China Crackdown – How Does it Impact International MLMs?
US network marketing companies like Herbalife, Nu Skin and Usana Health Sciences have been brutally reminded that a successful China story can quickly move from being a strength to a vulnerability depending upon the mood that prevails in China. The recent multi-level marketing (“MLM”) crackdown in China coupled with a joint announcement by several PRC authorities launching a number of investigations which have led to a tailspin in the share price of major international MLM companies that have a large exposure to China. At present most international MLM companies operating in China would be best advised to maintain a low profile at present. This means no press releases, no public statements but rather be calm and just sit out the storm. Communications to affiliates or the market may be misinterpreted and may not calm but rather attract attention. In these uncertain times international MLM companies should ensure that their business model is compliant and ensure a robust compliance model is in place in order to deal with any non-compliant practices or affiliate actions that may attract the attention of the authorities.