The strict license requirements have seen direct sales companies in China undergo a major transformation.

Amway, which came to China in 1995, endured a difficult transformation of its 180,000 direct sellers throughout the country. It has now adopted the model of retail outlets, service network, distributors plus direct sellers. It has also made some of its direct sellers regional distributors and formal employees.

Amway would not disclose the cost of the changes, but said sales income dropped last year.

According to direct sales analyst Tian Wen, the cost of the business transformation and other costs in applying for a license amount to as much as 30 million yuan.

China banned direct selling in 1998 after a series of pyramid schemes embroiled millions of people many of them university students in criminal activities carried out using direct sales as a front.

The new regulation came into effect at the end of 2005, allowing direct selling to resume within a strict new framework.

The new business model has seen direct sellers lose many of their traditional advantages such as low costs, flexible operations and close customer contact.

Direct sales firms must now establish retail outlets and service networks, which has added to operational costs.

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