CASE B-6: AMWAY INDIA
Assignment Presented to
Dr. G. N. Braithwaite-Sturgeon as per the requirements of
International Marketing ADM4328 M
University of Ottawa
January 22nd 2013
BUSINESS CONTEXT & INITIAL SITUATION
Amway, a North American Multinational, subsidiary of Alticor Inc. has over the years become one of the leaders in the 90 billion dollar direct selling industry through its use of multi-level marketing and creation of networks of independent business owners and sales. Founded in 1959 by Jay Van Andel and Richard DeVos, the company grew and captivated interest on an international level, especially in developing countries due to its ability to provide entrepreneurship opportunities. Amway’s range of 450 products and services are distributed worldwide in over 90 countries in a variety of sectors such as: wellness, beauty, home care, commercial, insurance, education and nutritional care. India’s growing economy made it one of Amway’s many targeted countries, and, in May 1998, Amway India commenced its business operations.
After 36 million dollars of investment in the Indian market, in 2002, Amway India came under some legal issues when Indian officials and the State Government of Andhra Pradesh registered a criminal complaint against Amway India Corporation and concluded their creation of a chain of distributors was operating against the Act Prize Chits and Money Circulation of 1978. Today, in 2013, Amway has continued its operations within the country and has even expanded into a 100 million dollar colour cosmetic segment. Business is booming but Amway Corporation’s future endeavours within India hang in the balance of its legal conclusions.
Despite the fact that Amway Corporation has experienced tremendous
international success, they are now facing legal concerns in India with respect to their direct sales practices. These legal issues tied to the creation of a chain of distribution that may be in violation of the law as defined in and prohibited by the Prize Chits and Money Circulation Schemes (banning) act of 1978, have the potential to negatively influence their profit margins and bottom line, and in turn, affect the corporations reputation and international brand. All of the Corporation stakeholders are experiencing uncertainty with the company’s future in India.
– Amway’s Starter Business Kits are available at a low investment cost and are fully refundable within 90 days. This along with the corporation’s free and extensive training seminars make it accessible and enticing for potential distributors and independent business owners. – Amway Corporation has a large distribution network and international coverage. – Aggressive product launches with products backed with a 100% customer product Refund Policy create an image of low financial risk to the consumers.
– Limited sales approach – direct selling
– Negative consumer perception- impression of pyramid selling scheme – Amway’s is illustrating an ethnocentric marketing strategy; it is using the same strategy in India as it is in the United States with no adaptation.
– The Corporation has a national and international scope because of its ability to provide entrepreneurship opportunities at the micro-level globally – an impressive market opportunity for Amway in the direct sales sector. – India’s economy in booming, increasing disposable income. – There is a large focus on materialistic possessions and beauty in Indian
women within the country’s urban and metropolitan areas, making it easy for distributors and IBO’s to sell a variety of Amway products.
– Legal policies change from one country to another; India’s laws could prevent Amway to continue its operations in that particular country. – Government policies can change at any moment and inhibit the ease of operation in a specific market. – Little to no control over the marketing and sale of their products: Independent business owners have a lot of freedom to make those decisions. – Competitors such as other multinationals or corporations (Ex: Avon and Mary Kay) create threats for market share.
Option #1: Planned Exit of the Indian Market & Exploration of Other Potential Markets. Main Pros:
– If Amway were to implement a planned exit of the Indian market, it could sell off its current existing products while they still were able to execute business within the market and not experience any unexpected losses. – Amway Corporation would not have to spend additional time, effort and money in legal litigations and negotiations. – The corporation’s time could be focused on exploring other potential markets within neighbouring countries with fewer legal restrictions on the distribution of their products. – If neighbouring countries are tapped, the existing investment in India’s manufacturing plants and machinery can still be used for fabrication of products for neighbouring countries.
– Neighbouring countries could present little to no interest in adopting business practices from Amway Corporation, or could present little to no profit for the company due to the varying national economic situations. – Loss of the 36 million dollar investment (including the 17 million state-of-the-art manufacturing facilities invested in India. – Extremely large loss on potential profits in that particular market. – Loss of direct and indirect jobs for the Indian citizens.
– Failure in such a large market could harm the company’s image within the minds of the consumers.
Option #2: Continue Business and Expansion in India
– The company could continue making profits within the country while fighting the legal battles. – Little to no research or change needs to be made to the business model or marketing strategy. – The expansion will create more jobs and revenues, benefiting both India’s citizens and the corporation itself.
– Amway could be forced out of the market if the court supports the government’s view that the corporation is in violation of the Prize Chits and Money Circulation Act. – Product lose is possible if Amway is forced out of business within the country; the IBO’s and distributors could keep all products they have on hand, instead of giving it back to the corporation. – Further investment in legal fees would be incurred.
– Loss of time and human capital would be lost to the investment in winning the legal litigations.
Option #3: Continue Business and Expansion in India with Ethocentrism; define a new marketing or distribution plan for its business in India that complies with the country’s legal constraints. Main Pros:
– The company could continue to operate within the country, maintain its market share. – Amway India would benefit from India’s growing economy and large population. – If Amway had global integration with local responsiveness, they could attain a larger market share and increase sales. – There would be little to no investment on legal issues.
– Amway would have to invest in environmental scanning.
– There would be an initial investment in marketing costs to alter and implement a new marketing strategy. – The new marketing strategy could ultimately fail, leading to loss in marketing investments.
After careful consideration of the options listed above, the recommendation that I would give to Amway Corporation would be option #3; to continue business and expansion in India while developing a ethnocentric marketing strategy – a marketing strategy specific to that country in compliance with its laws on product distribution. It is important for Amway to continue its operations within India as it is a market that presents many current and future opportunities. This option presents the most benefits to the company’s future success within the market and illustrates the lowest risk and least amount of potential loss.
The implementation of option 3# is as follows:
Short term (0-6 months)
Within the short term, Amway India would continue its regular proceedings within the country. It would have to do extensive environmental scanning to develop a deepened understanding of India’s economical, social, environmental, technical, and most importantly its legal aspects. I would also recommend that in the first six months, Amway Corporation should develop further market research, to enable them to ensure a positive corporate image within the minds of the distributors and the consumers.
Medium Term (6-12 months)
Following the research phase, Amway should develop the Indian Marketing Strategy; a strategy that complies within all of the political and legal requirements for sound business practice.
Long Term (12+ months)
Lastly, Amway Corporation will put in place its new Marketing strategy for
Amway India. It will have to monitor its results and make minor changes along the way.
*All information taken from textbook and lecture notes