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HOW I DID IT

Amways Presidenton Reinventing the

Business to Succeedin ChinaThe Idea: After the Chinese government outlaweddirect selling, Amway repeatedly revised itsbusiness model to build a reputation as anhonorable corporate citizen. In 2006 it receiveda new license, and China is now its largest market

by Doug DeVos

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Amways President onReinventing the Businessto Succeed in China

PHOTOGRAPHY:COURTESYOFAMWAY

When the Chinese government

outlawed direct selling, in 1998,

Amway was already well estab-

lished in China and had built a large-scale

factory there. The company faced a big de-cision: 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 re-

vised its sales model five times to meet

changing regulations. Today China is our

biggest market, accounting for more than

a third of Amways sales.

To understand Amways business in

China and the lessons weve learned by

operating there, its 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 foranyone who wanted to own and run a busi-

ness. Amway doesnt discriminate. We wel-

come everyone, regardless of age, race, re-

ligion, 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, main-

land China, and the Middle East and ask-

ing themselves, What would it take to

After the Chinese

government outlawed direct

selling, Amway repeatedly

revised its business model

to build a reputation as an

honorable corporate citizen.

In 2006 it received a new

license, and China is now its

largest market.

THE IDEA

by Doug DeVos

Doug DeVos is thepresident and co-CEOof Amway.

DeVos, above right,at the 2012 China

Development Forum

April 2013 Harvard Business Review 2

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bring Amway here? What would the busi-

ness look like? How would it fit with thisculture?

Patience and CooperationThat last question has been especially im-

portant. One of the biggest lessons weve

learned as weve grown around the world

is that a true understanding of the market-

place, including the culture, the econom-

ics, the politics, and the people, is essential.

Our strongest resource is always our local

leadership team. Thats the first lesson we

applied to our business in China.

Amway first entered Asia in 1974, withthe 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 re-

mains so today. By the late 1980s more than

half of Amways revenues were coming

from outside the United States. So when

we began operations in the Peoples Re-

public of China, in 1995, wed already been

doing business in that part of the world

for more than 20 years. I was running Am-

ways 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 sellersor, more

accurately, scammers disguised as direct

sellers. These unscrupulous companies

damaged the reputation of the fledgling in-

dustry 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 gov-

ernment pursued was extreme: outlawingdirect selling and punishing legitimate as

well as unethical sellers.

The idea that direct selling could be out-

lawed was incomprehensible to us. This

method of marketing was the foundation

of Amways businessit 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 like

she advised that we not lose sight of an oportunity: We could cooperate with t

government to help it understand the pro

lems and find solutions to them. Worki

with the Chinese to create good dire

selling legislation would be the right thi

to do for consumers, our industry, and o

business.

A Chinese proverb, loosely translate

says, If you are patient in one moment

anger, you will escape a hundred days

sorrow. Eva was right. We could be patie

We could be cooperative. We could se

solutions to strengthen our industry anprotect consumers. And we could pa

ner with the Chinese government and o

competitors to create reforms that wou

set the stage for our industry to grow an

flourish in China.

A day or two later we had a board me

ing. My family and the Van Andel fami

who remain Amways primary shareho

ers, were all present. Eva reported on wh

we were facing. My father stood up aft

the presentation and said that he approv

of her recommendation to work with t

A New Model in China

Today China isAmways largestmarket, with more than

billionin annual sales.

Tianjin, China

HOW I DID IT

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government and that he wanted to stay the

course. Everyone else agreed.

A Nearly Complete OverhaulThat 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

isnt simply about the products or the sales

channel; its 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 Chinas con-ventional 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

companyproviding a business opportu-

nity based on core values of partnership, in-

tegrity, and personal responsibilitywould

never change. But even as we preserved

those essentials, we could change our

operations to accommodate Chinas new

regulations.

We chose not to go to Beijing to com-

plain. Instead we asserted that Amway and

the Chinese government were in the same

boat, that we fully understood the prob-

lems that unethical direct-selling compa-

nies were creating, and that we supported

the governments 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 inves-

tors alike.There was almost an art to addressing

these challenges. We would have to cre-

ate physical storessomething wed never

done before. That meant selling products

to people who came in off the streetagain,

not our usual way of doing business. Typi-

cally, when we enter a new country, we im-

port products from the United States. But

for China we would manufacture goods

there. We had to change our entire distribu-

tor compensation system. And because we

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couldnt rely on the word-of-mouth mar-

keting that drives direct sales, we chose todo brand advertisingsomething else wed

never done up to that point.

In short, we had to overhaul nearly ev-

erything we did.

Honorable CorporateCitizenshipTrust was vital, both internally and exter-

nally, and this was an important third les-

son. 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 wasnt alwaystime to walk everybody through every

detail.

During and after the regulatory transi-

tion, 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 busi-

ness that was creating economic opportu-

nities for Chinese families. We believed in

direct selling, and we believed in our busi-

ness 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 recog-

nized 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 lead-ers 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 legis-

lation 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 CourseLooking back, I see how important it is to

build a business by taking the long-term

viewthe fourth lesson we learned. Were

in this business for generations. That a

plies not just in China but in all our marke

As my dad suggested, we stayed the cour

We did what was necessary, even if it som

times felt like taking a step backward. W

were humble without becoming weak. An

we kept working hard, because providi

opportunity to people all over the wor

from all walks of life, is the right thing to dThe rules in China are still unique. T

way we operate our business and compe

sate our sales force there is very differe

from what we do in other parts of the wor

But weve learned a lot, and our revis

business model is working. It has esta

lished our industry as a respectable part

the Chinese economy. And today China

our largest market, with more than $4 b

lion in annual sales.

Although the changes we made to

main in China seemed like a big leap at th

time, weve since exported some of tho

ideas to other Amway markets. For exa

ple, physical locations are now a strateg

initiative for us in many regions. Althou

we dont have traditional stores in t

United States or Latin America, we do ha

what we call mobile brand experience

in those markets, in which we showca

the Artistry (skin care) and Nutrilite (

tamins and dietary supplements) bran

with customized tour buses on display

various events. In Europe we have Amw

brand and training centers. Being forcedchange our model in China helped us re

ize that we need to regularly adapt to su

ceed in different markets.

By understanding the market; stayin

true to our mission; building strong, tru

ing relationships; and taking a long-ter

view, Amway weathered the storm of

direct-selling ban and emerged as the m

ket leader. My father and Jay saw that p

tential, and were very glad they did.

HBR Reprint R

Our revised business model is working. It has

established our industry as a respectable partof the Chinese economy.

HOW I DID IT

5 Harvard Business Review April 2013

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