Guest post by Courtney Gordner
US company Herbalife Ltd. has had a great deal of success recently expanding into China. This is worrying for some Chinese business analysts as Herbalife is considered to be little more than a scam. It’s possible that would-be Chinese entrepreneurs are being taken advantage of.
In the United States, Herbalife is said to be the subject of both an FBI investigation and an FTC inquiry. In China, the media has also begun to cast the company in a negative light with many reports focusing on the company possibly not adhering to China’s multi-level marketing laws.
However, much of this remains speculation until government authorities release their findings. With sales being reported as having risen 63% in 2013 alone, there is reason why Herbalife’s success in China through dishonest means would be more than troubling.
In order to understand why so many people are wary of and upset with Herbalife, it’s best to know how a pyramid scheme is structured.
Imagine a person is told to sell ID card printing materials and software. Despite being given a pamphlet detailing the kinds of ID printing tools the company is known for, the individual is made to understand that it’s not a major money-making opportunity. The real money comes from commissions made off of recruiting other people to sell the product. The new person, or persons, pays for fees or services of which the recruiter (allegedly) gets a portion.
With a normal ID card printing company or any other business, a person would be expected to know about the product, market it to customers, and actually work to sell that product. The person does a job and money flows down to them from their boss or bosses.
The pyramid scheme is named as such because the majority of the money made flows upward to the few scam artists at the very top. The entire business is built on recruiting people and taking their money rather than selling a product to customers. The product serves as little more than a red herring.
The Chinese Media’s Take on Herbalife
An American company, called Nu Skin, is currently being taken to task by the Chinese government for an alleged pyramid scheme. A scheme not too different from what Herbalife is being accused of. Coincidentally, this company also sells nutritional supplements.
With such startling similarities between the Utah-based Nu Skin, and the California-based Herbalife, it would seem like only a matter of time before Chinese officials focus their attention on the latter company.
Howeve, the Chinese media had already honed in on the supposed dishonest nature of Herbalife months before the American officials began looking into the company. Chinese news source, First Financial Daily, did an investigative report (an English translation is offered here) about Herbalife and its business practices.
First Financial Daily’s report was published in August and largely ignored. Nu Skin’s media attention had a Chinese government investigation hot on its heels.
Some feel that even though Herbalife’s underhanded dealings are more obvious in China, they are somehow avoiding government scrutiny. Chinese authorities have actually said that they presently have no intention of investigating Herbalife.
Media Scrutiny to Do What Government Scrutiny Won’t
Despite a lack of interest by the Chinese government in coming down on Herbalife in the way they have on Nu Skin, that hasn’t stopped increasing media scrutiny. Even as the company blossoms in China, there is already trouble brewing for Herbalife.
The company reportedly saw 12% of its stock fall after news that the entire nutritional supplement industry had begun to come under fire. A lot of the controversy stems from companies making promises on which products tend not to deliver.
With consumers across the globe losing faith in the abilities of nutritional supplement companies, the Chinese government may not have to stand in. Though Herbalife’s sales are currently soaring, should the media successfully convey the untrustworthiness of the company and its product, this could deter Chinese associates from selling the product and customers from buying it.
Additionally, as American government officials continue gathering data about the true nature of Herbalife, it could be that they are actually doing the work of Chinese government officials. Who’s to say authorities won’t step in should the U.S. Department of Justice and FBI file criminal charges against the company?
For now, the question of Herbalife as a pyramid scheme is not definitely answered one way or another. However, there is enough evidence to suggest that Chinese citizens may be the victims of fraud. As such, it would be best to avoid a recruitment type company like Herbalife and seek business opportunities from reputable businesses. These companies focus on selling a product or service, not commissions based on recruitment.