Authorities assail pyramid-schemers

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Local authorities say direct sales firms have violated local laws despite fairly recent legislation restricting their practices.

The authorities claim that the companies have caused harm to their unwieldy sales teams and Vietnamese consumers.

"Multi-level marketing" refers to sales strategies that facilitate direct trade between sellers and buyers through multiple-levels. In their worst form, they are often referred to as "pyramid schemes" because they employ a seemingly endless sales force tasked with recruiting more sellers.

The practice came to Vietnam less than ten years ago.

Authorities say that several firms have broken local laws by advertising their services and actively recruiting salespeople without applying for appropriate licenses to do so.

Tran Thi Chi Linh, head of the Ho Chi Minh City Industry and Trade Department's Import-Export and Trade Promotion Division, said many firms "force" sellers to buy large volumes of their products in order to join their sales teams.

Linh said that these firms promote the idea that the sellers will be rewarded for buying greater amounts of their products.

However, she said, these direct-sales firms refuse to take back their products if their employees fail to sell them to customers, who, ideally, become sellers themselves.

The practice was prohibited under the Vietnam Competition Law in 2005, she said.

Linh did not release the names of the problematic firms but stated many of them were found to employ the ruse during the department's annual investigation.

HCMC, Vietnam's busiest area for direct sales, houses 28 firms, including 100 percent foreign-invested retailers.

Linh said the direct marketing sales teams suffered under enormous pressure to "clear" their inventories. This pressure leads the sellers to employ misleading and unfair sales tactics and advertising practices, she said.

Under the system, Linh claims the firms are ultimately responsible for the conduct of their sales teams.

Tran Viet Anh, deputy director of the Da Nang Industry and Trade Department's Trade Management Division, said the problem with direct sales models is that the core businesses are unable to monitor the conduct of their sales teams.

Anh said the firms might train the first or second-tier sellers but have no interaction with the lower rungs of their sales force. As a result, he said, the firms have no idea just how many layers have developed within their companies. What's more, they are unable to screen the skill or education levels of their sales teams.

He said his department has received complaints from customers who are unhappy about the prices and quality of products being sold by multi-level sales teams.

The department has asked the firms to restructure operations for years, but the situation has not improved much, he said.

Phan Duc Que, director of the Unfair Competition Investigation Board under the umbrella of the Vietnam Competition Authority, told Thanh Nien Weekly that the number of violations in multi-level firms declined immediately after the law took effect.

However, Que said the problems appear to have returned. He added that many firms, including wholly foreign-invested retailers, were caught running direct sales and marketing operations in big cities without permission from local authorities.

Linh from the HCMC department said that wholly foreign-invested firms must apply for licenses from local departments if they wish to launch a direct sales operation.

Code of conduct

Direct sales models have great potential to take hold in a country where many young people are seeking employment opportunities. One of the major attractions of this type of work is that direct market employees can work either full or part-time and often make their own hours.

In this way, the industry saves money and time in distribution, experts say.

Tamuna Gabilaia, executive director of the World Federation of Direct Sales Association, said the model has played a significant role in the social and economic development of countries all over the world.

Gabilaia said the model which first became famous in the US, Japan, Korea and Taiwan, has helped to increase revenue of the world's retail industry.

The director said that any wrongdoings should be fixed or they will invariably ruin the image of the direct sales industry in Vietnam.

Le Tu Cam Ly, a legal manager for Avon Cosmetics Vietnam, agreed that some distribution networks have become so large that businesses are having a hard time supervising their sales force. "However, we think we are also responsible for the practices of our salespeople," Ly told Thanh Nien Weekly.

Ly, also chair of the Direct Selling Committee, under the umbrella of the American Chamber of Commerce in Vietnam, said the committee has created an ethical code of conduct for direct salespeople and businesses in an effort to curb wrongdoings in the industry.

In Vietnam last year, the industry generated about VND2.5 trillion compared to VND663 trillion worth of total retail sales, according to the Vietnam Competition Authority. In 2008, the revenue from the industry was about VND1.5 trillion.

About 53 firms have been licensed to conduct direct sales across the country, so far. The authority claimed that local authorities have revoked the direct sales licenses from 13 firms, due to misconduct.

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