This story appears in the November 5, 2012 issue of Forbes Asia.
Donald Frazier, Contributor
Eastern Exposure. Asian business, for Americans.
In the Rough-and-Tumble Business of Direct Sales, Malaysia’s Vijay Eswaran Learns from Mistakes and Builds a Movement
Thousands have come to Jakarta from all over Asia, waiting with patience and anxiety for this moment. At last the music swells. An excited murmur arises; he enters behind a phalanx of bodyguards, and the crowd parts. People strain to touch him or at least his high-collared tunic. Spotlights cast him in a golden glow. He raises a hand in benediction, utters a few unheard words and lets the rush carry him on. Vijay Eswaran has arrived.
It’s a triumphant return to Indonesia for the Malaysian founder and chairman of the Qi Group, a young giant of multilevel marketing with sales that could approach $1 billion in the next couple of years. His annual three-day convention, training session, pep rally and lovefest, the VCon, has attracted more than 8,000 of his company’s so-called IRs. These are some of the 4.5 million independent representatives who buy and sell his products, creating networks that they call a chain of prosperity, giving them a business of their own and a vision of a better life.
Wrapped up in the adulation, it’s tempting for Eswaran to forget the last time his event was held here, in 2007. An obscure lawsuit in the Philippines had mutated into an Interpol arrest warrant, clapping him and three senior executives in jail for three weeks. Indonesian courts scoffed and set him free; a Manila court dismissed the charge soon afterward. But Eswaran remembers it as one of the consequences of building a business in which some people expect a get-rich-quick scheme and feel cheated when they don’t get one.
Or as one reveler put it, “Just because there’s no limit on what you can make doesn’t mean you don’t have to work. Some people don’t, some do.” A young man from Malaysia, Omar, was without prospects in 2009 when he joined Qnet, the company’s keystone division, to sell personal-care products to a few friends, who told other friends. It was tough going at first, but now he can afford to move out on his own and wants to get married next year. “It has changed my life, and it has changed me,” he says. “For all of this I thank Vijay Eswaran.”
People such as Omar have helped Eswaran emerge as one of the most charismatic of Asia’s self-made businesspeople over the past 20 years. Selling the simple things of day-to-day life such as cosmetics and discount phone cards, while also building a thriving gold coin business, has made the 52-year-old one of the richest people in Malaysia. FORBES ASIA estimates his net worth at $500 million, based on his stake in the unlisted company as well as holdings in real estate and fine art on display in his lavish homes in Kuala Lumpur, Bangkok, Sydney, Hong Kong–where the Qi Group has been headquartered since 1998–and London. (The company won’t divulge his stake, saying only that it’s a majority share, but insiders there indicate that it’s between 70% and 90%. Qi also won’t disclose its annual profits.)
At the same time he has been the target of dozens of accusations of everything from sketchy dealings to outright fraud. There have been outraged postings on the Internet and short-lived government crackdowns. Rumors of shoddy dealings can be the kiss of death in a business where word of mouth is all-important. So Eswaran decided to defeat them openly, with an aggressive campaign of newspaper ads, a website devoted to debunking the claims, and lawsuits. Now many of the claims have been retracted, and the online slurs have faded.
Feeling vindicated, Eswaran is remaking the much maligned multilevel marketing industry, bringing in corporate-style management, information technology and new product development. He’s diversified into areas such as telecoms, travel and meeting management. He’s brought business skills, energy and jobs to developing parts of Asia where they can be scarce. And he’s done this with a company culture that stresses spiritual growth, positive intentions and service to others (see sidebar) . “This is a very difficult part of the world to operate in,” says Charles King, an academic at the University of Illinois who has studied direct sales for 25 years. “I don’t know of any other company in Asia that has been able to master the subtleties of the multilevel marketing structure so well, continually adapting it to produce sustained growth.”
He’s talking about the biggest challenge that bedevils this industry: how to make sure people are paid fairly while sales still grow. That’s often a conflict in the world of multilevel marketing: An IR is not an employee but his own business, and he buys products to sell from the person who recruited him into the company. He can recruit others to work under him, and so it goes until there’s an entire sales network, cascading downward from a few people into tens of thousands. If not managed right, this can give IRs a perverse incentive to simply sign up new people. The result: flash-in-the-pan outfits with annual attrition rates that can run more than 100% as they quickly max out their markets, cash in and leave.
Qnet is different. Its sales (plus other Qi Group direct sales) have jumped 70% in the last five years. And in a business that’s famous for making decent money for only a few well-placed people at the top, Qnet’s top IRs can make thousands of dollars a month. That’s a lot of money in developing areas such as North and West Africa and Central Asia, where its numbers are growing. And unlike other direct sales operations, it doesn’t require minimum orders or massive fees to join.
Eswaran believes that all of this carries a lesson for a fast-changing global economy. “We’re in the middle of a massive consolidation of the workforce that cannot possibly provide enough jobs. What are people going to do?” he asks, reflecting in his two-story Bangkok penthouse studded with collections of everything from modern Asian art and statuary to fine cigars and the framed autographs of rock stars. “This model shows how normal people without a business background can learn the skills and the attitudes to keep themselves employed.”
The senior staff of Qnet provide enough examples. Donna Imson was a jobless single mother of three with little education in a Manila suburb when she signed on, in fits and starts, to a then new network for selling collectible gold coins, Goldquest. Gathering customers in home meetings, she went unnoticed for months. Now she’s the number two person in the company, a celebrity in direct sales and a motivational speaker beyond it. One Qnet executive, Arun George, describes himself as at loose ends in his 20s after an unhappy job at Unilever. A few years after he joined Qnet he’s now running his own sales training company on the side and has just started an investment partnership.
All of this was far from Eswaran’s thoughts when he started Goldquest, the original name for Qnet, in 1998. The eldest son of a senior civil servant, he moved often around Malaysia until going abroad for university. Armed with a degree from the London School of Economics, an M.B.A. from the University of Southern Illinois and a few years in jobs as varied as technical program manager, cab driver and grape picker, he returned to Asia to work for a network marketing company owned by Malaysian magnate Vincent Tan.
“Gold coins had a good deal of residual value [beyond the value of the gold itself] that had never been realized, and the instability of the region’s governments made them an attractive investment,” he recalls. Eswaran devised an online secondary market for custom-commissioned commemorative coins, allowing people to make bets on their increase in value. Business was good until his U.S. partners disappeared without a trace–the first of a number of setbacks that, at the time, seemed like disasters.
But it was not nearly as bad as the one in Chennai in 2008. India had beckoned–Eswaran’s family had left there for Malaysia seven generations earlier, and it has always exerted a powerful emotional pull on him–but it was a problematic place to do business. For example, one unscrupulous operator in Chennai set up a scam gold coin operation claiming he was with Goldquest, bilking a large number of would-be IRs before he fled, according to Raj Natarajan, then a graduate student who attended a presentation and is now an entrepreneur in the U.S.
Corruption in Chennai had long been a sore spot for businesses there, and Qnet says it had always complied with the regular shakedowns. But one day in mid-2008, she says, there was a mix-up and the office manager refused to pay. Before long local police had jailed seven workers and impounded all of the customer goods in its warehouse. Massive, ugly demonstrations ensued as angry IRs demanded their merchandise and officials condemned the company as a pyramid scheme.
Similar phony charges in a number of countries over the past ten years have also been made. According to press accounts, governments in Sri Lanka, Rwanda, Sudan, Iran, Turkey and Nepal have either banned or formally investigated Qnet or its affiliates, QuestNet and the former Goldquest. But in these cases, the company says, terminated IRs or even impostors used the company’s name as cover for unsavory dealings. Benjamin Tan, one of the founders of the Direct Sales Association of Singapore and author of its Code of Ethics barring abusive practices, says they are common in places with slack regulation. “Qnet or any legitimate company would simply have too much to lose [if it engaged in such practices],” he says.
In the end everybody in Chennai got their goods, and nobody was convicted of any crimes. But the damage had been done. Negative press coverage spread all over India; sales suffered.
Shaken by these incidents, Eswaran set out to remake the company so it would not be hurt in this way. He beefed up the compliance office so it could investigate and expose abusive IRs and impostors, and set up a website to openly rebut allegations and rumors. He cut off malefactors. He sped up plans to convert IR operations to an all-digital platform, so that every IR does business through a virtual office and the inventory he’s reserved for customers is not at risk. One consultant says Qnet’s use of information systems is “far in advance” of any direct sales company in Asia. “No such company has gone as far in using e-commerce as a way to implement trust-based business relationships that are as old as business itself.”
His most profound decision would transform the Qnet product line. Luxury goods such as jewelry and watches can be sold only once, and customers can compare prices between his line and competitors. But Eswaran knows his strongest asset is the personal bond between his IRs and the people they sell to. The best products for Qnet, he decided, promise a personal transformation–better health, more youthful appearance, even physical and spiritual vitality, the kind of thing that’s best explained and sold person to person. Better yet, often these products can be sold in a steady stream, such as a new line of nutritional supplements.
So-called “energy products” are some of the hottest new entries. The glass and steel Chi Pendant 2 amulet, the catalog says, leaves you feeling “refreshed and rejuvenated,” thanks to circles etched into the glass that neutralize the “hidden pollution” emitted by the technologies of the modern world such as cellphones and cars.
A claim like that would not pass official muster in much of the world. But there’s plenty of research suggesting that someone who believes a product can do this will, in fact, feel stronger and more confident. “Aspirational products are some of the biggest sellers in the world of multilevel marketing,” says one scholar who has studied the industry. Ronald Kuntze, professor of marketing at the University of Tampa in Florida, explains that products such as this can be highly profitable and are almost never returned. Eswaran says Qnet’s energy products now make up 30% of its sales, and he’s finding more scientific evidence that they can work.
Is Eswaran selling what Kuntze calls “magical thinking?” He sees no difference between his products and the perfumes, luxury watches and blue jeans with logos sold in brand name shops all over the world. “Is there any retail business that is not selling gratification, hope?” he asks. Rebuilding his business in India, in fact, required him to underplay the gold and luxury products in favor of vacation time-shares and “wellness” treatments. Now the Indian operation is four times the size it was before the Chennai debacle, according to Kuna Senathirajah, Qi’s regional director for India.
One piece of the strategy, diversification, has given the Qi Group a piece of the British telecommunications business. Qi Comm, a telecom services provider acquired in 2005, was intended to serve Qnet’s internal networks and the virtual-office concept for IRs. Over the last few years it has become a player on its own, taking on outside customers to boost its 2011 revenue to $96 million and spinning off its data center as another freestanding company. Qi’s meetings and events organization, a key element of a company that relies so heavily on training, has done the same thing by spinning off into a business with outside customers. Qi also owns a chain of vegetarian grocery stores in Hawaii.
Backstage at the arena south of Jakarta, Eswaran hosts a procession of well-wishers, business partners and senior IRs from a dozen countries. Before parting, his fellow Indians may touch their fingers to their lips and then to his shoe, a traditional gesture of respect for a teacher. Much about the Qi Group is imbued with such values, from the expectation that IRs serve the less fortunate to the meditation and mindfulness that they should master as skills. Eswaran has given out or sold 500,000 copies of his five books on these qualities, including his bestseller of aphorisms, The Sphere of Silence . He named his charitable RYTHM Foundation after a quotation from Gandhi and positions it as a central part of the company’s culture.
Standing before a crowd of charged-up IRs that has just seen a stage show with lasers, dry ice, pyrotechnics and Indonesia’s answer to Beyoncé, he is a calming presence for an inspirational speaker. He tells them they must show the confidence and initiative that come from an inner peace. He often asks, “Do you follow me?” like a mantra that picks up momentum and becomes a chant, simultaneously translated into languages from Arabic to Russian. They say they do.
Now that they are subsiding, Eswaran has an explanation for the wave of derogatory official announcements, bans on his company that were soon lifted and investigations that came to nothing. “Governments in this part of the world will let you get away with all kinds of things,” he says back in Bangkok, referring to misdeeds from environmental devastation to human trafficking. “But the one thing they don’t want you to do is engage the human mind and spirit.”
News Source: Selling a better life, Forbes