Multilevel Marketing: Tighter Management Needed for Consumer Protection

1:39:15 PM | 10/5/2019

The success of many multilevel marketing (MLM) companies in the world has proven that this is a right kind of business trusted by many consumers. However, many companies in Vietnam have taken advantage of this business model to obtain illicit profits. To protect consumers, authorities need to build a healthy business environment.

Many sophisticated changes disrupt the market

Industry and Trade Minister Tran Tuan Anh said, “Multilevel marketing is currently very complicated. Specifically, after the Ministry of Industry and Trade and other authorities intensified inspections, handled violations and launched many consistent solutions to improve MLM activities, illicit MLM companies started to be removed from the market.

However, some switched to a multilevel marketing mode but did not buy and sell real goods to avoid the reach of authorities.”

As of December 2017, a total of 34 companies were licensed multilevel marketing business with 707,330 employees and revenue of about VND8 trillion. In particular, revenue from functional foods, cosmetics and other items accounted for 71%, 23% and 6%, respectively. However, the number decreased to 33 by the end of March 2018 and 23 by April 2019, according to the Ministry of Industry and Trade.

Undeniably, multilevel marketing has produced certain results, proving that this is a proper and effective business activity. However, this activity in Vietnam is complicated with many forms of disguise and fraudulence, causing social disorder. Although authorities have applied and amended many regulations to tighten this form of business, it is still difficult to control this form of business.

Specifically, a training activity, conference and workshop must be reported to the Department of Industry and Trade if it is attended by 30 people or more or 10 multilevel marketing people. Local authorities have the right to inspect and supervise business operations. Nevertheless, many ways of breaking the law such as word of mouth, holding seminars on holidays and outside working hours, or even, training at customer homes held by multilevel marketing officers raised difficulty to authorities in information control.

In addition, many multilevel marketing companies are disguised by doing enrichment courses, real estate investment and a bare-handed business startup with a cost amounting to hundreds of millions of Vietnamese dong. Recently, on social networks, an organization named “Royal Project” offers solutions to community consumption which are boasted to save living costs and increase income with many utilities with a starting cost ranging from VND12 million to VND84 million, but the Vietnam Competition and Consumer Protection Authority (Ministry of Industry and Trade) could not find any certified multilevel marketing company in operation like this.

It is clear that multilevel marketing funding is an effective type of business but if it is not closely managed and monitored, it will cause market disturbance and seriously affect consumer interests.

More efforts needed for multilevel marketing management

To manage multilevel marketing business and enhance operational transparency of multilevel marketing companies, the Government issued Decree 40/2018/ND-CP dated March 12, 2018 in place of Decree 42/2014/ND-CP, effective from May 2, 2018.

Accordingly, to register multilevel marketing business, companies must place a deposit of VND10 billion instead of VND5 billion as previously. They must have information technology systems to manage multilevel marketing networks and electronic information pages to provide information on their corporate profiles and business operations. This information technology system must be operated on servers placed in Vietnam. In particular, they must provide access to sales management system account upon the written request of competent authorities.

Decree 40 also has many regulations on organizing conferences and seminars and simplifying administrative procedures. In addition to enforcing this decree, it is first of all necessary to focus on solutions for disseminating legal knowledge on multilevel marketing to raise the awareness of businesses and people about its nature and characteristics and popularizing regulations on multilevel marketing management. Mr. Pham Van Cao, Deputy Director of the Investigation and Settlement of Unfair Competition Practices (Vietnam Competition and Consumer Protection Authority), said, uplifting consumer awareness is extremely important because well-aware people can identify good multilevel marketing business and bad multilevel marketing, and will make better choices when engaged in multilevel marketing and avoid unnecessary damages.

Furthermore, it is also important to further research on policymaking. Legal provisions must also be flexible and suitable in each stage and period. In times of turmoil, rules must be tight to purify illicit activities. When businesses have come into effective operation, regulations should be easing to facilitate them to grow.

Mr. Vo Dan Mach, Chief of the Administrative Division of the Vietnam Multilevel Marketing Association (MLMA), said: “Among 23 licensed multilevel marketing companies, 16 are MLMA members. Therefore, we force our members to operate under the law. At the same time, we actively boost communications, raise their awareness and organize training for our members. Additionally, through customer feedback, we discover illegal multilevel marketing and improve our monitoring capabilities.

Particularly, violations should be strictly handled to prevent illegal multilevel marketing activities, minimize damage for people and deter others from committing violations. Moreover, close coordination among local authorities is needed to monitor, prevent and promptly handle violations.

To develop multilevel marketing business properly and effectively, it is necessary to build a healthy business environment. In addition to making regulations and sanctions, raising public awareness plays a particularly important role. After nine months enforcement of Decree 40, it is hoped that multilevel marketing business will strongly thrive in the coming time.

Giang Tu