Amway’s President on Reinventing the Business to Succeed in China

by Doug DeVos

Doug DeVos is the president and co-CEO of Amway.

The Idea

When the Chinese government outlawed direct selling, in 1998, Amway was already well established in China and had built a large-scale factory there. The company faced a big decision: Should we pull up stakes, or could we find a new way to sell?

We chose the latter course, and in the decade that followed, Amway China revised its sales model five times to meet changing regulations. Today China is our biggest market, accounting for more than a third of Amway’s sales.

To understand Amway’s business in China and the lessons we’ve learned by operating there, it’s helpful to know some of our history. My dad, Richard DeVos, and his longtime friend and business partner, Jay Van Andel, founded Amway in 1959. The company was started with the idea of providing entrepreneurial opportunity for anyone who wanted to own and run a business. Amway doesn’t discriminate. We welcome everyone, regardless of age, race, religion, gender, or geography. In some parts of the world this has been a breakthrough concept.

Dad and Jay were adventurers and liked to travel. Thirty-eight years ago they were visiting places like Hong Kong, mainland China, and the Middle East and asking themselves, “What would it take to bring Amway here? What would the business look like? How would it fit with this culture?”

Patience and Cooperation

That last question has been especially important. One of the biggest lessons we’ve learned as we’ve grown around the world is that a true understanding of the marketplace, including the culture, the economics, the politics, and the people, is essential. Our strongest resource is always our local leadership team. That’s the first lesson we applied to our business in China.

Amway first entered Asia in 1974, with the opening of our Hong Kong affiliate, and then went into Malaysia in 1976. In 1979 we began operations in Japan, which quickly became one of our top markets and remains so today. By the late 1980s more than half of Amway’s revenues were coming from outside the United States. So when we began operations in the People’s Republic of China, in 1995, we’d already been doing business in that part of the world for more than 20 years. I was running Amway’s Asia Pacific business at the time, and by 1998 China was a $200 million operation and growing fast.

Then we heard rumors that the Chinese government was becoming unhappy with the actions of some direct sellers—or, more accurately, scammers disguised as direct sellers. These unscrupulous companies damaged the reputation of the fledgling industry and of legitimate direct sellers like Amway, Avon, and Mary Kay. Issues related to product quality, reliability, and trust were rampant. Chinese officials needed to protect consumers and to put a stop to unethical practices. But the action the government pursued was extreme: outlawing direct selling and punishing legitimate as well as unethical sellers.

The idea that direct selling could be outlawed was incomprehensible to us. This method of marketing was the foundation of Amway’s business—it had been tested and proved over time and across borders. And now it appeared that we could be put out of business, despite our commitment to and investment in our China operation.

When Eva Cheng, who ran Amway China at that time, called me in the middle of the night to report that the ban was likely, she advised that we not lose sight of an opportunity: We could cooperate with the government to help it understand the problems and find solutions to them. Working with the Chinese to create good direct-selling legislation would be the right thing to do for consumers, our industry, and our business.

A Chinese proverb, loosely translated, says, “If you are patient in one moment of anger, you will escape a hundred days of sorrow.” Eva was right. We could be patient. We could be cooperative. We could seek solutions to strengthen our industry and protect consumers. And we could partner with the Chinese government and our competitors to create reforms that would set the stage for our industry to grow and flourish in China.

A day or two later we had a board meeting. My family and the Van Andel family, who remain Amway’s primary shareholders, were all present. Eva reported on what we were facing. My father stood up after the presentation and said that he approved of her recommendation to work with the government and that he wanted to stay the course. Everyone else agreed.

A Nearly Complete Overhaul

That was the second major lesson in our China experience: It was essential that we remain true to our mission and our core purpose. We had to remember that Amway isn’t simply about the products or the sales channel; it’s about opportunity.

The regulatory changes China required forced us to ask some hard questions about our business model. The government wanted Amway and other foreign direct sellers to establish stores in China’s conventional wholesale-retail channels. But if we shifted from a network selling model to traditional retail stores, would we still be Amway? The more we considered this, the more we realized that the essence of the company—providing a business opportunity based on core values of partnership, integrity, and personal responsibility—would never change. But even as we preserved those essentials, we could change our operations to accommodate China’s new regulations.

We chose not to go to Beijing to complain. Instead we asserted that Amway and the Chinese government were in the same boat, that we fully understood the problems that unethical direct-selling companies were creating, and that we supported the government’s need to create tough new measures. We let government officials know that Amway wanted to help find a solution that would demonstrate to the world that China cared about the interests of consumers and legitimate foreign investors alike.

There was almost an art to addressing these challenges. We would have to create physical stores—something we’d never done before. That meant selling products to people who came in off the street—again, not our usual way of doing business. Typically, when we enter a new country, we import products from the United States. But for China we would manufacture goods there. We had to change our entire distributor compensation system. And because we couldn’t rely on the word-of-mouth marketing that drives direct sales, we chose to do brand advertising—something else we’d never done up to that point.

In short, we had to overhaul nearly everything we did.

Honorable Corporate Citizenship

Trust was vital, both internally and externally, and this was an important third lesson. Trusting relationships would allow us to move quickly to adapt to changes. With our own distributors we sometimes had to say, “Trust us on this.” There wasn’t always time to walk everybody through every detail.

During and after the regulatory transition, we worked closely with the Chinese government. We felt we needed to prove ourselves to its officials. We wanted them to know that we operated an honest business that was creating economic opportunities for Chinese families. We believed in direct selling, and we believed in our business model, but we knew we needed to demonstrate that Amway would be a long-term honorable corporate citizen in China. I give the government officials a lot of credit: They listened earnestly and they recognized that we wanted to create a mutually beneficial opportunity. They also judged us on the actions we took, not just the words we spoke.

As all this was going on, however, it was clear that China was becoming more and more interested in establishing closer ties with other economic powers. Its leaders were talking about joining the World Trade Organization. People in our industry believed that the government would relax the prohibitions on direct selling as part of that process. And, in fact, in late 2005 legislation was passed that would allow Amway to return to a direct sales business model. We received our new license to do business in China in 2006.

We Stayed the Course

Looking back, I see how important it is to build a business by taking the long-term view—the fourth lesson we learned. We’re in this business for generations. That applies not just in China but in all our markets. As my dad suggested, we stayed the course. We did what was necessary, even if it sometimes felt like taking a step backward. We were humble without becoming weak. And we kept working hard, because providing opportunity to people all over the world, from all walks of life, is the right thing to do.

The rules in China are still unique. The way we operate our business and compensate our sales force there is very different from what we do in other parts of the world. But we’ve learned a lot, and our revised business model is working. It has established our industry as a respectable part of the Chinese economy. And today China is our largest market, with more than $4 billion in annual sales.

Although the changes we made to remain in China seemed like a big leap at the time, we’ve since exported some of those ideas to other Amway markets. For example, physical locations are now a strategic initiative for us in many regions. Although we don’t have traditional stores in the United States or Latin America, we do have what we call “mobile brand experiences” in those markets, in which we showcase the Artistry (skin care) and Nutrilite (vitamins and dietary supplements) brands with customized tour buses on display at various events. In Europe we have Amway brand and training centers. Being forced to change our model in China helped us realize that we need to regularly adapt to succeed in different markets.

By understanding the market; staying true to our mission; building strong, trusting relationships; and taking a long-term view, Amway weathered the storm of a direct–selling ban and emerged as the market leader. My father and Jay saw that potential, and we’re very glad they did.

Originally published in April 2013. R1304A