Industry News

Mexico In Focus
by Katherine B. Ponder

Mexico shares close ties with the United States, and many of our biggest direct selling companies have found great success there. Health and wellness are important drivers for the industry, and the Mexican market demands adaptation. There are cultural and governmental differences behind these tweaks, but the results speak for themselves.

Economy

Mexico has more than 107 million citizens and a strong gross domestic product estimated at $1.13 trillion for 2006. It is so strong, in fact, that José Morfin, Managing Director of SwissJust Mexico, calls it "one of the highest GDP per capita of Latin America." The economy slowed for the last three quarters of 2006 however, largely attributed to decreased demand in the United States and falling oil production. Income per capita is one-fourth that of the United States, and many Mexicans live in poverty. The Mexican middle class is very small, leaving the majority of citizens constantly looking for income.

The political and economic environment is stable, but moderate change and progress happen all the time. A new president, Felipe Calderón, took office in December 2006, elected on a platform of addressing poverty, expanding social programs and fighting drug violence. Inflation has become an issue in the last six months, with price increases on basic foods, including milk, eggs and tortillas. These are staples for Mexico's poor, and people have responded to rising prices with street protests and calls for government help.

The direct selling industry helps millions of people earn additional income. The country's direct selling association, Asociación Mexicana de Ventas Directas (AMVD) says that approximately 1.9 million people work in some form of direct selling. They brought in $3.22 billion in sales for 2005, and that is likely to increase for 2006.

The Inside Story

You can't really understand a country's business environment until you understand the people: what they enjoy, how they live and what they think. Chalk it up to culture, and Mexico has plenty of its own unique cultura.

Mexicans form close, personal connections and are loyal to their families. Even in corporate business dealings, Mexicans spend a lot of time forming bonds. Social change is making these bonds somewhat fewer and more concentrated, but they exist and are nurtured all the same.

Despite having a strong economy, the distribution of wealth in Mexico is very unequal. Almost one-half of the country's wealth is held by an elite 10 percent. On the other end of the scale, one-half of Mexico's citizens live below the poverty line, earning less than $4 per day. This gap has changed little even with the U.S. free trade agreement of more than a decade ago. Many Mexican citizens are unemployed or underemployed. This leads to mass emigration, both legal and illegal, into places like the United States, where opportunities are better. Money sent home from the United States now accounts for Mexico's second-largest source of foreign exchange, just behind oil.

There is also a gender-role upheaval taking place in Mexico, similar to what happened in the United States in the 1970s. More women than ever are working outside the home in Mexico, especially in large cities. Almost a third of the labor force in the northern state of Nuevo Leon is now women (the national rate is 29.9 percent), according to Mexico's National Institute of Geographic Statistics and Information. The University of Minnesota's Population Center studies populations around the world and says the statistics for women working outside the home has increased by 50 percent since 1990.

"The party plan has largely gone away in Mexico partly because of the increase in women working outside the home," says John Rogers, Senior Advisor of Betterware. "With the social structure, people don't have the facilities or time to host parties." As a result, Betterware and many other direct sellers use catalog sales as their primary drivers. Rogers says that Betterware issues new catalogs every few weeks and prepares many monthly contests and prizes to help inspire salespeople. Rogers is quick to add, however, that the catalog sales in Mexico are not as cool and efficient as in the company's home country, the United Kingdom. "Betterware's catalog sales in the U.K. are very cut and dry. Salespeople drop off a catalog, pick up the customers' orders and payments from the mailbox and deliver the order at the doorstep. In Mexico, people want more interaction. Our catalog sales also transition very well into the workplace."

Direct Selling Answers Needs

Amid shifting traditional roles, economic transformation and social initiatives, direct selling fills significant needs. It provides income, recognition, buying power, exceptional products and health-related resources.

Income

The industry provides income opportunities for millions of people. Women in particular take the opportunity to earn money for their families, often while still fulfilling many of their traditional roles. The AMVD says that 92 percent of those working in direct selling are women. Further, research published by the Direct Selling Education Foundation indicates that, in past years, half of Avon's Mexican representatives have been the sole means of financial support for their families.

Jesús Alvarez, General Manager of Amway Mexico, says, "Today more people in the market are looking for more ways of earning a better income. Our Amway business owners are people looking for additional income or looking to have a full-time business opportunity. They consume products and are open to opportunities to retail products or to build a network to earn money."

Herbalife has rocketed to direct selling stardom in Mexico, which is now its No. 1 market, bringing in 35.1 percent of the company's 2006 global net income of $143.1 million. "We have worked diligently to establish and build our reputation among the Mexican population by providing quality products and a rewarding business opportunity," says Des Walsh, Herbalife Senior Vice President of Worldwide Distributor Sales. "Direct selling is also gaining popularity as an alternative means of economic empowerment."

Ancillary Benefits

There is more to direct selling than the income, and often those fringe benefits are what draw and retain people. Morfin of SwissJust notes that their 15,000 consultants, while producing more than $50 million in sales, are also attracted to the nonmonetary benefits of the company's compensation plan. Personal development, rewards, recognition and pride are just a few of the things that keep SwissJust consultants actively involved with the company. "Our company is deeply involved (high-touch) in the development of people," Morfin says.

Betterware, in yet another example of extending benefits, has learned to give its salesforce greater buying power through partnerships. "We've found affiliate marketing to be very effective in Mexico," Rogers says. The idea is to join with traditional stores that sell big-ticket items like appliances or furniture, and create a point system based on the salesperson's Betterware sales and activity. "Major purchases tend to be out of reach for many people in Mexico" he says. "So anything you can do to help with that, it's a big incentive."

Many people begin their work in direct selling simply to gain access to exclusive products at a discount. In general, Latin American consumers prefer top-quality, imported goods from the United States and want items that are different from those they can pick up at their corner stores. Even "product-driven" representatives eventually share their passion with friends and family and begin to build a business.

The desire for exceptional products exists alongside a reluctance to hawk goods, leaving distributors happily buying for themselves but not spreading the word to strangers. "I would say that for sales, no one likes to be a 'salesman' in Mexico, and this is why companies like USANA promote the product consumption, not sales," says Alfonso Todd, Director of USANA's Hispanic Markets. "We say, 'Become a product of the product.' "

Healthy Alternatives

Another essential that direct selling answers is the growing need and desire for healthy living. As a nation, Mexico devotes only 6.5 percent of its GDP to health spending, which puts it on a comparable rate with Korea, Slovakia and Poland. This doesn't bode well for Mexican citizens who have among the highest national obesity and smoking rates, as measured by the Organisation for Economic Co-operation and Development. There is still time for a turnaround, and it's coming from the populace itself. "The culture of well-being is growing in Mexico," Amway's Alvarez says.

Evidence and consistent results underscore this fact. According to the National Association of Natural Products, the nutritional-supplement market has grown 10 to 15 percent annually over the last eight years. Many of these products are sold by companies like Amway, Herbalife, SwissJust and USANA. "Health and wealth are currently the driving factors in Mexico," says Todd of USANA, which reported a 48.9 percent increase in its fourth-quarter sales in Mexico compared with the fourth quarter of 2005. "Many companies in this segment are reporting important growth over the last five years, and it gets even more interesting when you see big direct selling companies such as Avon turning to nutritional supplements!"

Walsh of Herbalife agrees: "Healthy and active lifestyles are gaining popularity in Mexico, which helps drive the market for healthy nutrition products." As Mexicans show their eagerness to become healthy and improve their financial status, companies heading south of the U.S. border have to prepare for some curves along the way.

Adjustments

Doing business in Mexico requires some finesse by international companies. From regulations to banking to product preferences, there are differences that must be accommodated.

One of the biggest factors is citizens' limited income. Pricey products and new sales kits can cost triple digits in the States, and they're often out of reach for many Mexicans. Some companies have adroitly made changes. Herbalife has created Nutrition Clubs, which allow distributors to sell individually priced, single-serving products in a party plan setting. It's worked well. "The Nutrition Club party plan concept has continuously grown in popularity since its introduction several years ago," Walsh says. "The clubs are a social setting for neighbors to get together, be among friends, learn about nutrition and other topics and enjoy a healthy Herbalife shake and tea."

In Mexico, a general reluctance to step forward as a salesperson and leader also has an effect on direct selling. Betterware is among many companies that have created an alternative compensation plan for its Mexican operations, concentrating on sales more than downlines. "Our business is successfully doing a hybrid system," Rogers says. "The MLM ideas of recruitment and commissions on multigenerational sales have not caught on in a major way in Mexico. While a few companies have done it successfully, it's not easy to find the necessary business leaders or create the infrastructure. We have some multigenerational downlines and contests in Betterware, but the primary concept is catalog selling and paying commissions on each individual's sales."

Governmental regulations require companies to tread lightly in some areas. Nutritional products and supplements are subject to many restrictions. "Depending on product categories, strict-and sometimes very complex-government regulation can be a disadvantage," José Morfin of SwissJust says. "The legislation on many products is arguably the most complicated of Latin America." There are many instances of companies that use Mexico as a source of ingredients but are barred from selling their formulations there by government regulation.

Another challenge for direct sellers is on the logistical front. Covering the entire 761,000- square-mile country takes a lot of coordination. The existing infrastructure leaves a lot to be desired, particularly in terms of distribution. This often catches companies by surprise. It is, as Morfin puts it, a "huge improvement opportunity."

Banking, too, is different in Mexico. There is not nearly as much reliance on traditional bank accounts or credit cards. Many consumers pay for their goods in cash, and companies must build in flexibility to handle these cash transactions. It's second nature to native Mexican companies but presents initial difficulties for foreign companies.

The lower credit card usage is also reflected in lower Internet usage. Only 19 percent of Mexico's population uses the Internet and, even among this minority, there aren't many online orders. It's simply that Mexicans prefer reliance on cash and face-to-face business transactions. They don't have as much experience with computers and certainly don't have the access that other countries have come to rely upon.

For all its differences, Mexico is a friendly place for direct sellers. The people understand and accept direct selling, often preferring its products to garden-variety products available at local stores. They're excited about regaining health and vitality through many of the products, and they welcome the income opportunities. Overall, the industry enjoys continued growth in this sizable market.

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