Direct selling in Taiwan

The direct sales distribution model is a natural fit in many Asian markets.

So says Stephen Lyttelton who draws parallels between direct selling and the Chinese concept of guanxi or connecting into a network of interpersonal relationships, loyalty and trust among people who liaise, cooperate and support one another.

“Networking amongst friends, family and business contacts is why direct selling is such a successful channel throughout Asia,” he says.

Lyttelton is chief executive of New Zealand colostrum-based health and wellness product manufacturer New Image Group. Since launching in Taiwan six years ago, the company has set up three in-country offices from which it supports a network of around 10,000 local distributors.

Lyttelton’s message resonates with Hong Kong-based NielsenAssociates director Merv Stark who has held senior executive positions in direct sales companies Herbalife, Mary Kay Cosmetics and Avon.

Stark describes Taiwan as one of the world’s most densely populated direct sales markets. Over 4 million of its 23 million people are involved in direct sales. They collectively generate around US$1.64 billion a year.

But he questions whether the personal connections useful in building a direct sales network can be correctly described as guanxi, which, he says, is normally used as an expression in relation to business and government contacts.

He also adds that while Taiwanese people intuitively plug into family, friendships and wider relationships within society – which is very beneficial for direct selling – this is tempered by strict regulations on the importation of product.

“That is particularly the case if you’re trying to import products offering health benefits,” he says. “Most Asian countries make it very difficult to get across the line in that regard. It doesn’t matter if it’s direct sales or not: the sheer financial investment required to get into countries tends to put people off.”

However, Stark predicts the direct sales model will become increasingly popular in Asia as the concept of family binds people together so easily.

“[Asian people] often like to belong to clubs, associations and large groups. Quite often they find a direct sales company is a home for social contact as well.”

Lyttelton told attendees at the recent Taiwan Business Leaders Forum in Auckland, organised by the Auckland Regional Chamber of Commerce, that many New Image distributors in Taiwan have personal connections in Mainland China and are keen for the company to set up business there.

He commented later that New Image has been researching its options in China for some time now. “If we decide to go into China, it will be in the shorter rather than the medium term. We’ll be looking at making a decision about this next year.”

The Chinese Government currently requires direct sales companies to post a US$10 million bond and maintain a retail presence in the country.

Back in 1998, China’s State Council had banned all direct sales in the country. The ban was only lifted in 2006 after heavy lobbying by US companies.

In an article published in the book, Business And Its Environment, David Baron noted the State Council’s 1998 directive had stated that ‘criminals’ had used direct selling to ‘set up sects and cults, spread superstition and carry out illegal activities, affecting the country’s social stability’.

Stark, who had been involved in taking direct sales companies into China, says he can understand the government’s reasoning in imposing the ban.

“In the early years, there was a lot of difficulty with people selling all sorts of strange things through direct sales and taking a lot of other people in: people were selling their furniture and everything else. So the Government had to control the mass rush towards direct selling.

“The multinationals have gone in and, I think, acted quite responsibly. Most of the [more recent] legislation has been centred on trying to limit new entrants – both domestic and international.”

Stark says he does not expect the Chinese Government to drop its bond requirement in the foreseeable future.

He says China is the only Asian country imposing heavy bond requirements and that, ‘generally, Asia is quite open and receptive to direct sales’.

Taiwan is New Zealand’s 11th largest export market. Despite the tough global economic climate, New Zealand exports to Taiwan in 2009 nudged forward by NZ$4 million to NZ$755 million.

At the end of June 2010, Taiwan and China signed an Economic Co-operation Framework Agreement (ECFA). The agreement is expected to boost bilateral trade which already stands at around US$110 billion a year.

China and Hong Kong together already account for around 40 percent of Taiwan's exports.

John Bedkober, NZTE’s international market manager for North Asia, has said the ECFA increases benefits for New Zealand companies interested in entering both China and Taiwan.

Lyttelton says he doesn’t think that’s sufficiently well understood by people planning on going into Taiwan. “There’s a lot more advantage beyond just the Taiwanese market.”

He adds that for New Image, whose strategy involves leveraging new market entry off surrounding countries, the ECFA strengthens yet another option for expansion in the region.

“Our top two country markets are Malaysia and Taiwan. Malaysia is geographically joined to Thailand to the north and pretty much across the straits is Indonesia, so we’re targeting those two countries in the next stage of our growth phase.

“Our current distributors in Malaysia have a lot of contact with both countries.

“And, funnily enough, in Bangkok, Thailand, there are a lot of people of Taiwanese ancestry. They all come from Fujian Province in China originally so there are strong business contacts between the Bangkok Chinese and the Taiwanese, and we’ll be leveraging those as well.”

- by Ruth LePla

Read more

• For information on Taiwan’s economic performance see the country chapter in ADO 2010.

• An interesting article on direct selling in Taiwan published in Direct Selling News.