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A 28 years old man whom Capital interviewed says he has been struggling for a very long time to keep his family together. He works for a private company as an accountant for a gross salary of 1,300 birr.
Worried about the ever-increasing cost of living, he went back in time to recall what a friend told him a while back, about making extra money. He hence decided to join the Tiens Group, a multinational company owned by a Chinese businessman. The individual claims he receives an extra 3,000 birr a month by working for this company just as a part-timer, which helped him cope with the inflation and the increasing demands of his family. He now plans to work full-time at this company after resigning from the place which had employed him for several years now. The Tiens Group opened a local branch in Ethiopia in 2007 to import directly from china and distribute its well-known supplementary food capsules and powders in Ethiopia.
In July 2009, the company built a factory that produces these nutritional supplements, right here in Addis Ababa around the Lebu area, at a cost of USD 3.5 million. The factory has the capacity of producing eight kinds of food supplements in powder and capsule forms, and the products are licensed by the Ministry of Health (MoH).
Operating under the concept of Network Marketing (NM), Tiens Group currently has more than 63,000 people who consume as well as sell its products, like the 28 year old gentleman Capital talked to. Its operational trading activity is called multi-level marketing (MLM). This system works by rewarding distributors for reaching a certain number of consumers. Many are believed to have been substantially rewarded for their efforts in increasing the company’s sales and expanding its operation in the country.
However, MLM organizations have been described by some as cults, pyramid schemes or organizations rife with misleading, deceptive and unethical behavior, such as the questionable use of evangelical discourse to promote the business and the exploitation of personal relationships for financial gain. Many critics argue that such systems [whether MLM or a variety of it] are inherently dangerous, because the plan which involves the payment of commissions on a pyramidal scale benefits the people who are high up the hierarchy, but pays little to the multitude who constitute the base of the pyramid and will inevitably collapse if and when no new distributors can be recruited or the number of new recruits become insignificant.
The Ethiopian government has also prohibited such pyramid schemes, like NM and/or MLM via the Trade Practice and Consumers’ Protection Proclamation, No. 685/2010, making it illegal. Article 30/6 of the proclamation says, “applying or attempting to apply a pyramid scheme of sale by describing that a consumer will get a reward in cash or in kind by purchasing good or service or by making a financial contribution and which describes that the consumer will get additional reward in cash or in kind where other consumers through his salesmanship purchase the good or service or make financial contribution or enter into the sales scheme, based on the number of consumers” is prohibited.
“The system doesn’t add value. It only sucks money from many people and bestow it upon a very limited number of people,” says an official at the Trade Practice and Consumers’ Protection Authority, who insisted on anonymity. The authority became operational only about eight months ago while the proclamation was enacted on July 2010. It works to accelerate economic development while also protecting consumers’ rights and benefits.
The official, who believes that the company is the only one who is seriously benefiting from this system, cites articles from the Trade Practice and Consumers’ Protection Proclamation No. 685/2010 for labeling the company’s operation as illegal.
Abebe Gizachew and two of his friends, for example, who were former members of the same company in 2008 for a couple of months after completing their high school at Kokebe Tsibah Comprehensive Secondary school, have quit the scheme and went on to seek their fortune in some other business, when they got tired of not making as much money as they envisaged or were led to believe, by the company. Many people are believed to have met the same fate.
Companies involved in the industry claim that all the qualms are because of lack of adequate information about MLM, and not essentially because of the nature of the business, which they consider quite beneficial, and not at all harmful. According to them, scams are related to shady businesses who claim they are genuine MLM companies and “relieved people of their money”, contributing to this “misunderstanding”.
They argue that this system gives an opportunity for everyone, regardless of who they are; [poor or rich, male or female, young or old, professional or not, black or white, etc] they claim that it provides an opportunity of being financially secure and of personal freedom in equal measures, to everyone. “There are even people who were beggars and bus attendants who became owners of big apartments and big businesses,” says Yap Wai Yen, International General Manager at EDMARK International Group of Companies, also an MLM company. “Of course, the people at the top would have more advantages, which is common for every business.” According to him, as long as there’s a marketable product, multi-level marketing wouldn’t saturate and everybody at the lower levels of the structure will be compensated as they continue selling the products. “We pay commission not for recruiting people but for selling products,” he informed Capital. Yen, who claims his company is very concerned, not only in regards to the market, but also for the people involved in buying and selling the products of his company, said a scheme can only be called a scam when companies pay commissions for recruitment. “MLM is all about loving people and working on what is so important for them,” he claimed.
According to Nuredin Mohammed, Director of the Trade Registration and Licensing Directorate at the Ministry of Trade (MoT), another reason that makes those companies that apply MLM illegal is that the people who are at the lower reaches of the pyramidal structure of MLM companies, the salespeople, don’t pay the required taxes for the income they make. “Retailers, who sell the products of wholesalers or factories, need to be registered by the ministry or respective trade offices and bureaus and pay their tax dues,” Nuredin informed Capital.
Yen said all the people under EDMARK pay the relevant taxes to the government through the company. “We withhold two percent of the compensation we pay from those who have TIN numbers and 30 percent from those who don’t and pay what is required, because we appreciate people to pay taxes and it is the right thing to do,” he stated.
The general outlook of MLM companies is that complaints come from governments who don’t follow up or don’t have the proper infrastructure to collect taxes and people who fail to make money because of their inability to sell the products entrusted to them and apparently they all claim that multi-level marketing is illegal as the only people who make huge sums of money are the people who get in early and are at the top. Companies and people who built a wildly successful businesses through MLM say network marketing is the greatest opportunity in the history of mankind for the average person without a lot of money to invest and become financially free and is the business of the coming age.
Amidst all these arguments, pros and cons, there are tens of thousands of Ethiopians somehow participating in it, one way or another. Some of the companies that are thought to be or are allegedly applying MLM here in Ethiopia are Tiens, Forever Living Products, DXN International, Eroka, and EDMARK International, with others gearing up to join. “I want to be an honorary director,” the person at the beginning of this feature revealed to Capital, because it apparently is the highest achievement in Tiens.
Yen appreciates the Ethiopian government for its efforts to protect people from scams as he said he knows some countries who fail to do that. But he insists that a thorough and careful assessment or study has to be conducted to truly label MLM companies legal or illegal.