Amway Korea under fire as Commission for Corporate Partnership slates growth-sharing strategy

By Cheryl Tay contact

- Last updated on GMT

This is not the first time Amway Korea has been criticised by the KCCP.
This is not the first time Amway Korea has been criticised by the KCCP.

Related tags: Business, South korea, MLM

Amway Korea has come under attack for its approach to sharing growth with its business partners, including suppliers.

This was reported in the Korea Commission for Corporate Partnership's (KCCP) Shared Growth Index on Thursday (August 1), which had given the South Korean arm of the US MLM (multi-level marketing) corporation a "poor" ​rating.

The index measures the extent of growth-sharing large companies offer their small business partners.

In light of the latest results, KCCP chairman Kwon Ki-hong said it might even impose penalties on Amway Korea, as well as other firms that are similarly lowly rated.

Keeping cool amid criticism?

This is not the first time Amway Korea has been criticised by the KCCP.

Barely two months ago, it was ranked the lowest among the near-200 large firms the KCCP had graded, as it had not taken part in the assessment of whether or not it had met fair trade requirements, and promoted mutual growth with its smaller suppliers.

However, the firm does not seem concerned by Kwon's warning.

A company spokesman told local media that Amway Korea had no intention of participating in the KCCP's evaluation, as it considered the commission's methods unsuitable for the firm and more appropriate for Korean conglomerates that collaborated with a high number of sub-contractors.

Caring about sharing

The KCCP established its Shared Growth Working Committee to help reform large business groups to encourage productivity and inclusion in South Korea, with the Shared Growth Index also known as the Win-Win Index.

The commission monitors large companies that have ties to SMEs, and has so far designated about 100 business lines for SMEs, recommending that large firms do not enter these areas for at least three years.

Large companies already operating in these areas are instructed not to increase their facilities, output or market share during this period. If they violate this agreement, the KCCP issues recommendations for correction

Dividends versus donations

In addition to the KCCP's low rating, South Korean civic groups have juxtaposed Amway Korea's dividend payouts against its contributions to local communities.

According to its regulatory filings, the firm has  paid out ₩901.3bn (US$800m) in dividends over the last 18 years.

Last year alone, its dividend payout hit ₩78.8bn (US$69.8m).

Over the same 18-year period, it donated ₩16.7bn (US$14.8m). In 2017, its donations totalled ₩694m (US$614,690), a ₩486m (US$425,310) drop from 2016's ₩1.18bn (US$1.04m).

Input outweighing output

The Amway Korea spokesman said it was not uncommon for foreign companies to have a strong inclination towards dividends.

However, last year, the Fair Trade Commission's (FTC) annual research shone the spotlight on the firm's alleged 'stingy' treatment of its sellers, questioning its revenue model after observing a widening gap between the top and bottom tiers of the company's recruitment.

The company is the biggest player among the 125 MLM companies in South Korea, having made ₩1.6 trillion (US$1.4bn) in sales last year.

In spite of this, it landed in a low seventh place when it came to the ratio of incentives to sales. The FTC reported that Amway Korea's top 1% of salespeople received an average of ₩53.46m (US$47,370) in incentives for sales (also called sponsor allowances), while the rest received just ₩780,000 (US$690) on average.

At the time, the firm refuted the data by saying it had fallen prey to 'false statistics'.

NutraIngredients-Asia ​contacted Amway Korea for comment, but was unable to obtain a response.

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