Entering into the Chinese commercial world was a very risky move for Avon. As any international investment is risky, China is even more so due to the unstable economy at the time as well as the corruption in the government. When Avon went into the country, analysts reacted “Avon’s venture is risky because you don’t know what’s going to happen in China.” Avon went into the venture with an American ignorance. It was said in the case that Avon officials thought that it would be “virtually impossible” for the government to shut down an entire industry. Yet, that is exactly what happened in 1998.
The corruption in the government in severe and powerful and Avon should have seen this coming. There were multiple warning signs of the corruption as Avon could not get support for the investment in Beijing and had to go to Guangzhou for the initial investment. The main causes of the corruption for this are the history of the country. The fact that the country has been in dynasty form in the history and resources have been nationalized causes corruption for change. The other cause of the corruption is the officials have not been held accountable since there are no consequences for the actions. Avon recognized the threat and was still ignorant to the power it could have and eventually the worst occurred.
Avon was undoubtedly successful in China. There are several factors that contributed to this initial success: the company’s novelty in China, its ability to innovate, adaptive business model, and favorable economic conditions. Avon set foot in China in 1989, being the first direct sales company in the country. After the successful joint venture with the government-owned Guangzhao Cosmetics Factory, to fit the Chinese context, Avon made many adaptations to its business model. First, they developed a branch distribution system, which allowed for overcoming the country’s infrastructure problems by setting up several branches around China which served as combined distribution and training centers. Second, sales managers in China were independent contractors, rather than company employees, which helped minimize fixed costs. This new way of doing business appealed to the Chinese; many saw direct selling as a quicker way to make lots of money. More and more people wanted to work for Avon, since employees were rewarded for adding recruits and there were many opportunities for promotion. Moreover, the company had superior training programs, where new recruits were helped and educated on the “western” business methods, such as how to set goals and target customers effectively.
It was not only Avon’s operations that appealed to many, but also their products. Due to the increase in disposable income in the mid-1980s and early 1990s, it was possible for average consumers to buy non-essential items, such as domestic goods and services. Therefore, the demand for cosmetics was growing. The company made sure that the Chinese population (especially women) was introduced to Avon by running extensive television advertisements, printed ads, holding seminars on using makeup, and distributing flyers. Avon recognized the importance of adaption in terms of its product line, as well. The company started to purchase raw materials locally, and developing products locally that appealed more to Chinese women. For example, Avon came out with the “Harmony” Collection skin products, which were designated to lighten yellow skin.
Avon’s market position was eventually threatened by the influx of unethical companies who used deceptive and fraudulent practices for direct selling in China. These competitors took advantage of the immature consumer market and the naiveté of workers to make money through various pyramid and Ponzi schemes. Avon’s imitators found a populace that was hungry to achieve wealth, and took advantage of the lax regulatory environment to continue to take advantage of the situation with unethical practices.