People attend a meeting of a multi-level marketing company in Ho Chi Minh City. PHOTO: CONG NGUYEN
Multi-level marketing companies in Vietnam will have to put down more money and cease requiring their salespeople to buy into their jobs, cites a government decree to take effect in July.
Multi-level marketing (MLM) is a marketing strategy
in which the sales force is compensated not only for sales they personally generate, but also for the sales of the other sale people that they recruit.
Most commonly, the salespeople are expected to sell products directly to consumers by means of relationship referrals and word of mouth marketing.
The decree, which was signed by Prime Minister Nguyen Tan Dung on May 14 and will come into effect on July 1, requires MLM companies to demonstrate a registered capital of at least VND10 billion (US$470,000)
They will have to deposit at least five percent of their capital, but no less than VND5 billion, or five times the current requirement, at a local commercial bank and be banned from selling their marketing chain to another company.
The decree also places tight controls on the companies' sales systems.
MLM companies will be banned from requiring salespeople to pay deposits or joining fees; the companies will also no longer be able to offer them commissions and bonuses to recruit others.
The companies will also be banned from prohibiting salespeople from returning merchandise.
The decree also banned salespeople from providing false information about the multi-level marketing model, their products or company operations.
Companies which cease operations for an entire year will have their license revoked. These licenses will have to be extended every five years and the Ministry of Industry and Trade will be the sole agency to issue the license, instead of the current provincial industry and trade department.
According to the Ministry of Industry and Trade, a decade after the first multi-level marketing company began operating in Vietnam, more than one million people have participated in the trade.
Multi-level marketing has created jobs for many people by relying on scams and false advertising. More than 20 of the 60 multi-level marketing firms registered in Vietnam have closed and two have had their licenses revoked, according to the Ministry of Industry and Trade.
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