Direct selling, one of the oldest and traditional forms of selling, is today a successful industry operating in over 100 countries, with a market size of $180 billion. I call it old because the best example of direct selling is the ancient cycle Peddler.
According to a recent FICCI-KPMG Report – Direct Selling Mapping the Industry Across Indian States 2015, in India the market is estimated at Rs 75 billion (2013-14), and forms around 0.4 per cent of the total retail sales in the country. Direct selling industry thrives on the strength of relationships people share with each other and expands into a potentially limitless network. More than a century of a unique journey of ‘Direct Selling’ companies like Avon, Amway, Herbalife, and Tupperware etc. goes to prove that this method of selling can indeed drive a company’s extent of geographical and financial growth to abundance.
A direct selling business refers basically to ‘person to person sales’ where products or service are sold by introduction of multiple persons within the community instead of a fixed retail format. Stories of women empowerment and successful entrepreneurs are very heartening. Many direct selling companies have gone a step further by setting up their manufacturing plants in India. Companies like Oriflame and Herbalife manufacture 40—50% of their products either in India or outsource the raw material from mostly small and medium Indian companies/manufactures/farmers. Recently, Amway too has set up its manufacturing plant in Madurai.
Direct selling can be a useful instrument for promoting the SME Sector; ‘limited resources’ is the reason for small and medium companies to choose ‘Direct selling’ over the conventional business strategy of a complex Sales & Distribution network, as they would be in no position to compete with the industry giants in traditional market space. They also rely on ancillary support services such as plastic, cartridge, packaging, labelling, logistics and material supply. In many cases, the direct selling companies impart the manufacturing know-how, technology and processes to enable the SMEs to produce quality products. Many direct selling companies in India outsource their manufacturing process to contract manufacturers which are generally Micro, Small and Medium Enterprises (MSME) to produce products domestically. As of 2011, nearly two-third of the products sold by direct selling companies was sourced through MSMEs (Source; FICCI-KPMG DS Report 2015). Several direct selling companies also invest in providing the right equipment and machines to the SMEs for production. Driven by these initiatives, many SMEs have now developed capabilities to cater to the needs of other MNCs and have commenced supplies to them, promoting India as a manufacturing destination.
According to the FICCI-KPMG report – Direct Selling Mapping the Industry Across Indian States 2015, the industry has recorded high double digit growth of about 16 per cent over the past four to five years. The market has grown to become a key channel for distribution of goods and services in the country, especially for health and wellness products, cosmetics, consumer durable s, water purifiers and vacuum cleaners, produced by SME Sector majorly.
To my mind if regulatory clarity is brought into this sector many more global companies like Shaklee, Vorwerk etc. will invest in opening up their offices and manufacturing plants in India. Incidentally Confederation of All India Traders (CAIT) had also emphasis ed on a need for a separate act on Direct Selling business in India. In the inter-ministerial meeting convened by Ministry of Consumer Affairs held recently to which FICCI is a nodal point, the CAIT has sought specified legislation to regulate Direct Selling Business in India while submitting a detailed memorandum on Direct Selling. According to CAIT, the Direct Sellers should be ensured facilitation to set up their plants in India for manufacturing products, under the current Government’s “Make in India” programme.
Time is certainly opportune for the central as well as respective state governments to arrive at a comprehensive policy for this industry, something that would enable the industry to grow and create both direct and indirect employment.
