Neways Closed In Japan

Harmful Ingredients CampaignTriggers Three Month Suspension

March 10th, 2008Japan's Ministry of Economy, Trade and Industry (METI), a federal regulatory agency comparable to the U.S. Federal Trade Commission (FTC), has placed a three month moratorium on all recruiting activity within Neways Japan. Product fulfillment to existing reps and customers will be maintained. Besides halting all enrollment of new distributors within Japan, the Utah based company must also recall and discontinue all promotional materials (DVDs, audio CDs, brochures, etc.) containing what the METI has deemed "false claims". The company must also notify all Japanese distributors and customers that the claims were false.

The primary focus of the METI action relates to the "harmful ingredients" campaign that Neways has employed worldwide for many years. The METI has deemed this criticisms of the products sold by competing companies to be unfair, misleading and unwarranted. According to METI, over the past three years Neways distributors were found aggressively attacking competing products by making untrue claims about the health dangers of various common ingredients within them (including the risk of contracting cancer).

METI alleges that Neways Japan has violated the "Act on Specified Commercial Transactions" designed to prevent marketers from lying to increase sales.

According to news reports, the National Consumer Affairs Center of Japan (similar to a Consumer Reports/Better Business Bureau hybrid organization) said it has received more than 1,000 complaints annually concerning the sales tactics of Neways reps in Japan.

Neways Japan launched in September 2000 and is (was) one of Japan's three largest network business companies. According to news reports at the time of Neways' sale to Golden Gate Capital in November of 2006, more than half of their annual $750 million in sales (ending fiscal year of August, 2006) came from Japan (the rest coming from almost two dozen other countries). Today sales in Japan are over $584 million (60 billion yen).

Neways has released a statement saying it takes the METI order seriously and that it will set up an in-house ethics committee and will try to increase its compliance.

Here is a recent news story related to the action:

http://www.japantoday.com/jp/news/428730

Commentary:

The play this is getting in Japan is extraordinary. Television shows comparable to our own 20/20 and 60 Minutes have done extensive segments on the government action, and there are numerous stories in the major print media there. MLM Company owners there are telling me there is a ripple effect going on throughout the Japanese MLM industry where other companies are now coming under more scrutiny. It's especially unfortunate that this has tainted the Japanese market, which has, at least until now, been a relatively friendly one towards MLM.

I've had two of the most prominent television segments translated for me and found at lease a slim silver lining to this otherwise dark cloud - there is little discussion of illegal pyramiding. It appears that about 25% of the focus is on exaggerated income claims, and the other 75% concerns the "harmful ingredients" propaganda that has been the basis of Neways' marketing efforts for over a decade. Based on the claims made by the Neways reps who were quoted or captured on video, they are no more over-zealous or misleading in their claims of "harmful ingredients" in competitor products than anything I've heard presented here in the U.S..

As some of you long time readers already know, I've always felt that this "harmful ingredients" campaign was bogus. In fact, I researched this subject for over 6 months and wrote a detailed exposé on this "harmful ingredients" hogwash back in 2000. You can find it here:

http://www.marketwaveinc.com/articles/spaghetti.asp

Neways was purchased by GGC, who also owns Herbalife, who's personal care products contain some of these allegedly "harmful" ingredients. I had hoped that this new dynamic would encourage Neways to tone down their attacks on competitor's product formulations, but apparently it did not. This is unfortunate on multiple levels. Besides being, in my opinion, a marketing tactic based on ignorance and deceit, and one that unjustly maligns other MLM companies in an industry where there's already far to much unjust maligning going on, it's also completely unnecessary. I've tried Neways products, and they're great! So good, in fact, that they could easily sell on their own merits, without having to convince anyone they should be purchased by process of elimination.

Needless to say, a three month ban on recruiting, a recall of virtually all marketing materials, and being forced to publicly declare many aspects of your marketing campaign to be fraudulent, is not going to bode well for Neways going forward in Japan, or anywhere considering that was where the majority of their sales were coming from. Besides this hit, Neways has also suffered from a significant exodus of distributors over to rival Sisel (recently launched by the brothers Mower and dad Tom, who had originally founded Neways), which recent law suits will not likely halt. Since Sisel also employs the "harmful ingredients" tactic, and operates in Japan as well, it will be interesting to see how this plays out. Maybe they'll both start focusing on why you'll love their products, rather than why everyone else's might kill you.

Len Clements

MarketWave, Inc.