Multilevel marketing

HANOI UNIVERSITY
FOUNDATION STUDIES DEPARTMENT

THE CURRENT STATE OF MULTI-LEVEL
MARKETING IN VIETNAM AND SOME SOLUTIONS

Teacher: Ms. Nguyen Huong Quynh
Student: Nguyen Thao Phuong
Class: 2D-15
Course: EAP Writing
Date: March 8th, 2016


ABSTRACT

Multi-level marketing is one of the most potential businesses in
Vietnam during the present time. This paper, based on secondary
research, discussed the current state of multi-level marketing in
Vietnam and its relating contents. In particular, four aspects are
mentioned, including the overview of multi-level marketing, its
benefits and drawback, its current situation in Vietnam and some
solutions. The findings of the research indicate that although
network marketing has a source of achievements in our country,
there are many controversial issues. Therefore, some suggestions,
including measures to reduce pyramid selling and poor-qualified
products have been given to consolidate this kind of businesses. All
in all, the paper draws the conclusion that improving people’s
awareness is the best way to create a true network marketing
environment.

2

TABLE OF CONTENTS

3


1. Introduction

Recently, multi-level marketing has become one of the most popular businesses in Vietnam.
Kiyosaki and Lechter (2001, p. 202) point out that if you have huge dreams and desire to assist
others to make their dreams come true, a network marketing company is the best-suited business
you are looking for. According to Vietnam Multi-level Marketing Association, an ideal about
network marketing flashed through Karl Renborg’s mind, when he wanted to start his own
business in 1927. Then, in 1934, Renborg opened Vitamins California Company as a turning
point in his career with a network marketing system having no staffs but a team of distributors.
Thanks to this system, he spread his commercial activities out without any costs. After its
appearance in many countries around the world, in Vietnam, multi-level marketing was known
first in Ho Chi Minh City in 1998, through the co-operation between a group of Taiwanese and
Incomex Company. In 2005, government brought in 110/NP-CP decree with the purpose of
instructing, organizing network marketing activities, and then a lot of companies appeared.
However, the situation of multi-level marketing in Vietnam are changing so complicatedly; as a
result, many people have a wrong look at this type of selling. Therefore, this paper will provide
some useful information about multi-level marketing, current state of this marketing in Vietnam
and offer some solutions.
2. Discussion of findings
2.1. The overview of multi-level marketing

World Federation of Direct Selling Associations (2000) defines that direct selling which is based
chiefly on the personal interaction between distributors and customers is a dynamic, rapidly

expanding channel of distribution for selling products and services directly to consumers. Multilevel marketing is one type of direct selling operating through a network of distributors without
any agencies or stores. The typical multi-level marketing program works through a network in
which independent contractors can earn money through both their sales and a portion of the
income of their network (Ward 2014). Aside from the typical network marketing, a disguised
type of it called pyramid selling currently exists and raises doubts about multi-level marketing.
Pyramid selling is an illegal type of network marketing in which people must pay an admission
fee to join while the main work is persuading others to join, then make a profit through their
4


money. However, most products are overpriced, poor-qualified and difficult to sell; therefore, it
can be seen that making money out of recruitment is still their main aim (Australia Competition
& Consumer Commission n.d.).
A true multi-level marketing business always has some key characteristics through which people
can draw a distinction between it and a pyramid selling company. First and foremost, about the
purpose, a network marketing company develops itself by selling the products directly to final
customers and establishing, then expanding a network marketing concept (Oksanen n.d.). In this
concept, most contractors want to sell out their products and lead their network with the aim of
consolidating that network and raising their revenue. They never entice or drag others to their
network in order to make a profit through others’ admission fee or deceive customers. Moreover,
according to Cruz and Olaya (2008), a multi-level marketing company has an explicit
remuneration and cost system in which distributors earn a net commission in proportion of their
retail mark-up instead of a basic salary like most other companies. That commission is paid
publicly and adequately in compliance with the initial agreement. The cost to join in a network is
negligible and only include the cost for procedure and material; therefore, people do not need to
spend much becoming a contractor. Besides, a network marketing business can save a huge cost
because they do not invest in advertising and supply chains. Last but not least, having a good
product supply is one of the most important features of a multi-level marketing company. They
always provide well-qualified products which have the price higher than their original costs. If
distributors cannot continue selling, network marketing companies have to receive products and

return at least 90% of the total value (Ho 2014).
2.2. The advantages and disadvantages of multi-level marketing

Being one type of developing marketing, multi-level marketing offers a source of benefits for
consumers. Using a network as a means to market products and services, these companies gain
the advantage of not having to hire full-time salespeople. The distributors are responsible for
selling products given by companies and recruiting new distributors, so they do not have fixed
working time. Consequently, the distributors of the multi-level marketing can find another fulltime work in addition to working in a network so as to raise their income (‘Multi-level marketing
24’ n.d.). Furthermore, that business can connect with consumers rapidly through distributor
system will create competed motivation in many businesses in order to improve quality of
5


products. As a result, consumers have a chance to use more outstanding products (Ho 2014). In
contrast, network marketing also brings some minus points. One major drawback of multi-level
marketing is aimed at new people: the down-line. Many distributors are focused on the idea of
making money off someone else's labor and expect a huge residual income from their down-line
instead of trying their best to sell products, which cause the passive situation and delay the
development of this marketing (‘Multi-level marketing 24’ n.d.). In addition, abusing network
marketing can change all relationships among people into commercial relationships. Then, if
there are any disagreements in business, distributors can lose friends, families and relatives.
Gradually, this fact can break society rapidly.
2.3. The current state of multi-level marketing in Vietnam

According to Vietnam Multi-level Marketing Association (2011), at the end of 20 th century,
multi-level marketing appeared in Vietnam with several small companies and sporadic activities.
After the promulgation of the Competition Law in 2004 and 110/NP-CP decree in 2005, multilevel marketing was recognized as a legal type of business in Vietnam. Until June 2011, there are
63 network marketing companies granted the operating license. So far, the number of people
taking part in multi-level marketing in Vietnam was over one million people with the turnover
rising to 2799 billion dong in 2010, which was four times as much as in 2006 after only four

years. At the end of 2012, there were 78 companies registering as a network marketing business
with millions of people joining in and more than 3400 billion dong income (Ho 2014). Multilevel marketing companies reported that, during the past years, these companies contributed to
the state budget over 1.200 billion dong and over 170 billion dong personal income tax. Until
2013, Ho Chi Minh City has 42 businesses which is a bit fewer than Hanoi (47 businesses).
Among them, Amway, Oriflame and Herbalife are companies dominating this market with some
main products like fast moving consumer goods, cosmetics and functional foods.
After over 10 years developing, multi-level marketing in Vietnam had not only a lot of
achievements but also some problems. On the one hand, its pace of development grew sharply
and brought jobs and income to millions of the unemployed, promote good circulation and
consolidate Vietnam economy. On the other hand, Ho (2014) reported that the proportion of
network marketing consumer was 39.9% of total survey participants. There are two main reasons
for that situation: lack of consumers’ belief in this marketing and poor qualified product. Beside
6


many transparent and legal multi-level marketing companies, in Vietnam, some network
marketing organizations with a sign of cheating consumers appeared made a stir in fame. In the
Annual activity report 2010 (Competition Administration Department), there were two illegal
network marketing cases in 2007, 10 cases in 2008, three cases in 2009 and four cases in 2010. It
is too easy to see a series of law violations with more and more unpredictable trickeries in
network marketing activities. Meanwhile, for this kind of business, the products require a good
quality because its marketing method is mainly from one person to another. In Vietnam, today,
as statistics, multi-level marketing has about 7000 different items of which 90% are functional
foods. Nevertheless, many of these products do not guarantee the quality, and the price is much
higher than the cost of production (‘Ban hang da cap’ 2015).
2.4. Some proposed solutions

To promote the proper role and benefits of multi-level marketing, some solutions for the two
problems in network marketing in Vietnam are urgent. Firstly, for the existence of pyramid
selling, the government need to enhance the supervision, penalize law violations strictly and

rapidly respond to any situations. In addition, they can raise the function of Multi-level
Marketing Associations in improving people’s awareness of legal and illegal network marketing
to limit pyramid selling. Also, network marketing companies have to abide by the laws about
multi-level marketing, and train their distributors more thoroughly about their products and
professional ethnics. Furthermore, consumers should raise their awareness of both multi-level
marketing and pyramid selling, propagate for relatives understand this kind of business as well.
They must be wary of the invitations of illegal multi-level company and carefully consider the
agreement before joining in any networks. Finally, for the fact of the poor-qualified products, the
government should require network marketing companies to report specifically on the price and
survey to detect the cases of fraud, arbitrarily raise product prices. Likewise, they need to have
some specific rules on technical standards and product quality. Those companies ought to list the
price for final consumers to avoid pushing price up without control. Besides, consumers should
check product quality before buying (Ho 2014).
3. Conclusion

From all the findings above, obviously, multi-level marketing in Vietnam still has some huge
problems which are more and more widespread and difficult to deal with. A sad fact is that most
7


of them come from people’s greed and cause many bad effects on society. To solve these
problems, there is nothing better than cleaning up from their root: the greed. Kiyosaki and
Lechter (1997, p. 173) claim that you have to get into work to receive a worthy financial reward.
Hopefully, people can understand it, then eliminate their greed to remove pyramid selling and
poor-qualified products in the near future, through which multi-level marketing can become one
of the flagship businesses in Vietnam, and consolidate national economy.
Words count: 1699 words

8

REFERENCES
Australia Competition & Consumer Commission n.d., Pyramid schemes, viewed 5 February
2016, />‘Ban hang da cap’ 2015, Thế nào là bán hàng đa cấp lừa đảo?, viewed 10 February 2016,
/>Competition Administration Department 2010, Annual activity report 2010, Vietnam.
Cruz, J.P. & Olaya, C. 2008, A system dynamics model for studying the structure of network
marketing organizations, viewed 27 January 2016,
/>Ho, T.B.T. 2014, Thực trạng bán hàng đa cấp ở Việt Nam hiện nay và một số giải pháp đề xuất,
PhD Thesis, Foreign Trade University.
Kiyosaki, R.T. & Lechter, S.L. 1997, Rich Dad Poor Dad, Gold Press Publishing, LLC, The
United State of America.
Kiyosaki, R.T. & Lechter, S.L. 2001, Business School For People Who Like Helping People,
Gold Press Publishing, LLC, The United State of America.
‘Multi-level marketing 24’ n.d., Advantages and disadvantages of MLM, viewed 2 February
2016, />Oksanen, E. n.d., Structure and characteristics of network marketing businesses, viewed 27
January 2016, />Vietnam Multi-level Marketing Association 2011, Nhận diện kinh doanh đa cấp bất chính và
hợp pháp, viewed 5 February 2016, />option=com_content&view=article&id=248%3Anhan-dien-kinh-doanh-da-cap-batchinh-va-hop-phap&catid=38%3Atim-hiu-v-mlm&Itemid=77&lang=vi.
Vietnam Multi-level Marketing Association n.d., Lịch sử ngành bán hàng đa cấp, viewed 27
January 2016, />
9


option=com_content&view=article&id=65%3Alch-s-nganh-ban-hang-acp&catid=38%3Atim-hiu-v-mlm&Itemid=77&lang=vi.
Ward, S. 2014, Multi-level Marketing, viewed 3 February 2016,
/>World Federation of Direct Selling Associations 2000, What is direct selling?, viewed 23
January 2016, />
10