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China Relaxes Rules on Direct Sales Distribution

Amway and Mary Kay have received direct-selling licenses in China, ending an eight-year ban that limited the rival companies' recruitment of distributors.

The relaxed rules could further open a market that, with more than $2 billion in annual sales, has become the largest for Amway's parent company, Alticor. Almost a third of Alticor's sales are made by Amway's subsidiary in China.

"In China we are the largest direct-selling company by a good margin," Amway spokesman Rob Zeiger said Wednesday. "It's good news for us because it formalizes our regulations for the market, which is good news for any company. And while the rules for direct selling in China are different from the rest of the world, things have always been different in China."

Having direct-marketing regulations in place "means that our sales force knows that we have our future captured in China's laws," Zeiger said. "And for salespeople, who like to operate from a base of confidence, that's great news."

China prohibited direct sales in 1998, when a rash of illegal pyramid schemes caused huge economic losses around the country. The impending rules to outline what can and cannot be done selling products directly to China's 1.3 billion consumers will affect the companies' bottom lines.

China was supposed to have direct-marketing rules in place by Dec. 11, 2004. The major point of contention for Alticor has been the ban on multilevel marketing.

After 1998, Amway (China) Co. Ltd., or Amway China, as the subsidiary is known, was forced to change its business model and opened stores -- a first for Ada-based Alticor. Mary Kay is based in the Dallas suburb of Addison, Texas.

Independent contractors still could sell door-to-door but there was no chain of distributors as found in other markets. Product ownership remained with the companies. Those Amway stores will remain under the new program, Zeiger said. The model has worked well for Amway China, which has 140 shops with 180,000 sales representatives selling more than 160 products.