Best World

[holymage]

Boon, thank you for sharing.

Actually I am not invested in Best World nor have I performed any due diligence. The reason I am curious about Best World is because:
1) Best World's exposive growth rate
2) I watched Betting on Zero (Bill Ackman on Herbalife) sometime back
3) Most importantly, I learnt very recently that someone I know has about 30% of his portfolio in Best World. !!

As I do not foresee myself having the spare time nor interest to do deep research on Best World, I thought of tapping into fellow VBs to get some valuable insight. And as such, mentioned by someone, indeed I do not understand the MLM business, nor know the difference between "export" and DS model. Please pardon my incompetence. Is anyone kind enough to educate me?

With regards to investing, I believe it is healthy for investors to have a dose of skeptism. One of the biggest risk of S-Chips is fraud. One of the biggest risk of AEM is key customer risk (Is Intel really the key customer?). And one of the biggest risk of countless MLMs is the wrong focus on business model (recruitment instead of product). There are already plentiful of assumptions being made in investing decisions. Rather than assume, if I can gather from anecdotal evidence to evaluate the risks and eliminate assumptions, it will definitely improve my research analysis and emotional control. If being "too naïve" can provide me with a comparative edge, then it shall be.

And so I thought of revenue per registered distributor/member as a metric to track. Feels better to include dormant distributors.
If BWL focus on member recruitment and there is no real demand for its products, the company will experience high turnover of its members. Revenue per member will more or less be stagnant as members will likely to purchase only the starter set. There will be a tipping point whereby this metric will indicate the reality.
Beauty products are consumables. If BWL beauty products are indeed good, there is likely recurring sales from the same consumer. Disregarding the incompetent distributors, distributors should be able to increase their individual sales over time as they build their sales contacts/channels gradually.
It would even be better if this metric could be evaluated per country.

One interesting thing that stood out to me from Boon's post, BWL's sales is seasonal. Q1 being the weakest, while Q4 being the strongest.
Why are sales of beauty products seasonal? This is interesting to learn the reason behind.

Oh, and I am not referring to BWL in China only.
And, come to think of it, I suppose the best way to determine their business model is to scuttlebutt and conduct interviews, or even pretending and try to sign up as a distributor.

[moneyspinner]

If as what you have said that BWL has been engaging in DS activities for years in China using the MLM model, then how are these activities reported as these apparently are not reflected anywhere in the financials?

Ha-ha ! If all ground activities as depicted in the the convention videos "matched" or is consistent with what has been reported in the financials, we wouldn't be having this discussion in the first place, would we?

Question is: "do they match ?"
________________________________________________________________________________________________________________________

Hi Boon, 

Further to the discussion on the illegality issue of direct sales by BWL in China, I have raised the issue with BWL.  Append below, their response.  Let's discuss further.

Quote
1.       Is Best World in compliant with the legal requirements required of Direct Selling companies operating in China?
 

·        All DR’s Secret products freely sold in China by Dr’s Secret outlets/workshops come with individual import permit numbers (进口批文). 

·        All DR’s Secret service outlets/workshops in China are operationally independent and do not have any contractual agreement with Best World and any of its subsidiaries. 

·        It is common market practice for foreign brand owners to recognize the sales achievement of their foreign agents, especially during their incentive trips. Strategically, we confer these distributors with relevant ranks based on their sales achievements. Although their qualification mechanisms are different, we chose to recognize their achievement together with BWL leaders from other markets from day one (which is not difficult). This would be just one of our several deliberate efforts to inculcate them with the attitude of a direct selling leader as early as possible, so we could integrate them as seamlessly as possible into our direct selling operations before converting our China business into Direct Selling. As a late mover in applying for our license, we have had the opportunity to refer to other companies as case studies for ourselves. As such, our strategy is not only to obtain our license within the shortest period possible, but also to address integration from the onset to ensure undisrupted transition moving from a retail model to a full fledge direct selling company when the time comes. 

 
2.       Has Best World obtained the Direct Selling License to conduct such operations in China?

·         Best World already has the necessary license to import our products into China.

·         All DR’s Secret outlets/workshops being independent entities, will be fully responsible for the necessary licenses and permits they need to hold in order to operate.

·         Our current operation does not require any license and our direct selling license will only be applicable when we convert our operations into a direct selling model. 

 
3.        How is Best World positioning itself to meet the online challenge of eCommerce in China as mentioned by the article?

Preparations for our online strategy commenced as early as December 2015. This led to the launch of our Taiwan Android apps in November 2016 and our Taiwan iOS apps in May 2017. The app, aptly named BWL Mobile, at its first phase of launch is an online store platform for order and fulfilment purpose only. Today, almost half of the sales generated in TW is ordered and fulfilled through the BWL Mobile. The significance of this is that the online store platform architecture has been completely designed and coded in-house. As such we will be able to port this over to our Wechat 微店immediately after we have converted to Direct Selling. 

In March 2017, we launched our first content in our WeChat 微信公众平台 (WeChat ID: BWL-official). This official account serves as an information platform for our customers & distributors and a platform for original content marketing. Since launched, our editorial team have been generating contents on a weekly basis to be shared with our followers. Today, a skin care related article would garner more than 10,000 views upon posting. We have almost 14,000 followers to date which are mostly customers and distributors.

On April 2017, we have also launched our 微博 (全美世界 BestWorld Lifestyle) a micro blogging website akin to a hybrid of sites such as Facebook and Twitter, which serves to share content with DRs Secret outlets and workshop owners. We have at least 1000 followers so far for this platform.

Finally, upon conversion to the Direct Selling model, we will execute a phase by phase strategy where we will link up all the above functions with the addition of new functions to support our Direct Selling operations such as, membership registration, online store (similar to our iOS & Andriod app BWL mobile) with payment gateway and order fulfilment etc.

Unquote 

 

[JanQuin]

Thanks Boon for your sharing and highlighting the PD issue. Like chia, I was uncomfortable with it.

So like moneyspinner, I also sent a query to their IR last Friday and just received the same response (Q1) on why is there PD for China export model.

In a nutshell, management meant it for recognition and for early integration to the direct sale model.

I appreciated their response but still not that comfortable to hold too many shares.

Divested 75% before management's response and keeping 25% to see how things work out.

[Boon]

@ moneyspinner/ Janquin

Recognizing “skills in developing networks of downlines – using MLM based criteria" - of “parties” with whom you have no contractual relationship - to facilitate their seamless integration into your China Single-Level-Marketing (SLM) model – for which you have no track records and experience in operating one.
 
Does it make sense? 
 
More to come…………….
_____________________________________________________________________________________________

[Squirrel]

If as what you have said that BWL has been engaging in DS activities for years in China using the MLM model, then how are these activities reported as these apparently are not reflected anywhere in the financials?

Ha-ha ! If all ground activities as depicted in the the convention videos "matched" or is consistent with what has been reported in the financials, we wouldn't be having this discussion in the first place, would we?

Question is: "do they match ?"
________________________________________________________________________________________________________________________

Hi Boon, 

Further to the discussion on the illegality issue of direct sales by BWL in China, I have raised the issue with BWL.  Append below, their response.  Let's discuss further.

Quote
1.       Is Best World in compliant with the legal requirements required of Direct Selling companies operating in China?
 

·        All DR’s Secret products freely sold in China by Dr’s Secret outlets/workshops come with individual import permit numbers (进口批文). 

·        All DR’s Secret service outlets/workshops in China are operationally independent and do not have any contractual agreement with Best World and any of its subsidiaries. 

·        It is common market practice for foreign brand owners to recognize the sales achievement of their foreign agents, especially during their incentive trips. Strategically, we confer these distributors with relevant ranks based on their sales achievements. Although their qualification mechanisms are different, we chose to recognize their achievement together with BWL leaders from other markets from day one (which is not difficult). This would be just one of our several deliberate efforts to inculcate them with the attitude of a direct selling leader as early as possible, so we could integrate them as seamlessly as possible into our direct selling operations before converting our China business into Direct Selling. As a late mover in applying for our license, we have had the opportunity to refer to other companies as case studies for ourselves. As such, our strategy is not only to obtain our license within the shortest period possible, but also to address integration from the onset to ensure undisrupted transition moving from a retail model to a full fledge direct selling company when the time comes. 

 
2.       Has Best World obtained the Direct Selling License to conduct such operations in China?

·         Best World already has the necessary license to import our products into China.

·         All DR’s Secret outlets/workshops being independent entities, will be fully responsible for the necessary licenses and permits they need to hold in order to operate.

·         Our current operation does not require any license and our direct selling license will only be applicable when we convert our operations into a direct selling model. 

 
3.        How is Best World positioning itself to meet the online challenge of eCommerce in China as mentioned by the article?

Preparations for our online strategy commenced as early as December 2015. This led to the launch of our Taiwan Android apps in November 2016 and our Taiwan iOS apps in May 2017. The app, aptly named BWL Mobile, at its first phase of launch is an online store platform for order and fulfilment purpose only. Today, almost half of the sales generated in TW is ordered and fulfilled through the BWL Mobile. The significance of this is that the online store platform architecture has been completely designed and coded in-house. As such we will be able to port this over to our Wechat 微店immediately after we have converted to Direct Selling. 

In March 2017, we launched our first content in our WeChat 微信公众平台 (WeChat ID: BWL-official). This official account serves as an information platform for our customers & distributors and a platform for original content marketing. Since launched, our editorial team have been generating contents on a weekly basis to be shared with our followers. Today, a skin care related article would garner more than 10,000 views upon posting. We have almost 14,000 followers to date which are mostly customers and distributors.

On April 2017, we have also launched our 微博 (全美世界 BestWorld Lifestyle) a micro blogging website akin to a hybrid of sites such as Facebook and Twitter, which serves to share content with DRs Secret outlets and workshop owners. We have at least 1000 followers so far for this platform.

Finally, upon conversion to the Direct Selling model, we will execute a phase by phase strategy where we will link up all the above functions with the addition of new functions to support our Direct Selling operations such as, membership registration, online store (similar to our iOS & Andriod app BWL mobile) with payment gateway and order fulfilment etc.

Unquote 

 

From their response, they seem to be implying that

1) the company has done nothing wrong on their part
2) they have no control over how operationally their agents does business
3) the awards only serve to recognize the achievement of the foreign agents (does this actually equate to "export agent" in their annual reports?)

And yet from the videos, the Chinese distributors and staff
1) repeatedly reference the success of implementing the "663 system" that is used in Taiwan distribution business
2) refer to themselves as joining the BWL business
3) make references to each other as direct/indirect 上级 and 下级 distributors (does this term infer downlines?)
4) having the top producer in Taiwan as an international mentor to DMJ

It's interesting that they are attesting that the outlets/workshops are operationally independent while allowing the SDA network to make use of their brand name (not Dr Secret but BWL itself) and promote their multi level 663 system. How would this aid a transfer to a single level "door to door salesman" type of business which is the only kind allowed under direct selling law in China (correct me if my interpretation of the rules by MOFCOM is wrong).

Perhaps more pointed questions needs to be asked to BW

1) is what Chao Yue Ti Xi doing legal?
2) which segment does sales revenue by DMJ's network go under Best World's financial reporting? Direct selling or Export model?
3) by further obtaining licenses, would these distributors still be using the 663 system advocated by Dora and how would this be relevant in the Direct Selling model allowable in China? Or would these stay as "non direct selling business" in BW's eyes as they have yet to report any Direct selling revenue so far and Dr Secret is not yet permitted as part of the allowable direct selling merchandise under their direct selling license

It's great that the company is responding to queries. Perhaps the analysts covering the company should be questioned as well. They would have a much bigger say and more indepth reach to the company's workings. They might get better answers than the vaguely worded replies from BW to Janquin and moneyspinner.

As usual, please do your own due diligence.

[JanQuin]

"2) which segment does sales revenue by DMJ's network go under Best World's financial reporting? Direct selling or Export model?"

Should be under export model. Quoting the full reply from management below. The last 2 para are not in the response they gave to moneyspinner.

"All DRs Secret products freely sold in China by DRs Secret outlets/workshops are operationally independent and does not have any contractual agreement with Best World and any of its subsidiaries. It is common market practice for foreign brand owners to recognize the sales achievement of their foreign agents, especially during their incentive trips.

Strategically, we confer these distributors with relevant rank based on their sales achievements. Although their qualification mechanisms are different, we chose to recognize their achievement together with BWL leaders from other markets from day one (which is not difficult). This would be just one of our several deliberate efforts to inculcate them with the attitude of a direct selling leader as early as possible, so we could integrate them as seamlessly as possible into our direct selling operations before converting our China business into Direct Selling. As a late mover in applying for our license, we have had the opportunity to refer to other companies as case studies for ourselves. As such, our strategy is not only to obtain our license within the shortest period possible, but also to address integration from the onset to ensure undisrupted transition moving from a retail model to a full fledge direct selling company when the time comes.

Hence, due to the difference in the qualification mechanisms, China sales are independent from Taiwan sales. Best World already has the necessary license to import our products into China. All DRs Secret outlets/workshops being independent entities, will be fully responsible for the necessary licenses and permits they need to hold in order to operate.

Our direct selling license will only be applicable when we convert our operations into a direct selling model."

[JanQuin]

@Boon,

Does it make sense? I don't know. It depends on how one sees it.
Logically, it might not.
Does it make business sense? Since such practices are common and acceptable in China?

With these information, individual will have to weight their own risk-reward and decide if they want to continue to be vested with BWL.

[moneyspinner]

@Boon,

Does it make sense? I don't know. It depends on how one sees it.
Logically, it might not.
Does it make business sense? Since such practices are common and acceptable in China?

With these information, individual will have to weight their own risk-reward and decide if they want to continue to be vested with BWL.

In any case, the fact that the China national is awarded the first SDA outperforming the Taiwanese distributor in such a short period speaks volumes of BWL's performance in China.  Think we should see pretty good sales performance by BWL in China in the coming quarters.

[Boon]

It looks like all videos on recognition of China PD, GD, SD etc from the 2017 Convention have disappeared from the web.
Soon the two videos on DMJ - SDA would disappear as well, I guess.
Cleaned out by BWI
Ha-ha!
What to WORRY if there is nothing to hide?
______________________________________________________________________________________________________________________

[Millionfaith]

Hi,

I am not exactly familiar with direct selling in China, but I am aware of negativity regarding direct selling/MLM. I am a distributor of Amway and was involved in overseas market expansion (Vietnam) in the late 2000s. 

For those who has no knowledge on MLM/direct selling, I have to inform you guys that there will be a lot of doubts (on the business system, the product, the people etc) in a direct selling/ MLM business. This is mostly due to some wrong doing from distributors who has no business integrity (sales people who pressured friends to buy, join etc etc). However, it is very difficult for the HQ to control the "bad" distributors. Hence for the faint hearted who invested in BW, you need to be prepared for the journey. Consider the risk and reward investing in a direct selling business carefully, especially for a not as established Singapore brand.

It would be better to understand BW marketing plan (China) vs Amway vs .... vs.... Compare and see if BW is practicing what the big guys have been doing all these while and if these are legit. If not, why such system can be done in China.

If China is too far away and too complex to understand, let's move back to Singapore market....Amway, Nuskin herbal life...are these not MLMs in SG? A little search led to MLM IS PROHIBITED IN SINGAPORE........Chapter 190 of Singapore Law "An Act to prohibit the registration of businesses that are designed to promote multi-level marketing schemes or arrangements or pyramid selling schemes or arrangements in relation to the distribution and sale of commodities; to prohibit the incorporation or registration of companies which propose to promote multi-level marketing schemes or arrangements or pyramid selling schemes or arrangements in relation to the distribution and sale of commodities and to make it unlawful for any person to promote such schemes or arrangements and to provide for matters connected therewith" (link: http://statutes.agc.gov.sg/aol/search/di...%3A0;rec=0)

Clearly, Amway is a multi level commission system. I have been collecting the commission all the way down...So what exactly is MLM marketing?? I also blur now.

Based on the response from the IR posted by some VBs, I can understand where the company is coming from. Of course, everyone may have a different opinion if this should be done. Momentum is very important in a direct selling business, hence by recognizing leaders simulate the business greatly (like any motivation talks, spur success desire). Once the momentum over, this is where the downward spiral of the revenue (for eg Phillippines). Can the momentum continues for a while longer, it depends on the effectiveness of the products, the promotion effort by the company etc etc. 4Q is normally highest because of promotion and probably seasonal activities (I think I read someone doubted if skin care products sales be consistent). For example, during seasonal periods, distributors come out with gift pack, hamper etc.  

@Boon & Squirrel, your views and concerns certainly help investors to put in actual perspective of the business, but it would be better if you guys also state if you are vested or not, and to someone who's sceptical to general views, for them to evaluate your analysis from the position you are standing. 

I am stating my view, based on what I understand on a direct selling (MLM?) business, from exposure in Amway. I may be wrong also. By the way, this is my first post IN VB, and I am not a skilled investor , hence please do your own due diligence.

I am vested, since 2009.