Photo above: Nu Skin’s symbol displayed outside its new global headquarters in Provo, Utah.
Nu Skin’s China business recently came under the scrutiny of state regulators as a result of a Jan. 15 article from China’s People’s Daily criticizing the company’s practices. China’s State Administration for Industry and Commerce said it would investigate the company’s operations, prompting a 33 percent decline in Nu Skin shares over the following two days.
In a response, Nu Skin stated that the People’s Daily article “contains inaccuracies and exaggerations that are not representative of Nu Skin’s business in China. The reporters did not attempt to verify any information with Nu Skin.” The stock rose for the first time on Jan. 22, following a prediction by Deutsche Bank analysts that the government investigation will likely conclude in less than two months, with a “modest fine” imposed upon the company.
Nu Skin has also stated that it remains “committed to working cooperatively with the government to ensure long-term, sustainable growth in this important market.” As a part of its ongoing compliance efforts, the company is conducting its own “province-by-province business review” and reinforcing business training and education. Mainland China, where Nu Skin has been operating for 11 years, generated 30 percent of the company’s $2.16 billion in revenue in the first three quarters of 2013.
Analyst Olivia Tong at Bank of America Corp. notes that network marketers such as Nu Skin “have always been questioned,” causing “outsized share price movements,” she wrote to Bloomberg. “There does not seem to be tangible evidence to validate negative claims targeted at the company thus far.”
Nu Skin is not the only business facing obstacles posed by China’s regulatory environment and state-controlled media. Last year, a report from China Central Television (CCTV) accused Starbucks Corp. of over-charging its customers. The same outlet claimed Samsung was selling defective smartphones to Chinese consumers—a charge that elicited an apology from the Korean electronics manufacturer despite its never being confirmed.
Last month, Wal-Mart Stores Inc. pledged to ramp up its vendor compliance in China after CCTV criticized the retailer’s quality-control measures. Wal-Mart has invested in a computer-based system to support compliance efforts that require the “collection, organization, filing and retention of well over 1 million documents annually,” according to the company.
China’s increasing regulatory scrutiny prompted The Economist to note last November that “it may be tough to find foreign firms that haven’t been on the receiving end of price, safety or hygiene scandals at some point.”