Direct selling

A global industry empowering

millions in India

kpmg.com/in
ficci.com
Table of contents
01 Foreword 01

02 Executive summary 03

03 Global direct selling market 11

04 Direct selling market in India 39

05 The Indian direct selling opportunity 2025 57

06 Challenges faced by the industry 67

07 Recommendations and way forward 69

08 Direct selling market in select states 77

09 Annexure 79
1 | Direct selling

Foreword
 Direct selling | 2

FICCI
With a developing economy, and growing consumerism, various store and non-store formats have
evolved to cater to the growing retail sector in India. The direct selling market at INR72 billion (2012-
13) is one of the fastest growing non-store retail format, recording a double digit growth of more
than 20 per cent over the past five years. The growing Indian market has attracted a large number
of local and foreign direct selling companies.

Though direct selling is a relatively new industry in India, in less than two decades it has provided
self-employment opportunities to more than 5 million people, out of which nearly 60 per cent
are women. Besides providing additional income opportunities to direct sellers, the industry also
generates direct employment. Majority of the direct selling companies outsource production,
packaging and distribution of their products, thus generating direct employment across the value
chain while enabling the development of the SME sector. The industry also contributes to the
exchequer and in 2012-13 alone the industry generated INR10 billion in taxes. Many direct selling
companies have been in the forefront by actively contributing towards social activities.

However, there has been a lack of clarity on the legislations governing this industry. We strongly
believe that a clear distinction between fraudulent companies and legitimate businesses should be
drawn.

We at the direct selling sub-committee give professional insight into the issues pertaining to this
labour intensive direct selling industry. The sub-committee within itself has an advisory board of
neutral and experienced people.

My colleague, at FICCI worked as a connectors between the industry and the researchers and
adhered to quality and the timeline. I would like to express my gratitude to KPMG in India for this
report.

FICCI is hopeful that this report can provide insights and actionable recommendations for putting
together a conducive legal environment for the industry.
Dr. A. Didar Singh
Secretary General, FICCI

KPMG in India
Direct selling is one of the oldest, most traditional forms of selling globally, involving a direct
interaction between the seller and the buyer. Today, it is a successful industry operating in over 100
countries with a market size of USD167 billion.

The direct selling industry in India is estimated to be INR72 billion (2012-13), and forms only around
0.4 per cent of the total retail sales. This is far lower than other comparable economies (one-half of
China and one-tenth of Malaysia). With growth in consumer markets and increase in its penetration
to globally comparable levels, the industry has the potential to reach a size of INR 645 billion by
2025.

In India, the industry has contributed significantly to women’s empowerment, skill development,
technology percolation and the growth of the SME sector, besides contributing to the exchequer.
In addition, the industry also provides a viable form of alternative income, which promotes self-
employment. Over five million people are already associated with the industry as direct sellers.

With the success of the industry, which relies on individuals to accomplish sales, a number of
fraudulent businesses have also tried to emulate the form, but with malicious intentions and
outcomes. This has impacted the industry, which recognises this as one of the biggest challenges Rajat Wahi
to its growth. There is a need to revisit existing laws and bring about regulatory clarity to build an Partner and Head
environment of trust in order to reap multiple benefits that the industry has to offer. Consumer Markets
3 | Direct selling

Executive summary
 Direct selling | 4

What is direct selling History and evolution of direct selling

Direct selling refers to the selling of The modern direct selling industry empowerment and self-reliance.
goods and services to consumers can be considered to have pioneered The introduction of the multi-level
who are away from a fixed retail outlet, in the USA, with the establishment marketing compensation plans (MLM
generally at their homes, workplace, of Avon in 1886. With the success plans) opened another chapter in the
etc., through an explanation, and of this model, involving lower sales, evolution of direct selling. Introduced
demonstration of the product by and distributions costs and greater in the mid-twentieth century, the plan
sellers. It is one of the oldest modes direct interaction with the consumer, for the first time enabled consumers
of sales, and is similar to the traditional the portfolio of products swelled to to benefit from the success by
consumer goods retail model. include cosmetics, personal care, providing them the option to become
household goods, accessories a direct selling partner of the business.
and other products, over time. MLM plans became widely accepted
The movement was supported and a large number of companies
by the engagement of women adopted the same including global
as direct sellers, who considered majors like; Avon, Tupperware and
this opportunity as a means of Amway.

Source: www.blog.ficci.com, 9 July 2014, KPMG in India analysis

The success of MLM compensation the globe have taken firm steps to Today, direct selling is a US167 billion
plans however, led to a number of distinguish it from artificial money (2012) industry globally, engaging over
fraudulent money circulation schemes circulation and Ponzi schemes. This 89 million direct sellers. Asia-Pacific
globally. The scammers posed as direct has primarily been done either (a) forms the largest direct selling market
selling enterprises to gain from the by introducing specific legislations with a share of 44 per cent followed
popularity of the direct selling MLM to govern the direct selling industry, by North America, Central and South
plans. It has taken significant time in or (b) by recognising direct selling America (20 per cent share, each) and
different economies to distinguish as a rightful business model within Europe (15 per cent).
between the two, and recognise direct existing consumer laws. The industry
selling as a legitimate business model. also self-regulates by creation of
Acknowledging the importance of specific and stringent guidelines for its
direct selling as a sales and distribution members, which are governed by local
model and its potential for promoting associations accredited by a global
self-employment, governments across association.
5 | Direct selling

2012

Source: WFSDA, KPMG in India analysis

Direct selling in India

Modern direct selling can be also imparts transferable skills in MNCs and have commenced
considered to have been kick-started in sales and management, which can supplying to them, in the process
India in 1980s. The industry witnessed be used outside the direct selling promoting India as a manufacturing
major growth post-liberalisation with industry, as well. destination.
many global players entering the Indian
market. Amway was one of the first b. Women empowerment: Direct d. Employment generation: Besides
major global direct selling companies selling offers self-employment providing additional income
to enter India in the year 1995, which opportunities to a large number of opportunities to direct sellers,
was followed by companies like; Avon, people, especially women. Direct the industry also generates a
Oriflame and Tupperware in 1996. selling gives women the flexibility large number of jobs. Majority
Around the same time Modicare was to manage their time and balance of the direct selling companies
one the first few Indian companies to their work and personal lives. The outsource production, packaging
adopt this channel of distribution.1 industry in FY13 is estimated to and distribution of their products,
have provided self-employment thus generating direct employment
Today, the direct selling market in to 3.4 million female distributors. across the value chain.
India is estimated to be around INR72 Many companies work towards the
billion.1 Our interactions with industry empowerment of women. e. CSR initiatives: In terms of
stakeholders suggest that the industry responsibilities towards society,
has also created a positive impact on c. Development of the SME sector: direct selling companies have
several other social and economic Many direct selling companies been in the forefront. Many of the
parameters: rely on SMEs for manufacturing companies involved in direct selling
their products. In a lot of cases, the actively contribute towards social
a. Additional income opportunities: direct selling companies impart activities. Avon’s Breast Cancer
Direct selling provides additional the manufacturing know-how, Crusade and Amway’s Sunrise
income opportunities to a large technology and processes to enable project for education are well
number of people and promotes the SMEs to produce excellent known for their social impact.
micro-entrepreneurship. Currently, products. Many direct selling
over 5 million direct sellers are companies also invest in providing
estimated to be engaged with the the right equipment and machines
industry, and are projected to grow to the SMEs for production. Driven
further with the growth of the by these initiatives, several SMEs
industry. In addition to providing have now developed capabilities
income opportunities, direct selling to cater to the needs of other

1. IDSA, PHD Chamber, ICREAR, Direct Selling News, Industry Discussions

 Direct selling | 6

f. Contribution to the government indirect tax contributions through INR645 billion by 2025, driven by
exchequer: The operating model corporate income taxes, import growth in consumer markets and
for direct selling generates tax duties and VAT. increase in the penetration of direct
contributions to the government selling to globally comparable levels.
across its value chain. Total tax Going forward, the industry has the This could however be contingent on
contribution by the direct selling potential to create a significant social creating an enabling environment for
industry to the government in FY13 and economic impact in India. Our the industry, and mitigation of some of
alone is estimated to be INR10 estimates suggest that the industry the challenges it is facing today.
billion. This includes direct and has the potential to reach a size of

1 Immense market potential of INR 645

billion... 2 ...offering self-employment opportunities to
18 million

Direct selling market size in India Self-employment opportunities

Source: IDSA, PHD Chamber of commerce and industry, KPMG in India Source: IDSA, PHD Chamber of commerce and industry, KPMG in India
analysis analysis

3 4
With the potential to economically ...and the ability to contribute INR 90 billion
empower ~11 million women to the exchequer

Women empowerment Tax

Source: IDSA, PHD Chamber of commerce and industry, KPMG in India Source: IDSA, PHD Chamber of commerce and industry, KPMG in India
analysis analysis

5 .. with CSR contribution of INR 0.5 billion

6 and employment to 2.5 million people
7 | Direct selling

Challenges: Direct selling in India

Similar to the traditional consumer territories like Chandigarh, have on companies have been harassed by the
industries, the direct selling industry several occasions mistook legitimate local police and state governments.
faces challenges in setting-up direct selling companies with Such incidences tend to hinder the
manufacturing facilities, dealing fraudulent players because of absence growth of the industry and can have
with import duties, etc. A daunting of required regulatory clarification. an adverse effect on consumer
challenge for the direct selling industry confidence.
Such uncertainty is likely impeding
in India is lack of regulatory clarity. Due
the growth and reputation of direct We recommend the following road-
to this, often direct selling companies
selling companies in India. In many map that can be considered by the
are mistaken for fraudulent pyramid/
cases, due to absence of clarity, government/regulators in the future to
ponzi schemes. States like; Andhra
representatives of the direct selling benefit this industry.
Pradesh, Kerala, Sikkim and union

Source: KPMG in India analysis

 Direct selling | 8

Amendment in the PCMCS Act

The PCMCS Act does not explicitly address schemes which involve genuine sale of products or services, but some
jurisdictions have attempted to read those situations into the Act. Amendment in the PCMCS Act is needed to make the
distinction clear between direct selling (including MLM plans) involving the genuine sale of products, and fraudulent
pyramid money circulation schemes.

Need to streamline FDI policy

The operating structure of many direct selling companies has close proximity to a wholesale cash and carry trade, where
products are sold by manufacturers (usually direct selling companies) to distributors entailing sale to end customers. Indian
regulators should classify ‘direct selling’ as a ‘whole sale cash and carry trade’ with 100 per cent foreign investment under
the automatic or government approval route.

Need for a clear definition

The ‘direct selling model’ needs to be defined under a specific legislation in India. Moreover, given the numerous social
as well as economic benefits of this specialised channel of distribution, direct selling should be given a separate ‘industry’
status.

Need for a governing legislation

At present, direct selling falls under the purview of state legislation and is governed by a large number of ministries/
departments at the centre, state and local levels. The multiplicity of regulatory bodies has resulted in multiple regulations
governing this sector. These should be streamlined for the smooth performance of this sector.

Need for a nodal ministry

There is no single nodal ministry at the centre at present and, hence, the grievances of this sector tend to go unheard. Given
that the sector is predominantly based on consumer interactions, the Ministry of Consumer Affairs may be appointed as the
nodal ministry for the direct selling industry.
9 | Direct selling

How is this report organised?

Direct selling market

This report provides the reader with potential that this industry holds. It
an introduction to the direct selling discusses the challenges being faced
industry both globally and in India. The by the industry and strives to offer
report highlights the growth drivers, potential solutions that may help
the socio-economic benefits and the address the industry challenges.

Section 1:
This section of the report provides an overview of the global direct selling industry. It begins with the evolution and
history of direct selling and highlights that the direct selling industry is a well-established global industry. The section
throws light on how the industry, at a global level regulates itself and is regulated by the government.

Section 2:
This section provides a closer look at the direct selling market in India. It discusses the history of the industry in India
and goes on to describe the socio-economic contributions made by the industry through certain case studies.

Section 3:
The section discusses the opportunity potential of the industry by 2025 and the growth drivers for the direct selling
market in India. It also establishes the potential socio-economic benefits that the industry may help generate by 2025.

Section 4:
This section brings out the challenges faced by the direct selling industry in India based on our interactions with
various stakeholders in the industry and trade associations.

Section 5:
This section highlights the need for policy intervention and details out actionable recommendations to create an
enabling environment for the industry.

Section 6:
The last section further segregates the potential direct selling market opportunity across some of the key states.
Direct selling | 10
11 | Direct selling

Global direct
selling market
 Direct selling | 12

Direct selling is essentially the marketing of products

and services directly to consumers in a person-to-person
manner, away from permanent retail locations.
Direct selling is a dynamic and rapidly direct sellers’. Direct sales generally • the distributors/direct sellers, can
expanding channel of distribution benefit from the explanation and earn a commission, when the sale
for the marketing of products and demonstration of products made by of the product takes place.
services. While there is no universal an independent direct salesperson
• earning of sales commission may
definition of direct selling, different to the consumer. Being a specialised
be based on one’s own sales as
countries, associations and individuals channel of distribution, which is neither
well as on the cumulative sales of
have defined the sector differently. wholesale nor retail, it covers both
the group built by the seller, similar
It can be broadly understood as business-to-business and business-to-
to commissions in traditional sales
the ‘selling of goods and services consumers aspects.
environments.
to the consumers away from a fixed
Despite its differences, in many ways,
retail outlet, generally in their homes, The similarities between the two
direct selling is similar to traditional
workplace, etc., through explanation formats have been highlighted
consumer goods retail. In both cases:
and demonstration of the product by graphically in Annexure 3.

Direct selling v/s Direct marketing

Direct selling and direct marketing are often confused to be the same thing and are taken as interchangeable terms.
Both terms are actually very different from each other and a clear understanding of the difference will help direct
selling maintain its own identity.
The crucial difference between both the methods hinge on the mode of publicity that a firm uses to generate
awareness in the market. While Direct Marketing uses one or more advertising mediums, Direct Selling relies on
direct engagement with the purchaser to generate a specific response or call to action that can be measured.
Direct Marketing is a type of advertising in which companies communicate directly to the customers through formats
like online advertisements, direct mail, text messaging and telemarketing. Direct Selling on the other hand involves
marketing and demonstration of a product or service directly to the customer usually through a personal contact/
relationship with the salesperson.

Source: Discussions with National Law School, Bangalore, Industry Discussions

13 | Direct selling

Direct selling, which is an established global industry,

evolved in the 1920s and 1930s in the USA.
Global direct selling market evolution:

Direct selling is a dynamic and distances to sell unbranded products branded products in an urbanised
rapidly expanding channel of and services. Doorbells, catalogues environment.2
distribution for the marketing of and purchase orders were centuries
Beginning in the mid to late 1800s,
products and services. Direct sales away from the early direct seller who
direct selling companies were formed
generally depend on the explanation relied on his instincts and common
in USA offering various products
and demonstration made by an sense to make a living through selling.
directly to the final consumer. Avon,
independent direct salesperson to the The early direct seller exchanged
which today is one of the largest direct
consumer. Being a specialised channel pottery, stone weapons, tools,
selling companies, was established
of distribution, it covers both business- agricultural products and raw materials
in 1886, initially represented a means
to-business and business-to-consumer with people from other lands.2
for women to earn money and work
aspects.
They later evolved into independent outside their homes, and by 1920
Direct selling started with hawkers salesmen who went from door to topped its revenue at USD1 million.2
and peddlers, who travelled great door and house to house selling

Source: The Indian Direct Selling Industry - Annual Surveys, IDSA, Industry Discussions

2. Socio-Economic Impact of Direct Selling, ICREAR

 Direct selling | 14

With the development in the direct selling model, multi-

level marketing saw growth 1950 onwards.
Development and acceptance: In the also got an opportunity to provide for major players expanding globally and
mid-1920s estimates of the volume of their families. entering emerging markets like Brazil,
annual direct sales ranged from USD China and India.
MLM and its wide-spread use:
300-500 million. The global market
Nutrilite founded in 1934 adopted Emulation by ponzi schemes and
evolved between1920s and 1930s in
the MLM compensation plan in 1945. the need for legislation: With the
the USA driven by the need to regulate
MLM provided the opportunity for popularity of MLM, pyramid schemes,
marketing and distribution costs, and
product demonstrations, add on a type of fraud, came up posing as
the need for live demonstration for
sales, new product introductions, MLM programs. This has been a
certain products in the absence of
customised selling and direct feedback cause of concern for the direct selling
technology.
from the customers, but unlike single industry globally. Several governments
The period between1970 and 1990 the level marketing, the MLM distributors around the world have been taking
direct selling industry saw significant could create their own business by enforcement actions and creating laws
change. The industry started with recruiting and training new distributors to tackle alleged pyramid schemes,
sale of products like cosmetics under them, creating a down line including schemes disguised as
and household appliances through earning revenue from their own sales MLM programs. These laws and
the direct selling channel, but after and the sales of distributors they enroll. enforcement actions draw clear
1970 many direct selling companies Benefits were earned on the total distinctions between legitimate direct
diversified their product portfolios to sales of the Multi Level Network and selling businesses, where participants
a larger number of products such as were shared among everyone who earn income based on the sale of
household goods, food and wellness contributed to generating the sale. products to end user consumers,
products. The period also witnessed and illegal pyramid schemes, where
This marked a major shift in the direct
improvement in technology. Many new compensation is based on recruiting
selling industry since the plan for the
marketing techniques and strategies others into the scheme.
first time enabled the consumers
were developed and new distribution
to benefit from the success of the Today, the customer still benefits from
and retail channels emerged; as
product by providing them the option this personal and convenient way of
a result direct selling companies
to become a direct selling partner of purchasing products. Direct selling,
modified strategies to benefit from
the business. MLM plans became which is more than a century old
these technological advancements.
widely accepted and a large number trading method, is practiced in more
Women became a major part of the
of companies adopted the same, than 170 countries and has the status
industry. Many young women who
including global majors like Avon, of a global industry.
found it difficult to simultaneously
Tupperware and Amway.
manage full time jobs and their
families joined the workforce; they The 1990s saw a growth in the
global direct selling market with
15 | Direct selling

Global direct selling is currently a USD 167 billion market

and employs around 90 million people worldwide.

Global Direct Selling Market Size

Direct selling is a USD167 billion

industry globally. While the industry
grew at a low rate of 5.4 per cent in
2012, over 2011 (growth rate of 19.7
per cent), due to global economic
slowdown, the long term growth
prospects of the industry remain
robust.

Source: WFSDA website, Date 14 July 2014

Number of Direct sellers

The direct selling industry tends to

benefit from in-person contact for the
demonstration and sale of products,
and therefore provides business
entrepreneurship opportunities
for a large number of people. The
opportunities in the industry has more
than doubled over the last 11 years
(2001-2012), and the number of direct
sellers have increased to 89.7 million
direct sellers in 2012 from 43.8 million
direct sellers in 2001.
Source: WFSDA website, Date 14 July 2014

Gender-wise participation in the

Industry
As of 2012, 75 per cent of females
were part of the industry. Direct selling
has given many women, who found
it difficult to work away from home,
an alternative earning opportunity in
their homes. Thus, enabling them to
maintain a work-life balance.

Source: WFSDA website, Date 14 July 2014

 Direct selling | 16

Asia Pacific is the largest direct selling region in the world,

followed by North America and South & Central America.
Major regions, 2012

Asia Pacific
• Asia Pacific is the largest market for direct selling with a 44 per cent share in the global direct selling market, and has been
growing at a CAGR of 11 per cent to reach USD73.2 billion in 2012 from USD59.7 billion in 2010
• The direct selling industry in the region engages ~46 million people as direct sellers
• Japan, China, Korea, Malaysia, Taiwan, Thailand, Australia, Philippines, Indonesia and India are billion dollar markets in the
region.

Americas
• Americas account for 40 per cent of the global market and engages ~31 million people as direct sellers
• USA and Canada are billion dollar markets in North America engaging 16.6 million people as direct sellers
• South & Central America has been the fastest growing region in the world, growing at a CAGR of 14 per cent between 2010
and 2012. Brazil is the largest market in South & Central America capturing 45 per cent share followed by Mexico, Colombia,
Venezuela, Argentina and Peru which are also billion dollar markets.

Europe, Middle East, Africa

• Europe accounts for 15 per cent of the global direct selling market, has grown at a CAGR of 4 per cent from 2010 to 2012 and
engages ~11 million people as direct sellers
• Western Europe accounts for nearly 70 per cent of the total market in Europe. France, Germany, Italy, U.K. in Western Europe
and Russia are billion dollar markets
• Middle East and Africa are small markets for direct selling, capturing less than 1 per cent market share.

Source: WFSDA, KPMG in India analysis

17 | Direct selling

USA is the largest direct selling market in the world,

followed by Japan and China.
Major countries, 2012

USA
• USA is the largest direct selling market in the world and has grown at a CAGR of 5 per cent to reach USD31.6 billion in 2012
from USD28.6 billion in 2010
• The direct selling industry in the USA engages about 16 million people as direct sellers
• The industry comprises of almost 1500 companies including global leaders like Avon, Amway, Tupperware and Mary Kay, many
of which are headquartered in U.S.

Japan
• Japan is the second largest direct selling market in the world
• Japan Consumers Cooperative Union is the largest player in the direct selling market followed by Amway Japan Ltd. and Miki
Corp.
• Single level marketing is the most prevalent direct selling model in Japan; however, for consumer health care multi level
marketing is most commonly used.

China
• China’s direct selling market size is just behind Japan. It has grown at a CAGR of 22 per cent to reach USD19.9 billion in 2012
from USD13.35 billion in 2010
• Amway (China) Co. Ltd., Infitus (China) Co Ltd., and Mary Kay Cosmetics Co. are currently leading the direct selling market in
China.

Source: WFSDA, KPMG in India analysis

 Direct selling | 18

Cosmetics and personal care is the biggest category

capturing 35 per cent share globally in the direct selling
market, followed by wellness products and household
goods.
Product Categories

Note: X axis - Market share for 2012; Y axis - Growth per cent over a three period from 2010 to 2012, Size of the bubble represents market size
Source: WFSDA, KPMG in India analysis

Companies around the world use direct selling channel. Cosmetics & Household goods & durables and
the direct selling channel to promote, personal care is the largest direct clothing & accessories are also
demonstrate and sell a wide range of selling segment capturing a market of significantly large product categories
products across various categories. USD 58 billion in 2012 and with a 35 generating revenues of approximately
There are more than 10 different per cent share of the industry revenue, USD 23 billion and USD 15 billion from
categories of products sold by the followed by wellness products with direct sales globally.
global direct selling industry. a share of 25 per cent and a market
Home improvement, utilities, books
size of USD 42 billion. These products
With time, there has been an evolution & stationary are smaller segments,
benefit from the personal touch
in the spending trends globally in with each of them capturing a market
offered by direct sellers who are
favour of cosmetics & personal care of close to USD 3-5 billion. All these
able to demonstrate and explain the
products, and the industry has seen segments have witnessed double digit
benefits of these products.
tremendous growth. This has also growth over the three years from 2010
led to increase in sales through the to 2012.
19 | Direct selling

Increasing disposable income and convenience offered by

the direct selling model seems to have led to the growth of
direct selling.

Increase in propensity to spend

• With education and employment levels increasing in many parts of the world, the number of independent earning
individuals is increasing leading to increase in disposable income. This increase in the spending capacity tends to
lead to buying of products which are more personalised in nature, aiding the growth of the direct selling industry

Increase in the reach of direct selling products

• The popularity of direct selling seems to have risen with more people recognising the potential of additional income
from direct selling and becoming direct selling agents. This has helped in improving the reach of direct selling products

Expansion in emerging markets

• With direct selling companies expanding into emerging markets, the industry has globally witnessed a higher growth
rate as these growing economies provide a significant opportunity potential

Convenience
• As a result of evolving lifestyles, people tend to spend less time in traditional shopping and there seems to be an
increase in preference for convenience. Direct sellers going from door to door to sell products and services tend to
make life easier and provide the convenience of buying goods and services at one’s own doorstep
• Products sold through the direct selling model tend to benefit from the personal touch offered by the sales
representatives who are able to demonstrate the potential benefits of the products

The direct selling market would likely continue to experience significant growth in the
coming years, driven by preference for convenience and the increasing presence of direct
selling companies. The industry is supported by direct selling associations around the world
that have worked to create appropriate policies, put in place controls and ethical standards
and foster governments’ understanding of the industry

Source: WFSDA, IDSA, PHD Chambers Of Commerce, ICRIER, Direct Selling News, Industry Discussions
 Direct selling | 20

Single-level and multi-level marketing are prevalent

models in the direct selling industry.
Operating Model
Single-level marketing (SLM)

Single-level marketing rewards the A direct seller buys products from

sellers for their personal sales activity. the parent company and sells them
They cannot sponsor any other directly to his or her customers. Home-
distributorship or sales personnel. based business people have been
Income comes only in the form pursuing single level marketing for
of commission, or bonus, or retail years. Single-level marketing is suited
markup, i.e., they receive payments for those sale people whose focus lie
through the sales they make . on the product and service.3

Multi-level marketing (MLM)

In the MLM compensation plan, each consumers. They receive commissions

direct seller recruited can potentially and bonuses on the sales made by
recruit new distributors and create them and the sales made by their
a down line of direct and indirect downline direct sellers and retail
3. WFSDA, ICRIER, Direct Selling News, Industry distributors/sellers. Distributors markups.3
Discussions
purchase products to sell to the
21 | Direct selling

Person to Person Selling is the dominant form of selling

witnessed in the direct selling market.
Methods used for selling
While some direct sellers maybe employees of a direct sales
company, authorised to act for the company in business matters,
most direct sellers are independent business operators or self-
employed. They enjoy the advantage of deciding when and how
much time will be devoted in selling the company’s products.4

Traditional Direct selling methods include:

• Person To Person Marketing

• Party Plan Groups.

Person to Person is the most popular amongst direct selling

companies followed by Party Plan Groups. Source: WFSDA website, Date 14 July 2014

Person to Person (P2P)

Majority of the direct sales around the globe take place through
person to person contact making. This method is most widely used
by direct selling companies.

Person to Person direct selling can be defined as a one on one

interaction between the salesperson and the customer in which a
product is promoted for sale by the former to the latter. This method
of direct selling can use both single-level and multi-level marketing.

Party Plan Groups

The party plan is a method of direct selling in which social events are
organised where products and services are promoted and offered
for sale.

Direct selling through party plan mostly uses multi-level marketing.

Sales people approach other people to host events during which the
products are demonstrated. In return the host is given a part of the
revenue from the goods sold. The salesperson is paid a commission
on the sales or on the sales made by the sales people recruited by
him/her.

Source: WFSDA, ICRIER, Direct Selling News, Industry Discussions

4. WFSDA, ICRIER, Direct Selling News, Industry

Discussions
 Direct selling | 22

Amway, Avon and Herbalife are the top three direct selling
companies accounting for ~20 per cent of the global direct
selling market.
Top 20 Direct Selling Players in the World

Revenue
Company Year Distributors Empoyees Sales Compensation
Rank Country 2013 (USD Markets
Name Founded (Mn) (`000s) Method Structure
Bn)

1 Alticor (Amway) USA 1959 11.8 100 3 21 P2P MLM

Avon Products
2 USA 1886 9.95 100 6 36 P2P MLM
Inc.

3 Herbalife Ltd USA 1980 4.8 91 3 7.5 P2P MLM

Vorwerk & Co. P2P and

4 Germany 1883 3.7 76 0.6 12 MLM
KG Party Plan
P2P and
5 Mary Kay)Inc. USA 1963 3.6 35 3 5 SLM
Party Plan
Natura
6 Brazil 1969 3.2 7 1.6 7 P2P MLM
Cosmetics SA
Nu Skin
7 USA 1984 3.18 53 1.3 1.2 P2P MLM
Enterprises Inc.
Tupperware P2P and
8 USA 1946 2.67 100 2.6 13.5 SLM and MLM
Brands Corp Party Plan
P2P and
9 Belcorp Ltd. Peru 1968 1.96 16 0.9 9 SLM and MLM
Party Plan
Oriflame
10 Luxembourg 1967 1.95 66 3.5 7 P2P MLM
Cosmetics SA

11 Primerica Inc. USA 1977 1.27 2 0.1 2 P2P MLM

12 Ambit Energy USA 2006 1.2 1 0.25 0.6 P2P MLM

United
13 Telcom Plus 1996 1.1 1 0.05 0.7 P2P MLM
Kingdom
Stream Energy
14 USA 2004 0.87 1 0.26 0.2 P2P MLM
(Ignite Inc.)
Yanbal
15 Peru 1967 0.85 10 0.4 6 P2P MLM
International

16 Miki Corp. Japan 1966 0.78 3 NA 0.3 NA NA

Party Plan
17 Thirty-One Gifts USA 2003 0.76 2 0.12 1.7 and Group MLM
Sales

Party Plan
Blyth Direct
18 USA 1973 0.75 21 0.1 1.2 and Group MLM
Sales Group
Sales

USANA Health
19 USA 1992 0.72 19 0.27 1.4 P2P MLM
Sciences

20 CAN Inc. USA 1993 0.7 23 0.2 1.5 P2P MLM

Source: Direct Selling news website, 17 July 2014
23 | Direct selling

Direct selling is different from chit fund and ponzi schemes.

Various forms of Networking schemes

Globally, the direct selling industry What is striking about these schemes In this section, we have outlined the
has undergone substantial changes is that while they are very old forms primary definitions of various forms
since the 1970’s. Around that time, of fraud, modern technology vastly of prevalent unfair trade practices
there was a proliferation of multiple multiplied their potential for harming and laid down certain parameters
new direct selling companies and citizens across the globe. The internet to distinguish between ‘fly by
one-to-one marketing became a in particular offers pyramid builders night operators” and “legitimate
common marketing technique. a multi-lane highway to world-wide businesses.’5
Unfortunately, the rise in legitimate recruits in virtually no time. Further,
MLM compensation plans was globalisation coupled with newly
accompanied by a surge in pyramid emerging market economies provided
schemes that played off the popularity a new outlet for pyramiding.
of MLM plans or network sales, and
paid more attention to recruiting than
selling of the actual goods.5

Pyramid Selling, chit fund or Ponzi schemes

Pyramid Schemes

Pyramid schemes, prevalent in multiple forms, promise consumers/investors large profits based primarily on recruiting
others to join their program, not based on profits from any real investment or real sale of goods. Three major signs that a
product is being used to disguise pyramid schemes are:

a. Large joining fee

b. Compensation paid for recruiting without regard to end sales (‘headhunting fee’)
c. No right of return, buy-back or cooling off period offered.

Chit Fund schemes

With no underlying product and based on more or less the same lines as a Ponzi scheme, a chit fund is a kind of savings
scheme under which a person enters into an agreement with a specified group of persons that every one of them shall
subscribe a certain sum of money by way of periodical instalments over a definite period, and that each subscriber shall,
in his turn, as determined by lot or by auction or by tender or in such a manner as may be specified in a chit agreement,
be entitled to the prize amount.
Though often misused by promoters, chit fund schemes are not always fraudulent and may be conducted by organised
financial institutions within the letter of law.

Ponzi schemes

Popularly known as ‘Peter-to-Paul’ schemes, a Ponzi scheme is centered around continuous recruiting and the promoter
generally has no product to sell and pays no commission to investors who recruit new members. Instead, the promoter
collects payments from a stream of people, promising all the same high rate of return on a short-term investment with
no real investment opportunity.

Source: KPMG in India analysis

5. KPMG in India analysis

 Direct selling | 24

Direct Selling business

There is no universal definition of direct selling. Globally, countries, associations and individuals have defined this
sector differently.
The World Federation of Direct Selling Associations (‘WFDSA’), which is the global direct selling body that has the
membership of 60 national associations and one regional federation, defines direct selling as “the marketing of
products and services directly to consumers in a person-to-person manner, away from permanent retail locations”.
The Indian DSA defines direct selling as the “marketing of consumer goods and/ or services directly to customers,
without involvement of conventional retail outlets, wherein sales happen face-to-face at home, workplace, parties or
other group events, through explanation and demonstration”.
Varying from jurisdiction to jurisdiction, sales people may be called as distributors, representatives, consultants, and
so on. The diverse meanings assigned to the term “direct selling” in other countries have been discussed in the next
section of the report.

An important
objective in a MLM
compensation
plan is to generate
sales by constant
interaction with
customers along
with engagement
of new down line
distributors.
25 | Direct selling

Key differentiators

Though definitions vary, there are certain commonalities across all of them such as:

B2B, B2C, Single level or Face to face explanation and

Non-store retailing format
multi-level demonstration

May have websites or catalogues May offer free/ personal sample

– products sold by direct selling testing facility - typically high
only quality products

Box 1.1: Definition of Direct Selling by Academicians and experts

Academicians/ experts Definition Key characteristic

A form of selling without retail outlets, distributors,

Baker (1984) No permanent locations
wholesalers or any type of middlemen

Establishment of immediate exchange relationship with a

Baron, et. al. (1991) customer in which the usual intermediaries in the distribution Immediate feedback with no intermediaries
chain are omitted

Such activities as telephone sales, door-to-door selling, or

Ostrow and Smith (1988) Party plans
in-home parties

Peterson and Wotruba (1996) Face-to-face selling away from a fixed retail location Personal touch

The process of selling a consumer product or service from one

Duffy (2005) person to another, in an environment that is not a permanent Person-to-person interactions
retail location

Source: Socio-Economic Impact of Direct Selling - ICRIER

 Direct selling | 26

Key Differentiators – Direct Selling and Pyramid/Ponzi schemes

The different forms of Pyramid/Ponzi mistakenly viewed as fraud and

schemes emulate some structural and money laundering schemes.
operational characteristics of Direct
In view of the above, we have
Selling MLM Plans, which creates
tabulated certain ‘red’ flags which
confusion; even bona fide direct
demarcates direct selling and pyramid/
selling business plans are sometimes
ponzi schemes.

Sr. No. Parameter Direct selling business Pyramid/Ponzi schemes

Structural differences

1 Basic definition Marketing of the product/services to the consumers Compensation is based on recruiting new
generally from home or workplace though participants, not on selling products.
explanation and demonstration by direct seller i.e.
locations away from permanent retail locations. Can
last indefinitely – as long as consumers continue to
buy products

2 Driving objective High sale of product Emphasis is on rigorous enrollment of new

subscribers/investors with an aim to collect easy
money from new subscribers

3 Nature of business Offers genuine business opportunities as they Offers no real business opportunities as these
opportunities offered involve sustainable sales plan of goods schemes generally do not involve products or involve
products which are illusionary or have no established
market value

4 Cost of entry No or reasonable entry fee usually for valuable Comparatively high
support and starter products

5 Plan/Schemes Plans are primarily based on the value of sale of Plans are primarily based on money paid by new
products and recognition of services for the sales recruits, and not on product sales
support provided by other distributors

Functional differences

6 Mandatory enrollment Enrollment of recruits is not compulsory for doing Enrollment of recruits is compulsory for doing
business as primary objective is sale of products business as commission is based on fee from new
recruits or solely from the act of recruitment of
members

7 Underlying product Involves marketing of products under established Either no products are involved, or else the products
brand names are a cover and are not really sold to consumers

8 Buy-back/guarantee of Highly competitive buy back guarantee to help Products usually do not have a buy back policy or it is
product(s) ensure protection of distributor and end consumer not followed in practice

9 Inventory Products are supplied to meet genuine demand In case products are involved, “Front loading” is
and direct sellers are encouraged to hold minimal encouraged. Therefore, products are thrust upon
inventory and replenish as and when need direct sellers, irrespective of their ability to sell the
arises. Further, modern logistics and fulfillment product and the actual market demand. Further, such
practices often permit ‘just-in-time’ delivery so that products usually cannot be returned or resold to the
distributors do not usually need to keep an extensive seller. This is also known as inventory loading
inventory

Source: Socio-Economic Impact of Direct Selling - ICRIER, KPMG in India analysis

27 | Direct selling

Sr. No. Parameter Direct selling business Pyramid/Ponzi schemes

Functional differences

10 Sales training Rigorous product and sales training is required There is no emphasis on product or product sales
training

11 Exit option Direct sellers joining the business can exit the Usually, no refund or exit policy exists
business by returning the unsold inventory to the
direct selling company

Returns and potential benefits

12 Returns vis-à-vis Returns are dependent on the time invested and Returns are primarily consistent and are based on
associated risk motivation of the direct seller which are generated entry fee from new recruits wholly apart from any
slowly and tend to go up and down over time activity of the participants or product sales. Thus,
depending on product sales. Thus, returns depend on returns are directly linked to the number of persons
the value of products sold, not the number of recruits recruited to join the scheme. Early entrants make
very large returns. Late entrants cannot make any
return.

13 Sales incentives Sales incentives are primarily derived from sale Incentives are based on recruitment of people
of goods and are paid directly by Direct selling rather than on sales. Payments are often made
companies through normal banking channels through members, and negligible pay outs by
promoters.

Legality of schemes

14 Registration/Licenses These businesses are registered with local regulatory These schemes are unregistered and not affiliated
bodies in the country of existence or obtain licenses to any government body having power of legal
under a prevalent law enforcement

15 Adherence to code of Every salesperson has to abide by the Industry Generally, no code of ethics exist at all
ethics Model Code of Ethics e.g. direct selling
associations, etc.

17 Secretive and/or These businesses have written rules and These schemes usually do not have any written
complex strategies regulations and give a clear disclosure of the document imparting complete information and
entire marketing strategy right from enrollment to modalities of the scheme
receipt of remuneration/ fees

In summary, the aforementioned On the other hand, genuine direct

differentiating factors clearly indicate selling (including MLM compensation
that with a view to make quick plans) involves marketing of quality
money, the promoter of a Pyramid/ products at a competitive price with
Ponzi scheme typically mandates associated product warranties and
participants to deposit significant guarantees. Also, the exponential
money to join in the business additions of distributors to the network
opportunity, and financial rewards is earned only by accomplishing actual
are highly dependent on further sales on a consistent basis.
recruitment of members. Some
Pyramid/Ponzi schemes may purport
to sell products to camouflage the
financial fraud but the products usually
have little value and there is little or no
selling.
 Direct selling | 28

Direct Selling – Country Regulations and its self-regulation

In order to manage the menace of laws to deal with frauds and abusive
pyramiding, many countries across schemes, however, through specific
the world have either implemented regulations, they distinguish
new laws or made revisions to permissible MLM operations by direct
existing laws on direct selling in the selling companies. On the other hand,
last decade. In this section, we have some countries primarily focus on
summarised a brief overview of the consumer protection and strive to
direct selling laws and/or regulations identify fraudulent schemes.
prevalent in select countries across
the globe viz. Malaysia, Vietnam,
Singapore, United States of America
and United Kingdom.

Both developed and developing

economies have realised the potential
of the direct selling industry in light of
the positive socio-economic impact
of this sector – both directly and
indirectly. Many countries have given
this sector an Industry Status.

Along with the primary objective

of regulating various fraudulent
schemes, these countries have also
enacted specific legislations largely
self-monitored by local associations.
Globally, these regulations relating
to direct selling industry vary from
country to country. Certain countries
have enacted specific anti-pyramid
29 | Direct selling

Industry Regulations
Fundamentally, these substantive provisions governing direct selling businesses in various countries are founded on similar
principles such as drafting a precise definition of direct selling business, pre-licensing of direct selling company, registration
of direct sellers, stipulations governing activities and rewards/bonuses received by direct sellers, ban on entry fee, extensive
buy-back policies, etc.

Self-regulation by global direct selling industry

Before probing into the legal statues Multiple direct selling companies representatives and customers. The
of various countries, it is imperative from across the world including code of conduct is a self –regulatory
to note that at the global level, direct India have also joined hands to form standard which regulates the varying
selling industry self –regulates itself direct selling associations which interactions across the spectrum of
to maintain high levels of probity, promote ethical business practices direct sales that often exceeds local
integrity, corporate governance and and prescribe a detailed code of legal requirements.
consumer protection standards. ethics for the members, its sales

Code of Ethics - World Federation of Direct Selling Associations

WFDSA is a non-governmental, administrator who is not connected product warranty and buyback offers.
voluntary organisation globally with any member company. The It ensures that member companies
representing the direct selling code administrator will do everything implement adequate mechanisms to
industry as a Federation of 60 possible to ensure Code compliance address customer complaints with
national DSA’s and one regional and where complaints exist, has the respect to their products and/or its
DSA – Federation of European DSA power to decide on remedies. All sales representatives.
(Seldia). The “World Selling Code of member companies agree to honor
The Code is a self-regulation and not
Conduct” (‘the Code’) was published the administrator’s decisions.
a law, therefore, does not restate all
by the WFDSA for National DSA
Broadly, the Code seeks to capture legal obligations. Compliance with
members. This Code establishes a
various aspects of a direct selling local laws pertaining to Direct Selling
standard framework for interaction
business which need to be regulated by National DSA’s is a condition of
between Direct Selling member
including use of misleading acceptance by or continuance of
companies, their direct sellers and
testimonials, misrepresentation of membership in DSA.
consumers.
actual or potential earning claims or
The Code also has a provision for an
The Code is a constantly evolving use of any exploitative and deceptive
extra-territorial effect wherein every
cornerstone of the direct selling recruitment practices.
national DSA pledges that it will
industry’s commitment to ethical
The entire Code has been classified require each member to comply with
business practices and customer
into three sections containing the WFDSA World Codes of Conduct
service. It is a mechanism that helps
regulations in respect of: for Direct Selling with regard to
ensures independent salespeople
direct selling activities outside of
and customers are treated fairly and • Conduct for the Protection of
its home country, unless those
respectfully. Consumers
activities are under the jurisdiction
In order for a DSA to become a • Conduct Between Companies and of Codes of Conduct of another
member of WFDSA, it must adopt Direct Sellers country’s DSA to which the member
the minimum standards set forth • Conduct Between Companies. also belongs.
by the Code to the extent the Further, to help ensure legal India is also a member of the
requirements are consistent with the compliance, the Code provides WFDSA and has drafted a standard
law in each particular country. Every that new memberships should not code of ethics for companies
DSA member company pledges be subject to significant monetary engaged in direct selling activities.
to abide by the Code’s standards commitment either by way of In the ensuing paragraphs, we have
and procedures as a condition entrance fee, training fee, purchase discussed in brief the self-regulatory
of admission and continued of sales kits or inventory loading. authorities set-up to regulate the
membership in a DSA. The companies take responsibility direct selling industry in India.
These Code of Ethics are for consumer protection through
enforced by an independent code provision of accurate information,

Source: www.wfdsa.org
 Direct selling | 30

Indian Direct Selling Association

IDSA is an autonomous, self- in India, partnering industry and down certain features of a genuine
regulatory body for the direct selling government alike through advisory direct selling company discussed
industry in India. The Association and consultative activities. in Box 1.2. Further, the IDSA has
acts as an interface between the also set out a Code of Ethics which
IDSA catalyses change by working
industry and policy-making bodies all IDSA members are required to
closely with the government on
of the government facilitating the follow, however, there is no formal
policy issues, enhancing efficiency
cause of direct selling industry in law or guideline.
and ushering in desired credibility,
India. It strives to create and further
clarity and confidence in Direct
an environment conducive to the
Selling. The Association has laid
growth of direct selling industry

Source: www.idsa.co.in

Federation of Direct Selling Association

FDSA is formed with an aim to felt as the ponzi schemes / money selling and money circulation
provide stability and organise the circulation schemes that were on schemes.
direct selling industry in India. The the rise had started eroding the
necessity for such an action was distinguishing line between direct

Source: www.fdsaindia.org

FDSA has been formed not only with • Coordinate with membership • Coordination with various
an intention to bring about awareness companies for business discipline, government departments to
on what direct selling is about but also collecting data on monthly basis seek privileges & preferences for
to protect it from various quarters of regarding the new products, industry growth, positive identity;
the economy. The primary objective distributors enrolled, turnover
• Act as the Grievance Redressal
of FDSA is to work towards bringing of sales and tax contribution to
Mechanism for the distributors /
direct selling into acceptance by the the Government to estimate the
members of the FDSA membership
media, the authorities and as well as industry volume and potentiality;
companies;
the general public.
• Act as a watch dog for all irregular
• FDSA has regional representation
This association has been vested with business practices (non-members
bodies to lead and handle the
various powers involving: & membership companies of
companies in that particular
FDSA);
jurisdiction.
31 | Direct selling

Box 1.2: Guidelines for Direct Selling Companies by IDSA

1 Any direct selling member company should be a duly constituted, legal entity, authorised to conduct business in India.

All direct selling companies should provide their direct sellers with a written contract, clearly stating the business information, the
2
recruitment guidelines, the termination clause, etc.

Direct sellers have the right to cancel their contract with the direct selling entity within 30 days from the date on which initial membership
3
payment is made by the direct seller.

If requested, upon termination of a direct seller’s relationship with a company, companies shall buy back any unsold, resalable product
inventory, promotional material, sales aids and kits, purchased within the previous 12 months and refund the direct seller’s original cost,
4
less a handling charge to the direct seller of up to 10 per cent of the net purchase price. The company may also deduct the cost of any
benefit received by the direct seller based on the original purchase of the returned goods.

Except for the initial membership fee, for which the direct selling company provides a starter kit containing sample products, literature
5
and sales material, a direct seller is not required to purchase any product or service as a pre-condition for participation.

6 All provisions of the plan, including compensation structures, should be made available to the direct seller in a detailed document.

Compensation to direct sellers is based upon the sale of goods or services, (including any purchases made by the direct seller for personal
7
or household consumption) and upon the sale of goods or services of their respective downline.

Direct sellers are not required to purchase goods or services in amounts that unreasonably exceed the exceed the quantity which can be
8
expected to be resold or consumed within a reasonable time period.

The direct selling company should have a written refund policy providing that a consumer purchasing goods or services from a direct seller
9 shall have at least seven days, from the date of placing an order for such goods or services, to cancel the order and receive a full refund of
any sums paid on account of any goods or services bought, that are returned or made available for pick up by the consumer.
 Direct selling | 32

Global Direct Selling regulation

We have summarised below an overview of the direct selling laws and/ or regulations prevalent in the following countries
across the globe and the ways on which introduction of these specific regulations boost the growth of this industry.

Leading international practices on important issues may be incorporated by India to draft a

holistic regulatory policy framework to govern direct selling.

Regulations in United States of America/ Other key provisions/ regulations

The US is the oldest and the largest regulations relating to allowable the plan rather than from the sale of
market for direct selling. The income presentations, payment of goods or services”
country does not have federal – level compensation to participants and offer
legislations specific to this sector and to repurchase unsold inventory. Other key provisions/ regulations
there are state level legislations and The above mentioned statutes
other laws, which may be applicable. All states in the US prohibits the
promotion or operation of ‘pyramid recognise that repurchase of inventory
For example, the states of Georgia, is consistent with the requirements of
Louisiana, Maryland, Massachussetts, schemes’ through various legislations/
statutes. Some of these statutes are the US DSA’s Code of Ethics.
Wyoming and the Commonwealth
of Puerto Rico regulate direct selling drafted to combat pyramid schemes There is no prohibition on the sale
companies. Montana has a MLM filing specifically; others use lottery laws of any consumer products by direct
requirement as part of its anti-pyramid and other statutes, which do not sellers in the US. Certain regulated
statute. In these states, ‘multi-level specifically mention pyramid schemes industries (for example, wines
distribution companies’ generally are but which are used to combat these and liquors, securities, insurance,
defined as: frauds. These statutes can be civil or etc.) have requirements that apply
criminal in nature. across the board to all sellers in
“companies which market products those industries and the regulations
or services through independent Six states (Idaho, Louisiana, Montana,
Okhahoma, South Dakota and Texas) do not discriminate against direct
agents or distributors at different selling distribution methods. Some
levels and in which participants have anti- pyramid statutes, which
clearly define pyramid promotional products lines (for example, dietary
recruit or sponsor others and supplements, telephone cards, etc.)
receive compensation based upon scheme’ as:
have to meet certain requirements at
the recruit’s sale of products.” “one that gives consideration the federal and state levels and direct
Most states require that the company for the opportunity to receive selling companies have to adhere to
appoints an agent for the service compensation which is derived those requirements.
of process and abide by certain primarily from a person’s
introduction of other persons into “
Direct Selling Association of United States

Direct Selling Association of United name was finally changed to its current abide by the Code’s standards and
States of America (‘DSA’), is the name, the Direct Selling Association, procedures as a condition of admission
national trade association of the and the headquarters moved to and continuing membership in the
leading firms that manufacture and Washington, D.C. in 1968. Association.
distribute goods and services sold
directly to the consumers. The cornerstone of the Association’s DSA provides educational
commitment to ethical business opportunities for direct selling
The DSA was formed in Binghamton, practices and consumer service is professionals and works with
New York in 1910 with 10 members. its Code of Ethics which set forth the Congress, numerous government
At its founding, the association was basic fair and ethical principles and agencies, consumer protection
called the Agents Credit Association. practices to which member companies organisations and others on behalf of
This formation of this group marks the of the Association would need to its member companies.
start of the modern-day direct selling adhere in the conduct of their business.
era. After many re-organisations, the Every member company pledges to

VISION – To protect, serve and promote the effectiveness of member companies and the independent business
people they represent. To ensure that the marketing by member companies of products and/or the direct sales
opportunity is conducted with the highest level of business ethics and service to consumers.

Source: Media reports and www.dsa.org

33 | Direct selling

Regulations in the European Union

European Union (‘EU’) is an important Establishing, operating or promoting a EU (“CRD”) replaces these two
market for direct selling companies. pyramid promotional scheme where a directives. All Member States were
Trading Schemes (also described consumer gives consideration for the required to transpose the CRD into
as direct selling schemes, network opportunity to receive compensation their national law by 13 December
marketing, multi-level marketing and that is derived primarily from the 2013 and to implement the new laws
other names) are a legitimate form of introduction of other consumers into from 13 June 2014. The CRD and its
business activity offering individuals the scheme rather than from the sale predecessors primarily regulate the
the opportunity to earn money by or consumption of products. types of information that must be
selling the scheme’s goods or services provided to consumers in connection
from home. Direct selling is regulated in the with sales transactions, as well as
European Union (EU) under various EU rights of consumers to return products
Pyramid activity is regulated at the directives, which must be transposed within a specified time period (14 days,
European Union (‘EU’) level by the into the national laws of the Member with the start date depending on the
Directive on Unfair Commercial States. Until recently, direct selling type of transaction).
Practices 2005/29/EC (UCP). “Pyramid activities were regulated primarily
promotional schemes” are considered by two directives: Directive 85/577/
to be unfair and are prohibited under EEC on Sales Away from Business
Point 14 of Annex 1 of the UCP. Under Premises and Directive 97/7/EC on
Point 14, a Pyramid Promotional Distance Sales. The more recent
Scheme is defined as: Directive on Consumer Rights 2011/83/ “
Seldia: The European Direct Selling Association

Seldia adopted a strict European Code Members of Seldia, represent also established a European Code
of Conduct revised in 2011, which sets directly and indirectly around 80 per Administrator.
high standards of ethics for direct cent of the EU Direct Selling market.
selling companies. Members of Seldia Companies that are members of a The objective of the Association is to
are obliged to adopt the standards of Seldia member association, are bound represent all forms of direct selling
the European Code in their national by the European Code throughout in Europe and to ensure that EU and
codes and are bound to follow their Europe, independent of whether they national policy makers in Europe are
rules. are a member of a local DSA in other aware of its benefits and advantages,
EU markets. The European Code has as well as its contribution to national
economies.

VISION – To promote direct selling as:

1. a dynamic and reliable channel of distribution aiming at the satisfaction of the consumers and direct sellers, in a
trustworthy and secure environment for both parties;
2. an opportunity for people of all ages and all walks of life to develop an independent business of their own and achieve
their goals as part of a sales force.

Source: Discussions with a direct selling company and www.seldia.eu/

 Direct selling | 34

Regulations in Malaysia

Since its introduction into Malaysia, • Licensing of direct sales activities • Door-to-door sale (Multilevel
direct selling has created a new for the protection of the consumer’s marketing plan/ Single marketing
spectrum of business opportunity for rights and interest; plan)
Malaysians from all walks of life. As • Promotion and regulation of the • Mail Order sale
the industry forged into new heights, growth and development of ethical
in 1978, the direct selling association • Sale through electronic transaction.
direct sales activities;
of Malaysia was founded to promote There is no prohibition on the sales
the direct selling industry on a national • Prohibition of all activities involving
pyramid schemes, chain distribution of specific products. However, direct
and international level, as well as act selling companies wanting to introduce
as the de facto voice of the industry. schemes or other similar schemes.
new products must seek prior approval
Malaysia’s strong belief in business All door-to door sales and mail from the relevant authority before
without borders and that direct selling order selling (including selling by distributing the products. Also, all
is a source of empowerment of people telephone) in Malaysia are subject to health products must be registered
across the globe, led to the enactment DS & APS Act read with The Direct with the Drug Control Authority,
of an extensive legal regime governing Sales Regulations which provide for Ministry of Health, before they can be
business activities of direct selling licensing of persons carrying on direct sold through this mode.
companies in the form of Direct Sales sales business. They lay down the
Act, 1993 (Reprint 2002). conditions under which business may Unlawful to promote or conduct
be conducted, define requirements pyramid scheme
Over the years, the success of direct
selling companies was unfortunately of direct sales contracts, mention The new Chapter – Prohibition of
accompanied by the rise of fraudulent conditions under which licences may Pyramid Schemes read with Schedule
activities such as pyramid and not be granted or revoked and the – Features of Pyramid Scheme or
Ponzi schemes who seek to couch punishment for fraud. The DS & APS Arrangement to the DS & APS Act has
themselves by offering an illusionary Act also provides for a cooling-off been introduced and specifically lays
product at a very high price. period of 10 days after the date of down features of a Pyramid scheme
making a direct sales contract. The or arrangement such as no payment
In 2011, Malaysia amended the existing regulating authority is the ministry of of bonus. Solely on new recruitments,
statute to rename its as the ‘Direct Domestic Trade and Consumers Affairs. mandatory written contracts, no
Sales and Anti-Pyramid Scheme Act, entry fee, price of goods to be
1993’ (‘DS & APS Act’). DS & APS Act also stipulates that any
person negotiating a door-to door sale commensurate with quality of goods
The key objectives of amending the will have to produce an identification offered for sale, buy-back policy, etc.
existing law were to incorporate inter- card and authority card. This protects Other statues under Ministry of
alia specific provisions governing sales consumers from fraudulent schemes. Domestic Trade, Cooperatives and
achieved through electronic medium In Malaysia, direct sellers are treated Consumerism governing the Industry
and regulations on legitimate multi- as independent contractors. include – Competition Act, 2010,
level marketing. Personal Data Protection Act 2010,
The following types of marketing
Further, the DS & APS Act intends to plans are presently covered under Price Control & Anti Profiteering Act,
ensure: the provisions of the Act (as defined 2011 and Consumer Protection Act,
therein): 1999. Other allied laws in relation to
health and taxes are also applicable to
such companies. “
Direct Selling Association of Malaysia

DSAM functions at the societal level members, all of whom are elected by associations to achieve common
to create and maintain an environment member companies. aspirations.
that is conductive to the growth and
stability of the direct selling industry in In addition to the cooperation extended DSAM Code of Conduct is an example
Malaysia. by member companies, DSAM closely of self-regulation. It is a strict and
works with the Ministry of Domestic effective code of conduct implemented
Established in 1978 as a national trade Trade, Co-operatives & Consumerism, worldwide, and endorsed by the
association, it is led by a President Ministry of Finance, Ministry of Health, Ministry of Domestic Trade, Co-
and Vice-President and 7 committee other government bodies and trade operatives & Consumerism.

Source: www.agc.gov.my; www.dsam.org.my/ and Media reports

35 | Direct selling

Regulations in Vietnam

Direct Selling in Vietnam is a relatively are granted with the new business activities in which income of
a new business and until 2005, it licenses under the provisions of participants primarily derives from:
lacked specific regulations to deter Decree 42;
–– the recruitment of new
those using this marketing technique
• Standard contract of participation: participants;
for scamming and manipulating
consumers (Decree 110). Decree 42 has prescribed certain
mandatory information that a –– the extension of contracts of
standard contract between a direct participants; or
With a view to render more stringent
regulations with stricter requirements selling enterprise and its participants –– the amount of charge, deposit, or
and control applicable to multi-level must have in order to protect the investment fund of participants in
marketing (or direct sale) activities in legitimate rights and interests the network.
Vietnam, the government issued a new of the customers and prevent
Decree No. 42/2014/ND-CP (‘Decree evasion of liabilities by direct selling Moreover, to be in alignment with the
42’) with effect from 1 July 2014. enterprises; aforesaid prohibition, Decree 42 also
supplements provisions forbidding
Business licenses issued to direct • Submission of periodic reports: direct selling enterprises from:
selling companies under the Decree Direct selling enterprises will have
110 would continue to be valid for a to submit periodic reports on their A. Requiring participants:
period not more than 6 months until operation to the MOIT and/or the –– to pay any amount of money in
such companies are granted with new relevant DOIT(s) under the old any way whatsoever in order to
business licenses under the provisions Decree 110; have the right to maintain, develop
of Decree 42. or expand their networks.
• Revocation of license: In order to
The key provisions of Decree 42 have tighten the legal framework and to –– to recruit or extend the contracts
been summarised below: eliminate incapable market players in for participation in direct selling
the direct selling business, Decree business with a certain number
• License and registration: Direct 42 further regulates that a licensed of participants to have the right to
selling activities must be registered direct selling enterprise failing to receive commissions, bonuses
in accordance with the laws and do business for 12 consecutive and other economic benefits.
regulations of Vietnam, direct months from the issuing date of
selling businesses must be the duly the Certificate will be forced to B. Maintaining more than one
established companies in Vietnam, terminate and its Certificate will position in direct selling business,
with retail business activities be revoked. Within 3 years as from contract for participation in direct
registered for direct selling with the revoke, the said direct selling selling business, direct selling
legal capital of VND 10 billion and the enterprise may not be re-granted the code or other equivalent forms for
compulsory deposit of 5 per cent of Certificate; one participant;
the charter capital, but not less than
VND 05 billion, at the commercial • Stringent buy-back code: Under C. Selling and purchasing or
banks operating in Vietnam where the old Decree 110, participants transferring the network of
the companies’ head offices located. only have the right to request direct participants to other enterprises,
The Ministry of Industry and Trade selling enterprises to buy-back the except for merger and acquisition;
(‘MOIT’) will take responsibility goods in case of termination of and
of granting the business licenses direct selling contracts between D. Collecting charges for issuance or
for direct selling companies, them and such direct selling re-issuance of membership cards,
instead of municipal and provincial enterprises. However, to better etc.
Departments of Industry and Trade protect participants’ rights and
(‘DOIT’); benefits, Decree 42 requires direct The above mentioned new regulations
selling enterprises to repurchase are aimed to tighten the legal
• Duration of business licenses: For the goods, which have been already frameworks for direct selling business
direct selling companies, this shall sold to a participant, at any time as and to ensure that direct selling
be 5 years and may be extended, requested by the participant; enterprises remain focussed on the
but each time it shall not exceed sale of goods to actual customers
5 years. Business licenses issued rather than on multiple layers of
to direct selling companies under recruitment of new participants.
the provisions of Decree 110 are
valid with no more than 6 months • Prohibition on Pyramid schemes:
until such direct selling companies Decree 42 prohibits business
 Direct selling | 36

“
Direct Selling Association of Vietnam

The AmCham Direct Selling The Direct Selling Committee (‘DSC’), It is imperative to note that the code
Committee (‘ADVSC’), established in under the umbrella of ADVSC, has of conduct defines the term “product”
2008, was set-up in Vietnam to protect, established a standard Code of Ethical as tangible and intangible consumer
serve and promote the effectiveness Conduct for direct sellers and direct goods and services. However, under
of direct selling companies i.e. selling companies to (1) promote best decree 110/2005/ND-CP, services are
member companies. Twelve direct business practices, (2) demonstrate an not considered for direct selling.
selling companies comprising of about unwavering commitment to consumer
90 per cent of the direct sales industry protection, and (3) promote industry
are members of the ADVSC. self-regulation. Further, ADVSC adapts
to the amendments made in the
WFDSA guidelines on an on-going
basis.

VISION – ’To protect, serve and promote the effectiveness of member companies and the independent business
people they represent.’ To ensure that marketing by member companies of products and/or the direct sales opportunity
is conducted with the highest level of business ethics and service to consumers.

Source: www.amchamvietnam.com and Media reports

37 | Direct selling

Regulations in Singapore

In 1973, Singapore regulators enacted conditions, then it would not be in the scheme or arrangement,
The Multi-level Marketing and Pyramid construed as an illegal scheme: duly audited by an auditor for each
Selling (Prohibition) Act, 1973 (Revised financial year;
Edition in 2000) declaring pyramid i. No entry fee : No person should
selling schemes and arrangements be required to provide any benefit/ iv. No fraudulent activities or sales:
as illegal. However, there are acquire any commodity in order A promoter of the scheme
exceptions to the Rule, embodied in to participate in the scheme or or arrangement should take
the Multi-level Marketing and Pyramid arrangement, other than the reasonable steps to ensure that
Selling (Excluded Schemes and purchase of sales demonstration participants do not indulge in false
Arrangements) Order, 2000 (‘Order’). equipment or materials at a price or misleading representations or
not exceeding their cost which any other form of fraud, coercion,
This Order has been passed in exercise are not for resale and for which no harassment, or unconscionable or
of powers conferred under the Multi- commission, bonus or any other unlawful means;
level Marketing and Pyramid Selling advantage will be given to any
(Prohibition) Act, 1973 in order to lay person; v. Refund/ buy-back guarantee: The
down an enabling policy for direct commodity should be distributed
sellers and exclude certain schemes ii. No recruitment commission: No with a full refund or buy-back
and arrangements to be categorised as benefit to be received by any guarantee that is exercisable by
‘Pyramid schemes’. person (promoter, participant, etc.) every participant in the scheme
as a result of the sale, lease, licence or arrangement on reasonable
The legality of the operation lies in how or other distribution of a commodity commercial terms and within a
it is structured and the key question to any other person or as a result period of at least 60 days from
remains as to whether the participants of the performance of one or more the date of distribution of the
profit from the sales of the people participants in relation to the sale, commodity to the participant;
they recruit, or do they profit from the lease, licence or other distribution
recruitment of the people. The aim of of a commodity to any other person; vi. Written confirmation of guarantee :
the Act is to prevent any unsustainable Every participant in the scheme or
pyramid-selling. iii. Maintenance and audit of records: arrangement should be informed
A promoter of the scheme or in writing, at the time of the
The Order prescribes that if any arrangement to maintain fair and distribution of the commodity to the
scheme or arrangement, or any class accurate records of the maximum, participant, of the existence of the
of such schemes or arrangements minimum, median, average and guarantee and the manner in which
satisfies the following terms and mode benefits that have accrued it can be exercised.
to the promoter and participants “
Direct Selling Association of Singapore

Direct Selling Association of Singapore DSAS is managed by an Executive They have an excellent working
(‘DSAS’), a trade association gazetted Committee, which is elected by the relationship with CASE based on
on 8th October 1976, was founded to general membership annually at an mutual trust and respect built up
specifically represent the interest of Annual General Meeting. over the years. We co-operate with
legitimate direct selling companies CASE in helping to resolve consumer
operating in Singapore. The Association DSAS is an affiliate of the WFDSA and complaints not only with regard
serves as a platform for member is also an Institutional Member of the to DSAS members but also non-
companies to meet regularly and to Consumers Association of Singapore members.
discuss matters of mutual interest as (CASE). DSAS interacts regularly with
well as to interact with other similar other DSA’s, particularly those in the Singapore has adopted the World
organisations in other countries. ASEAN and East Asia countries as well Direct Selling Code of Conduct for
as with the US DSA. its National DSA members which
concerns the relations between direct
selling companies and direct sellers on
one hand and consumers on the other.

VISION – An ethical marketplace for the direct selling industry in Singapore.

Source: www.mti.gov.sg; www.dsa.org.sg/ and Media reports

 Direct selling | 38

Regulations in China

China liberalised foreign investment to the Regulation on Direct Sales, a • payments are based on formation
in wholesale and retail distribution company must obtain an approval from of an upline-downline relationship
away from a fixed location with the the government before it is allowed between distributors where
promulgation of the Regulations to engage in any direct selling or even an upline payment is based on
for the Administration of Direct establish a local company that intends downline sales performance.
Selling by the State Council and to engage in such activities. Further, Another key regulatory feature
effective from December 1, 2005 the Direct Sales Regulations restrict requires all direct selling companies
(‘the Direct Sales regulations’). the products (5 product categories) to provide training on fundamental
Following the promulgation of that can be sold using direct sales topics such as distributor contractual
Direct Sales Regulations, China methods in two different ways. A and legal obligations to all sales
issued implementing regulations to direct sales enterprise may only sell representatives.
supplement various aspects of the products that were produced by itself
Direct Sales Regulations. or by its parent or holding company. Ministry of Commerce People’s
Additionally, China has limited the Republic of China (‘MOFCOM’) is the
China also issued the Regulations on overall scope of products that can be issuing authority of the Direct Selling
Prohibition of Chuan Xiao (‘pass-along sold through direct sales. Moreover, Permits. In order to apply for a Direct
sales’), promulgated by the State the remuneration must be based on Sales Permit from MOFCOM, an
Council and effective from November personal product sales rather than applicant would have to submit a set of
1, 2005 (‘the Pyramid Marketing on upline-downline relationship and application documents. The application
Prohibition Regulations’). The stated cannot exceed 30 per cent of revenues. for the Direct Selling Permit must be
aims of the Pyramid Marketing submitted to MOFCOM through their
Prohibition Regulations are to ban Multi-level marketing, this form of provincial level counterpart where
certain activities which are considered Direct Sales, is considered as an illegal the applicant enterprise is registered.
to be harmful to the society and activity when: During the application process,
business environment. MOFCOM will solicit the opinion of
• there is entry fees and disguised SAIC regarding the application before it
“Direct Sales” is broadly defined as “a entry fees (mandatory product decides whether to grant its approval.
sales method whereby a direct selling purchases) to join;
enterprise recruits direct sellers,
who market products directly to the • payments are calculated primarily on
ultimate consumers other than through the number of recruits (rather than
a fixed place of business”. According the sale of products);

Source: www.melaleuca.com; www.khdsa.org.hk/ and Media reports

39 | Direct selling

Direct selling
market in India
 Direct selling | 40

Direct selling market in India took off in 1990’s with the

influx of the large global direct selling companies looking
to tap the India opportunity.
In India, the industry came into The industry witnessed major growth was followed by companies like Avon,
existence in early 1980s, However, it post liberalisation with many global Oriflame and Tupperware in 1996.
really took off in early 1990s soon after players entering the Indian market. Around the same time Modicare was
the country opened up to the global Amway was one of the first major one the first few Indian companies to
market. global direct selling companies to adopt this channel of distribution.
enter India in the year 1995. Which

Source: IDSA, PHD Chamber, ICREAR, Direct Selling News, Industry Discussions

Even though many of the Indian contributing ~95 per cent to the looking for quality products that add
direct selling companies initially market. The market has grown to value, and are willing to pay a premium.
started in the southern part of India, become a key channel for distribution
However, currently the industry is
today several of them have pan India of goods and services in the country,
facing many challenges in India. India
operations. In terms of revenue specially for health and wellness
lacks a systematic policy that clearly
generated Maharashtra, Tamil Nadu, products, cosmetics, consumer
defines the regulatory framework
Kerala and Andhra Pradesh have the durables, water purifiers and
of the industry. There is no clear
highest shares. Recently, the industry vacuum cleaners. However, it is still
definition for legitimate Direct
has witnessed greater growth in the undeveloped as compared to global
Selling to differentiate it from Ponzi/
eastern part of the country and in peers and the variety of brands and
Pyramid Schemes attempting to
many Tier 2 and Tier 3 cities with direct products available in the country are
disguise themselves as Direct Selling
selling companies trying to reach out lower than those in other economies.
structures. As a result of lack of clarity,
to customers in markets which have
Going forward, the growth of the fraudulent activities in the industry
remain untapped thus far.
industry is expected to be majorly have increased and legitimate Direct
The direct selling market in India is driven by expanding markets and a Selling is being confused with Ponzi/
a INR 72 billion market today and is strong consumer base increasingly Pyramid Schemes.
dominated by the organised players
41 | Direct selling

The direct selling market in India has grown at a CAGR

of 21 per cent over the last 5 years from INR33 billion in
2008-09 to INR 72 Bn in 2012-13.
Direct Selling Market Size in India
The market in India is led by international
companies including Amway, Avon and Herbalife.6
The direct selling market in India has grown at a
CAGR of 21 per cent over the past five years to
reach INR72 billion today. The market grew at a
lower rate in 2012-13, but that was possibly due
to a relatively shorter phase of global slowdown.
Going forward, the industry is expected to
witness robust growth with increasing product
demand and penetration of direct selling.

Source: WFSDA website, Date 14 July 2014

6. Industry discussions
 Direct selling | 42

South India is the largest market for direct selling followed

by the northern region which has witnessed a high y-o-y
growth rate of 33 per cent.
State wise direct selling market

Northern Region
27 per cent share; 33 per cent growth
The northern region is the second largest
region by market size and has grown at the
fastest rate in 2012-13. Allahabad, Ludhiana
and Delhi generate the maximum sales in
the region. Other key cities include Lucknow,
Chandigarh and Kanpur.

North Eastern Region

11 per cent share; 27
per cent growth
The north eastern region
is currently the smallest
market for direct selling.
However, over the past
few years, growth has
picked up in the region
with focus from industry
players. Key cities in the
region include Itanagar,
Guwahati and Shillong.

Eastern Region
17 per cent share; 19 per cent growth
With unexploited potential in the eastern
Western Region region, companies are optimistic about
15 per cent share; 9 per growth prospects in the future. The region
cent growth contributed around INR 12.2 billion to
The western region is the gross sales revenue in 2012-13 and
a relatively untapped exhibited growth at around 19 per cent. The
market compared to largest direct selling markets are Patna and
Northern and Southern Kolkata followed by Ranchi, Bhubaneshwar
regions. Direct selling and Jamshedpur.
sales in this region
are driven by Mumbai
and Pune followed by Southern Region
other key cities such as 30 per cent share; 14 per cent growth
Ahmedabad, Surat and The region holds the highest share for the direct selling
Jaipur. industry. However, its share has fallen in the recent times
with higher growth in relatively untapped regions, and a
shift in industry focus given the un-favourable business
environment in recent times (lack of regulatory clarity leading
to litigation on direct selling companies). Bangalore, Chennai
and Hyderabad are the largest direct selling markets in South
India.

Source: IDSA
43 | Direct selling

Health and Wellness is the biggest category capturing

47 per cent share in the direct selling market followed by
wellness products and household goods.
Product Categories

Note: X axis - Market share for 2012-13; Y axis - Growth per cent over a 3 period from 2010-11 to 2012-13, Size of the bubble represents market size
Source: WFSDA website, Date 14 July 2014, KPMG in India analysis

The direct selling industry spans supplements. As a result, Health their appearance. Demonstration
across a diverse range of products. and Wellness is the largest direct through direct selling makes it easier
However, specialised products selling segment capturing a market of for customers to chose such products.
requiring one to one interaction and INR31.5 billion in 2012-13.
Marketing strategies have increased
demonstration with the customers
Cosmetics & personal care generated consumer awareness about hygiene
such as health & wellness products,
a revenue of INR 23.5 billion capturing and cleanliness in urban and rural areas
cosmetics and personal care products
a 35 per cent share in the market. With which has led to increase in demand
dominate the direct selling market.
consumers’ growing interest in self for Homecare and Home improvement
Increasing awareness about the need grooming, beauty and personal care products. With a market size of INR7.4
for a healthy lifestyle seems to have companies in India have introduced billion, this category had an 11 per cent
increased the demand for health a vast variety of products for both share in the total direct selling revenue
products like weight loss and dietary women and men that can enhance in 2012-13.
Direct selling | 44
45 | Direct selling

Benefits - Socio economic impact of the industry

Socio Economic Benefits of Direct Selling

1 Self-employment opportunities and women empowerment

The size of the Indian direct selling people, specially women. Direct (3.4 million) female distributors which
community has more than doubled selling gives women the flexibility increased 1.5 times from 2.2 million
between 2009-10 and 2012-13. The to manage their time and balance in FY10.7
industry has seen an increase of their work and personal lives. The
Also many companies work towards
almost 2.6 million distributors from industry also offers women financial
the empowerment of women. In 2008
about 3.2 million in 2009-10 to 5.8 in independence and the improved
Avon India in association with Avon
2012-13. ability to take care of their families.
foundation started the Breast Cancer
The industry in FY13 provided self-
The industry offers self-employment Crusade to increase awareness of the
employment to nearly 60 per cent
opportunities to a large number of disease in the country.7

Self-Employment Opportunities

Source: IDSA

7. IDSA, Socio-Economic Impact of Direct Selling - ICRIER Report, Industry Discussions

 Direct selling | 46

2 Increase in product reach to Tier II, III & rural areas

With about 70 per cent of India’s are trying to enter Tier 2 and Tier 3 products sold through the direct
population in rural areas, the Indian cities and rural areas, providing the selling channel.
rural FMCG market is still relatively consumers with knowledge about
Increased focus on the agricultural
untapped (with only 34 per cent different products and services.
sector would likely boost rural
FMCG sales) Maintaining good quality at affordable
incomes, and could provide better
prices seems to have led to an
Many direct selling companies are growth prospects for direct selling
increased demand for these products
now expanding their reach and companies going forward.
and an increase in the number of

FMCG Consumption 2012-13

Source: IDSA

Geographical expansion to reach Tier II, III & rural areas

Many companies including Modicare Amway

Modicare and Amway are Modicare doubled its salesforce to To offer more convenient prices
expanding into tier II , tier III and 2.5 lakh direct sellers in 2011 and to its customers, Amway has
rural areas. The strategy adopted by invested Rs. 50 crore to develop launched 4-ml sachets of Satinique
the direct selling market in India to products and open more centers dandruff control shampoos and
increase rural focus often involves across the country, for penetrating conditioners, amongst others,
the direct selling companies to the tier II, III and rural market. under its personal care category.
forgo their premium tags and target Pricing the product at Rs. 5, the
mass segments by producing It launched a new range of products
company is trying to providing
products sachets. This marketing under the brand names ‘Smooth’
its clientele products in a lower
method has effectively enabled and ‘Velocity’. These products like
price bracket. Along with sachets,
companies to build trust in smaller shaving lotion, after shave, body
the company is coming out with
towns and villages. spray among others were offered
2-in-1 products, such as combined
by the company at a lower price
shampoo and conditioner samples
range compared to similar products
to promote its products.
sold by other companies.

Source: IDSA, Socio-Economic Impact of Direct Selling - ICRIER Report, Industry Discussions
47 | Direct selling

3 Sourcing from SMEs leading to growth and technology percolation

Many direct selling companies in companies were sourced through providing the right equipment
India outsource their manufacturing MSMEs. and machines to the SMEs for
process to contract manufacturers production. Driven by these initiatives,
In a lot of cases, the direct selling
which are generally Micro, Small many SMEs have now developed
companies impart the manufacturing
and Medium Enterprises (MSME) to capabilities to cater to the needs of
know-how, technology and processes
produce products domestically. other MNCs and have commenced
to enable the SMEs to produce
supplies to them, promoting India as a
As of 2011, nearly two-third of the leading products. Several direct
manufacturing destination.
products sold by direct selling selling companies also invest in

Split of Manufacturing

Source: IDSA

Case Study: Sarvotham Care

Sarvotham Care, a small scale know-how and processes for the of over INR 350 crore employing
enterprise started its operations in indigenous production of Amway’s 500-600 people today. In addition,
1996 in Hyderabad, wherein they product range. Soon, Sarvotham the company has also grown to
were involved in pharmaceutical Care expanded into personal care become a supplier for other major
formulations. products as well. companies including GSK, Gillette
and P&G.
After Amway got approval from In 2005, Sarvotham Care
India’s Foreign Investment invested INR 15 crore to set-up Just like Amway, many other direct
Promotion Board in 1996 to invest its manufacturing facility in Baddi, selling companies have helped in
in Indian operations, Sarvotham which was further expanded with a steering the progress of the small
Care got in touch with Amway in total investment of INR 100 crore. and medium-scale enterprises
1997 for manufacturing Amway’s in India. Along with transfer of
Today, Sarvotham Care produces
home care range. Amway helped international standard technology,
85 per cent of Amway’s product for
Sarvotham Care in bringing its SMEs were benefitted by expert
the domestic market. The company
production facilities and skills to guidance.
has also grown multi-fold from
international standards through
a revenue of 15 crore and 20-25
the transfer of manufacturing
employees in 1997 to a revenue

Source: Industry Discussions

Direct selling | 48
49 | Direct selling

4 Contributions to social causes

The direct selling industry has made direct selling companies in India are Opportunity foundation currently has
notable contribution to social causes. focussed to social areas like health two projects – National Project for the
In 2012-13, approximately 81 per cent and human services, environmental Blind and Project Sunrise providing
of the direct selling companies in the protection, women empowerment education opportunities to the
organised sector were involved in and children protection and education underprivileged. The Herbalfe Family
CSR activities. rights. Foundation aims at providing good
nutrition to children in the country.
Companies typically contribute Avon set-up the Breast Cancer
upto 1 per cent of their revenue to Crusade to raise awareness about
social change. Contributions from the disease in India. The Amway

Women Empowerment through CSR, Oriflame

Oriflame India has contributed NGO.  A grant of approximate INR Hand in Hand
towards women empowerment 4 crores was given to Deepalaya
through its CSR activities by leading for the ‘Oriflame Girl Child’ project.
girls towards the path of education The contribution has facilitated
and helping them in bringing out education of selected girls in the
their latent talents as well as by the age bracket of 4 to 17 years. 
self-employment opportunities it
presents to all female employees. Power of Kiss

Oriflame Girl Child Oriflame has invested INR 30

crores in a Tamil Nadu based NGO,
Hand in Hand. The NGO uses
this grant to support Self Help
Groups and microfinance projects
for training of SHG members and
women’s literacy programmes.
This campaign is an endeavor
This project focusses on alleviating
to contribute to the overall
‘Oriflame Girl Child’ project is an rural poverty by empowering
development and welfare of the
endeavor to spread the message women to become entrepreneurs
girl child in India. In alliance with
that a community’s development is and set-up enterprises in order
Deepalaya, Oriflame has promised
incomplete without the education to bring in more income to the
to contribute contributed INR 2
of girls. Under this project, Oriflame families.
from the sale of each lipstick, which
has sponsored education of 1,000
will doubled by a charity concern
girls from Deepalaya, a Delhi based
formed by Oriflame founder.
 Direct selling | 50

Child care through CSR, Amway

Amway Opportunity Foundation With the high cost of Braille The life of Siddhi Desai, a first
executes Amway’s vision of textbooks, Amway’s contribution ranking student, substantiates
enabling the less privileged children has given these children a chance of the impact of this. The cost free
to lead a better life by many projects a better future. Braille provided by Amway helped
such as the National Project for the 13 year old visually impaired
“Recorded books are not enough,
visually impaired. student from Bombay reach her full
especially for children. When you
potential and has done so for many
India has approximately 2 million just listen, you don’t acquire the
more.
blind school-age children. Under fundamentals of language, such as
this project, Amway ensured spelling and phonetics. Braille offers “This program provides exactly
access of 85,000 blind school distinctive advantages for children the kind of encouragement these
children to Braille textbooks, .. It opens the imagination in the children need to graduate, on
donated audio textbooks to same way the printed page does for time, and to get ready for the
Bangalore university and set up 15 sighted children.” next stage of their lives”
fully functional computer centers - Mrs. Desai (Mother)
which cater to 3000 students per
year.

Education and Health care for less privileged, Herbalife

Herbalife Family Foundation the Mission Education projects. It • The Mission Education program
(HFF) is also working with Charities Aid of Smile Foundation is designed
Foundation India on nutrition related to empower children from the
Created in 1994 by Herbalife
projects. underprivileged communities.
Founder Mark Hughes (1956-2000),
The first phase of the program
the Herbalife Family Foundation Launch of Casa Herbalife in –
will benefit children, in the
(HFF) is a non-profit corporation Mumbai, Maharashtra
vicinity of Malvani in Mumbai,
dedicated to improving the lives
• Herbalife in association with within the age group of 5 to 14
of children by helping charitable
Smile Foundation launched Casa years.  The other beneficiary
organizations provide healthy
Herbalife Center in Mumbai group will be boys and girls
nutrition to children in need.  In
at Khapri, in Thane district of
2005, HFF introduced the Casa • Through this association
Maharashtra, in the age group of
Herbalife Program to help provide Herbalife will provide a grant to
3 to 18 years.
healthy and nutritious meals by the Smile Foundation, a national
partnering with existing charities development organization that
serving children. Today, HFF works towards the education
supports over 100 Casa Herbalife and healthcare of less privileged
programs in more than 50 countries children and youth.  The grant will
and serves over 120,000 children provide nutritional food to 3000
daily. children across India as part of
Smile Foundation’s ‘Mission
Herbalife India has supported
Education’ program across
and donated to various non-
India, first phase of which was
profit organizations in projects
launched in Mumbai
that are related to nutritional
wellbeing of children as well as

Source: Industry Discussions

51 | Direct selling

5 Contribution to exchequer

The operating model for direct selling

generates tax contributions to the
government across its value chain.
Total tax contribution by the direct
selling industry to the government
in FY13 alone is estimated at INR10
billion. This includes direct and indirect
tax contributions through corporate
income taxes, import duties and VAT

Source: IDSA
 Direct selling | 52

Direct selling companies have also contributed towards

economic development by investing in manufacturing and
R&D.8
Investment in manufacturing and R&D made by the industry: Select examples

Amway innovative products specifically for the Vestige

Amway has invested over INR 1500 Indian market, which eventually might
be sold globally. Vestige, which started in 2004, is
million in India. Of this, approximately a direct selling player in health and
INR 220 million has been in the Herbalife personal care products. The company
form of foreign direct investment. It is constantly expanding its product
Herbalife International India Private
has invested INR 200 million in the range with a target to introduce
Limited (Herbalife) is in the business
transfer of technology to the contract 15 new products every year. The
of trading and marketing of Nutritional
manufacturers. Amway’s first LEED- company has invested INR 200 million
food products, energy drink mix and
certified greenfield manufacturing in manufacturing facility in Baddi in
personal care products. Started in
facility is expected to be open in early Himachal Pradesh; further, by 2015
1999, today Herbalife is one of the
2015, at an investment of INR 5500 they plan to invest INR 10 million in its
largest direct selling companies
million in Tamil Nadu, and plans to own R&D facility, which is expected to
in India. Herbalife manufactures
manufacture Nutrition and Beauty focus on Ayurvedic products.
its products through third party
products predominantly.
manufacturers at Baddi and Paonta
Oriflame
With an initial investment of at Sahib in Himachal Pradesh. Its
personal care products are currently Oriflame India, is fully owned
least INR 500 million, Amway India
being imported. The company pursues subsidiary of Swedish direct selling
Enterprises has set-up a dedicated
its global mission of ‘Changing company Oriflame, and has its
R&D centre in India, which will be
People’s lives’ through ‘direct selling’ manufacturing facilities in Noida. The
its third R&D centre globally. Apart
channel of sales & distribution by manufacturing facility caters to both
from complimenting its Shanghai and
Independent Associates in India.” the domestic and export market.
US centres on the global products, it
is expected to focus on developing

8. Industry Discussions
53 | Direct selling

Direct selling companies have

contributed in improving quality of life
in multiple ways. Amway is one of the
largest such contributors.9
Company Profile – Amway India Investment in manufacturing / Corporate Social Responsibility
Contract manufacturing
Amway, short for American Way, is Amway India’s CSR initiatives kicked
one of the world’s largest direct With the exception of cosmetics off in 2001 with the registration of
selling companies. Founded in products and some products in the Amway Opportunity Foundation
1959 by, Amway operates in more Nutrition and Wellness category, (AOF) which works towards uplifting
than 80 countries and territories on almost all Amway India products underprivileged children. The initiative
six continents. Amway India was and bottles are manufactured in gained focus in 2003 when the
established in 1995 and commenced India. In India, Amway outsources ‘Amway One By One’ campaign was
its commercial operations in the manufacturing to small contract launched across 80 Amway affiliated
country by 1998. manufacturers. To achieve international countries. Between 1995 and 2005,
standards, Amway has invested AOF’s ‘National Project for the Visually
Amway India is India’s largest direct
about INR 200 Million to provide Challenged’ provided 85000 school
selling company that manufactures
contract manufacturers with the going children with Braille textbooks
and sells world class FMCG products.
newest technology. Outsourcing across 12 states in India. AOF also
Amway India offers over 140 products
has generated employment for over launched ‘Project Sunrise’ aimed
in five categories - Personal care
2,000 persons at all the contract at helping Indian orphanages and
category, Home Care category,
manufacturer locations. Amway has children’s home provide children
Nutrition & Wellness category,
also invested INR 5.8 Billion to build with clean drinking water, education
Cosmetics and Great Value Products.
its first manufacturing facility India in and nutrition, improving their basic
Tamil Nadu which is expected to go healthcare.
live by 2015 and manufacture beauty
and nutrition products.

Key statistics

Turnover: No. of direct sellers: 1.4 Delivery Network:

INR 22 Billion (2012-13) Million Presence: 152 Offices 4000 Cities & Towns

Key Brands: Nutrilite, Artistry,

Taxes Paid: CSR Spend:
Attitude, Dynamite, Glister,
INR 4.8 Billion (2013-14) INR13.8 Million (2012-13)
Persona, Satinique

Company Evolution

9. Company website and discussions, Press search

 Direct selling | 54

Avon is another such contributor

to the well-being of the society by
empowering women, philanthropy and
through sustainable operations.10
Company Profile – Avon India Corporate Social Responsibility Key statistics
Being one of the world’s leading direct Avon Breast Cancer Crusade: In 2008,
selling companies, Avon has focussed Avon India launched the Avon Breast Global Turnover:
on women for its business, and is Cancer Crusade in association with USD 10 Billion (2013)
known for selling products to, for and Avon foundation followed by the “don’t
through women. It promotes financial turn a blind eye to breast cancer “
independence of women. The iconic campaign in 2009. Through various No. of direct sellers:
‘Avon Lady’ is the name given to its mediums breast cancer awareness 70,000
independent representatives. was disseminated to reach over 1
million women. Through the sale of
Avon began operations in India in 1996. pink ribbon products, Avon India raised
Its product line-up includes beauty and more than $80,000 from 2008 to 2010, Presence: 1000 towns and 500
personal care, skin care, perfumes, and the funds have been donated to cities across India
home care, and nutritional products. the Cancer Patients Aid Association.
Avon uses both company-owned
manufacturing facilities and third-party Key Brands: Anew, Avon Care,
manufacturers to produce its products Clearskin, Naturals, Solutions,
around the world Senses

Company Evolution

10. Company website and discussions, Press search

55 | Direct selling

Modicare, with a range of products

in accordance with Indian tastes and
preferences, is an active contributor
dedicated towards HIV/AIDS
prevention.11
Company Profile – Modicare Research & Development Corporate Social Responsibility
Modicare, a subsidiary of the Modi Modicare has an R&D centre Modicare Foundation: The Modicare
group, was launched in 1996 with the in Mumbai, which consists of Foundation was set-up in 1996 to
aim of providing financial freedom to experienced scientists and technical prevent the spread of HIV/AIDS,
every individual. It is the first direct staff who develop products centres enhance awareness and erase
selling company of Indian origin. in accordance with Indian tastes and myths surrounding it. Some of the
preferences. The company has studied key achievements of the foundation
Modicare offers more than 120 the markets of some SAARC countries include:
products across various categories to launch its products. It has expanded
including skin care, colour cosmetics, • Pre-test, post-test and follow up
its product reach to Sri Lanka and
personal care, home care, laundry counselling services to over 11,000
Bangladesh.
care, nutrition, health and wellness, clients
food and beverages, agriculture, and • Covered 25,000 single circular
auto care. migrants annually to reduce
vulnerability of AIDS among migrant
Key statistics
population

• Generated awareness of HIV/AIDS

Turnover: No. of Distributors:
and STIs to over 20,000 construction
INR 1.5 Billion 150,000
workers on the Gurgaon-Sohna road

• Trained 50,000 adolescents in

Presence: 50 centers Key Brands: Well, Essensual, making informed choices related to
supplying products to 2700 FOTE, Sofwash, Salon, Velocity, growing up and HIV/AIDS.
cities Washmate

Company Evolution

11. Company website and discussions, Press search

 Direct selling | 56

Vestige, an Indian direct selling

company, believes in empowering its
members with the opportunity to lead
their lives on their own terms.12
Company Profile – Vestige Investment in manufacturing / Corporate Social Responsibility
Marketing Pvt. Ltd. Contract manufacturing
Vestige Heart To Heart – Vestige
Vestige Marketing Pvt. Ltd., started Avon Breast Cancer Crusade: In 2008, has taken over an orphanage outside
operation in India in 2004 and is one of Avon India launched the Avon Breast Madurai under the “Vestige Heart to
the leading direct selling companies in Cancer Crusade in association with Heart” foundation. Vestige supports
the country dealing in healthcare and Avon foundation followed by the “don’t 165 children and pays for their
personal care products. turn a blind eye to breast cancer “ education, health and support. In 2013
campaign in 2009. Through various Vestige spent more than INR 50 Lakhs
Vestige is an ISO 9001-2008 certified mediums breast cancer awareness on its CSR activities.
company and strives to offer was disseminated to reach over 1
world class service levels to all its million women. Through the sale of
customers. The company has been pink ribbon products, Avon India raised
able to accomplish a rewarding and more than $80,000 from 2008 to 2010,
sustainable system by providing and the funds have been donated to
quality products at attractive prices the Cancer Patients Aid Association.
and has been growing constantly at
~100 per cent over the past few years.

Key statistics

No. of direct sellers: Delivery Network: CSR Spend:

100,000 2800 Service Centres INR 5 Million + (2013)

Key Brands: Assure, Enerva,

Presence: 92 Offices in India Taxes Paid:
Invigo, Zeta, DentaAssure,
and 2 International offices INR 600 Million (2013)
Agri-82

Company Evolution

12. Company website and discussions, Press search

57 | Direct selling

The Indian direct selling

opportunity: 2025
 Direct selling | 58

Driven by increasing share of middle income households

and potential of increasing penetration, the direct selling
market in India has the potential to reach INR 645 billion
by 2025.
Direct Selling Penetration - Global comparison

In China, the direct selling industry has flourished 2006

onwards and has grown significantly over the past years.13
Currently, China’s industry penetration stands at twice that of
India at 0.8 per cent.

Other Asian markets like Indonesia, Japan and South Korea

have much higher direct selling penetration levels. Malaysia
has the maximum direct selling penetration in Asia with 4.3
per cent.

India’s direct selling penetration is the lowest among

comparable economies at ~0.4 per cent of the retail sales.
Given its under-penetration in global comparison, it has a
Source : Euromonitor
significant potential to growth going forward.

Growth in Consumer Markets

The overall industry growth in the key categories of direct

selling such as health and wellness, cosmetics & personal
care, household goods, and others can fuel direct selling
growth.

Most of these categories, which are key contributors to the

direct selling industry are projected to grow at 10-15 per
cent.13

Source: Euromonitor, BCG Report ‘The Tiger Roars, Capturing India’s

Explosive Growth in Consumer Spending’, 2012, KPMG in India analysis

Direct selling market potential (INR Bn)

With an expected growth in the

INR CAGR ~18-20% INR consumer markets, and increased
72 Billion 645 Billion penetration of direct selling channel, the
direct selling has the potential to reach a
INR645 billion market size by 2025
72 2012-13
2025

Source: Euromonitor, BCG Report ‘The Tiger Roars, Capturing India’s Explosive Growth in Consumer Spending’, 2012, KPMG analysis

13. KPMG in India analysis

59 | Direct selling

Growth Drivers / Key Trends

1 Increasing Personal Disposable Income

Driven by robust GDP growth, the Indian household Household Income

income is likely to triple by 2025, from INR 115,000
currently to INR 320,000 (approx.)

Due to rise in employment rate, disposable incomes

has also increased resulting in improving the sales
of the goods and services across the direct selling
industry.

Source : EIU

2 Urbanisation and Lifestyle Changes

• In 2011, about 28 per cent of India’s population

resided in urban areas which is expected to see
an increase and reach to 33 per cent in 2021 (1.5
times the growth of overall population).

• Urbanisation is expected to have a positive

impact on the lifestyles of people as they will
likely have more exposure to better quality
products and services.

• Also along with rapid urbanisation, by 2021 a

higher share of the population is expected to shift
towards the workable age group. Convenience
and improvement of lifestyle should trigger a
demand for direct selling products specially
Source : KPMG in India analysis
packaged food, cosmetics and household
appliances.

Source : KPMG in India analysis

 Direct selling | 60

3 Significant rise of women in urban work force

• According to India’s National Sample Survey, the Employed Female Population

proportion of working women in urban areas
increased from 11.9 per cent in 2001 to 15.4 per
cent in 2011.

• As a result of more women being employed,

there has been an increase in the disposable
income leading to increased capacity to spend.
This will help further aid the growth of the
industry.

Source : India Stats

4 Increasing reach of the direct selling industry14

• Direct Selling companies are now expanding their reach and are trying to enter Tier 2 and Tier 3 cities and rural areas,
providing the consumers with knowledge about different products and services

• Maintaining good quality at affordable prices; demand for these products has increased and has resulted in increase in
the number of products sold through the direct selling channel.

• Increased focus on the agricultural sector could boost rural incomes, and could provide better growth prospects for direct
selling companies going forward.

14. Industry discussions

61 | Direct selling

Opportunity to be created by Direct Selling companies

along with Socio economic impact of the industry by 2025.
Opportunity in 2025
The growth in the directs selling industry is expected to have cascading effect on the following factors:

1 Self-employment opportunities

The growth of the direct selling industry will likely

be driven by on-ground direct sellers. Considering
global benchmarks for the industry, the industry can
potentially engage ~18million direct sellers by 2025.

Source: IDSA, PHD Chamber of commerce and industry, KPMG in India analysis

2 Increase in self-employment opportunities for the female population

The direct selling industry has traditionally had a

higher participation from women. Considering
prevailing trends, by 2025, the industry can
potentially engage over 10 million women as direct
sellers providing additional income opportunities to
the households.

Source: IDSA, PHD Chamber of commerce and industry, KPMG in India analysis

3 Employment generation

With an average of over 0.4 workers per INR 0.1 million of output generated, the industry is expected to provide direct
employment to 2.5 million people by 2025 through its manufacturing operations.15

15. IBEF report on Role of manufacturing in employment generation in India, KPMG in India analysis
 Direct selling | 62

4 Industry contribution towards Social responsibility

In August 2013, the Indian parliament passed the Indian Companies Act, 2013 (the “New Act”), which replaced the
Companies Act of 1956. The New Act has imposed compulsory corporate social responsibility obligations (CSR) upon
Indian companies and foreign companies operating in India. Companies with a turnover of INR 1,000 crore or net profit of
INR 5 crore or more have to spend 2 per cent of their net profit for the preceding three years on CSR. With the New Act in
place the direct selling industry’s contribution towards CSR is expected to magnify significantly. The industry is expected
to contribute over INR 300 million towards CSR activities by 2025 annually (considering that 50 per cent revenues will be
generated by companies falling under the requirements of the Act).16 Besides the mandatory requirement, many other
direct selling companies contribute significantly towards CSR.

5 Contribution to government Revenue

Considering Market Potential and future growth

of the industry to USD 645 Billion in 2025, the
contribution to the government revenue is also
expected to increase 9 folds to ~INR 90 Billion by
2025.
Rs. 10 CAGR ~18-20% Rs. 90
Billion
Billion
2012-13
2025

Source: Industry discussions, KPMG in India analysis, 2014

16. KPMG in India analysis

63 | Direct selling

Current regulatory environment in India

Regulatory Structure – Trading in India
The direct selling sector in India the purview of state governments.
has a quasi- federal governance Since direct selling, as defined in
structure. The Constitution of India has NIC 2008 classification, is a part of
demarcated the areas of jurisdiction non-store retail format, it falls under
for the Central Government (Union state legislation. However, this sector
List), State Governments (State List) is also closely monitored by different
and joint administration for the central ministries/ departments of the central
government (concurrent list). government. This Section outlines
various regulations/ statues applicable
According to Indian constitution,
to direct selling businesses.
wholesale and retail trade fall under

Laws governing Consumer protection

Ministry of Consumer Affairs, Food nodal departments, either at the (Enforcement) Act, 1985. The
and Public Distribution Central or State level, and are required State government can enforce the
to adhere to the same in conduct of provisions of the Act and Rules made
The Ministry of Consumer Affairs,
their business. thereunder after framing its own Legal
Food and Public Distribution has two
Metrology (Enforcement) Rules for the
Departments, namely the Department The Consumer Protection Act state and on notification of the date
of Food and Public Distribution and
From the perspective of ensuring from which it will come into force.
the Department of Consumer Affairs,
responsible for consumer welfare and protection of consumers buying Under the provisions of the LMA read
regulation of internal trade. products sold through the direct with relevant Rules, every packaged
selling route, one of the most commodity/ product should disclose
The main functions of Department of important legislation is the inter-alia the retail sales price and net
Consumer Affairs (‘DCA’) is to protect Consumer Protection Act, 1986 packaged quantity as per established
and promote welfare of consumers and the Consumer Protection Act standards of weights and measures
through The Consumer Protection (Amendment) Act, 2002 (effective on the packing of the commodity/
Act, 1986, formulate standards for from March 2003). This Act protects product.
quality control of goods and services consumers of both goods and
and monitor prices of essential services from unfair or restrictive Almost every registered corporate,
commodities. In carrying out its trade practices of traders and service employing direct selling mode for sale
various functions, DCA is assisted by providers. It deals with consumer of their products, makes necessary
the Indian Institute of Legal Metrology. grievances and redresses them on disclosures in terms of maximum
the basis of complaints by consumers retail price, net weight of the packaged
Another major thrust of DCA is to
through consumer forums at three product, key ingredients, appropriate
regulate internal trade within the
different levels - the district level, the directions for use/ consumption,
country and it has undertaken many
state level and the central level. usage warnings, etc. in discernible
initiatives to ensure development
and legible terms on the surface of the
of organised retail, single market for Direct selling business houses in India product being sold. These disclosures
agricultural commodities, regulate sell quality products, in line with the itself, in accordance with LMA, serve
retail infrastructure by way of allied applicable quality standards prescribed as a marketing tool for for making
laws, unified regime of consumption by the Consumer Protection Act, and demonstrations before the end
taxes, etc. usually have robust systems in place consumers. The above measures help
In light of the above, it is imperative to ensure protection of consumer ensure that products/ commodities
to note that the activities of a direct rights. distributed by direct selling route are
selling business, predominantly a The Legal Metrology Act (‘LMA’) not sold at inflated prices.
consumer-oriented business model
driven by continual consumer The Legal Metrology Act, 2009 (Act 1
interactions, are being closely of 2010) was enacted by the Central
monitored by the DCA. The direct government which repealed and
selling business houses need to be replaced the Standard of Weights
conscious of various laws and specific and Measures Act, 1976 and the
guidelines laid down by DCA or its Standards of weights and Measures
 Direct selling | 64

Food Safety and Standards Act, The Competition Law products manufactured/ sold by
2006 (‘FSSA’) prominent direct selling companies
The Competition Act, 2002, and
are of high standards, usually
Under the FSSA Act regime, prior its amendments regulate anti-
developed after years of research
approvals are required for every competitive practices and are
and development, and are sold at
category of food (as defined under applicable to direct selling companies.
competitive prices to the Indian
the FSSA Act) or related products The Competition Commission of India
consumers.
by a company before undertaking regulates practices having adverse
manufacturing and/ or sales in any effect on competition and prohibit any In addition to the above, certain
form. anti-competitive agreements, abuse other specific guidelines and/ or laws
of dominant positions, cartelisation, administered by the Ministry of Food
In an industry like direct selling, the
etc. to ensure sustainable competitive Processing Industries and the Ministry
major challenge under this statue is
markets throughout the country. of Heath and Family Welfare may also
pre-registration of each and every
Any activity hampering competition be applicable to certain direct selling
distributor in the down line proposed
in the economy or sale of products businesses.
to be engaged in selling of food
at predatory price would result into
products.
significant ramifications from the
competition regulator of India. The

Foreign Direct Investment in trade

In India, retail is one of the most uncertainties for existing companies. entry routes and conditionalities in the
regulated sectors from a foreign Considering the same, radical changes FDI Policy on direct selling business,
investment perspective. The in the FDI policy have been introduced it is generally viewed as an activity
Department of Industrial Policy since November 2011: permitted under the automatic route.
and Promotion (DIPP’) under the However, absence of complete clarity
• 100 per cent FDI is permitted in
Ministry of Commerce and Industry on the same poses a great challenge
Single Brand Retail Trading (up to 49
is responsible for formulation of to direct selling businesses from a
per cent under automatic route and
industrial and foreign investment regulatory perspective in India .
thereafter up to 100 per cent under
policy facilitating flow of FDI in
approval route); The historic mandate given to the
India. Proposals for FDI in India are
new NDA government and Narendra
reviewed and approved by the Foreign • 51 per cent FDI under government
Modi’s “Make in India” initiative is
Investment Promotion Board under approval route is permitted in
likely to improve the foreign investor
the MoF. multi brand retail trade subject to
confidence. At this moment when
conditions.
Though 100 percent foreign the Indian economy is witnessing
investment under automatic route It is pertinent to note that the above a significant rebound in business
(subject to prescribed conditions) has calibrated liberalisations are with sentiment, lending clarity to the direct
been permitted in wholesale cash stringent riders and subject to prior selling businesses would help achieve
and carry trading i.e. B2B trading for government approval. Currently, there the dream of transforming India into
long in India over the years this limited is no enabling policy to recognise and a manufacturing hub, create jobs and
window of undertaking B2B trading support the growth of genuine direct develop the country’s infrastructure.
in India, has restricted the entry of selling companies in India. In the
global retailers and created operational absence of a clear definition, specific
65 | Direct selling

Administrative laws
Ministry of Corporate Affairs (‘MCA’) under the corporate law statutes The Shops and Establishment Act
essentially governing share capital of
MCA regulates corporate affairs in Every State has a specific Shops
a company, functioning of the board of
India through The Companies Act, and Commercial Establishments Act
directors, furnishing of annual reports,
2013 ( and The Companies Act, 1956) which provides for the regulation of
necessary public disclosures, etc.
read with other allied Acts, Bills and conditions of work and employment in
Rules framed hereunder. The primary The Contract Law shops and commercial establishments.
objective of MCA is to regulate
The direct selling business is full of In addition to above, at the State Level,
corporate structure in India and ensure
agreements between businesses local and municipal bodies also have
protection of investors and other
and direct sellers. The roles and regulatory powers. The multiplicity
business stakeholders. Any company
responsibilities of direct sellers are of regulatory bodies at the center,
in contravention with the provisions of
usually documented in a legally state and local level has resulted in
company law have stringent penal and
enforceable contract in accordance multiciplity of laws and regulations.
prosecution consequences in India.
with the Indian Contracts Act, 1852. The number of regulations and the
Every direct selling business extent of variations varies from state
organised as Company in India to state and their impact depends on
adheres to the provisions prescribed the type of commodities traded.

Taxation laws
Ministry of Finance (‘MoF’) Indirect tax levies

The MoF regulates taxation (both The consumption taxes at the State
corporate & consumption taxes) and level such as Value Added Tax (‘VAT’)
custom duties on import/ export in (on sales of goods) and Central Sales
India. The taxable income of direct tax (on inter-state movement of goods)
selling businesses is being regularly are also levied at each stage of sale of
audited and scrutinised by the Indian the product/ goods.
revenue authorities. Moreover,
direct sellers associated with these
direct selling businesses are also
contributing to the exchequer by
depositing income tax.

Industry specific laws/ guidelines

Misapplication of The Prize, Chits penetration by bona fide direct selling In the absence of a sector specific
and Money Circulation Schemes companies. legislation in majority of the Indian
(Banning Act), 1978 (‘PCMCS’) States, direct selling companies have
Guidelines at State Level been allegedly tagged along with
The Act was legislated in 1978 to fraudulent schemes under the PCMCS
There are no specific regulations or
regulate and ban fraudulent pyramid Act by the regulatory authorities of
guidelines governing Direct Selling
and Ponzi schemes prevailing in the certain states. The State judiciary and
activities in the Indian States except in
country. Such predatory schemes regulators have alleged that some
Rajasthan and Kerala.
manifest in various sectors including of the companies engaged in direct
real estate, agriculture, on the internet The Nodal Industry Department selling conduct ‘money laundering
and e-mail, and spread rapidly at times of Rajasthan was set-up in 2012, activities’ by promoting or conducting
causing significant financial loss to with a view to regulate the sale of a scheme for making of quick and easy
the public at large. Although, nothing goods and services outside of retail money. This regulatory challenge has
in this Act refers explicitly to direct establishments by way of direct selling lead to business uncertainty in India,
selling businesses, still in certain and ensure protection of consumers, with an added risk of harassment and
States such activities have been issued certain guidelines. These business disruption.
alleged to be akin to money circulation guidelines broadly define the contours
schemes and thus, covered under of permissible activities which can be
the PCMCS Act. In this regard, it is undertaken in the State. Further, it has
relevant to note that PCMCS is an been referred that any breach of these
archaic legislation and was enacted guidelines would be appropriately
around 40 years ago when Indian dealt with under relevant provisions of
markets had not experienced any existing laws.
Direct selling | 66
67 | Direct selling

Challenges faced
by the Industry
 Direct selling | 68

The direct selling industry, similar to Apart from the ambiguity in the Other Industry Challenges
the larger consumer industries faces PCMCS Act, there are many other
issues of counterfeits and general regulatory issues including a lack of • Counterfeit Products - Direct
difficulty in doing business in India. definition and separate provisions selling products should not be sold
However, our interaction with the for the industry, which affect the through retail stores. However,
industry participants suggests that industry adversely. it has been seen that, many
the biggest challenge that the industry retailers become direct sellers
The regulatory challenge for the and start off loading the products
faces today is that of regulatory
industry along with a potential to the customers through retail
uncertainty and lack of legislative
solution roadmap has been outlets. This leakage of products
support in recognition of the rightful
discussed in detail in the next through traditional retail channels
industry.
section. is contradictory to the very nature
Specific Industry Challenges of direct selling and needs to
‘The police forces and the be adequately addressed. This
• Regulatory Uncertainty - The bureaucracies don’t understand channel also encourages the sale
industry is adversely affected by the direct selling industry. They of counterfeit products which affect
lack of a proper legal framework remain suspicious because they the brand.
which is compromising the growth believe people cannot make
of the direct selling industry. There money without any investment. • Difficulty to set-up
is no systematic and standard They label it as money circulation manufacturing facilities - Many
policy on direct selling that is based schemes even though there is no large direct selling companies
on the constitutional structure. As a money circulation involved.’ in India are renowned MNCs.
result many authorities have However, due to rigid labour laws
booked direct selling companies - Promoter, Leading Indian Direct and poor infrastructure, many of
for unlawful activities as under the Selling Company these have found it difficult to
Prize, Chits and Money Circulation set-up their own manufacturing
Schemes Act. The act, which facilities in India. All states have
was enacted much before the ‘If the government sees the direct different regulations and there is no
advent of direct selling in India selling industry as its partner, the centralised federal system, making
has an archaic understanding of industry has massive potential to the process of getting clearances
issues, and is unable to distinguish grow and benefit millions in the costly and time consuming.
rightful direct selling businesses country.’
• High Import Duties - Many
from malicious money circulation - MD, Leading Indian Direct ingredients for the industry
schemes. Under the PCMCS Act Selling Company products are imported. Higher
customer complaints are acted
import duties add to the price of
upon as criminal offense and gives
the product and as a result make
investigating officers the power to ‘There has to be a separate
them more expensive for the final
arrest and seize company assets legislation or guidelines governing
consumer adversely affecting the
along with arrest of many key the industry.’
demand for such products as they
individuals. This creates negative
- Country Head, Leading Global are available at lower prices in
image of the industry in the mind
Direct Selling Company international markets.
of participants and potential
participants, who as a result do not
realise the benefits of the direct
selling business.
69 | Direct selling

Recommendation and
way forward
 Direct selling | 70

Challenges due to current regulations

The current regulatory environment The Prize and Chits Money Definitional Issues
in India for direct selling companies Circulation (Banning) Act, 1978
is fraught with multiple challenges. The lack of definitional clarity is
Most of these challenges are common The Act was legislated in 1978 to another major issue impacting the
across direct selling companies, regulate and ban fraudulent pyramid growth of the direct selling industry.
irrespective of product categories and Ponzi schemes prevailing in the Contending that the absence of a
they deal in. A big challenge is that country. However, during last the universal definition of direct selling
the concept of direct selling and few years, some Indian government is a primary reason for confusion,
regulations relating to industry are not authorities have, on a mistaken it has been argued that a better
clear and operations of direct selling understanding of the direct selling understanding of the industry would
companies are often mistaken for model, have taken the view that direct require one to view it from three
fraudulent pyramid and Ponzi schemes. selling companies are akin to pyramid perspectives i.e. (1) Statistical; (2)
based financial and money circulation Operational; and (3) Legislative.
Regulatory uncertainty is impeding the schemes banned under the PCMCS
growth of direct selling companies and Act, 1978 (Detailed analysis of the real A detailed analysis of various
that has created formidable hardship legislative intent of the PCMCS Act, definitions of ‘Direct Selling’ is
for genuine players in this arena. This 1978 is enclosed as Annexure 1). enclosed as Annexure 2.
is despite the fact that, in many cases,
direct selling companies have won The PCMCS Act, 1978, in its current Central vs. State debate
legal cases filed against them. In the form, is unable to distinguish direct
No specific legislation for direct selling
absence of clear regulatory framework, selling companies from pyramid
exists in India due to the Seventh
different states in India have taken or Ponzi schemes. Differences
Schedule of the Indian constitution.
sporadic actions and there has been in interpretation regarding the
Entry 33 in the Concurrent List talks
instances of top managerial personnel applicability of the PCMCS Act leads
about trade and commerce and
of a direct selling company (in spite of to business uncertainty in India, with
specifically mentions “the products
appropriate approvals from regulatory an added risk of harassment and
of any industry where the control
authorities in India to set-up business business disruption.
of such industry by the Union is
operations) being remanded to Direct Selling companies have been declared by Parliament by law to be
custody. Local authorities have stalled facing problems in certain states like expedient in the public interest, and
the operations of these direct selling Andhra Pradesh, Kerala, etc. In these imported goods of the same kind as
companies and caused irreparable states, the direct selling companies such products.” However, subject to
damage to their brand reputations. have been charged with violating this, trade and commerce within the
PCMCS provisions. Legal authorities State is in the State list. This has led to
of these states have incorrectly artificial compartments between FDI
claimed that these companies are in wholesale and FDI in retail and FDI
making money by recruiting people, in multi-brand and FDI in single-brand.
and distributors are rewarded just for Such compartmentalisation is likely
adding more people to the chain, with impossible to enforce and is almost
no genuine economic activity is being certain to be violated, deliberately, or
undertaken.17 inadvertently.

It is in this backdrop that the need to

confer regulatory clarity and certainty
to direct selling companies with
legitimate businesses, arises.

17. Industry Discussions, KPMG in India analysis

71 | Direct selling

Governments response - Actions taken so far

Over the years, many steps were undertaken by various State governments as well as at the Central level to set-up an
enabling policy for Direct Selling companies in India. These have been highlighted below.

1 Setting-up of Inter-ministerial committee

comprising of the RBI, SEBI and ministries of consumer affairs, corporate affairs, finance and law under the aegis of
Ministry of Consumer Affairs to bring uniformity in rules across all States and to deal with the diverse objectives and
priorities.

2 Formulation of Draft Rules

To bring uniformity in Rules across all States, an Inter-ministerial Group in the Department of Financial services (Ministry
of Finance) formulated the draft model Money Circulation Scheme (Banning) Rules, 2012 (‘Draft Rules’). The Draft Rules
sought to enlarge the definition of money circulation scheme to include schemes disguised as a scheme for a sale of
product or providing a service and reiterated the ban on formation and conduct of pyramid schemes. These Draft Rules are
are still under review based on inputs from industry associations and various government bodies.

3 Draft guidelines by some States

Kerala and Rajasthan have drafted legislative direct selling guidelines to specifically permit conduct of direct selling
operations provided conditions stipulated contained therein are complied with. The States aligned partly to the MLM
structure by permitting sales incentive based on profits on sales of products and not related to joining of members.

4 Guidelines issued by Reserve Bank of India

In order to monitor the fraudulent mobilisation of funds by MLM companies in their bank accounts, certain Circulars
were issued by the RBI in 2009 and 2012. The apex bank instructed the authorised dealer banks to closely monitor all
transactions for any unusual activity and strictly adhere to KYC/Anti Money Laundering guidelines while opening and
conduct of the bank accounts of MLM firms.

5 Budget 2014 – Policy initiative

Recently, the Finance Minister as a part of its bold policy announcements - Budget 2014 proposed to bridge the regulatory
gap under the PCMCS Act. This long awaited legislative reform could foster a conducive business environment and
provide the much needed certainty in the regulatory framework for direct selling industry in India. Further, it is expected
to facilitate an effective regulation of companies and entities which have duped a large number of poor and vulnerable
people in this country.

However, despite these initiatives, marginal progress has been made in understanding the direct selling industry, and the
regulatory issues faced by the industry still remain a present challenge.
 Direct selling | 72

Possible solutions - renewed sense of optimism abounds

To provide a conducive and sustainable of enacting a specific governing especially, when the industry is in
operating environment in India for legislation for the sector. double jeopardy at the moment – an
the companies operating in Direct erosion of faith and an identity crisis.
A separate policy framework for the
Selling industry, a series of reforms
direct selling industry can clear the We have highlighted below some
are required ranging from immediate
blurred lines between ethical industry of the possible solutions that can
short-term reforms in the nature of
players and impersonators and go be considered by the Government/
certain amendments in the existing
a long way in regaining consumer regulators in the coming future to
Acts/policies to long-term measures
confidence. This change is imperative, benefit this industry.

Source: KPMG in India analysis

73 | Direct selling

Amendment of the PCMCS Act

Necessary amendments in the participants, as a condition •• Restriction on the commission

PCMCS Act is needed to make the for joining or remaining in paid to the Distributor: The
distinction clear between direct the scheme, are required to proportion of commissions on
selling and fraudulent pyramid purchase a specified inventory the sale of product that may be
money circulation schemes. The of products which cannot, under shared with distributors should
said amendment may be introduced normal circumstances, be be restricted to a reasonable
based on the following principles: resold or returned for a refund, percentage of the total revenue
a pyramid scheme may be from sales to distributors.
•• Activities for identification of
presumed. Such a practice is
fraudulent schemes •• State government to have
often called “inventory loading”
approval authority: It can
–– Payment for recruitment: and may also be used as a
be provided that only the
Where the scheme generates proxy for a joining or renewal
schemes approved by respective
income based on recruiting fee that gets redistributed to
state government would be
alone, it is a pyramid other participants. Thus, such
considered as permissible
scheme and thus, should practice should be considered as
activity.
be considered as prohibited prohibited activity.
activity. •• Mandatory to set- up 24x7 call
•• Products are not refundable
–– Redistribution of joining or center and pick center to address
and returnable: Where
periodic renewal fees: Where customer complaints.
customers and distributors
there are entry or renewal are not offered a commercially •• Compulsory accreditation
fees that are redistributed reasonable opportunity in of products from government
to other participants in the compliance with the mandatory approved quality institutes (such
scheme, it is a pyramid provisions of the local legislation as foods products or related
scheme and thus, should to return product with which products require accreditation
be considered as prohibited they are not satisfied, or which under FSSA Act) or adherence to
activity. they are not able to sell, as the certain pre-determined quality
•• Products are pushed case maybe, a pyramid scheme standards in India.
on participants: Where is presumed.

Need to streamline Foreign Direct Investment (‘FDI’) Policy

•• Till now Retail and direct selling and carry trade. Products are route. In addition to the same,
companies have entered the being sold by direct selling they may formulate additional
Indian market through routes companies to distributors stipulations governing direct
such as test marketing, sourcing entailing sale to end customers. selling players with well- defined
from SMEs, franchising, This distinct distribution KYC norms.
wholesale cash and carry, 51 per model (offering opportunities
•• The FDI policy should be clear
cent FDI in single-brand retail to entrepreneurs to flourish)
and transparent and should
and setting up of manufacturing is substantially similar to a
help ensure a stable operating
facilities. wholesale cash and carry trade.
environment. Otherwise, India
•• As long as retail is treated as a •• Under the extant FDI Policy, may not be able to attract
sensitive sector, irrespective 100 per cent FDI is permitted the desired FDI and foreign
of the products sold, and there in wholesale cash and carry companies in India will likely
are multiple entry and operation under automatic route, subject continue to face operational
routes, the sector may suffer to certain prescribed conditions. uncertainties. Some foreign
from operational uncertainties. Therefore, in order to end companies, who are willing to
uncertainty, the Indian regulators enter the Indian market and
•• It is relevant to note that the
should classify ‘direct selling’ are at present in a ‘wait and
operating structure of direct
as a ‘whole sale cash and carry watch’ mode, can also enter in
selling companies has close
trade’ with 100 per cent foreign case certain policy reforms are
proximity to a wholesale cash
investment under the automatic introduced in this regard.
 Direct selling | 74

Need for a clear definition of Direct Selling

•• There is no clear and holistic 2008, classifies it under retail model’ under a specific
definition of direct selling in India trade (non-store format retail). legislation in India. Moreover,
and as a result, the classification This has benefitted the sector given the numerous social as
of direct selling is not clear. partially because 100 per cent well as economic benefits of
FDI is allowed in wholesale trade. this specialised channel of
•• While the DIPP classifies direct
distribution, direct selling should
selling under wholesale trade for •• There is need for a proper
be given a separate ‘Industry
the purpose of FDI inflows, NIC, definition of ‘direct selling
Status’.

Need for independent Governing Legislation

•• At present, direct selling falls clearly specified procedure and consumers suffer because of
under the purview of state nominal registration fees, would the activities of some of the
legislation and is also governed help to distinguish between fraudulent players. Therefore,
by a large number of ministries/ direct selling companies and the Central government can
departments at the centre, state companies running fraudulent collaborate with industry
and local levels. The multiplicity pyramid schemes. associations and independent
of regulatory bodies has resulted legal experts to design an
•• The Consumer Protection laws
in multiple regulations and appropriate regulation.
also need some modifications
regulators governing this sector.
in order to protect the interest •• “Trade and commerce” being
These should be streamlined
of the consumers for products the State subject, from a
for the smooth performance
sold through direct selling. For consistency perspective, the
and development of this
example, it does not clearly power to define direct selling
promising sector and for setting
specify the cooling-off period activities and demarcation of
up pan-India supply chain and
for purchases through the direct pyramid schemes from bonafide
manufacturing facilities.
selling mode. Apart from this, direct selling businesses may
•• Considering the above, the legal cases in India take time be provided at the Central Level.
government should formulate and there is need to speed up While the State government
a specific legislation governing consumer court proceedings. should be provided complete
‘Direct Selling Industry’ with a autonomy to implement the
•• In this context, the Indian
precise and clear definition of provisions of such Central
Government can leverage from
‘direct selling activities’ including legislation by way of formulation
the regulatory experiences and
legitimate MLM companies. of inter-alia specific consumer
practices of other countries,
protection Rules/ guidelines
•• Further, policies regarding which have been discussed in
governing the activities of direct
registration of companies with detail in the preceding slides.
sellers in each State.
a central authority, based on a The industry, government and

Need for a Nodal ministry

•• There is no single nodal ministry •• Therefore, a Nodal Ministry may Ministry of Consumer Affairs
at the centre at present and, be identified specifically for the may be appointed as the Nodal
hence, the grievances of this direct selling industry, which may Ministry for the direct selling
sector go unheard. Companies act as a single point of contact. industry
are not sure whether it is the
•• Given that the sector is
DIPP or Ministry of Consumer
predominantly based on
Affairs, Food and Public
consumer interactions, the
Distribution that governs them.
75 | Direct selling

Conclusion
The direct selling industry’s potential to
reach a size of INR645 billion by 2025
driven by growth in consumer markets
and increase in the penetration of
direct selling to globally comparable
levels may however be contingent on
creating an enabling environment for
the industry, and mitigation of some of
the challenges it is facing today.

With the success of the industry,

which relies on individuals to
accomplish sales, a number of
fraudulent businesses have also
tried to emulate the form, but with
malicious intentions and outcomes.
This has impacted the industry,
which recognises this as a significant
challenge to its growth.

The industry has the potential to create

a significant social and economic
impact in India especially in the area
of women’s empowerment, skill
development, technology percolation
and growth of the SME sector, besides
promoting self-employment and
providing a viable means of alternative
income.

There is a need to revisit existing laws

and bring about regulatory clarity to
build an environment of trust in order
to reap the multiple benefits that the
industry has to offer.
Direct selling | 76
77 | Direct selling

Direct selling market

in select states
 Direct selling | 78

Direct selling market in select states in India

Potential of Direct Selling in Select States

The trend of consumerism has seen growth in the recent years and demand for consumer products has grown rapidly. With
plenty of opportunities for growth, Indian states provides abundant opportunity to the Direct Selling companies to prosper.

Self-Employment
Population Direct Selling Market
State Capital Key Cities Generation Potential in
(million) Potential in 2025
2025

Coimbatore, Madurai, 72
Tamil Nadu Chennai INR 75-80 billion 2.0 - 2.2 million
Tirucirapalli, Salem

Agra, Allahabad, Kanpur,

Uttar Pradesh Lucknow 200 INR 70-75 billion 1.9 – 2.0 million
Varanasi, Meerut

Pune, Nashik, Kolhapur, Nagpur,

Maharashtra Mumbai 110 INR 65-70 billion 1.8 – 1.9 million
Thane

Ahmedabad, Vadodara, Jamnagar,

Gujarat Gandhinagar 60 INR 40-45 billion 1.2 – 1.3 million
Surat, Rajkot

Tirupati, Vijayawada,
Andhra Pradesh Hyderabad 85 INR 45-50 billion 1.2 – 1.3 million
Visakhapatnam, Nagarjuna Sagar

Ajmer, Jaisalmer, Udaipur,

Rajasthan Jaipur 70 INR 45-50 billion 1.2 – 1.3 million
Bikaner, Jodhpur

Indore, Jabalpur, Gwalior, Ujjain,

Madhya Pradesh Bhopal 70 INR 45-50 billion 1.2 – 1.3 million
Ratlam

Bangalore, Bellary, Mysore,

Karnataka Bangalore 60 INR 35-40 billion 0.9 – 1.0 million
Mangalore, Belgaum, Hubli

Guwahati, Silchar, Dibrugarh,

Assam Dispur 30 INR 5-10 billion 0.10 – 0.15 million
Digboi, Jorhat
79 | Direct selling

Annexure
 Direct selling | 80

Annexure 1
The Prize and Chits Money Circulation (Banning) Act, 1978

A consequence of ‘James Raj Section 3 of the PCMCS Act bans the the genuine “marketing bonus”
Committee’ above activities stating that: payments to distributors should not
The PCMCS Act is the direct outcome be misinterpreted as payments for
“No person shall promote or
of the report of James S. Raj recruiting new members, as they are
conduct any prize chit or money
Committee constituted by the RBI ‘based on the quantity of actual sales’.
circulation scheme or enroll as a
in June 1974. In the opinion of the member to any such chit or scheme, Direct selling schemes charged
Study Group – activities viz. prize chit/ or participate in it otherwise, or under the PCMCS Act is likely a case
benefit/ savings scheme etc. benefit receive or remit any money in of confusing identity
primarily promoters and do not serve pursuance of such chit or scheme”.
any social purpose. They are prejudicial The PCMCS Act does not explicitly
to the public interest and also Any one related to such banned exclude or deal with businesses which
adversely affects the efficacy of fiscal activities under the Act or attempting involve genuine sale of products or
and monetary policy. to promote such activities are also services. Section 2(c) of the PCMCS
liable to penalty and prosecution Act is clear and emits the mandate
The central theme of the James subject to provisions of the PCMCS of the PCMCS law, that prize chits,
Committee report was to safeguard Act. money circulation schemes, by
the monetary and credit policies of whatever name they may be called,
the country and ensure a degree From the above discussion it is amply which do not bring public value;
of protection to the interests of the clear, that the application of PCMCS and where the chance of innocent
depositors who place their saving Act to the direct selling industry investors being lured to loose their
with such companies. To achieve such is rather accidental by enforcers money – are to be banned.
a broader objective, the Committee unintended by legislators, provide the
suggested to ban money laundering direct selling scheme is genuine. Following extract of the report will
activities i.e. prize chit/ benefit/ savings bring out the exact intent of the
Misapplication of PCMCS Act Committee:
scheme.
There have been multiple instances
The Legal Edifice where enforcement agencies have ‘….There has also been a public
With the overarching objective of invoked the PCMCS Act to genuine clamor for banning of such
protection of public interest, the direct selling companies. Undoubtedly, schemes (prize chit/ benefit/
PCMCS Act prohibits promotion, there are considerable number of savings scheme ); this stems
conduct of or participation in any ‘prize fraud companies, who in the name largely from the malpractices
chit’ or ‘money circulation scheme’. A of directs selling dupe innocent indulged in by the promoters and
‘money circulation scheme’ is widely customers. In fact either without a also the possible exploitation of
defined under the Section 2(c) of the product or without a token/ sham such schemes by unscrupulous
PCMCS Act as: product they run money circulation elements to their own advantage.
schemes. Justifiably, PCMCS is to be We are, therefore, of the view that
“any scheme for the making of quick applied so that innocent customers the conduct of prize chits or benefit
or easy money or for the receipt are protected. schemes by whatever name called
of any money or valuable thing as
However, as indicated above, genuine should be totally banned in the
the consideration for a promise
direct sellers are booked under larger interests of the public and
to pay money, on any event or
PCMCS and victimised based on the that suitable legislative measures
contingency relative or applicable
act of distributor rewards which is should be taken for the purpose
to the enrolment of members into
another critical issue needing attention. if the provisions of the existing
the scheme, whether or not such
A distributor with no personal active enactments are considered
money or thing is derived from the
selling or personal nominal selling may inadequate. Companies conducting
entrance money of the members
earn enormous rewards (commission, prize chits, benefit schemes, etc.,
of such scheme or periodical
reward, incentive, etc.) if he trains his may be allowed a period of three
subscriptions”.
recruitments to sell well. years which may be extended
by one more year to wind up
These high incentivising opportunities their business in respect of such
are highlighted in IEC materials schemes and/or switch over to any
published by the direct selling other type of business permissible
companies. This creates a mistaken under the law’.
impression that direct selling activity
enables earning of ‘easy money’
amongst some regulators. Therefore,
81 | Direct selling

Despite the fact that direct selling Primarily, direct selling companies
companies have appropriate approvals are seller based – they have a human ‘Two conditions must, therefore,
from the regulatory authorities in interface – the distributor- who can be satisfied before a person
India, the detractors have drowned the earn a reward for making sale at a can be held guilty of an offence
definition of direct selling in confusion. retail point. Accordingly, this model under Sec. 4 read with Sections
Such activities are deemed to be offers two propositions – quality 3 and 2(c) of the Act. In the first
akin to money circulation schemes products for consumption and a place, it must be proved that he
and a few companies have also business opportunity to sell those is promoting or conducting a
been prosecuted by the Indian State products and earn profit on them. The scheme for the making of quick
authorities under the PCMCS Act. business owners have an opportunity or easy money and secondly,
to grow sustainable sales distribution the change or opportunity of
In simple terms, direct selling is
networks. making quick or easy money
person-to-person sale of a consumer
must be shown to depend upon
product or service. The second At this juncture, it is imperative to note
an event or contingency relative
important distinguishing factor is the Supreme Court judgment, in State
or applicable to the enrolment of
the composition of sales force. The of West Bengal and Others v Swapan
members into that scheme. The
real confusion arises when one Kumar Guha & Others, the Hon’ble
legislative draftsman could have
talks of direct selling companies SC got an opportunity to excavate the
thoughtfully foreseen and avoided
that deploy multilevel marketing true meaning of Section 2(c) of the
all reasonable controversy over the
compensation plans. To be precise, PCMCS Act. Although facts leading
meaning of the expression ‘money
this is merely a technique used by this case were not from the direct
circulation scheme’ by shaping its
direct selling companies to systemise selling industry, the court encountered
definition in this form’.
and compensate direct sales force with the challenge of finding the real
or business owners. According meaning behind of PCMCS Act and
to WFDSA, the correct way of more particularly section 2(c). After reading of the SC judgment
representing MLM is to call it a direct and James Raj Committee report, a
The apex court felt that, it is far too
selling compensation plan where sales logical conclusion may be drawn that
vague and arbitrary to prescribe
people receive payment in variety of the PCMCS Act, in its true spirit, does
that ‘whosoever makes quick or easy
ways. not apply to rightful direct selling
money’ is to be penalised under the
companies, who develop MLM plans.
statute. After due deliberation the
The sole motive of the recruitment
court laid down as follows:
is to develop a larger sales force to
sell more products to prospective
customers.
 Direct selling | 82

Annexure 2
Definitional Issues
Statistical definition The Indian statistical counterpart is the Operational Definition by various
Among the statistical definitions, 2008 version of the NIC. At the 2-digit associations
one may refer to the classification of level defines: The second category of definitions
products provided under the United • Division 47 - covers retail trade, includes definitions provided by the
Nations Central Product Classification with the exception of motor associations such as IDSA, WFDSA
(‘UNCPC’) - and National Industrial vehicles and motor cycle: etc. (already discussed above) are
Classification (‘NIC’). not sufficient to define the scope of
–– 471 through 478 are sales direct selling industry in India. These
In the current version 2 of UNCPC, the through stores, stalls and marts. definitions do not tantamount to law
two digit code:
–– 479 – Retail trade not in stores, and policy.
• 62 - stands for ‘Retail trade stalls or marts”.
services’; and the further Legislative Definition
classifications: One can sub-divide a bit further, but No legislative definition exists in India.
that is at best artificial.
–– 621 and 622 - stands for Given that India is one of the few
retail trade services through • 4791 - Retail sale via mail order countries where there is an FDI
specialised and non-specialised houses or via internet” and restriction in retail but there are other
stores. explained as, “in retail sale entry routes, whether direct selling
activities in this class, the buyer is classified under wholesale or retail
–– 623, 624 and 625 - is a residual makes his choice on the basis trade is unclear. The confusion also
category and can be interpreted of advertisements, catalogues, rises because direct selling has both
as direct selling. information provided on a website, B2B and B2C components.
–– 623 is explained as, “This group models or any other means of
In addition, the direct selling industry
includes:- mail, catalogue or advertising. The customer places
is evolving with rapid technological
Internet sales services by his order by mail, phone or over the
development and many new non-store
stores that accept orders of Internet (usually through special
formats like e-tailing, catalogue selling,
new goods by mail, telephone, means provided by a website). The
mail-order selling and telemarketing
e-mail, etc., and ship or deliver products purchased can be either
are developing. These are often
products to the customer’s directly downloaded from the
linked to direct selling as it involves
door.” Internet or physically delivered to
booking order through phone calls and
the customer”.
–– 624 is explained as, “This group demonstrations through catalogues.
includes:- retail trade sales –– 47911 - Retail sale via mail order This has increased the complexity
through vending machines;- houses of arriving at a precise definition and
retail trade services of market classification.
–– 47912 – Retail sale via
stalls- retail trade services of e-commerce
door-to-door sales or direct
sales, defined as a method • 4799 - This leaves a residual
of consumer product and category of other retail sales not
services distribution via sales through stores, stalls or marts.
in a person-to-person manner/ • 4799 is interpreted as retail sale of
way from a fixed retail location any kind of product in any way that
primarily through independent is not included in previous classes
salespeople and distributors (by direct sales or door-to-door
who are compensated for their salespersons, through vending
sales and for their marketing machines, etc.), direct selling of
and promotional services, fuel (heating oil, fire wood, etc.),
based on the actual use or delivered directly to the customer’s
consumption of such products premises, activities of non-store
or services.” auctions (retail) and retail sale by
–– Finally, 625 is explained as, (non-store) commission agents.
”This group includes:- retail This class excludes delivery of
services of commission products by stores.
agents who negotiate retail • 47990 – Other retail sale not in
commercial transactions for a stores, stalls or markets.
fee or a commission; - services
of electronic retail auctions.”
83 | Direct selling

Annexure 3
There are a lot of similarities between For retail format, the CFA, re-
traditional consumer goods retail and distribution stockist, and retail seller
direct selling models: earn sales margins. In case of
direct selling under MLM plan, all
• For both formats, distributors /
different levels of direct sellers earn
direct sellers earn a commission
commissions on sale of products
when product sales takes place

• Also, in both cases, earning of sales

commission is based on sales
volume of the individual (and the
group).

Traditional consumer goods retail model

Direct Selling (multi-level marketing) model

Source: News articles, KPMG analysis

However, despite the similarities above, traditional consumer goods retail and direct selling models, are essentially different
formats with different investment requirements and sales philosophy.
 Direct selling | 84

Annexure 4 - Forecast Methodology

Direct Selling Market Size Estimation

Methodology Adopted

Direct Selling Market Size Estimation for States

Methodology Adopted
85 | Direct selling

Direct Sellers Estimation

Methodology Adopted
Direct selling | 86
87 | Direct selling

Disclaimer
 Direct selling | 88

KPMG in India has, to the best of its ability, taken care to compile the information and material contained in this research
work. The report contains certain case studies, company profiles and country regulations which have been collected
through primary interactions, media reports and company websites. We have indicated within our report the sources of the
information presented. We have not sought to establish the reliability of these sources by reference to independent evidence.

In addition, the report contains certain prospective market projections. Such projections are based on secondary research
and our analysis based on certain underlying assumptions. We must emphasise that the realisation of the projections is
dependent on the continuing validity of the assumptions on which it is based. The assumptions will need to be reviewed and
revised to reflect any such changes in the business structure and direction as they emerge.

KPMG does not warrant that the information and material contained in the research work, or any part thereof, is designed
to, or will meet any person’s requirements, or that it will be error free or free from any inadequacies, incorrectness,
incompleteness, or inaccuracies. KPMG hereby disclaims any warranty, express or implied, including, without limitation, any
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contained in the research work. KPMG will not be held responsible for any loss, damage or inconvenience caused to any
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reports. No one should act on such information without appropriate professional advice after a thorough examination of the
particular situation.

The report shall be read in its entirety by those to whom it has been circulated for viewing, without removing any
disclaimer. By reading this report the reader of the report shall be deemed to have accepted the terms specified herein above.
89 | Direct selling

Acknowledgements
 Direct selling | 90

This report could not have been written without valuable contributions from the following people.

FICCI and FICCI Taskforce, who have guided and facilitated the making of the report, comprises of Dr. A. Didar Singh, Shilpa
Gupta and her team.

The KPMG team, who has contributed towards the content presented in this document, comprises Rajat Wahi, Amarjeet
Singh, Puneet Gupta, Rajandeep Singh, Nidhi Jain, Sonam Chauhan and Jaikaran Singh.

A special note of thanks to Jiten Ganatra and his team for their notable contribution in designing and bringing the report
together to its present form.
KPMG in India contacts FICCI contact:

Nitin Atroley Shilpa Gupta

Head Head
Sales and Markets Retail, FMCG & Gems n Jewellery Committee
T: +91 124 3074 887 T: +91 11 2348 7270
E: [email protected] E: [email protected]

Rajat Wahi
Head
Consumer Markets
T: +91 124 307 5052
E: [email protected]

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