Hopes it would prompt new regulatory guidelines, lead to clarity in the sector and drive out fly-by-night operators.
The action against Speak Asia, the online survey company, has been welcomed by direct selling players. They are hoping the government will now formulate new regulatory guidelines for the industry.
These direct and multi-level marketing companies have long been in need of a clear-cut definition and a regulatory framework, which could legitimise and differentiate them from other fly-by-night operators. So far, companies like Amway, Oriflame, Avon, Tupperware, Jafra Ruchi, Modicare and Mary Kay have been following the code of ethics laid down by an autonomous, self-regulatory body called Indian Direct Selling Association (IDSA). This association acts as an interface between the industry and policy-making bodies to take up issues concerning the direct selling industry.
IDSA secretary general Chavi Hemanth said, “We have long been requesting the Ministry of Commerce to frame a clear definition of a direct selling company to bring out clarity in the industry. The way the Department of Industrial Policy and Promotion (DIPP) had formulated a detailed wholesale policy in 2010 and set FDI limits for retail in 2005, why can’t we have a similar policy for the direct selling industry as well? We need the government to come out with a policy to regulate the industry.”
The Speak Asia controversy has raised doubts over the modus operandi of other direct and multi-level marketing companies that have been flourishing in India for 15-20 years.
Speak Asia used to reward its members for filling its surveys and referring more members to join them. The direct selling industry has defended its stand by arguing that its working model is entirely different from that of Speak Asia.
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Yoginder Singh, senior VP, legal and corporate affairs, Amway India and chairman of IDSA, said, “One can differentiate a legitimate company from an illegitimate one based on three factors. One, we have a money back guarantee scheme wherein if a consumer is not satisfied with the product or service, he can approach the distributor and get his money back within a stipulated time. Secondly, we offer a commission only on product-driven sales and not on referring more people to join the company, unlike fake companies, and thirdly, we follow the industry’s model code of ethics.” The companies have to be registered with the Registrar of Companies (ROC) appointed under Section 609 of the Companies Act to qualify for membership of IDSA.
Hemanth says, “Legitimate companies do have an exit policy and refund the investment within a reasonable time. Also, the cost of entry is reasonable unlike that for illegitimate operators, whose cost of entry is extremely high. The business opportunity offers a range from Rs 250 to Rs 6,000, not more than that. One can only earn a retail commission of 5-20 per cent depending on the product or service, but they don’t get a single rupee for referrals.”
The Indian Council for Research on International Economic relations (ICRIER), an autonomous non-profit research organisation, had come out with an academic report in March, 2011 on the socio-economic impact of direct selling on consumers, emphasizing the need for a policy.
“In the absence of any stringent law in this sector, many dubious companies find an easy way to enter India and profit. The government should fix a threshold limit of investment for these companies and gauge their long-term plans to operate in India. This would measure the intentions and interests of the company and protect consumers from any deception,” contends Hemanth.
Till date, only 17 companies are enrolled with IDSA, including Amway, Oriflame, Tupperware, etc. A member of IDSA said, “Whenever any such controversy arises, the whole industry comes under the scanner and the reputation is at stake. If there could be a single window to streamline the current entry routes, protect consumers’ interests and support the growth of genuine direct selling companies, fake companies would never be encouraged to spread their operations in India.”
The direct selling industry has been growing at a healthy rate of 20 per cent over the last few years. IDSA claims to be following stringent entry laws for any company in the association. “We will defend this business to the best of our ability and make sure that members do abide by the law. Most of the companies are more than 10 years old and are performing well. Only a few like Mary Kay and Jafra Ruchi have joined recently,” said Hemanth.
These companies have to pay a non-refundable membership fee of Rs 75,000 to IDSA at the time of joining. Once the company becomes permanent after three months, it is entitled to pay a certain part of revenue to IDSA every year, depending on the turnover.