Amway: The Untold Story

Violation of norms leads to review direct-mkt cos
Veeshal Bakshi
Financial Express
Copyright (C) 1999 Indian Express Newspapers (Bombay) Ltd.;
Source: World Reporter (TM)

New Delhi, Jan 17: The Centre is reviewing the approvals granted to direct-marketing companies following reports that many of them were violating the policy guidelines regarding domestic retail trading.

Some of the companies which have set up shop in India and are under review include Amway International, cosmetics major Avon, Tupperware, Oriflame, and Modicare.

Government sources said that the commerce ministry planned to write to the high commissions and embassies of these companies' countries to verify their track records and gather more information about their business operations overseas.

The ministry will also scrutinies their operations in India. The sources said that some of these companies had set up a complex system of distributors to show that they were only doing wholesale trading to camouflage their retail business. The distributors being appointed by these companies in India are subsidiaries of their distributors overseas.

The Foreign Investment Promotion Board (FIPB) has decided to refer all the direct-marketing proposals to its core group headed by the industry secretary. The group, which also includes the finance and commerce secretaries, is reviewing policy guidelines on foreign direct investment (FDI) in direct marketing.

The decision was taken at a recent FIPB meeting when an application of Appco of the UK came up for discussion. The fate of the company's proposal will now be decided by the group.

The proposal says that the company will provide advisory and consultancy services to Indian companies, and set up 300 offices country-wide for promoting "direct to consumer" sales. The commerce ministry, however, said that the proposal was basically for direct marketing.

The FIPB recently rejected Sunrider's proposal for the second time saying it did not conform to the policy guidelines governing FDI for trading activity.

The US-based Herbalife's proposal is also pending before the board. The company was granted an approval a few years ago but it did not set up its operations within the licence's validity period.

Herbalife approached the FIPB for revalidation of its approval last year. The commerce ministry has, however, not given its nod since the policy and all existing approvals are under review.

The Government sources said that some of the direct-marketing companies' antecedents were doubtful. At least one of the companies whose application is pending with the board has dozens of criminal cases against it in the US and other countries.