 2019, Herbalife announced that Shanghai will also be the home for the “Herbalife China Product Innovation Center”, Herbalife’s first product innovation center in the world.

Herbalife put digital transformation at the center of its strategy. In 2020 they launched a platform that allows individual sales partners to set up their “personal stores”, where apart from making sales, they can use live broadcasts and engage in other promotional activities. So far the initiative seems to experience some technical challenges that prevented it from gaining enough traction. Herbalife announced a partnership with AliBaba, to roll out a new platform, boasting even more digital features and a more robust technical execution.

Herbalife also tries to stay ahead of the curve by developing AI-based sales and management solutions that should streamline sales funnels for thousands of Herbalife’s sales partners. As many of them are a one-person band, they can use AI tools for analytics, management and task automation, which enables them to provide high-quality services to multiple customers at the same time.

Ms. Dong Ruiping, Vice President of Foreign Affairs of Herbalife China, emphasized: “The main direction of our work in 2021 is improving user experience. We have established digital partnerships with Accenture and Alibaba, aiming at the success of both our customers and sales partners. We will continue our digital transformation by improving the use of digital tools, focusing on digital operations, and implementing the second round of digitalization.”

FInally, 2020 was the year when Herbalife launched its Herbalife Digital Business School, further perfecting and digitizing the training system for their sales representatives.

5. Perfect (完美)

Country of origin: Malaysia
Founded: 1994 in Guangdong, China
Licensed in China since: 2007
Revenue in China (2020): 10 billion RMB
Share of global revenue: no open data, but likely 80-90%
Registered capital: 38 million USD

Perfect is an overseas enterprise invested and established by Perfect Resources Malaysia Co. in Zhongshan, Guangdong province, China in 1994.

With more than 20 years of history, Perfect has grown into a modern enterprise integrating R&D, production, sales and service, achieving annual sales of over 10 billion yuan. “Perfect” owns 34 branches, 6 offices, and more than 10,000 outlets throughout China. “Perfect” also embraces the strategy of “China as the springboard to the world”, expanding to the global market and establishing offices in Hong Kong, Taiwan, Malaysia, Singapore, Thailand, Indonesia and Vietnam.

Top 5 Chinese direct sales companies

1. Yofoto (三生)

Country of origin: China
Licensed in China since: 2007
Registered capital: 156 million HKD

Yofoto (Sansheng) was founded in 2004 and obtained a license in early 2007. It has quickly become a leader among domestic direct selling companies. Starting out as a company that produces and sells health supplements, Yofoto evolved into a “one-stop” health management enterprise, helping their customers throughout all stages in life.

SInce last year, Yofoto put digital transformation in the middle of the strategic layout of their future development. They aim to empower the market with “three powers”: product power, marketing power and brand power.

Here’s an example: Yofoto has set up three live broadcasts, where industry’s leaders and experts shared their knowledge, building the corporate brand. The number of online users for those events were far above 10 thousand. In fact, it was as high as one million.

Another example worth mentioning is the new retail in Yofoto’s social eCommerce platform, YouXiangYunShang (something like “A shop of heavenly joy”), which mirrors the offline shopping experience.

Yofoto has branches in 30 provinces in China and started its international expansion, establishing offices in Vietnam, Russia, Thailand, Cameroon. 70% of Yofoto’s business is generated online, and the company has shown positive growth in 2020.

2. New Era (新时代)

Country of origin: China
Licensed in China since: 2007
Registered capital: 100 million RMB

New Era (XinShiDai) is a large-scale enterprise that engages in a wide range of activities — from scientific research and production of raw materials to actual direct sales of their products. It is one of the oldest direct sales companies in China, established in 1995 in Beijing.

The new era company has three major product brands: health and nutrition products “Guozhen (国珍)”, cosmetics and makeup “Shareland” (香兰阁) and and cleaning products “Zhuzhen (竹珍)”. Their signature items are based on pine pollen and bamboo leaves extract.

Company has branches in 31 Chinese provinces and has expanded to South East Asian countries, South Korea and Russia.

Similar to Yofoto, the New Era places huge importance on strategic adaptation, as it cannot be overestimated in this new post-pandemic era. As a part of their transformation process, they established a subsidiary company Huashang Health and launched an eCommerce platform “JianKangKe” (which can be loosely translated as “Health Crusader”).

The goal of the platform is to help sales partners to become “Personal Experts in Health Management”, funneling social habits of customers accustomed to the New Retail, into sales. Platform provides entrepreneurs with service and support for their operations, creates a flair of premium consumption and what they call a “Peace of mind for shopping, promotion and health”.

3. Pro-Health (宝健)

Country of origin: China
Licensed in China since: 2007
Registered capital: 50 million USD

In 2021, Baojian Group, also known by its westernized name “Pro-Health”, celebrated its 25th anniversary. Like many direct sales companies, this Hong Kong funded enterprise integrates research and development, production, distribution, sales, and service. Pro-Health’s line of products include nutrition and health care supplements, beauty and skin care, and daily chemicals and cleaning products.

In April 2021, Pro-Health celebrated its 25th anniversary. The festivities were held in Macau, with over 6000 participants visiting the gambling capital of China.

Throughout its history, Pro-Health had the reputation of constantly being on the same page with the Government. The company encourages their sales partners to give back part of their income to the society, innovating the concept of public welfare.

4. For You (富迪)

Country of origin: China
Licensed in China since: 2007
Registered capital: 10 million RMB

For you (Chinese name Fudi) was founded in Shanghai in 1994, and was among the first companies approved for direct sales by the authorities. Years later, “For you” developed into a large-scale direct selling company, which integrates scientific research, development, production, sales and service.

“For you” offers a range of products — health supplements, cosmetics, personal care and hygiene, all the way to daily cleaning products.

“For you” is planning to fasttrack its future endeavors by leveraging the blockchain technology, building digital assets, and gaining development momentum.

5. Kasly Ju ( 金士力佳友)

Country of origin: China
Licensed in China since: 2007
Registered capital: 80 million RMB

Kasly Ju is a direct selling company from Tianjin, China. Compared to the smooth expansion it experienced in the first years of its operation, Kasly Ju recently seems to end up in a difficult position. Failure of its “Spark Startup Plan” resulted not only in financial problems, but also led to the departure of one of the core team members, Yao Zebing. There seems to be no relevant updates about the company since 2019, which is probably not a good sign.

Additional direct sales companies, outside of top 5

Mary Kay (玫琳凯)

Country of origin: United States
Founded: 1963 in Texas, USA
Licensed in China since: 2007
Registered capital: 22 million USD

Mary Kay was founded in 1963 in Texas and exclusively focuses on direct sales of cosmetics and makeup products. From just a few hundred “beauty consultants”, as Mary Key calls their sales representatives, the company grew to 2.5 million consultants who generated 3 billion USD of revenue annually in 2020.

Mary Kay is keeping its digital transformation game up. In the beginning of 2021 the company launched “MK e360”, a platform, where users can get all possible digital support in advancing their career as a “beauty consultant”: from designing their own promotional materials and disseminating it among the contact list with a few clicks to more analytical high-tech tools that use big data and machine learning. Tens of thousands of “Happy Stalls”, as the company dubbed those miniature enterprises, sprung up in a matter of weeks.

Melaleuca (美乐家)

Country of origin: United States
Founded: 1985 in Idaho, USA
Licensed in China since: 2007
Registered capital: 12.01 million USD

Melaleuca is a direct sales company that was established in the USA in the middle of the 80s. As the company’s sales pitch goes, Melaleuca does not sell products, but a brand-new life “experience”, where health is an “attitude to life”.

Melaleuca was one of the direct sales companies that received a warning from the American Trade commission, for the use of misleading advertisements. As it turned out, only 1% of Melaleuca “evangelists” are making any profit from selling the life changing products, and this piece of information somehow wasn’t mentioned in the company’s promotional materials.

Melaleuca seems to be doing just fine in China. In 2021 it organized a celebratory Ten Thousand People Carnival in Guangzhou and opened a new Logistics Center in Shanghai.

 

With this we conclude our overview of the Chinese direct sales market and hope you found it useful.

Despite the legal difficulties related to the direct sales licensing, the Chinese market is still full of opportunities. As long as you adapt to local legal and marketing reality, review your decision through the prism of cultural differences, understand and cater to the mindset of the Chinese consumer, direct sales certainly can be profitable.

 

TMO has help companies successfully enter China via cross border eCommerce and help building their digital operations. Read more about success stories of our clients: LIFEVANTAGELifeVantage is a Nasdaq-listed healthcare products company. TMO helped select a cross-border eCommerce China model that fit its unique product attributes.Lifevantage, MT365Using PWA and ReactJS to develop innovative, international cross-border channels fit for a global scale.MT365, MANNATECHDeveloping and launching China cross-border eCommerce channels for a global nutritional health player.Mannatech

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