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Thursday, Nov 15, 2012 9:30 AM UTC

Amid Vietnam gloom, US company promises riches

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Amid Vietnam gloom, US company promises richesHOLD FOR CHRISBRUMMITT'S STORY. In this photo taken on 19 October 2012, a Vietnamese Bhuddism nun, center, attends to the presentation by Brian Tan, a “blue diamond” sales executive of Nu Skin, a multilevel marketing company, to expand and recruit distributors for his sales system at Nu Skin's office in Hochiminh city, Vietnam. Multilevel marketing businesses have a strained history in China and Vietnam, whose Communist rulers have been wary of pyramid-based sales schemes that have been characterized by some as preying on the dreams of poor citizens. They also fear that unrest as a result of associated scams from the schemes could challenge their legitimacy. (AP Photo/Na Son Nguyen).(Credit: Na Son Nguyen)

HO CHI MINH CITY, Vietnam (AP) — The Australian salesman flashed up a slide of a black Rolls Royce and pitched enticingly to a roomful of Vietnamese students facing an uncertain economic future: join me in selling anti-aging products and the car — and much more — could be yours in just a few years.

It’s a simple formula that has worked well for the company, Nu Skin, which has stormed through Asia over the last two decades, racking up huge profits despite regulatory scrutiny over its marketing practices and the efficacy of the products that it sells.

Vietnam is the latest frontier for the Utah-based company, which set up here in August, launching at a time of stuttering economic growth, rising business bankruptcies and joblessness.

That kind of environment would hold back many consumer companies, but for multilevel marketers it is not necessarily a problem. Selling a cheap business opportunity, not to mention one that is billed as lucrative, is easier in troubled times. With unemployment lines lengthening, there are more potential recruits in a country where the average income is about $3,000 a year.

“When the economy is bad, people turn to us,” said the Australian, Brian Tran, one of more than 100 foreigners who have come to Vietnam seeking a position atop the Nu Skin pyramid as it grows in virgin territory. “There are millions of unemployed. It is the right time for MLM. The market is just exploding.”

Companies like Nu Skin market their skin care, weight loss and nutritional products via a network of independent distributors who get paid a commission on the volume they sell. The marketers are encouraged to sign up recruits and are then paid a commission based on sales they make. In such a way, a few thousand distributors at the top of sales networks spanning the world can make fantastic salaries. Tran, a “blue diamond” sales executive, claims to be on $45,000 a month, much of it from the Vietnam market. Those at the bottom make much less.

The company says in the U.S. the average commission for an entry-level distributor is around $500 a month, and that the attrition rate is 63 percent. Nu Skin, which is predicting revenue of more than $2 billion this year, declined to give a breakdown of its commission figures in Asia.

MLM companies have mushroomed in Vietnam over the last 10 years. The industry is worth $200 million a year and employs over 1 million distributors, according to the government-sanctioned MLM association.

The businesses, local and foreign, have a bad reputation after hundreds lost money in well-publicized fraudulent schemes over the last year. The government has pledged to tightly regulate the sector.

The MLM business has a patchy reputation in other parts of Asia also.

Nawarat Rojpientham started selling Nu Skin products in her native Thailand in 2010 after being introduced to them by a friend. The 40-year old stopped after less than a year, with more than $200 worth of stock in her home unsold. She complained of high pressure from team leaders, unreasonable sales targets and an inability to make money regardless of how hard she worked.

“They would implant this idea inside your head that you have to find more clients and sell more products, and that’s what I did every day for almost a year,” the mother of two and former nurse said. “The only one who really benefited from the sales was the company, not me. I had to buy a lot of products each month to meet the quota. But it wasn’t worth it, in the end.”

The company’s website warns that the business is not a “get rich quick program” and that “generating meaningful compensation as a distributor requires considerable time, effort, and commitment. Critics claim the profits earned by multilevel marketing companies are dependent on a constant churn of people like Rojpientham, who face stiff odds of ever making a decent living.

“Almost everyone is being sold to a ticket on a flight that has already left,” said Jon Taylor, a former distributor and well-known critic of Nu Skin and other MLM companies. “It is only an opportunity for the first ones in and the ones at the top of the pyramid. If you come in late, there is no chance to get anywhere.”

Around 100 students crammed into Tran’s sales pitch in a room at the company’s headquarters in Ho Chi Minh city. The economics students, from a prestigious university in the city, had been invited by their teacher who was friends with a relative of Tran.

Comparing Nu Skin’s success to that of Facebook and the iPhone, his pace never dropped in the one- hour presentation. “Who wants to be financially free, “he asked. “I’m going to share with you something that will change your life.”

After the meeting ended around 10 students approached one of his assistants for more information. Others were more skeptical. “He transmitted his enthusiasm to me,” said Tran Ngoc Kim Hoang. “Do I believe him? It’s 50-50.”

His presentation to the students focused mostly on the financial rewards they could achieve with Nu Skin and the brilliance of the product, but he said earlier in an interview that “I tell people the whole story, which is that it’s not going to be easy.”

Tran, who was coy about his age but appeared to be in his late 20s or early 30s, was perhaps surprisingly honest about the bad reputation the MLM has in some quarters: “Everywhere in the world, it has a negative stigma.” Asked why, he said because “so many who participate fail.”

In the 1990s, Nu Skin reached settlements with five states in the United States that had accused it of deceptive marketing and overstating the income earned by distributors. In 1994, the Federal Trade Commission investigated some of the claims it was making for the efficacy of a hair loss prevention potion, an anti-wrinkle cream and a product for treating minor burns. The company paid $1 million. In 1997, the FTC fined it $1. 5 million for making unsubstantiated claims about fat-loss products.

Those decisions hit the company’s reputation and its bottom line, and it began aggressively exploring markets abroad. Along with other firms like Amway and Avon, they found success in Asia where strong family, work, religious and community ties mean that network marketing was a natural fit.

Multilevel marketing businesses have a strained history in China and Vietnam, whose Communist rulers have been wary of pyramid-based sales schemes that have been characterized by some as preying on the dreams of poor citizens. They also fear that unrest as a result of associated scams from the schemes could challenge their legitimacy.

After heavy lobbying from the companies, China opened its doors to US direct-sales companies in 2006. Now China accounts for much of Nu Skin’s growth, but the company has had to modify its business practices to skirt laws there that still prohibit multi-level marketing.

The company’s once soaring share price has come under pressure this year after reports by short selling stock analysts suggesting its business could be at risk in China because is it carrying out multi-level marketing there in secret. It has also faced fresh scrutiny over the pseudo-scientific claims underpinning its latest products. In a disclosure to the New York Stock exchange this year, it revealed that it was also facing increased complaints and scrutiny in Japan over its marketing practices but gave no more details.

The company said the claims it makes for its products comply with applicable laws and that it is abiding with regulations in China.

Nu Skin’s Vietnam marketing manager Henry Nguyen said the company was committed to ensuring its distributors aren’t making false claims about potential earnings and that it had a comprehensive training program in place.

“Before a lot of people lost money and the social order was very messy,” as result of bad MLM companies, “he said. “We are educating our people.”

_______

Associated Press writer Thanyarat Doksone in Bangkok contributed to this report.

More Chris Brummitt.

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