Patchwork of laws hampers growing industry

Date: 07/05/1998

National obstacles are preventing the creation of a truly single market for multi-level marketing, says John Brown ONLY last July, MEPs called upon the European Commission to 'study the obstacles to multi-level marketing and to assess the need for legislation to guarantee the single market in this growing form of commercial communication'.

Although multi-level marketing (MLM) companies have been offering significant opportunities for income-earning in Europe for many years, the European Parliament's resolution represented the first public recognition by an EU institution of the challenges facing this fast-growing sector in taking up the opportunities offered by the single market.

MLM forms a major share of the direct selling market. It is used by an increasing number of firms in Europe and throughout the world including my own company, Amway.

For those unfamiliar with the concept, direct selling allows independent business people to sell products straight to the consumer without the investment associated with the establishment of traditional retail outlets. Instead, distributors are given the opportunity to operate their own independent businesses, marketing consumer products and interesting others in doing the same.

MLM is particularly attractive to consumers who appreciate the benefit of home delivery. The Commission itself has noted the importance of ensuring that all consumers, especially an increasingly elderly population, continue to receive a high standard of sales service in the future.

Because multi-level marketing is carried out by independent distributors, it encourages entrepreneurship while offering a flexible alternative or supplement to traditional employment opportunities. This aspect of MLM has become particularly important in the recent period of high unemployment experienced in a number of EU member states.

Multi-level marketing is usually carried out from the home, providing an opportunity for many people, such as women with small children, whose circumstances might otherwise preclude them from engaging in economic activity to supplement their income.

It also provides an opportunity for individuals to learn at firsthand the management and marketing skills that are necessary to operate a small business.

According to the World Federation of Direct Selling Associations, 1.6 million people in the EU were engaged in direct sales in 1996, generating revenues in excess of 10 billion ecu. In the US, MLM now represents 65% of direct sales and this trend is being reflected in Europe.

Despite these impressive figures, attempts to develop multi-level marketing in Europe have been hampered by an array of differing national laws which prevent companies from taking full advantage of the opportunities presented by the single market.

We well appreciate that a number of regulations in member states are the result of legitimate concerns about the protection of both consumers and distributors.

The success enjoyed by legitimate MLM companies over the past years has, unfortunately, encouraged a number of unscrupulous individuals to enter the market and to exploit citizens by offering fraudulent investment opportunities as a means of earning profits through 'pyramid' or 'snowball' schemes.

Reputable MLM companies are as anxious as governments and the Commission to have fraudulent schemes outlawed, as these attempt to impersonate legitimate marketing and sales methods employed by bona fide MLM companies.

In contrast to fraudlent firms, legitimate MLM companies are concerned with selling quality product. We therefore ensure that distributors do not pay high entrance fees or buy large amounts of non-refundable stock.

Legitimate companies also make it easy for distributors to leave the business at any time without any penalty and undertake to buy back the distributors' unsold stock.

The Federation of European Direct Selling Associations (FEDSA) has adopted its own rigorous code of conduct to protect consumers and direct sellers. This code has been ratified by direct selling associations throughout Europe and serves as a common set of rules to protect and serve the public.

Unfortunately, EU member states use a diverse range of laws in an attempt to achieve the same goals as this code. Some countries rely on general fraud provisions, others (Italy and the Netherlands) on consumer protection laws, and still others (Austria, Belgium, France, Germany and Spain) on unfair competition laws.

Widely divergent national rules ranging from outright prohibition of doorstep selling, as in Luxembourg, to detailed regulation of how legitimate MLM may be performed, mean that companies in this sector must restructure their marketing plans and materials from one country to another to ensure compliance with the individual nuances of member states' regimes.

This impedes the ability of MLM companies to do business in a consistent manner throughout the EU.

The 1997 UK trading schemes regulations provide an excellent example of how national laws may achieve the goal of prohibiting fraudulent trading schemes while allowing legitimate MLM businesses to bring their unique benefits to the market.

With a comprehensive regulatory approach, the UK has regulations that make it difficult for unscrupulous operators to create exploitative schemes which evade control, a goal which other member states' rules have unfortunately failed to achieve.

Many in the MLM industry would like to see an approach similar to the UK law and FEDSA code adopted at EU level, not only to protect consumers from illegal schemes but also to clarify the legal position and thereby permit legitimate multi-level marketing operators to develop their businesses throughout the Union.

I believe this approach is the best way to enable companies to take advantage of the single market while ensuring a high level of protection for consumers across the EU. I therefore welcome recognition that disparate member states' laws have a direct impact on the level of protection for consumers in the Union.

I am greatly encouraged by recent developments within the Commission.

The Directorate-General responsible for consumer protection policy (DGXXIV) has demonstrated its understanding that completing the single market in the MLM sector and providing consumer protection are inextricably interlinked.

Equally important for us, however, is the approach taken by the Directorate-General for the single market (DGXV) in its follow-up to last year's Green Paper on commercial communications.

This confirms the Commission's role in examining barriers to trade in the single market. MLM companies actively support the appointment of an expert group to assist the institution in this task and I am hopeful that the obstacles encountered by MLM firms will be addressed at an early stage by the new group.

Multi-level marketing is a relatively new and not always well-understood selling method in Europe.

Nonetheless, it has a great future and the potential to bring substantial benefits to consumers and to those of even modest means who wish to create and manage their own business.

Every innovation creates challenges for our regulators. It would be regrettable if the opportunity offered by MLM companies were to be frustrated by a myriad of well-meaning but poorly targeted laws.

Recent efforts by the Commission permit prudent optimism that the benefits of the single market will, in the future, be available to multi-level marketing and its customers just as they are to many other businesses.

The results of these initiatives are eagerly awaited.

John Brown is director of world-wide government affairs for Amway Corporation.

Author is director of worldwide government affairs for Amway Corporation. He argues that national obstades are preventing the creation of a truly single market in multi-level marketing.