PETALING JAYA: The reputation of genuine direct selling companies have suffered immensely as a result of the fraudulent acts by illegal schemes, said the Malaysian Direct Distribution Association (MDDA).
“It is because these companies claim that they are multi-level marketing (MLM) companies, the public thinks all MLM companies are scams, and they are unwilling to buy,” said MDDA president Rosedy Issa.
Many of these illegal schemes, Rosedy pointed out, would market themselves as MLM companies, but their business model centres around recruitment and networking, not on selling products, thus making them unsustainable.
Some would even require members to buy products in absurd quantities or at an extremely high price – something legitimate MLMs are not allowed to do.
In fact, he explained that the prices of products they sell must be approved by the Domestic Trade, Co-operatives and Consumerism Ministry, adding that they were not allowed to mark up their prices exceeding four times its cost.
“In genuine direct selling companies, you do not have to buy expensive packages. We want to give our members entrepreneurial opportunity without much start-up capital. They can start doing business by joining and paying a nominal fee.
“If a company says you need to buy a package at RM500 or RM1,000 before you can sell, that is, to us, not right. They are not qualified to be called MLM companies,” Rosedy said.
For MDDA deputy president Datin Sylvia Koh, legitimate direct selling companies are essentially competing with their “hands tied behind their backs” when stacked up against illegal investment schemes.
This, she added, is causing them to suffer losses between 10% and 40% in the past two years.
Though many illegal “money game” schemes operate using the MLM business model, they do not have to comply with the same regulations imposed upon genuine MLM companies under the Direct Sales and Anti-Pyramid Scheme Act, she said.
“Many small homegrown direct selling companies have closed shop. How are they supposed to compete on such an uneven playing field?” said Koh, who added that genuine direct selling companies have even been made a “laughing stock” by illegal schemes.
“In the end, many give up. It is disheartening,” Koh said, pointing out that five of MDDA’s members have wound up in the last two years due to adverse competition.