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Amway Grows Abroad, Sending 'Ambassadors' To Spread the Word
Consumer-Products Firm Is In 42 Foreign Countries: Storming the Philippines.
It's 'Free Enterprise, Man!'
by Yumiko Ono Staff reporter of the Wall Street Journal
MANILA, Philippines - After eight years in Texas, Jose Mari "Mayie" Delgado has returned to his native land on a fervent mission. The 51-year old financial-services entrepreneur has called on old friends, relatives, business contacts and even his barber, urging them to attend an important meeting at the Shangri-La hotel.
The gathering draws a crowd of 200 that spills outside the elegant ballroom. Everyone is craning to hear a speaker on the podium give a thunderous sermon about dreams and success. Soon the crowd is loudly chanting: "Wealthy! Me Wealthy!"
Mr. Delgado is doing his little part for one of the most unorthodox global expansions in business today. His cause is Amway Corp., the Ada, Mich., direct-seller of shampoo, detergent, toothpaste and other household products.
Bypassing the joint ventures and lavish advertising campaigns most consumer companies use to expand overseas, Amway has mobilized its ethnically diverse sales force to return to their home countries and spread the word, missionary-like, to friends and families. The strategy has helped turn the closely held company into a multinational juggernaut with a sales force of 2.5 million hauling in $6.8 billion last year on doorsteps from Hungary to Malaysia to Brazil. Today, Amway peddles its products in 43 countries.
The Philippines, a nation of 68 million with a booming economy and a love of things American, has loomed as an especially ripe target for Amway. So last month, hundreds of Filipino distributors from Australia, New Zealand and the U.S. went back to their homeland to find new recruits. "Ambassadors," these missionaries are called in Amway-speak.
A Future Millionaire
Manila's most elegant hotels have been booked solid with sales-pitch meetings and pep rallies. On one recent weekend, Amway took over Manila's plush Mandarin Oriental Hotel, welcoming about 400 new distributors. Upbeat music boomed and laser beams crisscrossed the stage, as a highflying Amway salesman from the U.S., Mark Hughes, boasted how Amway allowed him to retire from his stone masonary "J-O-B: Just Over Broke."
"Some of you will be waking up tomorrow and shaving the face of a future millionaire!" exclaimed the lanky Mr. Hughes. "Free enterprise, man!"
The goal of these meetings is to get new recruits to buy starter kits of Amway product for $77 a pop, which they then resell, door-to-door, for up to a 30% premium. At one hotel gathering last month, eager new salespeople snapped up 1,500 of the starter kits. Amway expects to have 25,000 distributors here by next spring.
The aggressive overseas strategy is a crucial part of Amway's persistent growth, with foreign markets accounting for about 70% of its $6.8 billion in sales for the year ended Aug 31. Amway's biggest operation is no longer its U.S. arm: it is Amway Japan LTD., a publicly traded entity that rang in $1.95 billion in sales and had net income of $257.6 million, a 22% increase, last fiscal year. Amway's goal is to have overseas markets account for 80% of its sales during the next decade.
What motivates the ambassadors is Amway's juicy incentive system. They are rewarded with a portion of sales generated by people they recruit, or "sponsor." They also get bonuses based on sales by people their recruits sponsor, and so on, even if the recruits are in other countries.
The Amway Elite
Mr. Delgado became involved at the urging of a golf buddy in Houston, and together they helped round up more than 100 other U.S. Filipinos as sales people. A handful flew to the Philippines, at their own expense, with a long list of prospects. Their goal: to become "Diamond Distributors," an elite Amway group with income of more than $100,000 a year.
Now in Manila, Mr. Delgado, a chatty Cornell University graduate, spends his days making the Amway pitch to everyone from waiters to the governor of the nearby city of Batangas.
"You never know who might be turned on about these things," says Mr. Delgado, dressed spiffily in a navy blue suite and red tie. When the governor, an old friend, declines, Mr. Delgado is undeterred: "I'm working on his brother."
Once he gets people's attention, Mr. Delgado and other Filipinos take special care to emphasize that Amway - whose name is short for "American Way" - is quintessentially American. After all, this is a nation that drinks Coca-Cola and wars Nine West shoes, a place where young people sniff at traditional foods like kare-kare tripe stew in favor of McDonald's and Dunkin; Donuts.
During a recent week, Mr. Delgado sends most potential recruits to mass meetings he has helped organize, like the ones in the Shangri-La Hotel. Potentially lucrative prospects get the royal treatment: One muggy morning in the smoky Cafe Rizal, named for the Filipino hero imprisoned for speaking out against Spanish colonization, Mr. Delgado picks at his omelet and preaches the Amway story to a prospect named Mel Thomas. Mr. Thomas is an executive of a Manila-based direct-sales company for financial services. It already has a network of 4,000 salespeople, a gold mine for Mr. Delgado if he can get them to do double duty for Amway.
Scribbling a diagram of Amway's pyramid-shaped network on a piece of scrap paper, Mr. Delgado likens the business to planting a mango seed. "Every day you water it, but nothing comes out." he explains. "But you keep watering it because you have faith. At times, you even shade it from the sun. Then one day, the leaves come out, and your level of faith goes up a notch." Chain-smoking Marlboro Lights, Mr. Thomas asks tough questions about pricing and competitors, and eventually signs up.
Before he left the U.S. in February, Mr. Delgado says he earned just $400 to $500 a month from the Amway business, in addition to his six-figure financial-services job. But now, he says he is considering leaving the Houston financial-services company in the hands of his partners so he can remain in Manila for a couple of years.
Turning philosophical, he says the Amway business, which is cheap to join, could provide new opportunities for Filipinos and even diminish the huge income disparities in the nation.
"For some people, there's a spiritual meaning," Mr. Delgado adds, noting that he began seeing things on "a higher level" after hearing Mr. Hughe's inspirational talks. "For others, it's just about have a big-screen TV," he says.
Delfin "Jun" Flores wants more than a big-screen television set. The Manila pension-fund salesman, who recently sold vitamins door-to-door on the side, hopes Amway will soon give him enough money to open a Subway sandwich franchise and even study the restaurant business in the U.S.
After learning about Amway from two American distributors who came to his church, Mr. Flores decided to attend a meeting at Amway's modest headquarters on Ayala Avenue here. "I dream to go to the U.S.A. I love to be with Amway," says Mr. Flores, dressed for the meeting in black golf shirt, his pocket stuffed with pens for note taking.
Back in the U.S., Amway's reputation isn't always so lovable. It has been the target of lawsuits by disgruntled distributors who say they were pressured to spend a fortune to attend rallies and buy motivational tapes.
Two decades ago, the U.S. Federal Trade Commission investigated Amway for, among other things, over-promising prospects that they would make a lot of money by recruiting others. In 1979, the FTC ruled that Amway wasn't running an illegal pyramid scheme. But the commission fined Amway $100,000 in 1986 for giving its distributors overly rosy projections. The company says that "it was never any intention of Amway to do anything that was inappropriate."
Amway has also had trouble keeping its far-flung distributors under control. In the U.S., Amway is now fighting a 1995 lawsuit by Procter & Gamble Co. which holds Amway responsible for distributors who allegedly spread rumors linking P&G to Satanism. Amway has said it "does not condone the spreading of such rumors."
In Korea, where Amway set up shop in 1991, distributors caused such a stir with their mass recruiting that the government promptly three a handful of Amway managers, including the current Philippines chief, David Ussery, into jail for nine days on suspicion of violating Korea's direct-sales regulations.
Looking back, Dick Devos Jr., Amway's president and son of the co-founder says the missionary style may have created the wrong impression in Korea, though he disputes the government's action. "Because of the number of people involved, an early flurry of activity will occur, but will eventually ease to a more normal situation," he says. The lesson: It pays to massage relationships with local government and business before entering a market.
So last year, Amway flew a delegation of Filipino reporters to its Michigan headquarters, generating some positive press before the Amway army arrived. "out in Ada, it is easy to believe the company is headed for greater things," wrote Nelson Navarro, a columnist for the Manilla Standard who made the trip. Amway also chatted up government officials and had a photo session with President Fidel Ramos.
Amway got its start in 1959, when two entrepreneurs, Rich Devos and Jay VanAndel, began selling a product called Liquid Organic Cleaner from their garage office. International markets weren't a big focus. After dabbling with Canada, the company tiptoed into Australia in 1971 because it was an English-speaking country and "far enough away that if the business failed, my father and his partners wouldn't have had to tell anyone back home," jokes the younger Mr. DeVos.
At first, Amway's overseas strategy was scattered, and sales grew slowly. Even in Japan, its initial reliance on U.S. military serviceman didn't get too far. In the mid-1980's, the two founders considered halting new market openings to focus on the U.S.
But after realizing that the U.S. market was maturing and overseas markets offered more opportunities, Amway reversed course and even speeded up expansion. Since 1990, Amway has moved into 21 countries, helping to triple its total sales.
In the late 1980's it adopted the missionary strategy. These days, distributors play a big part in deciding which markets to open next, says Al Koop, head of Amway's new-market-development team. "They will bring in the cultural sensitivities, and will be able to avoid some of the other challenges for other companies," he says. Next up: Romania, South Africa, and India.
Not all countries have been instant Amway conquests. In places like Turkey, which has relatively few expatriates living in Amway-infiltrated countries, business has started slowly. In Poland, where the notion of self-employment is fairly novel, Amway had to start by setting up entrepreneurial seminars.
China, on the other hand, caused a different problem: So many distributors from Hong Kong and Taiwan rushed to expand their network in China, that their absence caused sales to slump for awhile in their original markets.
In the Philippines, Amway estimates first-year sales will reach between $10 million and $20 million, even though it is starting with only 11 products, including shampoo, detergent and deodorant. It plans to add more products every month and projects annual sales in three ears will reach $30 million and $50 million.
The Filipino market is already teeming with rival direct sellers, including old-timers like Avon Products Inc. and a regional, direct-selling arm of Sara Lee Corp. One company, called Cosway, a unit of a Malaysian-based conglomerated called Berjaya Group, entered the Philippines a year ago with a structure similar to Amway's and already sells hundreds of products, including a water purifier, Amway's secret weapon in other countries. Berjaya says sales for the first year of operations in he Philippines were about $26 million.
Already, rivals are chattering away about the high prices of Amway's products, which are imported from Michigan and typically carry a 30% import charge. Amway's Glister brand toothpaste, for instance, costs a whopping $6.54 for a 150-milliter tube, compared with $1.70 for a similar tube of Colgate. Amway hopes Glister will carry the cachet of an imported American brand, as compared with Colgate's toothpaste, which is made locally in the Philippines. Moreover, Amway says its products are concentrated, making price comparisons difficult.
"Everybody's in a wait-and-see attitude," says Angelo Bernaldo, director of corporate planning and finance for Avon's Filipino office. Another difference: While Avon allows its customers to pay in multiple installments, Amway demands cash up front. Amway officials stress that the cash-payment system protects distributors.
For now, the Amway army is upbeat and looking for opportunity everywhere. Mr. Flores, the pension fund salesman, is even scouting prospects at his daughter's wedding.
As guests arrive at a modest reception hall in St. Francis Square, a three-story building squeezed between a McDonald's and a Texas Chicken restaurant, Mr. Flores proudly introduces the bridal party to a visitor.
"This is my sister. She's going to do Amway," says Mr. Flores, dressed in a traditional, see- through shirt called a barong tagalog. "This is the groom, Roberto." He is joining Amway, too.
Wall Street Journal, May 14, 1997