Our September cover story is an update on the March 2013 story, “Direct Selling’s Billion Dollar Markets,” with a focus on the great potential of emerging countries. We have elected to move our annual research on billion dollar markets from March to September each year in order to best utilize the extensive research conducted by the World Federation of Direct Selling Associations’ (WFDSA) Research Committee. (The most recent statistics, 2012, were just released this summer.) This team works over 5,500 person hours to gather, vet, analyze and report annual data to assess and size the direct selling market in each region of the world, and their data provides us with one of the primary sources for our own research.
Enjoy the update in this issue, and look for the next full coverage of DSN’s Billion Dollar Markets annual research each September going forward.
An industry that generates $166.9 billion annually wields exceptional power, especially when 89.7 million global citizens are the core of its strength. Regardless where in the world they call home—advanced or emerging markets—tenacious entrepreneurs use the direct selling business model to increase their incomes, enhance their own socioeconomic status and collectively improve local, regional and national economies.
Globally, the direct selling industry grew 5.4 percent in 2012 and a cumulative 13.9 percent since 2010. Posting that kind of increase is impressive, especially during a global economic recovery. But dissecting WFDSA’s 2012 global direct selling survey proved equally impressive when statistics showed emerging markets were responsible for 44 percent of global direct sales, a gain of 9 percent in just two years.
Of the 23 countries on Direct Selling News’ Billion Dollar Markets for 2012, only 10 are considered advanced direct selling markets. The remaining 13 are young and emerging. Markets like China, Malaysia, Colombia, Thailand, Russia and India have come on strong despite legislative and importing restrictions, cultural complications and lower GDPs. In these emerging markets—where 85 percent of the world’s population base lies—direct selling’s “Great Potential” is waiting.
Unlocking The Great Potential
To unlock these emerging markets it is necessary to understand the compelling reasons direct selling is flourishing.
“From an economic perspective, you have people with lower levels of education and little discretionary income or resources to invest in a business, and at the same time you have a rapidly growing middle class that can now afford to buy products like this from friends and family. You have demand and supply growing together, and it’s kind of like the perfect storm,” says Jeffrey Dahl, President of Amway Latin America.
This scenario plays out wherever emerging markets exist, wherever there are entrepreneurial-minded individuals who seek to improve their socioeconomic status.
European economic strife has caused a “classical story” to play out in recent years, according to Maurits Bruggink, Executive Director of SELDIA, the European Direct Selling Association. “When things go bad and people lose their jobs, they start being more interested in direct selling to complement and increase their incomes. It is a phenomenon in Europe right now that is a bit bigger and wider,” he says.
“You have demand and supply growing together, and it’s kind of like the perfect storm.”
—Jeffrey Dahl, President, Amway Latin America
While some emerging market direct sellers are motivated by disappearing job opportunities, for others high-wage jobs never existed in the first place. Dahl says, “In many emerging markets they aren’t used to the corporate orientation. They are entrepreneurs and work with small commercial opportunities. So direct selling is a natural extension for them.” And for many, direct selling is a socioeconomic equalizer and a path to the middle class.
CAPEVEDI, Peru’s direct selling association, surveyed 600 people about the socioeconomic impact of direct selling on families. Of respondents, 90 percent were women, 50 percent were over 40 years old and most were married with an average of five children at home. Also, 62 percent of the respondents indicated they did not have a job, were retired or only worked part time before entering direct sales.
Those families feel the impact of extra income generated by direct selling, and Lourdes Montagne, a staff member at CAPEVEDI, says, “Direct selling fosters a more democratized environment in many Peruvian families, providing the opportunity for equality or balance of economic income for each family member.”
Dr. Dora Hoan, Founder of Best World International, a direct seller based in Singapore, says, “The growth of the middle class means higher purchasing power and greater desire to improve their quality of life. This means more customers with more disposable income for direct sellers.”
Montagne agrees: “The growth of the middle class in Peru is hand-in-hand with the increase in their purchasing power, which automatically generates changes in the consumption habits of this social class.”
“The growth of the middle class means higher purchasing power and greater desire to improve their quality of life.”
—Dr. Dora Hoan, Founder, Best World International
People in emerging European markets like Poland or Slovenia, Bruggink says, want to be involved in direct selling because they don’t have access to Western products and retail distribution systems.
“The retail that you have in a lot of emerging markets is Mom and Pop,” Dahl says. “Buying from a Mom and Pop is a lot like the direct selling dynamic. You are buying from a family in the neighborhood. So it is little wonder that emerging markets are grabbing hold of direct selling as a viable business model.”
Embracing The Great Potential
“We believe that emerging markets are ‘The Great Potential,’ ” Hoan says. “After all, there are many enterprising people there who welcome business opportunities from direct selling. That being said, there are risks in these markets. The business regulations may not be conducive to direct selling; the people may not be welcoming or they may have limited purchasing power… but remember, no risk, no gain.”
The decision to expand internationally is certainly not as simple as contemplating mature versus emerging markets, but Dahl asserts, “It is a fair filter.” The regulatory environment, economic indicators and competition must be considered.
“Many companies choose to expand where direct selling associations are located and the industry is established,” says Jose Paez, Director General of Amway Mexico. “It’s easier to get in there and communicate your systems, communicate your mechanics, and get your permits to legally operate.”
But expansion strategies differ, depending upon the company and the target region. Miguel Arismendi, Chairman of ACOVEDI, Colombia’s direct selling association, sees new companies entering small and medium markets to test the Latin American waters before expanding to larger markets.
In Europe, the opposite is true. “When companies enter Europe, they do not enter in emerging markets,” Bruggink says. “They always seek a foothold in Western Europe, and that remains the strength of Western Europe—the economic stability of GDP, income per capita and regulatory assurance.”
Arismendi says, “It is a challenge and can be more difficult in some emerging markets than in others, but in general direct selling companies have adapted their portfolios and operations to the regulatory issues in the markets.”
“Companies are excelling in a very hybrid way and adapting their own operations to what these countries can provide.”
—Jose Paez, Director General, Amway Mexico
Explosive expansion of direct selling in China and India are a case in point. “If you look at what companies have done in those markets, they have adapted themselves. Companies in China can’t do what they have done in the U.S. or Europe,” Paez says.
In the case of most companies operating in China, for instance, they must open stores or nutritional centers in every small city because Chinese law forbids gathering or networking. “Companies have to adapt to these situations,” he says. “They are excelling in a very hybrid way and adapting their own operations to what these countries can provide. It is true that direct sales is having an impact and growing day by day, but again, not with the same mechanisms.”
The Great Bounce-Back Potential
Best World International is a medium-sized direct selling company based in Asia that cautiously and gradually expands into nearby countries. But, Hoan admits, chance and distributor connections have played a role in some expansions into “uncharted” countries. “Our overseas expansions happened this way. Nevertheless, for this type of expansion to happen, the direct sellers have to be very motivated and willing to brave all odds,” she says.
Paez adds, “Social media has helped almost everyone get connected wherever they are. People with friends in the U.S. are opening lines there using social media to do so.”
Dahl confirms, “There’s definitely a bounce-back effect that companies who operate in multiple markets are starting to dig into, focus on and build strategies to develop. Technology makes it much easier. People coming to the U.S., for instance, get exposed to a direct selling opportunity, and then it bounces back to friends and family in their homeland, and vice versa.”
“There’s definitely a bounce-back effect that companies who operate in multiple markets are starting to dig into, focus on and build strategies to develop. Technology makes it much easier.”
Even some advanced market growth, Dahl supposes, is likely the result of immigrants bringing positive cultural attitudes about direct selling to places like the U.S., where Hispanics, Koreans and Asian Indians are doing very, very well. “If I were a struggling company in the U.S. or another mature market, I would vector my resources to some of these segments that are limited in investment opportunity due to lack of resources, and with a cultural attraction to direct selling,” Dahl says.
Flexibility, sustainable systems, cultural awareness, and tenacious, open-minded staff and distributors make growth of any kind easier, whether the target is an emerging market or not.
Success in an emerging market is by no means easy or certain, but that could be said of mature markets as well. There are legislative hurdles to clear and reputations to build. But as more direct selling companies enter emerging markets, greater understanding takes hold and adds legitimacy to the industry in that market.
The acceptance of direct selling as a viable business option within emerging markets can empower individuals, improve the socioeconomic status of families and have far-reaching impact on the local, regional and national economies. As Hoan puts it, “The industry has room for growth, while the countries can benefit from its revenue. Individuals can make use of the business platform to empower themselves. On the whole, expansion into emerging markets is good for all parties involved.”
Billion Dollar Markets
1. United States—$31.6 Billion
The United States occupies the top spot on the 2012 Billion Dollar Markets list, up 5.9 percent since 2011 and outpacing overall U.S. GDP economic growth of 4 percent for 2012. The U.S. market makes up 19 percent of global direct sales overall. A closer look at U.S. growth by the U.S. Direct Selling Association showed that 60 percent of companies experienced growth in 2012.
The direct selling community includes some 15.9 million independent representatives, of which 77 percent are female and 68 percent participate in person-to-person sales. Wellness and services—including utilities and financial products—continue to grow steadily, thanks to increased consumer awareness and the deregulation of the energy industry. The breakdown by product category: wellness products (27 percent), household goods and durables (19 percent), cosmetics and personal care (17 percent), clothing and accessories (12 percent), financial services (10 percent), and utilities (8 percent).
“The strong performance of direct selling in the United States and around the world continues to underscore the economic and social relevance of this business model,” USDSA President Joseph Mariano says. “Despite progress toward economic recovery, there are still many Americans looking for a source of supplemental income. Coupled with increasing consumer confidence, both sales and interest in the opportunity are at near-record levels.”
“The strong performance of direct selling in the United States and around the world continues to underscore the economic and social relevance of this business model.”
—Joseph Mariano, President, USDSA
2. Japan—$22.7 Billion
The Japanese direct selling market decreased by 4.8 percent in 2012, and if trends continue this year they may slip rank to No. 3. Japan comprises 14 percent of global direct sales, with 3.4 million sellers (78 percent female) participating primarily in person-to-person (95 percent) sales. Cosmetics and personal care (30 percent), wellness (29 percent), and household goods and durables (19 percent) led Japanese product sales.
3. China—$20.0 Billion
China is a rapidly growing market and could eclipse Japan’s No. 2 ranking when 2013 statistics are available next June. WFDSA’s research estimates indicate China’s growth at 13.5 percent in 2012 with a market comprising 12 percent of global direct sales. Statistical reporting of product categories, number of direct sellers or sales by method are not available.
4. Brazil—$14.6 Billion
Comprising 9 percent of the global direct selling market, Brazil’s 6.7 million sellers grew this Latin American powerhouse 13.1 percent in 2012 through 100 percent person-to-person sales. While gender breakdowns were not available, Latin American direct selling is predominantly female.
5. Korea—$13.3 Billion
The direct selling community in Korea grew to 5 million sellers (79 percent female), up from 4.2 million in 2011. They expanded this market 4.3 percent and brought the global direct selling share of their country to 8 percent through person-to-person (75 percent) and party plan (25 percent) sales. Wellness (35 percent); cosmetics and personal care (26 percent); household goods and durables (12 percent); and books, toys and stationery (11 percent) led product sales.
6. Mexico—$7.3 Billion
Mexico’s direct selling community is 96 percent female and dominated by cosmetics and personal-care products (42 percent) and clothing and accessories (31 percent), while wellness (21 percent) is gaining traction. All told, Mexico increased revenues 7 percent in 2012; they comprise 4.3 percent of global direct sales.
7. France—$4.9 Billion
France formally recognized direct selling in 2012, which contributed to the country’s 4.1 percent revenue growth. In total, 500,000 sellers (79 percent female) participate in person-to-person (61 percent) and party plan (39 percent) direct selling methods. The home improvement category uniquely leads French direct selling at 37 percent, with household and durable goods second at 15 percent. France comprises 3 percent of global direct sales market share.
8. Malaysia—$4.7 Billion
Rising 7 percent and gaining 250,000 sellers, Malaysia’s direct selling market diversified from a 100 percent person-to-person in 2011 to a 90/10 split with party plan in 2012. Today some 4.8 million sellers (61 percent female) represent wellness (43 percent), household goods and durables (23 percent), as well as cosmetics and personal-care products (16 percent).
9. Russia—$4.3 Billion
From 2011 to 2012, the Russian direct selling market grew 4.1 percent, from $4.1 billion with 4.3 million sellers (86 percent female). Cosmetics and personal-care products comprised 67 percent of the Russian market, with wellness ranking second at 11 percent. And 86 percent of all sales are person-to-person.
10. Germany—$3.8 Billion
Despite economic turmoil within the European Union countries, Germany’s direct selling industry rose slightly—up 0.8 percent from $3.8 billion—as did their number of direct sellers (300,000 in 2012 versus 285,000 in 2011). Sales methods are split almost evenly, but females continue to dominate the field at 80 percent for the second year. Product category breakdowns are: household goods (34 percent), cosmetics (19 percent), wellness (11 percent) and home improvement (10 percent).
11. United Kingdom—$3.2 Billion
The United Kingdom’s direct selling revenue grew the most of any other European country in 2012, with overall revenues rising 7.2 percent from $2.9 billion. Wellness led the way in product category sales in the UK, comprising 39 percent of direct sales, while a mix of cosmetics and personal care (18 percent) and household goods and durables (16 percent) rounded out the industry. The size of the direct selling community was at 400,000, with 75 percent female. Of that, 70 percent are selling person-to-person, while 30 percent are earning through party plan sales models.
12. Colombia—$3.0 Billion
Rapid growth is seen in the emerging Latin American market of Colombia, where 1.5 million sellers caused that country’s direct selling revenue to rise 7.6 percent from $2.8 billion in 2011. Dominated by females (95 percent) conducting person-to-person sales (86 percent), Colombia’s direct selling customer wants cosmetics and personal-care (59 percent), clothing and accessories (23 percent), and wellness (10 percent) products.
13. Taiwan—$3.0 Billion
Slight growth (0.6 percent) was witnessed in the Taiwanese market in 2012, where 2.7 million sellers (70 percent female) represent wellness (58 percent), cosmetics and personal-care (15 percent), as well as home-care, household goods and durables, and clothing and accessories.
14. Italy—$3.0 Billion
Italy’s direct selling market suffered a loss of 4.9 percent in 2012, while gaining nearly 100,000 new members of its direct selling community (500,000). Females continued to dominate the Italian direct selling community (71 percent), and cosmetics and personal-care products comprised 33 percent of the market. Participation by males grew 5 percent in 2012 (29 percent), which may explain the 6 percent growth of person-to-person sales models and increased market share of wellness (20 percent) and foodstuffs and beverages (15 percent) companies.
15. Thailand—$2.9 Billion
2012 was a year of explosive growth in Thailand’s direct selling community, with some 800,000 new direct sellers signing on with companies, resulting in total revenue growth of 7 percent. Wellness products surged ahead to 39 percent of total category sales, while cosmetics and personal-care products dipped to 27 percent. Person-to-person sales increased 10 percent, totaling 69 percent of all sales methods used by a mostly female (67 percent) representative field; however, 3 percent more Thai males jumped into direct selling (33 percent).
16. Venezuela—$2.3 Billion
Despite appearing lower in the ranking this year, Venezuela’s direct selling industry increased 6.8 percent. Of the country’s 1.2 million sellers, 80 percent were female; however, an 11 percent increase in male participation in 2012 may be due in part to the growing wellness product category. While the traditionally female stronghold of cosmetics and personal-care items still led category sales at 30 percent, statistics show that wellness gained 13 percent in 2012. Person-to-person made up 95 percent of all sales.
17. Canada—$2.2 Billion
Canada’s 1 percent growth may be the result of the expanding category of cosmetics and personal care, which comprised 39 percent of product sales in 2012, as well as utilities, which posted 10 percent this year. All other categories suffered losses. Sales methodologies were almost evenly split within Canada’s salesforce of 700,000 independent representatives, of which 84 percent were female.
18. Argentina—$1.7 Billion
Marked growth in other Billion Dollar Markets caused Argentina to hold its No. 18 rank despite an astounding 12.5 percent growth in the country. Almost exclusively female (96 percent), Argentina’s direct selling community of 700,000 grew by nearly 80,000 in 2012. They were meeting the needs of customers, 67 percent of which sought cosmetics and personal-care items through one-on-one relationships (84 percent) with direct sellers.
19. Australia—$1.5 Billion
Cosmetics/personal-care and wellness products made up more than half of Australia’s direct selling product sales. Some 400,000 direct sellers (85 percent female) were practically split in half between party plan and person-to-person sales models. Australia’s direct selling revenues were up 4 percent from 2011 statistics.
20. Peru—$1.4 Billion
Adding some 50,000 Peruvian direct sellers to the community brought an 11.2 percent increase in revenues to this emerging market. Peru’s salesforce is predominately female at 91 percent, and examination of the most successful direct selling product categories reflects the gender of the selling community. Cosmetics and personal care rank No. 1 at 36 percent, with clothing and accessories (29 percent) a close second. Wellness represents 19 percent of the market.
21. Indonesia—$1.1 Billion
Indonesia advanced one ranking this year, having 11 percent growth due to nearly 1 million more direct sellers in country. Sales methodology and product category statistics were not reported in 2011 or 2012.
22. India—$1.1 Billion
Growth of 22.6 percent from $858 million in revenue in 2011 landed India on the Billion Dollar Markets list for the first time. India’s market is comprised primarily of wellness products (44 percent), but cosmetics and personal-care (33 percent) and home-care products (14 percent) are also integral to their success. With an ever-expanding seller base (4.9 million), nearly 1 million more in 2012 than the previous year, 63 percent are female and 38 percent are male, participating in person-to-person (69 percent) and party plan (23 percent) sales.
23. Philippines—$1.0 Billion
Wellness products are far and away the leading cause of the Philippines’ rise to the Billion Dollar Markets list for the first time this year. Revenues rose 31.3 percent from $770 million in 2011, thanks to 3 million sellers, split 60/40 female, conducting virtually all sales via person-to-person contact.
Asia Pacific is the largest region for direct selling, making up 44 percent of the industry’s global sales. Retail sales rose 4.4 percent in this region to $73.3 billion. Within this region the direct selling community experienced tremendous growth at 9.9 percent, raising the count of people participating in direct selling to 46.1 million in 2012.
Asia is home to much of the world’s population, so clearly part of these statistics is due to the sheer volume of people in that region; however, direct selling seems to be a great fit for the Asian markets and cultures as well. And because direct selling is profitable, it has become increasingly legitimate to choose it as a potential career—not merely as a fallback position.
There is a very strong work ethic in Asia. With few government security nets, people often want multiple jobs and income streams. Their entrepreneurial spirit and desire to have their own businesses are also strong. While in the Western world one goes to college and then gets a job, the preferred path in Asia is to start a business. Direct selling offers them this entrepreneurial fulfillment at a very low cost.
The Asian cultures are very comfortable with purchasing from friends or on the recommendation of friends or family members. For these reasons and more, the Asia/Pacific region will likely continue to experience significant growth in the foreseeable future.
The Americas comprise 40 percent of global industry sales, split evenly between North America’s U.S. and Canadian market and the 11 markets that comprise South and Central America. Overall retail sales in the Americas rose 7.9 percent to $66.4 billion. While North America saw growth of 5.6 percent ($33.9 billion), South and Central America saw a double-digit increase of 10.4 percent, with sales reported at $32.6 billion.
Latin America’s impact on worldwide sales figures is notable. Miguel Arismendi, Chairman of ACOVEDI, the Colombian direct selling association, says the expanding middle class is causing health and wellness product categories to gain traction. “It is effectively, positively the entrance of males into the direct selling industry because it is an attractive category for them.”
The European market is comprised of Western, Central and Eastern Europe. All are governed by SELDIA, the European Direct Selling Association, and play by the same direct selling code of ethics as a result. Together, Europe makes up 16 percent of global industry sales—11 percent, Western; 5 percent, Central and Eastern.
European growth is holding steady despite a financial crisis still hanging over many European Union countries. While Western Europe, with more established and mature direct selling markets, rose 1.3 percent to sales totaling $17.7 billion, Central and Eastern European markets enjoyed a 4.3 percent increase. That brought their sales to $8.1 billion. In all, Europe rose 2.2 percent, totaling $25.9 billion.
Widely differing GDPs, income per capita, government interaction, familiarity with direct selling and cultural differences all weigh into the direct selling activity measured in Europe. Often, direct selling growth is a tug-of-war between the European Union regulation originating in mature markets and Central and Eastern Europe’s less restrictive governmental policies that give them competitive advantage. Maurits Bruggink, Executive Director of SELDIA, says, “I am hopeful that Central and Eastern European member states will be successful in overhauling pieces of over-regulation by the European Union.”
Africa and Middle East
Africa and the Middle East had an estimated 1 percent of global industry retail sales in 2012.