Mark-e-Dir: Bringing Market to Consumers Wednesday, 17 th April, 2013 New Delhi

1. Panel Discussion on International Regulation Richard Holwill, Vice President- Public Policy, Amway India Enterprises Pvt. Ltd. Mark-e-Dir: Bringing Market to Consumers Wednesday, 17th April, 2013 New Delhi

2. “MARK ‘E’ DIR –Bringing Market to Consumers”Identifying Problems –Tailoring Rules to Prevent Problems Richard Holwill Vice President – Public Policy Amway Corporation

3. The WFDSA Code of Ethics • A consensus document setting out standards of conduct for companies and salespeople. • Member companies MUST comply. • Has “Extra-Territorial Effect” • It applies to DSA Member Companies in India.

4. Regulatory Trends Country Regulations track the WFDSA Code. • Originally, designed to protect CONSUMERS. • Now designed to protect DISTRIBUTORS. • This B2B focus recognizes that distributors are consumers of a BUSNISS OPPORTUNITY: • Minimal Investment; • Money-back guarantee on unsold inventory; • Prevent exaggerated earnings claims.

5. Drivers of the Code and the Law • Recruiting Scams • High-pressure sales and Recruiting. • Inventory loading. • False earnings claims. • Corporate stability. • Restitution.

6. Preventing Recruiting Scams • Also known as Pyramid Schemes. • No payment for the act of recruiting. • Recruit 100 people but no one makes any money unless and until someone sells product. • Bonus payments to “Upline Distributors” must be linked to product sales.

7. Addressing High Pressure Sales and Recruiting • Contract May be Cancelled within 14 days of initiation. • Company must provide a 100% refund for: • Enrollment fee; • all product; and, • training materials. • Different buy-back rules apply beyond the cooling off period.

8. Attacking Inventory Loading • Inventory buy-back provisions imposed to let distributors resign and return product within one year of purchase. • Buy-Back must be stated in both the contract and promotional literature. • Restocking Fee may not exceed 10%. • Must includes sales kits if a sales-kit purchase is required. • Must include training material.

9. False Claims The WFDSA Code states that: • Companies and salespeople cannot “engage in deceptive....recruiting.” • No statements “likely to mislead.” • No misrepresentation of “actual or potential sales or earnings.” • The Code relies on a “reasonable man” standard to determine if a claims is likely to mislead.

10. Enrollment Fee • Allowed to off-set administrative cost of a new contract. • Must be a minimal amount. • Needed to distinguish a distributor from a customer. • Without it, impossible to compute average distributor income. • Refundable in cooling-off period.

11. Corporate Stability Confirming the Promise • Companies promise to “buy-back” inventory. • Can they really do so? • Some countries are satisfied by examining a company’s paid in capital. • Malaysia requires a license for direct selling companies. • Still other countries require companies to post a bond adequate to cover outstanding sales.

12. Concerns in India We also hear very specific concerns in India • Quick and Easy Money. • Compensation systems. • Product Prices. • Cultural considerations. • Resolution of complaints. Restitution of loss.

13. Quick and Easy Money The term is used in the Prize Chits Act. • The regulatory solution must consider two cross-cutting concerns. • Is this Quick and East Money to the Company? • Could be addressed by limiting enrollment fee to a de minimus amount. • Without a Fee: • No distinction between consumers and distributors. • Impossible to document distributor income. • Government must allow an “Enrollment Fee” without judging it to be quick and easy money to the Company

14. Compensation Systems • Direct selling companies out-source sales and sales-management. • Value of sales-management services must be based on and paid from product sales. • Must include opportunity for upward mobility. • New distributors can “break-away” and become financially independent of the sponsor. • Commission percent increases as the volume and value of products sold.

15. Product Prices Why do product prices seem high? • Is price used to trick distributors? • Are distributors buying product to earn a higher percentage bonus? • Products dumped in a secondary market are an indication that they are overpriced. • Products must meet the test of the marketplace. • The value of a product can be proven only by the price it commands in the market. • If it sells at distributor prices, that price is justified.

16. Cultural Concerns Does direct selling conflict with “Indian” values? • Does direct selling push a distributor to “abuse: relationships with family and friends? • Consider the case in Korea. • Confucian Ethics oblige family to “honor” a request from a relative. • Amway’s response: The relative has an obligation to sell only products that are the highest quality. • Amounted an internal campaign to stress this aspect of Confucian Ethics. • Amway is now listed as among the most respected companies in Korea.

17. Resolving Complaints & Restitution of Loss • Companies are eager to resolve complaints. • Cannot do so if they are unaware of them. • Use the IDSA Code Administrator to: • Record the complaint and notify the company; • Demand restitution from the company; and • If not forthcoming turn the matter over to governmental authorities. • Many countries have similar procedures for complaints that go to authorities. • Such a policy could work in India.

18. What Next For India? • The Union Government sees the problem. • The Prize Chits and Money Circulation (Schemes) Banning Act, 1978. • Not intended to address product sales systems. • Internal Trade is the purview of States • State guidelines and regulations are useful; • But don’t adequately address the investment aspects of direct selling. • Ideal Solution: New legislation defining and regulating direct selling and direct selling compensation systems.

19. Countries with Direct Selling and/or Anti-Pyramid Specific Laws

20. Thank You For Your Time