Tighten control over multi-level marketing businesses.

The multi-level marketing (MLM) industry in Vietnam has developed too rapidly, with numerous companies emerging and a large number of participants. Alongside companies that are striving to contribute to the socio-economic development, there are still pyramid schemes disguised as MLM, damaging the reputation of the entire industry.

Therefore, Decree 42 on the management of multi-level marketing activities was issued as a positive replacement for Decree 110, which was somewhat outdated compared to reality.

Seminar on the multi-level marketing industry in 2013 - Photo: Amway Vietnam

"Code of Business Conduct"

Present in Vietnam for over 10 years, like other economic sectors, multi-level marketing (MLM) is recognized by the government as a potential business with rapid growth in both company size and the number of participants. According to statistics from the Competition Management Department - Ministry of Industry and Trade, by the end of 2013, there were 102 businesses operating in the MLM sector, attracting over 1 million participants and contributing over 1,000 billion VND to the state budget. Therefore, from the beginning, the government issued Decree 110 specifically for the management of this industry. In addition, the MLM industry itself has its own code of conduct, with some companies even developing their own rules, such as Amway with its "10 Prohibited Things" in multi-level marketing and sanctions for distributor violations, such as cutting bonuses or, more severely, terminating contracts.

However, it is undeniable that some pyramid scheme companies, masquerading as multi-level marketing (MLM) firms, deliberately break the rules and violate regulations, damaging the reputation of the entire industry. Meanwhile, other companies are striving daily to change consumer perceptions and help them have a more objective view of the industry. Many MLM companies are working together to build a clean MLM industry with the support of the government and the media, but the pyramid scheme itself is a major obstacle hindering this effort. Therefore, the MLM industry needs a strict legal framework that aligns with its rapid development and helps filter out such companies for sustainable growth.

Identifying and dismantling pyramid schemes

Similar to the US, in its early days, pyramid schemes in Vietnam also faced opposition due to the emergence of the pyramid model, leading to negative social perceptions.

According to business experts, the pyramid scheme model is synonymous with fraud, the opposite of legitimate multi-level marketing. So what is it, and how can you distinguish it? According to consultants, the following signs indicate a pyramid scheme: Unreasonably high participation costs; Participants are primarily rewarded for recruiting new members into the network; Rewards are not primarily based on sales of goods and services; The goods and services are illegal and not permitted to circulate in the market; Participants are unreasonably required to purchase more products than they need to sell or use; The model does not allow for returns of unsold inventory; There is no written contract clearly outlining important terms and cancellation periods. A large "explosive charge" is needed to dismantle a pyramid scheme.

In an interview at the end of 2013, Mr. Bach Van Mung, Director of the Competition Management Department of the Ministry of Industry and Trade, stated: “Since 2005, the Government has issued Decree 110/ND-CP-2005 on the management of multi-level marketing activities, which stipulates many sanctions for businesses. However, in our opinion, in reality, this decree is not strict enough for optimal management. Therefore, we have proposed that the Government amend this decree to issue a new system of documents that provide more specific and stringent regulations.” Recently, in early July, Decree 42 on the management of multi-level marketing officially came into effect, with many expectations that it will help the multi-level marketing industry develop on the right track and filter out pyramid schemes disguised as multi-level marketing companies.

According to TNO