Two articles, from the usual suspects, have already appeared today in Seeking Alpha. I won't repeat their comments. There is one area, however, that has not been discussed. Harvard's endorsement of Amway's efforts in China and the establishment of a relationship that has lent considerable legitimacy to Amway as well as other established MLMs, namely Nu Skin (NYSE:NUS) and Herbalife (NYSE:HLF). This has now been brought into question.
A September 2013 article by Bloomberg described an Amway funded program at Harvard which, with a $1 million annual grant, created a partnership between Harvard and the Chinese government.
"In a program bankrolled by Amway at a cost of about $1 million a year, Harvard's John F. Kennedy School of Government has been training Communist apparatchiks known as Amway Fellows. Since it started in 2002, the program has brought more than 500 Chinese officials to Cambridge, Massachussets, to study public management for a few weeks. Every group also visits Amway's headquarters in Ada, Michigan, near Grand Rapids."
This partnership has fostered, across the MLM spectrum, a semblance of legitimacy since Harvard is involved. This 'legitimacy' has not been publicly limited to China or to Amway - it has been invaluable to MLMs when potential investors are considering involvement. One article addresses representations that the Amway marketing plan is taught at Harvard.
Significantly, the Bloomberg article also highlights the fervor of recent recruits, the very 'cult' concerns expressed by the Chinese government when it first established restrictions on MLM offerings. The recent attacks in the Chinese press, which were likely approved by the government, seem to indicate that these concerns remain or have been revitalized.
Bloomberg indicates that China presently accounts for almost 40 percent of Amway's parent company (Alticor Inc.) $11.3 billion in global revenue last year. Nu Skin's mainland China sales now account for 28.9% of it's total revenues. The country became Herbalife's third largest market in 2008, and growth has been impressive. For the first nine months of 2013, sales increased to $323m from $211m in the same period last year.
If the selling efforts of this magnitude and the large assemblages of recruits at opportunity meetings with the attendant mass hysteria, are taking place in China to the same extent as elsewhere - as reported by Bloomberg, it is quite likely that the government will crack down. A front page article in today's New York Times seems to indicate that the Chinese government is in no mood for mass popular movements over which it has little control.
All of this could place a strain on the Harvard connection, particularly if Amway becomes a target, as has Nu Skin, of governmental displeasure. If that connection fails then there may well be a "China Syndrome" that will not be of benefit to MLMs around the world.
If significant problems arise in China, with attendant publicity, it will become even more difficult for the FTC and other enforcement agencies to ignore this multi-billion dollar problem.