Theme Address - Future of USD 184 billion Global Direct Selling Opportunity in India and its Regulatory Requirements

Theme Address at

ASSOCHAM International Conference 

on Direct Selling

Future of US$184 billion Global Direct Selling Opportunity in India and its Regulatory Requirements

By:

VIJAY SARDANA

Chairman

ASSOCHAM Consumers Affairs Committee and

Chairman, Committee on Direct Selling

Direct selling is the marketing of consumer goods and services directly to consumers on a person-to-person basis, generally in their homes or the homes of others, at their workplace and other places away from permanent retail locations.

Direct selling offers customers the opportunity to see, test and judge a product at their leisure in their own homes or among friends. All goods are delivered directly to the customer. It is especially useful for consumers in rural areas and small towns, making available goods and services not provided through outlets in the area.

Historical Significance of Direct selling in India

Direct selling is not a new concept in India. Since ages, we were listening stories of people involved in Direct Selling. That is why India was rich in art and culture because people use to deal directly with the creator of the product. The famous stories of traders coming from far off places to sell their goods in various kingdoms and special items they use to bring as gifts for the kings. The famous story of ‘kabuliwala’ will remind you of the role direct selling use to play in our society from the time immemorial.

Traditionally, weavers, farmers, utensils makers, carpenters, etc were involved in manufacturing and selling as well. That was the time when India was having the maximum GDP in the world and India was the hub of creativity and innovation. Intellectual capabilities were respected even by kings and citizens.

With the advent of machines and faster mode of transportation, the structure of business started changing and the concertation of power started shifting towards large capacity manufacturers.

No doubt, we attainted the economy of scale but at the cost of creativity and employment. Barring few exceptions, the concentration of financial powers reduced the legitimate political powers to side-lines and creativity gave way to mass production and intellectual capability was reduced to labor jobs. The biggest reason for this shift was lack of direct contact between user and creator in modern language we can say the reduced role of direct selling.

Now once again people are willing to pay for creativity, innovation, and diversity because mass marketing does not appeal and address the latent desire of exclusivity of human nature.

Direct Selling in Modern World:

Today, globally companies, big o small, use various retail channels to sell their products. Once again, direct selling is becoming popular. It is used by top global brands and smaller, entrepreneurial companies to market their products and services to consumers.

Companies market all types of goods and services, including jewelry, cookware, nutritional, cosmetics, housewares, energy and insurance, and much more.

Facts about Direct selling:

Today, direct selling accounts for USD 183 billion globally and about USD 1.2 billion in India.

Globally, about 105 million people are involved in direct selling, whereas in India it is about 4 million.

Average sales of each participant in India is about said USD 300 per year i.e. Rs. 20,000, where the global average is about USD 1700 per participant per year or about Rs. 10,000 per month.

Direct selling opportunities can be enhanced in India provided we create a conducive environment which is protecting all the stakeholders within the framework of the regulatory framework.

How can Direct Selling complement initiatives of the Government of India?

Today the biggest challenge in India is the creation of Jobs by promoting creativity and entrepreneurship. Direct selling is an ideal platform to achieve the same.

Direct selling promotes Entrepreneurship

The direct selling channel differs from broader retail in an important way. It isn’t only about getting great products and services into consumers’ hands. It’s also an avenue where entrepreneurial-minded people can work independently to build a business with low start-up and overhead costs.

Direct selling promotes Self-Employment and will compliment Mudra-scheme

Direct selling participants work on their own but can be affiliated with a company that uses the channel, by retaining the freedom to run a business on their own terms.

Participants forge strong personal relationships with prospective customers, primarily through face-to-face discussions and demonstrations. This gives them first-hand experience to be creative and innovative.

Social media can accelerate Direct Selling:

In this age of social networking, direct selling is a go-to-market strategy that, for many companies and product lines, may be more effective than traditional advertising or securing premium shelf space. The creator of the product can enjoy a larger share in consumer price.

Multilevel marketing can be an option:

Millions of people around the world choose to become involved in direct selling because they enjoy a company’s products or services and want to purchase them at a discount. Some decide to market these offerings to friends, family, and others and earn commissions from their sales. The most successful sellers may decide to expand their business by building a network of direct sellers, or they may create their own range of products.

Why we need an appropriate regulatory environment to facilitate Direct selling?

Direct selling drives consumer interface, it is not a distance selling or store selling, whereas most laws are designed by keeping these two ways of selling.

Direct selling is NOT a Store selling. It is a form of non-store retailing, it means to create a more cohesive society and create netter understand about changing needs or the society.

Direct selling IS NOT distance selling i.e. selling by the Internet, by telephone or mail order without the simultaneous physical presence of the direct seller and the consumer. These sales methods are forms of distance selling. Distance contracts are concluded through the exclusive use of one or more means of distance communications.

Direct selling IS NOT pyramid selling. A pyramid scheme is any plan or operation by which a participant pays or promises to pay for the opportunity to receive compensation, primarily derived from the person’s introduction of other persons into a plan or operation, rather than the sale of goods and services by the participant or other persons introduced into the plan or operation. There are mechanisms by which promoters of so-called ‘investment’ or ‘trading’ schemes enrich themselves in geometric progression through the payment made by recruits to such schemes. Related fraudulent schemes have been described in various international jurisdictions as ‘chain letters’, ‘snow ball schemes’, ‘chain selling’, ‘money games’, or ‘investment lotteries’.

Benefits of Direct Selling

Direct selling offers important benefits to people who want an opportunity to earn income and build a business of their own, to consumers as an alternative to retail stores, and a cost-effective way for a business to bring products to market.

Consumers benefit from direct selling because of the convenience and service it provides, including personal demonstration and explanation of products, home delivery, and generous satisfaction guarantees.

Direct selling offers an alternative to traditional employment for those wanting a flexible opportunity to supplement household income, or whose circumstances don’t allow regular employment. Direct selling opportunities can develop into a fulfilling career for those who achieve success and choose to pursue their independent direct selling business on a full-time basis.

Direct Selling regulations will promote Start-Up India Mission

Start-up costs in direct selling are typically low. Usually, a modestly priced sales kit is all that’s needed to get started, and there is little or no inventory or other cash commitment to begin. This stands in contrast to other businesses with the cost and risk associated with larger outlays.

Direct selling offers a distribution channel for businesses with innovative or distinctive products that for cost or other reasons are not suited to other retailing.

As the external Socio-Economic Impact Studies for the various markets show, direct selling is a positive benefit to the economies and people where direct selling companies operate and serve consumers with a convenient source of quality products.

How Society and economy can benefit from Direct Selling Regulations?

Any economic activity which is managed under fair and objective regulatory framework grows faster because it keeps the non-serious players and manipulators away from the system so that they should not disturb the fair play in the marketplace.

The fair and objective regulatory system should benefit all stakeholders in their efforts.

Direct selling benefits for the Consumers:

·      Opportunity to try and test the products;

·      Customised and tailored made demonstration and consultation in a friendly environment;

·      Personalised delivery at home;

·      Right to withdraw the purchase within a given period (additional protection);

·      Direct contact with the seller;

·      Guarantee and after-sales service;

·      Flexible buying hours

·      Can be cost effective due to low overheads of traditional business channels for the similar products categories

Benefits for the Direct sellers:

·      This will support entrepreneurship zeal.

·      Possibility to establish and to run own business at minimum cost/low risk;

·      Convenient flexible earning opportunities;

·      Flexibility to choose working hours;

·      Spouses or family members can be partners in business (like family business);

·      Adjustable opportunities ranging from part-time to full-time activity;

·      No formal qualifications required;

·      Adequate training and support from companies;

·      Large range of products available;

·      Social contact and personal recognition.

Direct selling benefits for the existing and new Companies:

·      This will promote innovation at low cost

·      The most effective method to enter new market with relatively low cost, especially providing unique products or services;

·      Does not require high capital investment;

·      Allows to avoid additional intermediaries in distribution, saved money can be invested elsewhere;

·      No major previous business experience necessary;

·      Requires no specially educated workers;

·      Effective in gaining the initial interest and attention of prospective customer – personal touch;

·      Particularly effective in the marketing of low-cost consumer goods or products insufficiently known: new products, technically complex products, etc;

·      Unique competitive strategy:

·      no need for substantial advertising;

·      unique in using a socially-based, sales process to attract and retain new customers;

·      better customer satisfaction can create a positive ripple effect on other product lines

Direct selling Benefits for the Economy and State:

·      Self-Employment and creative gets a boost

·      Creates more revenue for the state by creating more employment opportunities (mainly part-time) and facilitate economy;

·      A channel of distribution away from large retail distribution unities create better distribution of wealth

·      Creates micro-enterprises;

·      Introduces self-employment;

·      Develops entrepreneurship;

·      Contribute to national economic welfare.

Direct selling Benefits for the Society:

·      Self-employment opportunities;

·      Entrepreneurship;

·      No gender, age, ethnicity and disability discrimination;

·      Globalisation;

·      Offers alternatives to large outlets.

The way forward:

As Chairman of the ASSOCHAM Committee on Direct Selling, our proposal to the policy makers it let us evaluate all aspects carefully and develop a policy framework to support direct selling which will complement major initiatives of the government of India like Start-up India, Stand-up India, Mudra Scheme to promote self-employment and innovation and creativity.

ASSOCHAM will be more than happy extend all support.