MLM business worldwide and its abuse in Bangladesh

Multi level marketing is popularly known as MLM business. Wikipedia defines MLM business as a marketing strategy in which the sales force is compensated not only for sales they personally generate, but also for the sales of others they recruit, creating a down-line of distributors and a hierarchy of multiple levels of compensation. Such kind of business is also known as pyramid selling, referral marketing, network marketing, home-base marketing, holiday business, teamwork marketing, freedom enterprise and so forth. However, minor differences may arise with the use of different nomenclatures while undertaking in-depth discussion on MLM. In developed countries MLM is well-known but in Bangladesh and South Asia this concept is relatively new as this was not practised before. For this reason, many misconceptions prevail in people's mind about MLM business. Multi-level marketing is recognised in many parts of the world as legal, fair and promptly spread business. The subject is also included in the curriculum of many universities, for instance, University of Illinois, USA (http://www.uic.edu/cba/cba-depts/ms/FacultyProfiles/king.html), University of Auckland, New Zealand (http://www.shortcourses.auckland.ac.nz/courses/165/).

Historically, the multi-level marketing concept was first introduced in 1945 by the California Vitamin Company (shortly afterwards to become Nutrilite). Basic mechanism was applied by Dr Carl Rehn Bourgh, a renowned chemist of America. The plan allowed Nutrilite distributors with at least 25 regular customers to recruit new distributors and draw a 3.0 per cent commission from their sales. Unlike traditional direct selling, this was an ongoing payment whenever the customer re-ordered; allowing direct sellers to build a sales organisation that could generate an additional income. Through the procedure, he started to attract many customers through word-of-mouth of existing customers. Through first customer many potential consumers went to him for buying which made a good profit, and from that amount of profit an attractive portion was offered to the first customer and other team-members complying with the conditions of the commission plan. MLM concept has been applied to many products selling like non-durable goods such as detergent, rice, sugar, soap; services such as telephone service, health service, traveling packages; and even unsought goods such as insurance. Gillette, Colgate and Palmolive applied MLM to sell products.

Organisations need to market products and services, and sometimes themselves to enhance goodwill and ensure market position. Except appropriate marketing in today's business world, organisations may lose their market share, customers, channels and eventually experience loss. So, organisations have to adopt vibrant marketing strategies. From marketing viewpoint, there are two parties, producer (marketer) and customer (consumer) and to develop a good interaction between them two types of marketing concepts are evolved - Traditional Marketing (TM) and Multi -level Marketing (MLM). The traditional marketing (TM) strategy is channel based and dominated by several layers of middlemen. The manufacturer produces goods and services that reach the customers through various channels of distribution - from producer to wholesalers, wholesalers to retailers and retailers to consumers. The more stretched the distribution channel is the more complex the distribution process is. Maintaining the distribution channel deserves a grave attention of the producer as well. Thus, the product price goes high, because of the cost of transferring goods and margin of middlemen. TM process also requires a large capital involvement. Marketing and sales departments require manpower, office, logistics, infrastructure etc. Advertising and promotion also requires a high level of care and capital.

In case of MLM the necessity of distribution channel like TM has been reduced. Only some middlemen exist who are manufacturer's in-house middlemen. The work of agent, dealer, wholesaler and retailer is done by consumer-seller. The word-of-mouth strategy is widely used here. The consumers act as distributors, sell product and convince other consumers to reorder. If possible, a customer can recruit another customer as distributor and exploit the commission from the sales of his own recruited distributor. The newly-recruited distributor will then be considered as the former's down-line. The customers have to meet individual sales-target to gain the commission. A standard commission package is set by the manufacturer to calculate the commission for consumer-sellers. Thus, in addition to selling one can enjoy a smart amount of commission from his down-line's sales. Hence, customer's yield from MLM depends largely on teamwork. Where in TM only producers and middlemen are benefited from the perspective of earnings, in MLM customers-cum-distributors can also get a share of the producer's profit. However, the mechanism of channel is undermined in MLM; various good products are available to the consumer in a relatively lower price. MLM is financially less-risky as products are distributed by volunteer forces who decide which market to enter or leave and how much time to spend, whether to work part-time or full-time. So, consumers enjoy less restricted environment here. Since, in network marketing distributor sells the products directly to the customer; costing of showroom, promotional schemes and other advertisement could be extensively reduced for the manufacturer. If any particular business adopting MLM is collapsed then consumer-cum-distributors' maximum loss would be the opportunity cost of time spent.

There are also many criticisms of MLM strategy. Critics argue that with the availability of e-commerce, online shopping, capability of advertising and selling directly to consumers, MLM has become obsolete. The very early distributors can exploit the benefit of MLM where the recent distributors get nothing. The most important drawback of this method is that, swindling is easy by using the banner of MLM. People get misguided as some vested quarters execute 'ponzi scheme' by taking the signboard of MLM. Nevertheless, the MLM obtained its popularity in the developed countries and is acquiring popularity in the developing countries as well. Malaysia is considered as the largest market for MLM companies. In Canada, USA, Panama, Australia, South America, UK, New Zealand, Japan, China MLM is prevalent. 

A word of caution: before involvement or investing in any business, a thorough study on that subject and a feasibility test must be carried out.

Bangladesh perspective: Bangladesh is a populous country of about 160 million people. It is a vast market of many present and prospective businesses. Telecommunication, food products, cosmetic products, banking and insurance have already climbed the peak of success by exploiting the market. As the population is comprised of mostly semi-educated and uneducated people, many fraudulent businesses play their black magic by swindling in this huge market. The latest edition of deceptive schemes has arrived with the cover of Multi-level marketing, briefly called MLM. Many educated youths are unemployed and are continuously searching for earning source. By attracting them and using their ardour many hoodwinkers swindle millions of takas using the signboard of legal business, most recently through MLM. Destiny, Sitetalk, E-links, Daehsan and many small MLMs are still in business. Earlier, the people had their experience with UniPay2U and Jubok. Jubok has collected hard-earned money of many people and failed to repay those. Many victims have not yet been able to recover their loss from investment in Jubok. Unipay2 has collected millions of takas by convincing people about purchasing gold in foreign countries and pledged to pay such a high return which is incredible to any rational person. However, people invested and suffered a huge loss. Nevertheless, the Destiny 2000 Limited, popularly known as Destiny, emerged in December 2000 and acquired a position that surpassed all their competitors. According to its website, the company has 27 sister concerns with many more coming, 2800 employees, 4.3 million consumer-distributors and over US$ 70 million yearly turnover. Destiny Group has its active subsidiaries such as Destiny 2000 Limited, Destiny Tree Plantation Limited, Destiny Multipurpose Cooperative Society Limited. The meteoric rise in asset accumulation of destiny is absolutely perplexing. Its total accumulated asset was more than BDT 3742 million in 2009-2010 and BDT 1065 million, 366 million, 62 million, 104 million in the earlier sequential fiscal years. (Source: Destiny Website). A newspaper reported that, the destiny multipurpose co-operative society amassed wealth to the amount of Tk 33.5 billion as on March 31, 2012 of which an amount of Tk 11.1 billion was received from Destiny 2000 Ltd. (The Financial Express, June 10, 2012).

People have an inborn tendency to get rich in shortcut. This hankering largely influences the unemployed young people. Most ponzi schemers first target those youths and ensure their involvement. As the MLM is based on word-of-mouth strategy, they train young people not only to sell products but also to recruit the down-liners. Thus, they execute a pyramid structure. But it is observed worldwide that, the very early distributors can only exploit the benefit of MLM where the recent distributors get nothing. So, how they accumulated such a phenomenal growth in asset is a dubious matter.The ownership of Boishakhi TV is also now under dispute. Another controversy has arisen on the matter of banking by Destiny. It is very much harmful to the economy if any non-bank institution operates lending and depositing. Because the central bank cannot anticipate the money supply in the economy and therefore cannot control the supply, swiftly. An allegation of money laundering has been brought against Destiny. According to a newspaper report, one of its overseas directors, Noel G. Carey, laundered Tk 700 million in the guise of payment through one a letter of credit (LC). The Tk 700 million import payment has been made to the same man where no physical goods or services were transferred. (Tk 7.09b embezzled, Tk 700m siphoned off, The Financial Express, June 10, 2012). Destiny has allegedly evaded tax. 

As there was no specific law regarding direct selling and multi-level marketing, many MLM companies have apparently indulged in spurious business activities and the government was also inattentive to this issue. A tactic that Destiny used in attracting people was to invite the renowned persons and VVIPs in their programmes and used the photos with them in website and banners. Thus, many gullible people get convinced about Destiny. Though Bangladesh Bank has halted the bank accounts of Destiny, it allegedly transferred a lot of money from those accounts. Reportedly, its directors, hold a total number of 443 bank accounts where funds worth only Tk 1.77 billion could be traced. Among the total number of bank accounts, 225 were found closed. (The Financial Express, June 10, 2012) 

MLM is only a strategy to market goods by man to man where channels are mostly eliminated. But using this concept to deceive people is worrisome. The government should monitor the activities of MLMs seriously and protect the interest of the people by making proper laws and applying them effectively. 

This writing was published in The Financial Express, (Thursday, July 05, 2012)

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Our film industry deserves a grave concern

Now-a-days every country is very much desperate about their economic expansion. To do this, various sectors are given priority by countries in the world. In our country, garments and textile, agriculture and export of many things including manpower, shrimps, frozen fish, pharmaceuticals, cement, jute etc are deemed to be the catalyst for rapid expansion of the economy. Often several sectors are given incentives to encourage and facilitate their businesses. But unfortunately as an industry film making has failed extensively to contribute to the expansion of economic growth. Even, it failed to attract the heed of the top brass of the government to prove itself as a factor of upsizing the economy.

We are very well informed about the film industry of the USA and India, popularly known as Hollywood and Bollywood respectively. Both the industries are successful in contributing to their own economies. Developing our own industry to that height is very difficult but not an impossible dream. Some of our films have gone to some prestigious platforms like 'Cannes' festival and 'Swiss' festival. But these events are not recurrent. In Bangladesh, traditional commercial movies are very poor in every category in respect to a good one. To be frank, the target customers of those films are the people of very lower class in society. There is nothing to learn, to enjoy, to be thrilled or even to watch with family. Myriad problems in the films include low class production, poor scripting, slipshod plot, substandard ideas, plagiarism, vapid acting and many others. It is not very long that our film industry was flooded with total insanity, nudity and vulgarity. But it is a good sign eventually that level of bareness in films is over. Still it needs a huge reform. Tactically, many film makers and most of the cast and crew are untaught in their field. However, a few creative, learned and cultured people still exist in our film arena but they are too little in number to dominate the sector. This learned and dedicated persons are out of fund and some cash-rich, dishonest and speculative quarters are abusing the industry with their fund. Now general people are not willing to visit the cinema halls for recreation and in good families, going to theatre halls is a taboo. But the cessation of going to cinema halls can hardly contribute to the economy. According to a BBC report, Bangladeshi film-making industry is worth $ 20 million and in recent years, the number of cinema halls in Bangladesh has reduced from about 1,500 to just over 600. (Source: http://www.bbc.co.uk/news/business-15178289)

By nature, humans cannot work for long without taking recreation and entertainment. Film is the most ancient and acceptable way to be entertained. But the traditional commercial Bangla movies have lost their appeal to satisfy the appetite of viewers' minds. Thus, the Bangladeshi movies have been compelled to sacrifice their market to Hindi and Kolkata's Bangla movies (A.K.A. Tallywood). Empirically, to many people it is a matter of puncture of prestige to watch Bangla films. Frankly speaking, I observed in many places that Kolkata heroes 'Dev' and 'Jeet' are very popular in Bangladesh and their movie songs as well. Culture of watching Hindi movies are common from the very past. 

But it is a good sign that some Bangladeshi films like "Aha!", "Guerrilla", "Monpura", "Swopnodanay", "Moner Manush", "Matir Moina" and "Runway" had recently been acclaimed globally.In the age of satellite TV, it is even hard for a good film to take audiences in the theater halls while our commercial movies are still upholding their substandard quality. Sometimes the excellence of nation's culture is determined by their films since films express the nation's identity. If the aggression of Hindi films and production of substandard Bangla films continue to run, then we will lose our identity one day. The fettles of Bangla movies is now so vulnerable that some days ago The Bangladesh Motion Pictures Exhibitors Association urged the government to allow Bollywood movies to be screened in local cinemas to inject new blood into the business. The industry is on the brink of deterioration because of exorbitant increase in some protagonist's emolument, piracy, alleged non-collaboration from Bangladesh Film Development Corporation [BFDC] and alleged unfavourable behaviour of Bangladesh Film Censor Board.

Once, our film industry was very rich with creative people, exceptional thoughts and efficient technical minds. But we lost many veterans in our Liberation War which was deliberately done by the Pakistani perpetrators and their collaborators with a view to crippling the nation intellectually. We still could not fulfil their gap after 41 years of freedom. So it is not an easy task to revitalize this industry. To do this the government should take some needful steps to resuscitate the whole sector. The first step for the government could be to develop a long-run plan. The universities should launch separate departments on film, television and acting. Mechanical and technological matters are related with films. Hence, didactic courses should be commenced on those by government institutes. Scholarships should be provided to the students of films to earn the highest excellence in this sector. More governmental and private patronization is necessary for developing this industry. Film producers are eligible of receiving bank loans for funding films in India. But allegedly in Bangladesh, no banks have any policy of granting advances in this specific sector. Since film making has spillover effects in economy and stake of several industries (viz. audio, music channels) are related with film industry, specific laws should be passed to prevent piracy, plagiarism, and unfairness in film making. In many countries of Asia, the film exhibition business is stretched and evolved into a gainful concern on the ground of profitability, entertainment of viewers and improvement of social atmosphere. Ultimately, a rational approach to film industry is a must from the high-ups of government and from the society as well for the survival of Bangladeshi film and its contribution to economy.

This Article was published in The Financial Express, Saturday Features, (June 09, 2012)

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Sahara in Bangladesh: Opportunity or threat?

Subrata Roy Sahara

On May 23, 2012 a Memorandum of Understanding (MoU) has been signed between the housing and public works ministry of Bangladesh and India's large conglomerate Sahara India Pariwar for large-scale investment in the housing industry. The Sahara India Pariwar belongs to Subrata Roy Sahara, a mechanical engineer by profession, who has been named among the 10 most powerful people of India by 'India Today'. In 2004, the Sahara group was termed by the Time magazine as the second largest employer in India after the Indian Railways. Subrata Roy also owns Pune Warriors India (IPL cricket team), Grosvenor House Hotel(London), Aamby Valley City and has 42.5% stake in Force India (source: Wikipedia). Born in Bihar, aged 64, he loves to address himself as managing worker instead of managing director or CEO of Sahara group. Through subsidiaries he involves himself in a variety of businesses in India, such as-- real estate, media, film, tourism, healthcare, hospitality, sports, information technology and so on.

With the purpose of doing business in Bangladesh, Sahara developed a company titled Sahara MatrivumiUnnoyon Corporation Ltd and appointed an influential ruling party leader's son as its director and pioneer of their business in this country. Sahara sought 100,000 acres of land from the government to build a township. Though the government is still reticent about the content of the MoU but according to a newspaper report, the MoU would expire if no definite agreement is arrived within 36 months from the date of its signing. 

Mixed responses are heard from different quarters whether the advent of Sahara group in Bangladesh is a threat or an opportunity. Government is allowing Sahara in Bangladesh as per its policy of foreign direct investment (FDI) in the backdrop of high demand for housing in the city of Dhaka. Sahara corporation also announced to invest initially $100- 125 million. No doubt, this sounds good. But allowing FDI in a vital sector as real estate has reasons to be fraught with adverse reactions because we have a fast growing real estate industry of our own. Strategically, it is not sagacious to allow FDI in priority sectors where we have scope, strength and potential to flourish. It is a general perception that vital sectors like power, energy, irrigation, housing, real estate, telecom etc., should be kept off the ambit of foreign investment because the return will be siphoned out of the economy in the form of dividend and divisible profit. According to the REHAB, the association of the real estate developers, with their collective efforts they are successfully implementing their housing and real estate projects, handing over some 12,000 flats and 6,000 plots to the buyers annually. This definitely indicates the growing strength of this sector in Bangladesh. 

Every country, no matter the size of its economy, has its own strengths and potentials in some sectors which the respective governments try as far as practicable to protect. Countries in the Middle East are endowed with oil and minerals, so are China and Japan with the manufacturing of electronic goods, garments and car respectively. In Bangladesh, besides RMG, real estate must be reckoned with as our strength. Hence, permitting FDI in this sector is not viewed in good grace by all concerned, within and beyond the industry. While the local entrepreneurs developed the industry over a period of last two decades and made available skilled workforce and necessary logistics, allowing a foreign developer to reap the ready benefit is a sheer neglect to the domestic players, and more so, a negation of prospects in terms of income generation from a home-grown industry. 

Already Transparency International Bangladesh (TIB) has raised questions about the MoU and asked the government to divulge the conditions since land in Dhaka is sparse, and without a cost-benefit analysis and proper risk assessment it is unwise to sign any such contract. That Sahara's proposal will not be well received by many in this country is a fact that Sahara knows well enough. And if I am not wrong, the mega offer by Sahara to be the main official sponsor of the Bangladesh cricket team is a corporate trick to turn public sentiment positively towards them, let alone business. 

FDI is always welcome to us but not in the primal sectors by ruining our potentials. There are many underdeveloped sectors where investments, both foreign and local, are very crucial and the profits could be shared on a win-win basis. In the aforementioned context, our expectation to the government is that they will address this issue with utmost seriousness in order to ensure that nobody is be allowed to indulge in a zero-sum gain. A wrong step forward can destroy our real estate industry with dire consequences. Looking at the self interest of an individual or of a vested quarter is despicable, while looking at the collective interest of the country is commendable indeed.

This article is published in The Financial Express, Views & Analysis, (Sunday, June 03, 2012)

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