Lessons From China: How Rolling With a Regulatory Setback Turned Into a Win-Win for Amway’s Steve Van Andel

Amway was not a novice to Asia, having already developed flourishing outposts in Hong Kong, Malaysia and Japan. Its business model—recruiting independent business operators to personally market its health, nutrition, beauty and home-care products to consumers—seemed to translate well wherever the company chose to bring it.

Such was also the case, at least at first, in China. Three years into the effort, Amway China was a rapidly growing $200 million operation for the Ada, Michigan-based company. Then, virtually overnight, the government enacted a game-changing ban on direct sales, a move that threatened to derail Amway’s fastest-growing market. Various reasons—ranging from preventing fly-by-night scams to concern that the motivational meetings and door-to-door sales efforts typically employed in direct selling could be used to incite political unrest—were given for the drastic measure. Whatever the true cause, Amway China was now at a crossroads.

“Today, China is Amway’s largest market, accounting for more than $4 billion of its $11.8 billion annual revenue.”

To continue to operate in China, the company would be forced to overhaul the direct-sales business model that had long been its primary differentiator. Traditionally, Amway’s representatives—or Independent Business Owners (IBOs)—made money not only by selling the company’s products directly to consumers but also by recruiting and mentoring other people to join the IBO team. By squashing that compensation structure, the regulation in China was attacking the company’s very core. “They said, ‘Look, you’ve got to have physical stores if you want to be here,”’ recounts Steve Van Andel, chairman of the company and the son of one of its founders.

Amway was then, and still is today, primarily owned by the families of its two founders, Rich DeVos and Jay Van Andel. After some deliberation, the families decided to persevere, working within the new regulatory requirements to continue to operate in China.

The decision proved prescient—and continued to be so even after China gave Amway a license to return to a direct-selling model in 2006. “We opened stores as a requirement of being there, and as a result, we found out something surprising,” says Van Andel. “We discovered that our business owners loved it.”

Rather than seeing the stores as competition, Amway’s IBOs embraced them as places where they could bring customers to see the company’s entire line of products in person. “The great thing about the stores is that they’re not so much places where people are going to actually go to buy products—although you can buy products there—as they are brand centers,” says Van Andel. “Our business owners take prospects there to see what we have and to show them the opportunity that becoming part of Amway can offer. It gives them credibility.”

Today, China is Amway’s largest market, accounting for more than $4 billion of its $11.8 billion annual revenue. What’s more, the company has taken the “experiential store” lesson to heart, literally opening up shops around the world. “We’ve expanded the concept to the point where we have about 1,000 stores,” says Van Andel. “Our business owners love them; they love bringing people there.”

Jennifer Pellet :As editor-at-large at Chief Executive magazine, Jennifer Pellet writes feature stories and CEO roundtable coverage and also edits various sections of the publication.