The United States Needs to Implement China's Direct Sales Laws

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I have been writing about multilevel marketing for almost a year now, and I would like to think I have become somewhat proficient talking about the subject. Similar to politics, there are two main points of view with a select few caught in the middle. On the one side you have the distributors that believe the company they sell for has a proven track record with a successful business plan. To those people, anyone that fails to make the program work does so due to two main reasons. Either they did not put in the effort, or they just were not meant for selling merchandise. On the other side of the argument you have people like me, and ex distributors that tried and failed. To think that all ex distributors failed due to lack of effort on their part or because they lacked marketing skills is almost ridiculous. I dare say it is insulting. People like me study the marketing strategy, and have read the analysis from professional forensic accountants such as Tracy Coenen. The end result every single year is the same. Almost all of you fail within a year. Why then does the United States continue to promote MLM when other countries such as China do not?

I would like you to take a look at this Power Point created by Lehman, a law firm located in Beijing China. I believe you will have a better understanding of how things are different over there compared to the United States. In the United States, companies such as Advocare do not have to train their distributors or ensure that they are licensed. They do not have to worry about getting in trouble for endless multilevel recruiting. That is not the case over in China. According to Lehman, laws have been implemented to minimize, or make endless recruiting more difficult, and harder to get away with.  I am going to give you a basic breakdown of the law.

In China, sales to end users are referred to as direct selling and are governed by “The Regulation on Direct Selling Administration”. Direct selling is defined, according to the Power Point as:

 “Article 3:

For the purposes of these Regulations, the term “Direct Selling” means a form of distribution by which a Direct Selling enterprise recruits Direct Sellers to directly market products to end consumers (hereafter, the “consumers”) outside the fixed business premises."

Notice in article 3 above, the company (enterprise), is allowed to recruit direct sellers, and direct sellers sales are to be directly to the consumer. There is nothing in there that indicates the need to recruit others. China also has what they refer to as a mandatory information gathering system. Each company has to maintain a total of all direct sellers and maintain a record of each seller with the following information:

1.    Name of Each Direct Seller

2.    Direct Sellers Certificate Serial Number

3.    Occupation of the Direct Seller

4.    List of All Former Direct Sellers

As you can see, China requires each company to train all direct sellers, and issue them a license. They are also required to provide the names of each person assigned to training the direct sellers as well as the material being used and the reasoning. China has implemented rules and regulations that I believe would intuitively convey a strong message that MLM is not an acceptable practice. But they did not stop there. 

In 2005 China implemented a law specifically directed towards multilevel marketing and pyramid schemes. The following is a direct quote from the power point.

“Acts Constituting Pyramid Selling under the law:

Organizers or operators sponsor persons and force the sponsored persons to sponsor other persons, and calculate and pay the remuneration based on the number of directly and indirectly sponsored persons; and

Organizers or operators sponsor persons, and force the sponsored persons to pay entry fee or pay entry fee in a disguised way such as the purchasing of products to qualify for the program; [Starter-Kits]

Organizers or operators sponsor persons, and force the sponsored persons to sponsor others to build up an up and down line relationship, and calculate and pay the remuneration to up line sponsors based on the sales of the down line”.

I believe it is clear that China does not want any type of commissions based on recruiting. With that, it appears that the traditional use of an entry fee or starter kit is also prohibited. They have also implemented laws that ensure violators will be punished. Article 224 clearly prevents inventory loading, recruiting, pay fees, or the purchase of a starter kit or face less than 5 years in prison, criminal detention, and a fine. If the offense is serious, sellers or enterprises could face more than five years in prison, and a fine. 

Just when I thought China filled the jar and put the lid on it, I read something that completely caught me off guard. They have a section within the law that controls who can work in the direct sales industry. This is something I have actually thought about in the past, but never wrote about it. Well, not really. The following people are prohibited from the direct sales industry.

1.     Under the age of 18

2.    Persons that have no, or limited capacity for civil acts

3.    Enrolled fulltime students

4.    Teachers, Medical Practitioners, Civil Servants, and active military

5.    Official employees of the direct selling enterprise

6.    Foreigners

7.    Persons that are forbidden by law or administrative regulations to hold concurrent posts

Those of you that have read my articles know that I expressed concerns before about teachers selling products, and how Advocare has started a campaign directed towards youth coaches. If we were to implement some of the laws from China, I believe the Federal Trades Commission would have an easier time maintaining control.  

I have to be honest with you. I am seriously contemplating drawing up a multilevel marketing statute that I believe should be implemented in this country. Right now, the way things are going in the United States companies such as Advocare will continue to use deception, and the court system to get away with their secret agenda. I mean, let’s look at the facts. 

1.    Advocare has products people want

2.    Many people join to use the products (discount)

3.    Distributors and Advocare use deceptive brainwashing (not all)

4.    More than 98% fail every year

5.    Any money made from Advocare requires recruiting

6.    No real proof 5 receipts rule works and easy to get around

7.    No real proof buyback rules are effective

I could probably keep going adding things to the list, but you get the point. If we implement laws that completely remove the ability to recruit from the direct sellers, part of the problem is solved right there. Each company should also maintain a record of all distributors and provide some type of training. That would include a total of all distributors. That way everyone will know when they join how many active distributors there are and how many are located in each area. I personally am not against certain companies such as Advocare providing a starter kit. Sometimes it helps to have products to display. The Federal Trades Commission can maintain records of each of the companies.

 I do not believe forcing companies such as Advocare to focus on selling and less on the fake training they call success school will hinder their business. Instead of increasing the product 3 times the amount it is worth just to pay commissions for recruiting, sell it cheaper and pay commissions based on performance. Incentivize the job not the recruiting. I believe you would find that only people that are interested in direct selling will apply for a license, and all the others will still purchase the products. I think I am going to end it here for now. My next move is to find someone in Congress that is willing to sit down and put common sense ahead of some fictitious idea that the market will crash if we put an end to this idiotic endless chain of recruiting.

Please, I am truly interested in hearing everyone’s thoughts on this subject. Tell me how you would feel about implementing some of China’s laws. 

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