The success of companies like Amway, Herbalife Nutrition and Tuppaware (among others) is partially reflected in their increasing employment numbers — a total of approximately five million people are currently employed within the direct selling industry.
Direct selling entails the sale of products via a retail format that does not involve physical shops or stores, and typically requires approved distributors to push products out to consumers.
A recent joint study by an industry body, the Federation of Indian Chambers of Commerce and Industry (FICCI), and consultancy KPMG, entitled Ease of Doing Business in India: The Way Forward for the Direct Selling Industry, reported that by 2025, there would be at least 18 million such jobs in the direct selling sector.
Another study, published by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) in January, stated that the direct selling industry may reach a value of US$2.2bn (Rs159.3bn) by 2021, having already nearly doubled since 2011 to US$1.75bn (Rs126.2bn) in 2016.
However, the study added that the industry required reforms to achieve sustainable growth.
Positive outlook amid industry slowdown
This generally positive outlook in terms of employment belies certain issues that have actually slowed sales growth in the direct selling industry, according to the FICCI-KPMG study.
While it had been experiencing more than 20% year-on-year growth until recently — making direct selling India's fastest-growing non-store retail format — there have been instances in several states whereby enforcers had confused direct sellers for those running Ponzi or pyramid schemes.
This resulted in a slower pace of growth for direct selling over the past five years, with only two to three new start-ups entering the industry in the last three years.
At the same time, the total number of direct sellers in India fell from 5.8 million in 2013 to four million in 2016.
Currently, India's largest sales segment within the direct selling industry is consumer health, with beauty and personal care a close second, both having witnessed significant year-on-year growth in recent years.
Despite the slowdown in recent years, however, the industry has begun picking up thanks to an e-commerce boom and growing smartphone adoption.
To deal with the challenges posed by e-commerce firms that offer direct-sales products at lower prices than the direct sellers themselves, distributors for direct selling companies are now selling items online through retailers such as Amazon and Flipkart.
In fact, Amway has taken a 'digital first' approach, not just in India but internationally as well, with special attention being paid to younger buyers.
According to Amway India CEO Anshu Budhraja, the company's e-commerce activities account for nearly 35% of its revenue, which is expected to rise significantly in future.
In addition, its Preferred Customer programme serves those who want to use Amway's products for themselves instead of selling them. The programme's subscribers can make purchases directly from the firm's website or at its stores.
Amway India plans to invest around US$13.9m (Rs1bn) in growth over the next two to three years, including US$9.7M (Rs700m) in R&D for product innovation, US$2.8m to US$4.2m (Rs200m to Rs300m) in digital initiatives appeal to younger buyers, and US$1.4m (Rs100m) in manufacturing for plant automation and power optimisation, all part of its US$139m (Rs10bn) investment in India alone.
Another strategy employed by direct selling companies in India — especially by those that have set up their manufacturing plants there — is the local sourcing of raw materials.
The report stated: "According to a recent survey of the industry, wellness and healthcare account for 45% of the products sold by Direct Selling companies, followed by beauty and personal care products at 35%.
"As companies manufacture these goods in India, they have also scaled up their sourcing strategies for raw materials. Our research reveals that the localised sourcing of raw material could reduce costs by up to 40%.
"This means that the so-called premium products could become more affordable for the masses. As a result, product portfolios of companies have grown rapidly and in some instances, prices have fallen."
The way forward
The direct selling industry in India has faced its fair share of regulatory challenges since as early as 2000.
The study's authors wrote: "The issue arose due to the wide prevalence of pyramid and Ponzi schemes that operated as direct selling companies on the one hand, and the absence of a legal framework for law enforcers to objectively distinguish them from these fraudulent ones on the other hand."
The most recent regulatory move came in the form of the Model Framework for Guidelines on Direct Selling in 2016, which sought primarily to clearly distinguish between direct selling and pyramid schemes, as well as set out the conditions for setting up a direct selling business, and drawing up a contract between a direct selling entity and its distributors and direct sellers,
The study recommended that the guidelines be "adopted as a rule under central legislation — that is, the central government, for uniformity of the regulatory framework for the industry, adopt these guidelines as a rule or regulation under a central act or legislation".
It added: "For instance, the guidelines could be issued as a rule under each state's Protection of Interest of Depositors Act (PID) Act.
"All states should conduct appropriate capacity-building and issue appropriate manuals enabling law enforcement to investigate complaints against pyramid schemes, and prevent misapplication to legitimate direct selling companies."
The study concluded by saying that such "proactive reforms" from the central and state governments would better facilitate the conduct of direct selling business activities, as well as "unlock the potential for the industry and provide self-employment opportunities to 180 crore Indians, 60% whom are women".