Amway In China Essay

2168 words - 9 pages

Amway in China (A): A New Business ModelAssignment Questions1.What are Amway's core competencies?Amway has been a successfully growing business since 1959 due to its unique adaptation of direct marketing. The company has now expanded into over 80 countries and has been to some, an example of the American dream. This was what caused the tremendous growth and is what gave Amway its most valuable asset; its distributors. Amway's distributors are all Independent Business Owners (IBOs) because they have no legal ties to Amway other than they buy the products directly and sign a brief code of conduct agreement. This however does not mean that IBOs are not extremely loyal to Amway.IBOs are literally the foundation of Amway's pyramid shaped direct marketing design. When products are produced in Amway factories they are sold to their top IBOs, who in turn sell them to the next level of IBOs and so on. In order to become an IBO you must be sponsored by an already established IBO and will be put under their "block" and must buy only from them. This is very beneficial for Amway because they are guaranteed a consumer will be there to buy their product. Because Amway is not technically tied to the IBOs other than the buyer/seller relationship, therefore products not sold by the lower sellers on the pyramid take direct losses and not Amway. These bottom level sellers can be replaced with new IBOs without causing much financial harm. This is because of the growing number of IBOs. Amway IBOs are only successful if the people underneath them are successful so they obviously are going to do everything in their power to help themselves which in turn helps Amway. The goal of an IBO is to not only sell product but most importantly recruit new IBOs. This goal is at the heart of Amway's success. Forcing IBOs to find new recruits allows Amway to save money on advertising which can be passed onto the consumer. It is each IBO's responsibility to advertise their product as much or as little as they desire. There is no better person to market a product in a particular market than someone who lives in the market themselves. By placing IBOs in various markets Amway has free first hand knowledge on what the market's consumers want. In contrast, retailers must spend large amounts of money on market research that may or may not be accurate. Amway purposefully makes it cheap and easy to become an IBO because the number of IBOs determines the success of Amway. The appeal of being an Amway IBO is that it offers unlimited profits, no set work schedule, an opportunity for anyone to be their own boss and virtually no start up cost. Starting your own company usually requires putting at risk large amounts of cash. Since becoming an IBO appears risk-free the number of IBOs continually increases and expands Amway's business into nearly all markets large, small, near and far.2.What characteristic has differentiated Amway's business model from its competitors in retail industry in general...

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