24/06/2009 Financial Express : Downturn fuels…

Close Window

Print Story

Downturn fuels direct sales

Kavitha Venkatraman, B V Mahalakshmi
Posted online: May 14, 2009 at 2356 hrs

The Rs 3,500-crore Indian direct selling industry, which employs over 1.5 million entrepreneurs, is
unfazed by the global slowdown. The effect of the downturn has prompted many industries to revamp
their marketing activities. However, it has opened up a room of opportunities for direct marketing
companies to grow even at this juncture.

The industry is currently growing and the annual revenues are expected to reach Rs 5,000 crore by
2012, according to the estimates of the Indian Direct Selling Association (IDSA), a self-regulatory and
promoting body for the direct selling industry in India.

This target seems to be achievable especially when the industry is adding entrepreneurs every day and
more and more American and European companies are finding India as their favourite destination to
expand their businesses. The main reason: India and China are relatively less affected by the
slowdown. India is also better placed as the industry is still in its infancy, offering a bigger scope for
business, say industry experts.

Direct selling started in India only 15 years ago. Global direct selling market is at least six decades old
and a $110-billion business with 58 million direct salespersons in 165 countries. Presently, the US is
the world leader followed by Japan and Mexico. Even Brazil, Russia and China have higher turnover
than India.

Interesting examples substantiate the growth model. For instance, Tupperware, one of the leading
direct selling companies with the largest women’s network, markets premium food storage,
preparation and serving items. The company forayed into the Indian market in 1996 and is today a
household name.

Oriflame, another direct selling company, which offers a wide range of high-quality beauty products in
the personal care and skin care segment, forayed into the market in 1995. Amway India commenced
commercial operations in 1998 with just six products. But today it is a household name and offers over
100 products covering personal care category including cosmetics, home care category, nutrition,
wellness category, commercial products etc.

*Impact of slowdown

According to experts who follow the industry closely, during a downturn phase which is plagued by job
cuts and salary roll back, the number of entrepreneurs joining the direct selling market as agents and
people who take up this profession on a whole-time basis is increasing in the country. They attribute it
to the slowdown and job cuts, which has suddenly made a growing pool of educated manpower
available to work as sales agents .

Says Asha Gupta, MD, Tupperware, “Recession has impacted all the sectors of the world economy, but
the direct selling industry has seen a positive impact. More people have shown their trust in the industry
as a route to earn supplementary income to support their households. In this economic turmoil, people
are seeking alternative or additional income opportunities and direct selling is undoubtedly a great
income opportunity. The percentage of women joining our company has increased in the recent times.”

Sunil Tolani, GM, Hindustan Unilever Network (HUN), which is the direct selling arm of HLL, also says
that the economic slowdown has not impacted the industry but has instead helped the direct selling
industry in many ways. It provides people with a supplementary source of income without a heavy

financialexpress.com/…/458800/ 1/3
24/06/2009 Financial Express : Downturn fuels…
monetary investment. For example, in HUN people can make additional income with an investment of
just Rs 2,950 including the subscription fee and by working for only three hours a day.

On a similar note, William S Pinckney, MD and CEO, Amway India, adds: “The industry has not been
impacted by recession as yet.”

Fredrik Widell, MD, Oriflame India, also explains that the slowdown had not yet impacted the industry.
“The industry has grown exponentially over the last decade and will continue to grow in the coming
years. The market has matured over the years. The industry has created a lot of job opportunities for the
jobless and the recession has only made people take this industry more seriously,” he says. During
the first year of operations in India, Oriflame had only 10,000 direct selling agents (DSAs). Now it has
nearly 1,20,000 DSAs.

IDSA officials point out that the economic slowdown has made a dent on the purchasing power.
However, the direct selling industry by way of providing gainful business opportunities to self employed
people has created a niche for itself. In fact, pink slip employees are now joining direct selling
companies to combat the recession. The direct selling opportunity would easily qualify as one of the
world’s lowest cost franchises, with a similar product or service proposition as any other conventional
business plan. This is the reason why direct selling has grown constantly during the past decade. Even
in the present downturn, there has been no attrition in the business. Slowdown or otherwise, direct
selling offers gainful employment opportunities.

*Growth driver

In 1998, the direct selling industry in India was around Rs 895 crore. Over the years, it has grown in
proportion and is today valued at Rs 3,500 crore. Pinckney points out that the number of agents in the
direct selling industry has also witnessed a steady growth and the total number of direct sellers in India
stands at about 1.5 million as against about 8 lakh in 2000.

Says Asha Gupta of Tupperware, “Direct selling and plastic usage in the kitchen were both a new
concept for customers in the earlier days. It took some time and effort for us to get acceptability. Today
Tupperware has a strong brand recall and we have been able to acquire a decent market share.”

IDSA, which is only 12-years-old, has 16 members as of date including major players like AMC
Cookware India, Amway India Enterprises, Avon Beauty Products India, Herbalife International India,
Hindustan Unilever, Modicare, Oriflame India and Tupperware India. The association also claims to
have received about five queries from foreign companies in the past two months for setting up
business in India.

*Challenges ahead

The biggest challenge for the industry at this stage is to promote the establishment of a strong
regulatory direct framework in India in line with the regulations available in countries like the UK, the
US, Singapore, Malaysia and Japan. Besides, there is a need to curb an increasing tendency of
unethical players entering the segment. Players in the fray are coming together to promote awareness
about ethical direct selling practices and discourage pyramid selling schemes. In fact, all direct selling
companies air a common view on having a stringent regulatory framework to govern the direct selling
industry in order to safeguard the interest of customers. Also, a book of code of conduct clearly defines
the boundaries needed.

Pinckney of Amway India admits that the growth in the direct selling industry has also brought with it
some baggage in the form of fly-by-night operators and fraudulent operators who masquerade as
direct selling companies. “This happens due to the absence of legislation and guidelines for this
booming industry. Our appeal to the government is to enact a legislation or at least lay down some
guidelines clearly spelling out what constitutes a genuine direct selling opportunity,” he says and adds,
this would help all those who are aspiring to take up to the opportunity but are sceptical because of the
fraudulent operators going around in the guise of direct selling.

*Competition

financialexpress.com/…/458800/ 2/3
24/06/2009 Financial Express : Downturn fuels…
The direct selling market in India is at an inflection point and it needs more organised players to come
in to accelerate market growth. The Indian market has a huge potential for direct selling companies.
There is a lot of space for the new entrants. It is imperative that the companies understand the pulse of
Indian customers and provide them the products best suited to their needs and preferences.

“In the Indian direct selling space, Tupperware does not have a very close competitor,” says Anshu
Bagai, marketing director of Tupperware. Says Pinckney of Amway India, “Competition is good. It
makes everyone improve products, services etc, and the consumer has several options to chose from.
So, we’re looking forward to their entry, and yes, there is definitely scope for more players.” Widell of
Oriflame airs a similar view. “Competition is welcome in the direct selling industry. And the market is
big enough for more players,” he says.

Even at a time when the whole economy is crying about financial crisis and the impact, direct selling
industry is taking pride in generating employment and providing supportive income for the family as a
whole. The industry also welcomes competition with open arms as there would be more players in the
industry. This would increase the size of the industry besides expanding the product basket. However,
companies have to ride on the pillar of quality for longer sustenance in the market. In the process, the
industry needs to be backed by supportive measures by the government in the form of regulatory
framework and its strict implementation.

*Career option for women

For Ramulamma, aged about 40 years, the way of life was different before she got into direct selling of
certain products. When her husband left her 30 years ago, she, along with her two kids, were left to
fend for themselves. But perhaps little did she realise that by selling detergents, she could manage to
meet the education expenses for her two kids. Though a tedious job, going from door-to-door, she is
part of multi-level marketing business and her hands are full with loads of fast-moving products and
she earns close to Rs 5,000 per month.

Direct selling provides women an opportunity to earn a supplementary income at their convenience. It
gives them the freedom to work when they want to while making them financially independent. Women
are more adept at selling products like home care solutions, personal care, cosmetics and some
nutritional products as well.

According to statistics, globally, about 60% of those engaged in direct selling are women. “In
Tupperware, we have all women salesforce from varied backgrounds. Direct selling is an apt career
option for the Indian woman who wishes to create the perfect balance between family and profession,”
says Asha Gupta of Tupperware.

So, is the case with HUN. About 40% of the distributors are women and the number is growing rapidly.
A majority of HUN’s women partners use this supplementary income for investment in their children’s
higher education, and buying white goods for their households and families.

“Oriflame being a cosmetics selling company has more women DSAs. Nearly 90% of our agents are
women. It is a good career option for both men and women. In fact, when Oriflame came into the
market, the first catalogue had only 53 odd products but today we have 700 products in personal and
skin care segments. We plan to add 400 more products during the year 2009 across the cosmetic
segment,” says Widell of Oriflame.

financialexpress.com/…/458800/ 3/3