Decree stipulates network marketing rules

Monday, Aug 11, 2014 08:23

Tam Mat Troi, for instance, was found to have swindled 39,000 people around the country.— Photo

When multi-level marketer Nuskin Viet Nam launched its business in Viet Nam over a year ago Dang Ngoc Thanh of HCM City's Tan Binh District started participating in some of its programmes in the hope of becoming its member.

Since then he has been plying relatives, friends, and company colleagues with information about Nuskin products. He takes every opportunity to coax his relatives into buying Nuskin products.

Thanh's behaviour has made many wary of him and try to avoid him since they were constantly bombarded with Nuskin-related information or asked to buy its products.

He is among nearly one million people who are involved in multi-level marketing (MLM), also called ‘network marketing' in Viet Nam.

Not many know about the products that are traded under the MLM mode, but in the eyes of many consumers the business is a trick that will get both sellers and users of such goods into trouble. Many people and agencies have therefore called for boycotting MLM.

What is the nature of the business that makes many people leery? Is its reputation deserved?

MLM is a marketing strategy in which salespeople are compensated not only for the sales they personally generate, but also for that of others they recruit.

On the face of it, especially if legitimate products are sold at fair prices, things should be fine. But its troubles begin because of its similarity to pyramid and Ponzi schemes.

Viet Nam has seen its share of Ponzi schemes by companies like Agel Viet Nam, Sinh Loi, and Tam Mat Troi Investment Corporation.

Tam Mat Troi, for instance, was found to have swindled 39,000 people around the country. According to Ministry of Public Security investigators, it had asked people to pay a membership fee of VND6 million and then offered a commission of VND1.5 million for every person they brought into the network.

To recoup their VND6 million membership fees and earn more money on top, the company's dealers tried to lure more people into joining, but it became increasingly hard to attract new members. Many failed to sell their products, ending up out of pocket.

The firm used sophisticated tricks to swindle people, the police said.

On the other hand, MLM is nothing like a Ponzi scheme, which is strictly a money game and has nothing to do with actual commerce: there is no product involved; just money changing hands.

A Ponzi scheme works by taking advantage of people lower down: people invest money based on the promise that others will put in money that will filtrate back to them.

But MLM is normally a legitimate business. It is based on providing people with real, legitimate products they need and want at a fair price. It rewards people with selling skills and those who work hard.

Nevertheless, it is not easy for many people to distinguish between the two, and while many crooks laugh all the way to the bank, MLM operators often get a bad rap for merely doing business.

MLM came to Viet Nam in 2000, and has been flourishing.

According to the Ministry of Industry and Trade (MoIT), as of April 102 enterprises — local, joint ventures, and foreign-owned — were registered to trade around 7,000 items.

Most of them are producers and traders of food, cosmetics, and house wear.

Last year the industry generated around VND6.45 trillion (US$303.59 million) and paid VND1.13 trillion ($47.06 million) in taxes.

It now provides employment to nearly 1.2 million people.

The Government recently issued a decree on MLM that took effect on July 1 with stringent regulations to better manage the industry.

It specifies what kind of goods may be sold under the MLM model, stipulates legal capital of at least VND10 billion ($454,500), and increases the security deposit they should keep in banks to VND5 billion ($227,300) from VND1 billion.

It also prohibits MLM firms from pyramid selling and demanding money from people or forcing them to buy goods to join the network.

It clearly says that only goods and not services can be sold through MLM, unless expressly permitted by law.

Any effort by sales people to mislead or provide wrong information will be considered an offence.

The MoIT is now responsible for licensing MLM businesses, having taken over the task from city and provincial industry and trade departments.

At a forum held recently in Nha Trang city, the director of the Department of Competition Management, Bach Van Mung, said Decree 42 would create opportunities for legitimate MLM firms to do business and eliminate illegitimate ones, and protect consumers better.

But its effectiveness would rely on support from relevant agencies and, particularly, the media which should educate consumers, making them clearly understand its provisions.

How Kam Chiong, director of international MLM company Amway Viet Nam, said for a company like his the new decree was a challenge, but added that it would also enable legitimate firms to develop.

SBV seeks new regulations

Many major shareholders of banks have managed to pare or are paring their stakes in anticipation of new regulations from the central bank on shareholding limits at credit institutions.

A draft circular requires major shareholders, founding shareholders, family members, and related parties to adjust their shareholding to ensure that it does not exceed 5 per cent of the charter capital of a credit institution. They are required to complete the task by March next year.

The circular is designed to check the growing cross-holding of shares at credit institutions to tackle bad debts and enhance systemic safety.

According to industry insiders, six months is ample time for major shareholders to carry out this task.

After Decree No.141 on credit institutions' capital requirements was issued, many banks had to increase their chartered capital, thus unintentionally helping worsen cross-holding.

To reduce major shareholders' shareholding percentage as required by the SBV, some banks have decided to pull out of non-core investments or merge with other credit institutions.

Thus, Maritime Bank merged with Mekong Bank since the former was holding the largest stake in the latter. Southern Bank merged with Sacombank.

The chairman of the Viet Nam International Commercial Joint Stock Bank and his wife have sold 37 million shares to reduce their holding from 9.19 per cent and 9.39 per cent respectively to 5 per cent.

On the other hand, some shareholders with more than a 5 per cent stake in some banks have been unable to sell stocks since prices are down along with demand.

According to the State Bank of Viet Nam, there are still five banks in which individuals own more than 5 per cent of the capital, five others that have organisations owning more than 15 per cent, and eight banks that have groups of shareholders and related parties owning more than 20 per cent.

Analysts say investors are also trying other ways to comply with the central bank's requirement, including asking other people to be figureheads for them and transferring shares to companies in which they are major shareholders.

But the fact of the matter is that most investors are loath to reduce their stakes since that would mean a commensurate loss of control over a bank.

So it remains to be seen if the objective can be achieved.

There is no question, however, that this is an imperative considering the banking sector is going through a massive restructuring process. — VNS

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