Following a series of controversies embroiling the ₹7,000-crore direct selling market in India, consumer goods major Hindustan Unilever (HUL) is re-looking into the strategy of its network marketing division Hindustan Unilever Network.

The company’s move comes after direct selling major Amway’s India CEO William S Pinckney was arrested a second time last month on charges of financial irregularities in Hyderabad under the Prize Chits and Money Circulation Schemes (PCMCS) Act. He was arrested on a similar charge in Kerala last year.

Three major brands

HUL, which launched its direct selling venture in the country almost a decade back in 2003, sells three major brands — Aviance (personal care), Ayush (Healthcare) and Lever Home (Home and oral care) through this channel. Direct selling refers to a business model where sales personnel engage in network marketing, direct selling or referral marketing. HUL Chairman Harish Manwani, in the company’s annual report for 2013-14, said that the year has been extremely challenging for the direct selling industry, including HUL, due to ambiguity on acceptable norms for direct selling in India. “HUL has always conducted its business within the framework of Indian law and has recently re-launched its compensation plan to be more competitive. We are reviewing the strategy for this business,” he added.

However, the company has not explained the changes that it intends to make. In 2011, HUL had made some changes in the compensation plan by removing the entry fee and the renewal fee for its members or sales representatives, making it easy for them to bring business. “HULN has been at the forefront of operating the direct selling business model in a responsible and transparent manner, in accordance with all the laws, and will continue doing so,” said a HUL spokesperson.

According to Chavi Hemant, General Secretary of Indian Direct Selling Association, a body representing the direct selling companies, the PCMC Act is a major hurdle for the industry and should be amended at the earliest.

“The Act was implemented at a time when there were no direct selling companies in India. This Act is detrimental to the industry and India is losing out on huge investments from several international direct selling companies.”

Of late, the future of direct selling companies in India appears bleak. Last year, another US headquartered brand Mary Kay had quit India citing regulatory concerns and poor sales. The company had entered India in 2007 and has invested close to $20 million in its venture in categories such as skincare, fragrances and cosmetics.

Slowing investments

Other firms in the business such as Modicare, Avon, DXN are slowing their investments in the country, where they work outside the ambit of a regulator. Over the past few decades, companies such as Modicare, Tupperware, Oriflame, Amway, Herbalife, Forever Living and Free India did taste success, but have faced scrutiny.