A research study submitted in partial fulfillment of the requirements for the degree of Master of Business Administration, School of Management

Direct selling was first introduced to China by Avon Products Inc. in late 80s. Since then, this new business model prevailed quickly in the Chinese market and China attracted more and more direct sellers, with its fast growing economy, increasing purchasing power and huge market demand. However, unlike in the other markets, the business didn't go well in China, the trickiest market called by many direct selling companies. Because of the widespread emergence of fraudulent sales schemes, direct selling started to arouse many arguments and wide public attention in China since late 90s. In order to prevent further social disorder and consumer losses, the Chinese government banned all the direct selling activities in 1998. Only licensed direct selling companies were allowed to continue their business in China, but they had to change their direct models to retail outlets plus salespersons model. Many people expected there would he a continuing decline in the business primarily focused on the direct distribution model after the ban, however, the reality is different. Many companies successfully converted their business models to adapt to the external business environment in China. This research paper aims to analyze the direct selling environment in China and provide recommendations for foreign companies entering the Chinese market. Firstly, the paper gives related definitions of direct selling, and then presents the overview of direct selling business in both global and Chinese market. This paper also reviews the different stages of direct selling's development in China and discusses the reasons of 1998's ban on the industry. Then it reviews the experience of two leading foreign companies Amway and Avon in the transformation process of their business models. Their experience is related to China's cultural, demographic, economic and political environment. The discussion of findings and recommendations will help foreign direct selling companies enter the emerging Chinese market and improve their marketing performancc for the longtern growth.

Research report (M.Sc.) - Asian Institute of Technology, 2005