China unveils plans for direct selling

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Related tags: Sales

The China government has revealed details of new licensing laws for
direct selling - legislation that is expected to herald a huge
surge business for players such as Avon and Orilfame, reports
Simon Pitman.

The government says that its laws, expected to come into force on 1 September, will ensure that representatives' commission will be limited to 30 per cent of the actual sale and that the penalty for fraud will be a maximum fine of CNY 2 million (€2 million).

The government introduced restrictive laws on door-to-door sales after a wave of fraud crime hit the country back in 1998. The laws virtually blocked the entry of foreign businesses onto the market, something that has frustrated the efforts of a number of the larger international direct sales-based businesses trying to tap into China's huge economic and retail boom.

To redress the imbalance, the China government claims that the new laws will provide equal rights for both foreign and domestic businesses, allowing for a more open market.

To comply with the new laws any foreign company wishing to start up a direct sales business must have registered capital of at least CNY 80 million, as well as paying a deposit of CNY 20 million. The government says this move aims to cut out dubious companies with no trading history or capital to back them up.

According to the Chinese press, the laws will also include the prerequisite that direct sales companies must have some sort of high street retail outlet, and can only sell their own brand goods.

Additionally there is also a stipulation that the sales staff must be Chinese nationals aged 18 and over.

The State Information Centre says that, if current government predictions for the economy are realised, it anticipates that retail sales will continue to grow at between 8 and 10 per cent in the period 2005 to 2010. And if estimates for future cosmetics sales are anything to go by, the cosmetics segment will be taking up a large slice of the predicted growth.

Currently the market for cosmetics in China is estimated to be worth $4 billion, but going by current demand experts believe that this figure will have grown ten-fold by the year 2010.

Already tapping into this vast potential new market, Oriflame​ is is constructing a major manufacturing facility in the country, while Avon​ is set to embark on its first foray into direct sales in the country as soon as the law comes into being.

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