BEST WORLD: Takeaways from discussion on direct-selling prospects in China

Huang Ban Chin, Chief Operating Officer and executive director of Best World International.
Photo by Leong Chan TeikBEST WORLD INTERNATIONAL, a direct-seller of skincare products and health supplements, reported $4.05 million in net profit for FY2014, up 183.7% year-on-year, thanks mainly to strong growth in its Taiwan and Philippines markets.

While the results mark its fourth consecutive year of profit recovery, investors are keenly awaiting a major catalyst -- a direct selling licence in China, for which Best World has applied recently.

This interest was evident at an investor meeting with Best World chief operating officer Huang Ban Chin and Koh Hui (senior group financial controller) last Friday.

Key takeaways:

1. Exports to China: Best World has a foothold in the Chinese market as it exports its products to distribution agents there. In addition, over 20 of Best World Zhejiang's health supplement products are manufactured in China for sale in 10,000 drug stores in all 28 Mainland Chinese provinces.

Export volumes have grown strongly but "this barely scratches the surface of the Chinese market," said Mr Huang. A direct-selling model, by its highly scalable nature, would enable Best World to achieve far stronger sales in China.

(The company reported export sales rising from S$4.0 million in 2013 to S$7.9 m in 2014 but didn't give a breakdown by country. Export sales went to just two countries -- China and Myanmar).

Its China agent and current distributors in China are looking forward to the approval of Best World's direct-selling licence application.

2. Three levels of clearance: Firstly, the authorities of the city which Best World has applied to will scrutinise, and query, the application and the accompanying supporting documents. 

At the second level, provincial authorities have to approve, after which the application is forwarded to Beijing authorities for the final approval. 

Subsequent to that, by the company's request, an announcement can be made on the Ministry of Commerce website. A company may, however, wait until the Ministry has itself inspected and completed its queries, if any, before requesting such an announcement. 

According to a forumer post, based on the experience of several direct-selling companies, the time to final approval after being named on the Ministry of Commerce website could be 4-6 months.

3. Acquisition in China: In early 2014, Best World completed the acquisition of Zhejiang SolidGold, a GMP-certified manufacturer and wholesaler of its proprietary brand of dietary supplements in the PRC. (For details, see press release)

Zhejiang SolidGold -- which has since been renamed Best World (Zhejiang) Pharmaceutical Co., Ltd -- has a manufacturing licence for health supplements. A manufacturing licence is a requisite for a company applying for a direct-selling licence in China.

Best World, which has prior business dealings with Zhejiang SolidGold, decided that the acquisition route is more attractive than building its own manufacturing facility from scratch. With the acquisition, "we have a viable and profitable distribution business in China even before we acquire a direct-selling licence," said Mr Huang.  

4. Triple-channel sales in China: Aside from its current retail store channel, Best World intends to set up an online store.

When it gets its direct-selling licence, Best World would have a third sales platform. All three platforms will sell different brands of Best World products in order to avoid cannibalisation of sales.

5. HK and Taiwan: Key factors that boosted Taiwan sales 72% year-on-year to S$22.7 million in 2014 were strong demand arising from the successful joint execution of marketing strategies by the management and top distributors, and the opening of Best World's first office in Taipei (in addition to its existing Taichung office). It helped also that Best World has been establishing its foothold in Taiwan since 2006.

Sales in HK picked up strongly in 2014 in part because new direct sellers joined Best World to ride on opportunities that would open up to them to sell into China.