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November 01, 2010

Cover Story

An Expanding World of Opportunity

by Michael Rice


Click here to order the Direct Selling News issue in which this article appeared.


More and more U.S.-based direct selling companies are looking abroad to capture the growing demand for new products and career opportunities. Regional markets in Eastern Europe, Latin America and Asia are leading the industry in growth of salesforce and revenue. But this is no zero-sum game: Success abroad does not have to come at the expense of success in the domestic market. In fact, it is quite the opposite. Direct sellers are finding that their expansion into global markets only helps further promote business at home. The excitement being generated in foreign markets fuels enthusiasm for the U.S. business and resonates throughout a corporation’s global salesforce, strengthening brand recognition and motivating distributors. And it’s not just financial gain that makes global expansion attractive. It is the satisfaction that comes with being part of an industry that provides empowerment and opportunity to people who may otherwise have none. Direct selling is a catalyst for self-esteem, personal freedom and—some even say—democracy.

Steady Sales at Home, Strong Growth Abroad

Make no mistake: The United States remains the world leader in direct selling sales volume and salesforce size. Forty-four of the top direct selling companies are based in the United States, and statistics reported by the Direct Selling Association (DSA) for 2009 show the industry bringing in $28.33 billion with a salesforce of more than 16.1 million consultants.

But while these figures represent a 6.6 percent increase in the overall domestic salesforce over the prior year (an all-time high), they also reflect a 4.3 percent drop in sales. The bottom line is that while direct selling overall fared better than the retail sector, where overall sales were down 7.3 percent, this performance continued the sluggishness of the previous year.

An Expanding World of OpportunityEven though the direct selling workforce increased, overall sales in the industry decreased. Unemployment rates inspired people to look for new ways to earn extra cash or to go into business for themselves, but the state of the overall economy took a toll on consumer spending. It is a domestic situation that is described by some as “challenging.” But there is optimism for the future.

“I think it’s tough in the U.S. right now,” says Neil Offen, President and CEO of the DSA. “But, we’ll come out of the recession, our sales will improve much faster than retailers, and we will have a more successful run. We may be a leading indicator heading into a recession and heading out.”

“We may be a leading indicator heading into a recession and heading out.”—Neil Offen, President and CEO, Direct Selling Association

While the United States is experiencing a spate of sluggishness, other markets abroad are red hot. From Latin American markets like Colombia, Peru and Brazil, to Asian markets like Taiwan, Malaysia, South Korea and the Philippines, and former Soviet Bloc nations of Eastern Europe, direct sellers are seeing great promise. Sales are taking off in markets with a growing middle-class population who crave more variety, higher-quality products and an opportunity to take part in a multibillion-dollar industry.

Jack Crowley is a former direct selling executive whose experience includes starting and developing numerous international businesses. He now assists companies that want to expand internationally through the Crowley Collaborative Group. He says the United States is still top dog when it comes to direct selling. But the momentum building abroad cannot be ignored.

An Expanding World of Opportunity

“No single regional market can beat out the U.S.,” says Crowley. “But when grouped together, they are a force to be reckoned with. Latin America, Eastern Europe, Asia… these are regions that are very exciting to the industry right now.”

Vemma, based in Scottsdale, Ariz., says it is experiencing substantial growth in Europe as direct selling gains more credibility there as a viable secondary source of income.

“We are seeing double-digit growth in Europe, year over year,” says BK Boreyko, Founder and CEO of Vemma. “There is a younger generation of Europeans who are open to trying new nontraditional income opportunities. We have also found our social media channel resonating with this younger audience.”
Even relatively mature markets in Western Europe are witnessing impressive growth.

“We are beginning to see some developed countries cut back on their long-established social safety nets,” says Offen. “In countries like France, the opportunity to become your own boss—to create your own retirement account—is inspiring new generations of new entrepreneurs.”

Still, the regions getting the most attention are in Eastern Europe, India, Asia, the Middle East and, of course, China.

Herbalife is a decades-old company that is well-established in 73 markets around the world. The company considers expansion into new markets part of its continued growth strategy.

“As of the end of the second quarter, 2010, all of our regions experienced growth, with the exception of our South and Central American countries,” says Des Walsh, President of Herbalife. “Some of the countries we have been operating in the longest—such as the United States, Mexico and Korea—each experienced double-digit growth, even though they have been open 30, 20 and 15 years, respectively.”

A Snapshot of Direct Selling around the Globe

Direct selling is still strong around the world. As of Jan. 26, 2010, sixteen countries have more than US$1 billion in sales annually through this channel of distribution. For businesses looking to expand internationally, these are the markets to watch.

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Currently, about 80 percent of Herbalife’s revenue originates in foreign markets. Walsh says that Herbalife can attribute its international success in part to the nature of its product. Poor nutrition and obesity are problems found at home and abroad. As developing nations around the world seek out the conveniences of the modern world, they are also more likely to neglect their health and adopt poorer eating habits, consuming more processed and fast foods. Herbalife hopes the solution to these problems is just as universal.

“Nutrition is as diverse as language, yet the principles of healthy nutrition are the same wherever you go,” says Walsh.

The world’s second-biggest direct selling market, Japan, sustained its leading position in Asia with almost US$23 billion in revenue and nearly 1,000 active companies. But the real buzz in Asia is China, which, despite being a challenging market to enter with its high cost of entry (a US$10 million upfront investment) and strict regulatory measures, is proving to be a very attractive market for companies that can afford the admission price. Industry leaders are anticipating 30 percent growth in China in 2010. This is quite remarkable for a market that has only been open to the industry since lifting its comprehensive ban on direct selling in 2006.

According to its second quarter earnings report for 2010, Herbalife increased its year-over-year net sales for the Asia Pacific region by more than 50 percent and over 26 percent for China specifically. It’s active sales leaders increased by more than 36 percent for that region.

Nu Skin, which is currently operating in 50 markets around the globe, says it is particularly excited about its business in China. The company says its success abroad is due in part to its thorough planning and commitment to providing a very high level of support for local distributors.

“We work closely with local government officials to ensure proper product registrations are completed, business licenses are obtained and financial and taxation regulations are met,” says Scott Schwerdt, President of the Americas, Europe and South Pacific at Nu Skin. “There are always obstacles in every country, whether they be regulatory or infrastructure related. But our commitment is still the same—to offer a long-term, stable and rewarding business opportunity for our partners.”

Nu Skin also makes good use of Internet and VoIP (Voice-over Internet Protocol) technologies to maintain a consistent level of support for distributors across the globe. It is a strategy that seems to be paying off. In 2009, about 83 percent of Nu Skin’s total revenue originated from outside the United States, with about 70 percent of total revenue coming from Asia alone. Moreover, according to the company’s Q2 2010 earnings report, revenue in Greater China improved 53 percent for the quarter and revenue in the South Asia/Pacific region was up 60 percent over the prior year.

“We are pleased with the growth we are seeing in Southeast Asia, which has really become the jewel of the Nu Skin empire right now, growing at a faster rate than almost anywhere,” said Truman Hunt, Nu Skin President and Chief Executive Officer, during a Q3 2010 Nu Skin earnings conference call. “We expect very strong growth to continue in this region throughout the remainder of the year.”

USANA Health Science recently secured itself a place in the China market by acquiring Beijing-based BabyCare Ltd. The company believes that by acquiring a local company in China it immediately gained the expertise and infrastructure needed to be successful in that market.

“BabyCare was a natural fit for USANA, given our similar philosophies on product quality, manufacturing standards, and focus on science,” says Kevin McMurray, Executive Director of International Development at USANA. “We’re always looking for new international opportunities. And while we haven’t committed to any particular regional focus, we have been working hard to grow our international business in the Asia Pacific region because of our strong Chinese-speaking leadership base. We continue to look for opportunities in the Asia Pacific region and other areas around the globe.”

Some of those “other areas” are even closer to home. USANA is seeing great potential in its own backyard.

“We’re seeing some upward trends in North America, which we hope to see continue,” says McMurray. “The industry as a whole is seeing some really exciting growth in certain parts of the world, such as Eastern Europe and India. These are, of course, areas of interest for USANA as well as our competitors.”

USANA says that approximately 70 percent of its total sales revenue comes from outside the United States.

“Currently our fastest-growing market is Hong Kong, where sales doubled what they were a year ago,” says McMurray. In Hong Kong, sales have doubled what they were a year ago and account for about 23 percent of total global revenue. And both Korea and the Philippines have increased by more than 25 percent this year, says McMurray.

Springville, Utah-based Neways International is also expanding in Asia. The company has been active in Japan for nearly 20 years but has only ventured into the Taiwan market over the past couple of years.

“We’re growing rapidly in Taiwan, similar to the growth we experienced in Japan in the early 2000s,” says Neways CEO Scott St. Clair. “Malaysia is growing in a similar way. Southeast Asia has a lot of current potential.”

Malaysia currently ranks as the third most successful market in Asia, with more than US$ 1 billion in sales and a salesforce 4 million strong.

“When entering a new market, the path is not set in stone.”—Scott St. Clair, CEO, Neways

St. Clair says Asian cultures are very comfortable with the network marketing business model, which may account for some of the success Neways is having there.

“Typically, North Americans and Western Europeans are not as comfortable with approaching friends and family with a business prospect,” says St. Clair. “But a referral from a family member is highly respected in many Asian cultures.”

When entering a new market, says St. Clair, the path is not set in stone. But Neways tries to work in partnership with local communities and governments. Aside from building its local language resources, Neways seeks to establish a local advisory for each key market. The advisory board typically includes high-level distributors who have some knowledge of the target market.

In what it describes as an unusual move for a party plan company, Scentsy opened its doors to selling and recruiting in Canada in October 2009, allowing its U.S.-based consultants to sell and recruit with our neighbors to the north. According to the company’s website, Scenty’s new Canadian consultants “received training and support from seasoned consultants in the U.S., and U.S. consultants were given an opportunity to grow their businesses.” Scentsy says it saw a profit in Canada in less than three months and had registered more than 1,000 active consultants in Canada by the end of Q1 2010.

The Carefully Considered Culture

While there is no sure way to attain success in a foreign market, industry leaders agree that it is important to understand the local culture and adapt products and business strategies where necessary.

“A company shouldn’t enter a new market just because people are smuggling their products in,” says Offen. “It needs to build a presence and follow the laws of the country.”

Boreyko says it is important to work hand in hand with local leaders when developing a market entrance strategy.

“Your leaders will be your biggest advocates and assets as you enter a new market,” says Boreyko. “One sure way to fail in a new market is to not involve your leadership early on during the development process.”

Many direct selling companies now allow cross-border sponsoring, and this seems to be one factor that is driving international sales.

“Cross-border sponsoring is one of most innovative and creative ways to grow the businesses,” says Offen.

Crowley says that while there is a boom in overseas expansion, some companies are apprehensive about making the jump. And they should be. After all, it’s a big commitment to make and one that should not be taken lightly.

“Companies that come and go leave a poor taste in people’s mouths, and there’s been too much of that,” says Crowley. “A company needs to make some kind of physical commitment to the country and to the people that it will stick around.”

That commitment often includes adapting not only products, but business practices to suit the local market. For example, when USANA entered Taiwan, it discovered it had to deal with some negative press and public perception about its binary compensation plan. So it modified its compensation plan to better suit the environment.

“In Malaysia, we’ve had to make minor modifications to our compensation plan as well,” says McMurray. “There are always slight differences based on laws and regulations, as well as cultural differences and even differences in infrastructure and systems—from banking to IT to payment and delivery. By working with what we have and modifying as much as we can to make it work, we’ve been very successful at adapting to each market in which we operate. The bottom line is, you don’t try to fit a square peg into a round hole.”

“International expansion is expensive and requires a lot of research,” says Crowley. “Translating your story for that market…. There is a lot of risk. Key players in industry have great international presence. The companies that are doing well are the ones that adapt to the local market. The cookie-cutter approach will not work.”

An Expanding World of Opportunity

Benefits Beyond Financial

Like any industry, direct selling thrives on growth and continued reinvigoration. Creating new products that attract new customers and offer more opportunities is critical to a company’s ability to thrive. Global expansion can provide the kind of growth that can fan the flames back at home, too.

“Global expansion generates an exciting story about what is going on with our company,” says St. Clair. “It provides new ideas that we can use to sustain and promote interest in the business. Direct selling is an emotional business and a momentum business. Expanding in new markets generates excitement about the company and promotes further growth.”

But direct sellers are unique in that they provide more than another product to bring to market. It’s an industry that creates industry, provides a livelihood and empowers people to take control of their own lives. These are the intangible benefits that make those in the industry love what they do.

“People need goals, and not all goals are financial,” says Offen. “Ours is an industry that does not discriminate against people in any way. And this is the case worldwide. All we care about is what’s in your heart and what’s in your head. This is a great business we are in.”

It is also an industry that has the potential to deliver more than an income. There are intangible benefits to direct selling beyond financial gain.

“What’s happening in Latin America, Asia and throughout the world is very exciting,” says Offen. “Direct selling is changing lives for the better; providing financial freedom, self-empowerment and promoting free enterprise. Our business is not political, but there is an element of grassroots democracy in what we do.”