Monday, 2 December 2013

Amway Finds It's Washed Over In a South Korean Soap Drama

A fierce attack by local consumer groups, environmental activists and competitors on Amway Corp.'s leading detergent have led to a 64% plunge in the U.S. company's business this year in South Korea, its third-largest market.
Amway's monthly sales here have fallen to 13 billion won ($14.1 million) in August from 36 billion won in January, and about 70,000 of its 140,000 distributors have stopped peddling Amway's detergents and cosmetics, says Brian Chalmers, the 55-year-old president of Amway's Korean operation.
Amway's continuing woes in Korea -- including the brief imprisonment in 1993 of an executive -- underscore how cultural land mines and informal trade barriers still make it tough for many foreign companies to make it in this market. "All of the elements are there to be successful in Korea, but it just doesn't seem to come together," Mr. Chalmers says.
Allegations About Dish Drops
At the center of the war on Amway, based in Ada, Mich., is the multilevel-marketing company's Dish Drops detergent.
The trouble began in March, when 82 consumer and environmental groups formed an Anti-Amway Committee and publicised a list of charges. The advocacy groups say that Amway is misleading Korean consumers by advertising its products as environmentally friendly. They produced test results claiming that the biodegradability of Dish Drops lags behind that of Korean products.
The consumer groups also assert that Amway is overcharging Korean customers for Dish Drops, which, they claim, is two to three times more expensive than local products. Amway's distributors, the consumer groups further claim, are conducting illegal comparative testing with Korean-made products to sell their wares.
"Amway is not a moral company," says You Jin Hee, former general secretary of the National Council of Consumer Protection Organizations, a key group behind the campaign. "They have the wrong attitude in marketing their products."
The consumer groups also accuse Amway distributors of improperly using the close ties between friends and neighbors in South Korean society to sell their goods. "Amway is disrupting communities and church congregations, and it is a problem to society as a whole," says Choi Yul, general secretary of the Korean Federation for Environmental Movement.
The groups are mainly privately funded, but the National Council of Consumer Protection Organizations does receive some money from South Korea's Ministry of Finance and Economy. Despite this government support, the National Council says that no government funds have been used in the anti-Amway campaign. A ministry spokesman says the government doesn't influence the consumer group's activities.
Soon after the consumer groups launched their campaign, the Korea Soap and Detergent Association, a trade group for local manufacturers, sponsored advertisements publicising the consumer groups' claims. The ads also added new allegations -- including the claim that Amway is a main contributor to South Korea's trade deficit. (Amway imported an estimated $125 million of goods into South Korea in 1996, less than one-tenth of 1% of the country's total imports of $150 billion.) The association declined to comment on its actions.
Mr. Chalmers of Amway says the charges are false. The test used to question Dish Drops' biodegradability is flawed, Mr. Chalmers says, since the soap was deemed nonbiodegradable after only one and two days of testing, instead of the international standard of eight days or more. (The consumer groups counter that a one-day test is necessary because, as one advocate says, "streams in Korea are shorter," so detergents need to be biodegraded more quickly.) Another consumer-advocacy group issued a study earlier this year that says Dish Drops meets Korean environmental standards.
Mr. Chalmers also denies that he's overcharging, explaining that Dish Drops detergent is economical if the customer dilutes the concentrated soap as directed on the package. The consumer groups refuse to accept Amway's guidelines for using the concentrate, and so they mistakenly believe the product is too expensive, he says.
Demand for Apology Rejected
Mr. Chalmers has conceded to the consumer groups that his distributors have in a few cases conducted comparative tests, which are illegal in South Korea, but he says distributors are actively discouraged by Amway from conducting them, and those who are caught are dismissed.
The Anti-Amway Committee nonetheless demanded a public apology from Mr. Chalmers, but he refused the demand. "It's just not built into me," he says. In June, with no apology coming, the consumer groups launched a boycott against Dish Drops. They hung banners outside bus terminals and subway stations that read, "It was all a lie. Amway detergent is not superior," and passed out pamphlets to commuters titled "Amway! Wrong Way! Go Away!"
The campaign had a profound effect on Amway's customers. Suh Myung Ja, a 42-year-old housewife, had bought Dish Drops for several years. But earlier this year, she stopped buying the product after reading newspaper articles about the consumer groups' complaints. "I was afraid of what other people might think if I bought from Amway," she says.
'Hard Place to Do Business'
Amway has had difficulties in South Korea since entering the market in 1991. In 1993, David Ussery, then Amway's manager in Korea, spent nine days in jail after being charged with violating a law by not properly training distributors. When not in his cell, Mr. Ussery's hands were often tied with rope. He was found guilty, and Amway was fined $100,000. "I'm not angry at anyone," says Mr. Ussery, now Amway's president in the Philippines. "Korea's just a very hard place to do business."
In this latest battle, Mr. Chalmers, unlike most foreign businessmen confronted with problems in Korea, has put on his boxing gloves. As he sees it, the consumer groups' attacks are motivated by Amway's success. Dish Drops late last year had claimed between 10% and 15% of the local market for dish detergent, extremely high for a product from a multilevel marketing company. "I think it is a market-share issue," says Mr. Chalmers.
He launched an advertising campaign to refute the charges of the Korea Soap and Detergent Association, and filed a complaint in April against the association concerning its anti-Amway advertisements with the Fair Trade Commission, a government body that regulates market practices. The association and consumer groups later filed a countercomplaint against Amway. No ruling has come from the government.
Unauthorized Testing Stopped
Amway also took legal action against 18 retailers that were selling comparative-testing-equipment kits to Amway salespeople. This equipment, Mr. Chalmers says, is provided by Amway to distributors outside of Korea, but the company doesn't use it in Korea because such tests are prohibited. The retailers, however, were importing the kits on their own and selling them under the Amway name, and distributors used the kits against Amway's wishes to conduct the banned tests. Amway sued the retailers for trademark infringement, and all have been closed down.
Now Mr. Chalmers is looking to improve the training of salespeople to avoid scuffles with consumer groups in the future. One idea is to provide free training videotapes and workbooks. He is also considering taking on a representative from the consumer groups as a consultant to improve relations. For all his headaches, Mr. Chalmers professes to be upbeat on Amway's prospects in Korea. He plans to add to the 100 products Amway sells in Korea, and moved up a launch of a new vitamin by about two months to December. "The opportunity this market provides is still absolutely unbounded," he says.

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