ARTICLE Atomy Opens up Path for the Chinese Market
Launch internet shopping mall in the form of vendor selling…Expected to gain attention with ‘masstige’ products
Atomy’s campaign into the Chinese market has finally started. Atomy China announced on April 1st through its official website that the business is now accepting consumer membership and vendor business applications. This officially marks the beginning of the company’s business in China.
Expanding its influence beyond Korea to the global market, naturally Atomy’s launch into China has gained much attention. This is because China has a strong domestic market with a population of 1.4 billion people, which makes it a suitable market for direct selling.
We looked closely at what kind of products Atomy would sell in China and what operations model it would use to carry out its business.
Much Interest also within China
China was once called the world's largest factory, but it is now indeed the world's largest market. In the past, there were many companies moving production facilities and factories to China in order to reduce production costs including labor costs. However, recently, with the growth of the Chinese domestic market, the investment of global companies – targeting the Chinese market - is increasing.
According to data released by the Chinese National Bureau of Statistics, last year, China's gross domestic product (GDP) increased to 99 trillion 86.5 billion yuan (about 1 quadrillion 7150 trillion won), an increase of 6.1% compared to the previous year. Also, China’s GDP per capita amounts to 70,892 yuan, and when converted to the annual foreign exchange rate for US dollars, it amounts to $10,276. This is the first time in history that China has surpassed the 10,000-dollar GDP mark per capita. Additionally, China’s title of having the world's largest population of 1.4 billion people makes it an even more attractive market for investment.
Even from the perspective of the direct selling industry, China is an attractive market. When observing the report published last year by the World Federation of Direct Sales Association (WFDSA, “2018 Global Retail Sales in Direct Selling Industry,” China has emerged as the world's largest market by overtaking the United States by a small margin. As of 2018, the size of the direct selling market in China amounts to about $35 billion 732 million. When considering Hongkong and Taiwan as part of the Chinese market, it is estimated to reach about $40 billion. Additionally, the actual market size is estimated to be more than double - considering 1,000 companies or more are speculated to be operating without obtaining a direct selling license.
Within this context, Atomy is gaining much attention as it announced to begin its sales in China after a long period of preparation. Since April 1, Atomy China is receiving consumer membership and vendor business applications through its official website, and it has also launched an online seminar to provide information regarding its launch in China. The recent launch of Atomy China is expected to pave the path for the Korean network marketing industry to enter into the Chinese market.
The news of Atomy China’s launch is also gaining much attention within the Chinese market. That is because since Atomy’s founding in 2009, the company has been providing good quality products at an affordable price based on its Absolute Quality and Absolute Price strategy. At the same time, it is also helping many of its members succeed in business.
Not only in China, but there has been good feedback from the United States, Japan, Canada, Taiwan, Singapore, Cambodia, Philippines, Malaysia, Mexico, Thailand, Indonesia, Australia, and Russia – which is also one of the reasons why Atomy is receiving much attention.
Jang Su Ping, Yantai’s Party Secretary visited the construction site of Atomy China headquarters while he was inspecting Yantai International Investment Promotion Industrial Park, Korea-China (Yantai) Industrial Park, Free Trade Zone Yantai District, and China-German New Materials Industrial Complex. This also shows that the there is much interest shown towards Atomy.
Operating with Vendor Selling through Internet Shopping Mall
Atomy China has settled in Yantai City, located northeast of Shandong Province. Yantai, located in the northeastern part of the Shandong Peninsula in China, is the closest Chinese city to Korea with a population of about 7 million 60 thousand people. In addition, Yentai acts as a hub linking Beijing with the rest of Northeast Asia’s economy. Also, Forbes, an American business magazine, ranked Yantai as the 5th best city for logistics development in China.
Atomy is operating its businesses with the vendor selling model through its internet shopping mall.
A vendor is a person who has a critical role in the Chinese distribution channel, which is on the same position as that of an agent in Korea. Therefore, one must sign a Vendor Contract with Atomy while having acquired a business license in order to engage in Atomy business in China. Currently, Atomy’s internet shopping mall is still being developed, and it is near completion.
Regarding this issue, a company personnel stated, “Since the delay of acquiring the direct selling permit from last year, the company has entered into the Chinese market through a vendor selling model with its internet shopping mall.” He added, “A joint study was conducted in coordination with various scholars, experts, and legal professionals whether this method was indeed legal and stable. After much review, the company decided to take on this approach.
In fact, in order to engage in direct selling in China, the company must obtain a direct selling permit based on the Direct Selling Management Ordinance. However, the direct selling industry in China is operated through a direct salesperson, a vendor, or through SN electronically.
In order to become a direct seller, one must receive training and pass an exam, and he/she cannot practice their business outside of their sales region. One must also present their direct selling permit before selling products. However, as a vendor, there are no such restrictions, and he/she may sell freely according to the contract with the company. Also, due to lack of various rules and restrictions by the Direct Selling Management Ordinance, the vendor selling model is regarded to contribute to the development of the direct selling industry in China.
In fact, according to the announcement of the Korea-China joint academic conference held in Beijing University in January, all direct selling companies in China that have obtained a license to use direct selling, are mixing their methods with vendor selling. In addition, some companies are engaging in network marketing through vendor selling or SN electronically during the application process of their direct selling permit. In fact, it is estimated that more than 1,000 companies are conducting network marketing activities without applying for a direct selling permit. Most of all, it is said that for companies that are operating their business with a direct selling permit, more than 80% of their sales are generated through vendor selling rather than direct selling methods. Nevertheless, the reason why Chinese direct selling companies desire to obtain a direct selling permit, is because the companies that have acquired the direct selling permit go through strict examinations by the government agencies. The trust of government agencies and consumers is strengthened because of this.
In fact, it is known that a Chinese direct selling permit has very high application standards – even from the submission part of the application, and the evaluation process is also very difficult, which could take up to at least two to three years for the whole application process.
To apply for a direct selling permit, legal conditions under Article 7 of the Direct Selling Management Ordinance and conditions in order to practice the business, have to be met. For the legal condition, foreign companies must have experience of direct selling practices abroad for more than 3 years, and there must be no records of illegal activities within 5 years of applying for the permit. Initially, a company has to pay more than 80 million yuan of capital (about 13.6 billion won) and 20 million yuan (about 3.4 billion won) of deposit. In addition, it is necessary to have an internal system such as disclosing the business for direct selling. For the condition for business practice, products for direct selling operations must be available, and the company must have manufacturing facilities in China.
This process is known to be very tedious and demanding. The application must first be handed to the local government where the applying company is located. Then, it must be submitted to China’s Ministry of Commerce through the provincial government. Afterwards, the submitted application is sent to China’s Mayor General Administration and the Ministry of Public Safety and Security for the investigation of illegal management and crimes. If there are no reasons found for disqualification, then the application can be reviewed and accepted by the Ministry of Commerce.
Because of the demanding and thorough procedure, Chinese direct selling personnel have pointed out that there are many companies that experience difficulties in managing the company after having obtained the direct selling permit. Also, for this reason, the majority of companies that have applied for a direct selling permit, conduct business activities in the form of vendor selling before the permit is granted by the government. When they receive the permit, most companies simply add the direct selling method to their business practice.
Moreover, the issuance of direct selling permits had come to a halt due to the Tsuenzen Crisis last year, which was caused by the company’s illicit activities of falsely advertising their products. Currently, about 100 companies have submitted their applications for a direct selling permit to the Ministry of Commerce, and they are still waiting for the results. However, no one knows when the permit will be issued.
Atomy personnel made a statement regarding this issue, “Atomy China will continue to acquire the direct selling permit. As soon as the company acquires the direct selling permit, it plans to carry out its direct selling business by practicing both vendor selling and direct selling methods.”
Goal to Become Number 1 in the Industry
Atomy is also adding momentum in the construction of its factories, which are necessary for the company to enter into China. In 2017, Atomy China has registered the company and moved into Yantai City, Shandong Province. Currently, the company is working on Atomy’s Production Base project, which is divided into three stages.
The construction of Factory 1 is completed. The production for toothbrushes and kitchenware have already been approved and has already started mass production. Currently, Atomy China’s Vision Center and Health Food Factory, which are the second phase of Atomy’s Production Base, are under construction. Additionally, the third phase of Atomy’s Production Base, which will include liquid-type health food products and Atomy’s Industrial Cluster, will begin construction in 2021. As done in Korea, Atomy China will implement a ‘masstige’ strategy to target the Chinese market by concentrating on products manufactured in the Atomy Production Base located in Yantai City's China-Korea Industrial Complex. Initially, when Atomy’s official shopping mall is launched, the company will launch daily essential products such as skin care, makeup, body care, living, and food related products.
China's beauty market is one of the fastest growing markets in the world, worth 452.6 billion yuan (about 75 trillion 273 billion won). Although a slump in the market has been prolonged due to the long-term effects of COVID-19, the demand for cosmetics is still as strong as ever. Mi-Jin Jo, a researcher at NH Investment & Securities mentioned, “In February, the total exports of cosmetics increased 13%, and exports to China alone increased 16% compared to the previous year,” She added, “There was no Lunar New Year holiday, and the shipping period was longer due to a leap year this February. Even considering all of these factors, the performance was not bad compared to the concerns.” In addition, it is hopeful that the growth of no-store channels such as online businesses and home shopping is on the rise due to the pandemic. Initially, it is expected that the variety of available products in the online shopping mall will be very limited. However, if Atomy China can gradually increase the number of products sold, then it will make an impact in the daily lives of the Chinese consumers.”
Atomy China plans to sell its domestically manufactured products within China while simultaneously seeking out excellent products to source for overseas markets in accordance with the Global Sourcing Global Sales (GSGS) strategy. It is prospected that such sourced products will be available in other Atomy overseas branches, which will contribute to China’s exporting industry. Atomy China has already started looking for an outstanding R&D partnering company to take up such a task. A company personnel said, “Atomy is implementing a ‘One Product One Company Policy’.” He added, “This system of partnering with only one manufacturer for one product not only maintains the product’s quality, but also benefits Atomy, the partnering companies, and the consumers as well. The same system will be implemented in China as well."
In addition, Atomy China’s Vision Center - which will consist of Atomy Corporate Promotion Center, Product Promotion Center, large seminar facilities, and convenience facilities - will introduce Atomy's consumer-focused direct selling model to China. The center will also be used as a training center for the members’ education.
Atomy also plans to provide a principle driven intensive training for the vendors. At the smallest level, the company intends to realize honest management by observing the company's norms, national laws, and regulations. The goal is to regularly conduct this principle driven education to make Atomy’s vendor selling business become the most service-minded organization in China. In addition, for all projects within the Atomy Production Base, local employees will be first hired, and raw materials for the products will be sourced locally. At the same time, Yantai City's specialty products will be introduced to Atomy members worldwide, which will increase the export market of Yantai City.
Above all, Atomy China will develop a long-term plan with its partnering companies to build Atomy’s Industrial Complex in Yantai’s China-Korea Industrial Park, which is expected to contribute to China’s economic development.
Byong-Gwan Park, Atomy China’s Branch Manager stated, “Atomy's ‘masstige’ products and principle driven culture will evoke great repercussions in China.” He also added, “The long-term goal is to become a number 1 company that leads the industry in all aspects including in sales and social contribution.”
Atomy China is currently in its early stages, and it is unclear whether it will be able to settle successfully. However, Atomy's success in the Chinese market will not be an impossible goal if the members adhere to the company guidelines in order to prevent misconduct or violations of the company’s principles. The Chinese market differs from other overseas markets in many ways, including the market environment, regulations, and business systems. If Atomy China conducts business with such considerations in mind, it won’t be that far until Atomy will be able to achieve its ultimate goal of becoming a Distribution Hub that sources excellent products worldwide and makes such products available to the rest of the world.