Time: July 13, 2001 (Friday) 9:00am ~12:30pm.

Place: B1 Multipurpose Hall, 2^nd Student Activity Center, National Taiwan University

Chair: Chen, Der-Fa Robert/ Director of Direct Selling Association

College of Management, National Sun Yat-Sen University

Attendees: Governmental Officials

1. Fair Trade Commission

2. Department of Social Affairs, Ministry of the Interior, R.O.C.

Chair:

We are joining here today for the third gathering of direct selling industry summit. The main purpose for conducting these summits is to provide opportunities for everyone from the direct selling industry to communicate and interact with each other, consolidating our strength at the end.

Since last year, we have been aggressively convening the direct selling industry summits and upgrading the content from time to time. Beginning January this year, we even extended our participants to cover many significant direct selling firms with those in the market for over a year and annual sales over NT$100 million. According to the statistic provided by FTC, these companies account for 80% of the direct selling market.

Based on the differences of role-play and standpoint about the direct selling market between direct selling companies and direct selling distributors, we have prepared today’s summit into two sections- one agenda for morning and the other for afternoon. In the morning, the discussion will be based on the interaction of groups from senior executives of direct selling firms; in the afternoon, the meeting will be proceeded with groups of senior direct selling distributors. By doing this, ideas would be shared around easily. Although these two parties act with no employer-employee relationship but they still perform the supplier-agent relationship.

During the direct selling industry summit held in January this year, we addressed a good proposition- to involve in welfare activities together. I realize that everyone has been engaging in welfare activities from time to time, but individually the benefits contribute to the society is so small comparing to the cohesion of the strength from all parties together. After careful planning by our commissioners, the draft for the proposal of direct selling industry’s welfare activities over the nation is now available and is receiving much support from all direct selling firms. Since this is the first event of our integration, we hope it is a good start for us. Meanwhile, we look forward to bring these decent businesses into prosperous growth.

Fair Trade Commission

Commissioner Chen:

Direct selling industry first entered Taiwan in 1971, after eight years of operation, we still received no positive response from the media and the general public, and even now the situation is not getting well enough. Although many companies are constituted with solid foundation, the public is still in doubt of our operation. Through the participation of welfare activities, we hope to approach public with more sincerity and in return, covert their negative feedback about us.

In addition, the expansion of organizational structure needs to be carefully planned since most of them are over the boundary. Learning to balance the delicacy of organizational structure with the expansion is significantly important. In Taiwan, there are over 3 million direct selling distributors, dominates 20% of nation’s total population between age 20 to 60. This is quite a high ratio. On average, it means that one of every two household is being penetrated by the direct selling distributors.

Potential problems:

(1) Five years ago, every direct selling employee served 500 direct selling distributors but now the number served has increased to 800 distributors. With this heavier workload, the maintenance of the service quality from the direct selling employee might be a reduced.

(2) Among the direct selling distributors, 70% of them never make orders and 80% of them never receive bonus, but in total they take up 70% of the management cost in a direct selling company and needed to be served. Moreover the continuous expansion of the organization has caused SKF be diluted. For example, sales revenue for every direct selling distributors has decreased from NT$20,000 to 10,000；bonus awarded has down from NT$35,000 to 25,000. Learning from this, the focus of the organizational development should be changed from the increasing number of people to the level of delicacy in operation.

Personally I think that the direct selling industry has entered into a highly competitive stage, where the changes of products and company displays the fever for competition. The product design becomes the core task of company’s future strategy. It is a good phenomenon for the trend of the direct selling industry to become emerged. The Fair Trade Commission expects everyone to respect each other and compete in a fair and healthy environment, so that together we could alter public’s negative opinion on us.

Mr. Lin Chin-Tang, Fair Trade Commission:

Thank you Doctor Chen for giving me the opportunity to participate in today’s discussion. I expect everyone here can communicate with us openly, despite of any constraints, in order to develop a bright future for direct selling business and meanwhile enforce our law smoothly.

Ms. Lin, Department of Social Affairs, Ministry of Interior

Direct selling is one of the popular business prevailed in market recently. Its annual sale is NT$ 40 billion and involves 270 million people. Based on these data, we could realize that the performance of direct selling business has its influence on the development of domestic economy.

On behalf of Ministry of Interior, I am grateful to hear about your charity event. Your solicitation of contribution to orphanage through the sale of T-shirt should be applauded. We really appreciate your generosity and concern to those minority groups. Since the solicitation of contribution is binding by the law, we will offer our best assistance to everyone on required legal filing procedures.

Topic I: The Establishment of National Direct Selling Business Welfare Committee

Chair:

Today we will begin our discussion on associated welfare event. We have all heard about Ms. Lin’s opinion and realized that this has to be conducted in accordance with the regulations stated in “Associated Donation” published by Department of Interior. After reading over the information announced at net, I discovered that there are many complicate legal procedures imposing on this issue. I believe it will be our best advantage to donate money to the orphanage in title of every company’s name instead of by solicitation.

Let us hear from Ms. Lin for her advice.

Ms. Lin, Department of Social Affairs:

The associated donation certainly has its few complication. I recommend everyone to consider the donation to the orphanage in title of every individual company and not by the solicitation from public. It will be simpler.

Chair:

Thank you Ms. Lin for your advice. I suggest that we will still make T-shirt together but each company will have to sale them at its own ways. We will coordinate the amount (sales after deduction of manufacture costs) and allocate to the orphanages according to their needs. The protectories will issue receipts to the corresponding donated companies.

Does anyone oppose this idea? If not, we will now get into more detail discussion on this issue.

Our current plan:

1. Two levels of subscription: NT$ 0.1million for sponsor and NT$ 0.3million for promoter. Unfortunately those donating NT$ 0.1million cannot have company’s logo printed on the T-shirt, but the theme of this event “ One and One, Direct Selling Warmth Our Heart” will be printed at the back of the T-shirt and the fund will donate to the orphanage in title of each company’s name. If donation is over NT$ 0.3million, the company can request its logo be printed at the front left-end of the T-shirt.

2. I hope we will confirm the participants and amount of donation today in order to establish a committee and select a supervisor for this event.

3. I expect the event be completed in September so that we can allocate the donation to the orphanage at earliest. Following, we will arrange a press conference to announce our subscription to the orphanage in order to let public aware of our charity efforts.

Has anyone here have any thoughts on this conclusion? If no one against this idea, we will now choose one of the two following options to proceed.

1. Raise your hand and speak up your amount of subscription. We will then arrange people to record it right away.

2. Pass down the subscription book and write your amount of subscription along with your signature on it.

Mr. Chen, Vice-President of Totalife (Intenational) Co., Ltd.:

Probably not anyone here can decide the amount of contribution, can we confirm with our company first and inform you back by fax.

Chair:

Since we have already notified every company about this proposal, I suspect that there is any concern on it?

In order to save our time, I hope that everyone will fill out the required information and hand in to the direct selling research center to do the summation.

Chair:

After conducting several academic symposiums, direct selling research center has received inquiries from many academic units expressing their interests on our research. We have then provided them information covering our previous conferences, however I expect everyone here can support our research too.

Topic II: The year 2000 Management Report of Multi-level Marketing Business in

Taiwan

Commissioner Chou, Fair Trade Commission

According to the management research in year 2000, 644 companies are registered under direct selling industry, but only 191 companies are active, 393 direct selling companies seem to withdraw from market because of their silent operation. Based on these data, we could conclude that direct selling business has gradually moving into maturity as number of direct selling companies in market is decreasing. There are only 60 direct selling companies existing in market have a history of over 5 years old, this which is a very small percentage. In addition, 3/4 of total direct selling companies in market has capital of NT$ 5 million to NT$ 50 million.

Most direct selling companies are located in North, but its number decreases in both Central and North regions and increases in South, similarly for sales office and distributors. The number of employees has increased from each employee serving 532 distributors to 817 distributors in 2000, this phenomenon could be interpreted in many ways, including the convenience of Internet enhanced the efficiency of service.

Among all the direct selling companies, 35 of them utilize 80% to 100% of multilevel marketing channels but majority incorporate other channels too. In year 2000, a total of 3.5milion people engaging in multilevel marketing, even after the deduction of repeats, it is still greater than the one of year 1999. By Summarizing the number of enrolment, we found that there are 829,000 people newly enrolled. According to the statistic report the number of direct selling distributors making orders increases from 1,072,000 (30%) in 1999 to 1,125,000 (31%) in 2000. In contrast to the number of newly enrolled, we discover that reorders from the old customers is too little, meaning that the direct selling employees should learn to keep their relationship with their customers in order to induce them from reordering.

The number of distributors receiving the bonus in 1999 is 579,000(16.3%); in 2000, the number increased to 640,000(18.35%), but the change is insignificant. In 1999, 60% of all ordered direct selling distributors receive bonus of NT$25,000 whereas in 2000, 50% of all ordered direct selling distributors receive NT$30,000, implying that most sales are generating from the sale of consumer goods. This can be explained from the recent emphasize in consumer behavior.

Total sales revenue of direct selling business increased from NT$ 35.7 billion in 1999 to NT$ 38 billion in 2000. Number of newly enrolled direct selling distributors also decreases, and the performance of every direct selling distributor on average is well. 90% of the total direct selling companies have revenue over NT$ 0.1billion. All these above information together prove that the competition is very steep.

Although the health food and beauty care are two major categories in direct selling business but their sales are diminishing in 2000, and other categories are increased by NT$ 1.5 billion, I presume this is resulted from the prevailing of stacte.

Mr. Chen, Vice-President of Totalife (Intenational) Co., Ltd.:

1. I wish that Fair Trade Commission can nurture and guide us instead of manage and restrict our operation; amending its existing registration system. I believe that with over NT$30 billion of total asset, direct selling would have a great impact on the development of domestic economy.

2. Encouraging the academic research in direct selling industry and direct selling industry’s tribute to the society.

Chair:

Thank you Mr. Chen for your valuable opinion. Fair Trade Commission’s responsibility is to preserve the fair competition. The nurturing and guidance of direct selling companies should be the responsibilities of Ministry of Economy. Previously direct selling industry summit has invited governmental officials from Ministry of Economy to attend. Hopefully through our efforts, we can let Ministry of Economy to respect more on our operation. Meanwhile we can exercise this summit to let press publish positive report about us.

Commissioner Chou, Fair Trade Commission:

Our role is to preserve a clear and fair competitive environment and educate consumers to distinguish the characteristic of this industry. Unfortunately we have no resources to nurture and guide the growth of direct selling industry.

Topic III: How do direct selling help to increase employment opportunities?

Chair:

Under the current economic depression, direct selling business is able to bring extra income for the family. Today we invite Prof. Liu from Institute for Labour Research at NCCU to share her research on the employment opportunities.

Prof. Liu of Graduate School of Labor:

I don’t quite understand the direct selling industry but in order to not to depress others and Professor Chen’s expectation, I dare to take on this challenge. Personally I feel that direct selling is carried with a great mission- to expand our marketing channels and wins people’s trust, and only by helping and affecting others, you will be able to succeed.

The existence of the enterprise is not purely to earn money but to response for the society, especially evoking people’s morality. The utilization of this strong network of direct selling industry to raise social moral is important. For example, the World Leading GM car, once has a whole town (in Michigan State) of people working for it, but when GM move into south, all people in town became unemployed. It is now a place for prisoner. Since people operating in direct selling industry do not relate to one another as employee-employer but rather as partners, you do not need to worry about the unemployment. Imaging you were in the situation when everyone were unemployed, were you still be willing to live there? It must be “ You are well, I am well, then altogether everyone will be well” in order to light up our hope. We must learned to deliver this message to others through the multilevel marketing channels.

General discussion and Declaration for our Decision

Chair:

Based on your experience and capabilities, I believe that everyone here are compete to help others which would not only increase the sales but could also increase everyone’s love. About the associated welfare activities, we will wait until the amount from each company is confirmed to arrange a meeting to discuss the relevant activities. In addition, through the report of Fair Trade Committee, we realized that even the surrounded economic condition isn’t well, our sales generated from last year were unexpectedly better than previous, which give us strength to continue our efforts.

Discussion:

Election of preparatory commissioners for next direct selling industry summit.

Decision:

Next Preparatory Staffs:

w Amway Corp. Ltd.;

w Hongchi. Internation Co.,Ltd

w Bionatural International Co., Ltd.

w Melaleuca of Asia Co. Ltd. Taiwan Branch

w E. Excel International (Taiwan) Inc.

Chair:

At our first direct selling industry summit, we decided to conduct two summits annually: first one will be hold at beginning of each year to review the past year performance of direct selling industry and establish new goal for this year; second one will be hold in mid-year while the report from the Fair Trade Commission is available in order to understand better about the operation of the industry. Does anyone have any other opinion?

Sunrider Taiwan Inc., Taiwan Branch:

We really appreciate Professor Chen’s generosity to exercise his resources in academic field to assist the integration of overall direct selling companies. Direct selling industry should organize these similar meetings to cohere the direct selling industry besides the establishment of direct selling association, in order to understand one and another and alter public’s negative image on us. If Fair Trade Commission is able to organize this kind of summits, the attendance of direct selling companies will probably be better.

Fair Trade Commission:

We are very much delighted to have the opportunity to interact with the direct selling industry and Fair Trade Commission has also attended many industry summits previously. In which way should the future meetings be conducted to perform better sharing and interaction with every company will be further discussed.

Discussion:

(I) Does anyone oppose to the number of the summits suggested annually?

Conclusion:

Direct selling summits will be held twice a year, scheduled in January and July. The exact date and the people/organization in charge of the meetings will be discussed later.

Time: July 13, 2001 (Friday) 13:30am ~17:00pm.

Place: B1 Multipurpose Hall, 2^nd Student Activity Center, National Taiwan University

Chair: Chen, Der-Fa Robert/ Director of Direct Selling Association

College of Management, National Sun Yat-Sen University

Attendees: Governmental Officials (Fair Trade Commission)

Topic I: Report on the Establishment of Nation’s Direct Selling Welfare Committee

The associated welfare event is proposed by Bionatural International Co., Ltd. and E.Excel International (Taiwan) Inc. during the summit this January and confirmed to proceed after discussion within five to six meetings. The logo of this event designed by Mr. Lin, the special assistant of Hongchi. Internation Co.,Ltd, showing our consideration to the people in needs and integrating all direct selling companies. We will develop this event by making T-shirt and donate the earnings from selling of these T-shirts to the protectories.

During the summit this morning, we have discussed with Mrs. Lin from Department of Social Affairs about our ideas and concluded our fund raising event not applicable for the “Associated Solicitation”. We decided to donate our earnings to the protectory in title of “Direct Selling Associated Welfare”. Follows, we will select the protectories from the name list provided by The Ministry of Interior to offer our assistance. Despite of the fact that general public still has doubts about our operation, there are many decent direct selling companies indeed filling with love and care.

We have found that when an individual company contribute to the welfare activities, it usually get unnoticed. On the contrary, if a unified group performs it, the amount will be larger and the fame will be more vigorous. Moreover, the media and general public will aware of this welfare event.

We will begin the fund raising event in September. Originally we planned to elect the commissioners at today’s meeting, but several representatives attended have no authority to decide the donation or several other companies are absent from this meeting. As a result, we will extend our elections of commissioners in another meeting within one or two weeks to determine the subscription and establish the committee for the event.

Question:

Can the event accompany the Chinese Autumn Festival?

Chair:

We will take it into consideration within our committee.

Topic II: The year 2000 Management Report of Multi-level Marketing Business in

Taiwan

Commissioner Chou, Fair Trade Commission

Among all the direct selling companies, 35 of them utilize 80% to 100% of multilevel marketing channels but majority incorporates other channels too. In year 2000, a total of 3.5milion people engaging in multilevel marketing, even after the deduction of repeats, it is still greater than the one of year 1999. By Summarizing the number of enrolment, we found that there are 829,000 people newly enrolled. According to the statistic report the number of direct selling distributors making orders increases from 1,072,000 (30%) in 1999 to 1,125,000 (31%) in 2000. In contrast to the number of newly enrolled, we discover that reorders from the old customers is too little, meaning that the direct selling employees should learn to keep their relationship with their customers in order to induce them from reordering.

Essentially Yours industries (Asia) Co., Ltd., Taiwan Branch

I knew there’s a company taking numbers of people as units and pays each unit for a monthly fee of one or two thousand. After continuously for 12 monthly payments, it is able to earn money. Does Fair Trade Commission aware of any similar cases?

Fair Trade Commission:

We are currently undergoing investigation on this issue but we hope people from direct selling industry will offer us some concrete suggestions in order to avoid misconduct for receiving bonus. If anyone has any information, we will be delighted to hearing from you.

Sunrider Taiwan Inc., Taiwan

I don’t know in which industrial category does the direct selling industry apply to according to the regulation states in the Ministry of Interior. There seems no credible organization strong enough to cohere all direct selling companies into a more powerful group; no legislator concerns or understands the direct selling business and speaks for us in the congress. As a result, we are in a situation where the outsiders are leading the experts, we being unknown to the related direct selling regulations. I wonder if any group or person is prepared to challenge the election of legislation in order to have our voice heard in the congress.

Chair:

According to the research conducted by the Statistic Department / Ministry of Civil Services, direct selling industry is classified as retail service or department stores. Since direct selling is not an industry and can not have its labour union, we have establish Direct Selling Association (DSA). However not all direct selling companies can become members of DSA immediately because of its restrictions, we then arrange several direct selling summits in order to stabilize the organization and offer opportunities for people to interact and exchange ideas. As long as you are a decent company, you may attend those direct selling summits. Any direct selling company absent for every meeting might be noticed for its problems and prohibited/eliminated its misconduct on time.

Regarding the election for the legislator, I am afraid that our operational environment will be more complicate if intervened by political factors. I suggest we look for a legislator that is willing to share ideas with us and speaking for us in the congress.

Bionatural International Co., Ltd.

We are currently not seeing any news reported from media on direct selling industry’s tribute to the society, news are all around robberies and theft. I’d like to request Fair Trade Commission to deliver our message to the Government Information Offices to demand the media to report more positive news about direct selling industry?

Fair Trade Commission:

The Government Information Offices can only restrict the coverage of news, not enforce the media to report any particular news. Since media is a commercial group, I presume you could find something interests them and act autonomously, such as employment seminars may be newsworthy.

Sunrider Taiwan Inc., Taiwan

The organization and sales revenue of direct selling industry continues to grow. We wonder why the Ministry of Interior not acknowledges a business with such a huge sale an industry or a union; especially its employment opportunities and sales revenue are relatively higher than other business.

Although Direct Selling Association has acted to offer assistance to the direct selling companies but its functions are limited, number of meetings is very small and not all companies can be qualified as the members of the association. I suggest we consider establishing another association in order to serve the whole direct selling employees.

Under which name does the T-shirt make for? What will the welfare event accomplish? Will it affect overall direct selling industry? Can all top ten selling direct selling companies (sales greater than NT$1billion; 54% market shares) attend the meeting in order to enlarge our power.

Currently there is no legislator enriched with direct selling concepts, most have negative opinion about us, and only a few people are supportive of our operation. Fewer people talks about code of direct selling business which create no real value to the direct selling distributors. Personally I think it is best to elect a person to join the legislator.

Secretariat Liu, DSA:

Right now, the Ministry of Civil Service does not have the direct selling industrial category and therefore the direct selling cannot establish its own labor union. In order to becomes an industry, direct selling business must get approval from the Legislation and this requires everyone’s effort. I assume, as you are part of the direct selling business, you should strive hard for it whether you are members or non-members of the DSA.

Since DSA is affiliated with WDSA and has lots of restrictions which not all companies are satisfied, we wish we could cohere our strength together before our official industry type and labor union are established.

Topic III: How does direct selling business help to increase employment

opportunities?

Prof. Wang, Department of Social Services, National Taiwan University:

Direct selling occupations are applicable to women because of the flexible office hours and working space matches women’s desire for independence and free space. In addition, its applied marketing strategies are artificial, aggressive and successful. Those succeed in the direct selling business not only interact well with others but also develop unique interactive skills applicable for each different working environment.

Ways of social services: (1) By Case, people to people (one to one, family);

(2) By Group (growing group, autonomous group);

(3) By Community

(1) By Case:

Referring one to one services. The first step towards success is to establish professional or customer relationship. While assisting others with passion and enthusiasm, it is significant important to assess their real needs, understand what they are troubled, by economic problem or by employment concern.

Respecting and listening to others during a meeting are important. We must establish same beliefs, stand on other people’s point of view and give appropriate feedback.

Following the collection of all information, we will analyze their problems, understand their reasons and difficulties behind their decision for not joining us and help them at our best. We will devise a service plan focusing on social services and find out where social resources are located. Serving people is not just asking them to join the direct selling industry since that will not win their hearts, we should however build trust with them and understand their real needs. Finally, we have to serve them with sincerity and make long term contact than just a temporary touch.

(2) By Group :

The content of the plan for growing group should not only covers pleasure of eating, drinking and talking but to organize and design structurally in order to reach the objective of the goal. For the autonomous group, we must help whoever needs us, provide them with more guidance and pay more attention.

(3) By Community:

Establishing female employment network based on community; examples are convenient store, baby sitter and etc.

We may also conduct community research, beginning from the head of the county to better understand those need our help. Managing the community resources is important because it raises employment opportunities and enhances our interactive skills. We should not aim to have people be our subsidiaries; instead we should enhance our interactive skills, providing meaningful services without any purpose.

Direct selling business goes well with women because its working environment are flexible and artistic, conforming many women’s desire for independence and flexible working hours. Many interactive and community skills exist are quite useful for the direct selling business.

Essentially ours Industries (Asia) Co. Ltd. Taiwan Branch:

How does the social works operate in a community territory?

Bionatural International Co., Ltd.

May we ask Mr. Wang to make recommendation for those needing the jobs?

Amway Taiwan Co.Ltd.

Should people less active require more aggressive interaction and communication?

Prof. Wang, Department of social services, National Taiwan University:

Utilizing social works to develop direct selling business includes first finding some organization with great human power; second conducting research including geographic and cultural research to get hold of the community characteristic; third organizing activities to cohere their consensus within the community and participating the community activities together. Those inactive people will increase their efficiencies through their personal experiences.

Many people afraid to join the direct selling industry while society still holds negative aspects about it. We must begin to educate public and tell them what are the proper multi-level conducts and what are not. Due the information available on the media or in a bookstore is hard to be found, we should consider making templates based on the information published on the Website of Fair Trade Commission and distribute to the public.

Prof. Wang, Department of social services, National Taiwan University:

Establishing company’s new image is a significant strategy, in which building public welfare image is one of them. To enhance the operating effectively of direct selling business, we may do it by persuasion, however different speech is required for each situation. The most important of all is to do exactly what it should be.

Fair Trade Commission:

Every year the information published on Fair Trade Commission is produced into small templates for pick up. Two ways Fair Trade Commission advocates the direct selling industry: First, provide Q&A of multi-level marketing to the registered company; Second, provide fold sheet of information to the participants and direct selling distributors.

Chair:

The principal for the direct selling is “30% operation, 70% politics”, meaning that 30% of the time should be spent on talking about direct selling and rest of the time spent on chatting ones life, understand their needs in order to provide the service they want. Otherwise, we may be repelled.

Prof. Wang, Department of social services, National Taiwan University:

The main emphasis for the “30% operation and 70% politics” issue is to care and educate others.

Chair:

We will end today’s discussion now. If anyone has further questions, please stay here for more discussion. The next direct selling summit is scheduled on January next year (2001).