The Straits Times / The Business Times News on Best World

Best World eyes China expansion

May 22, 2007
The Business Times

MLM firm sees the Chinese market as most significant for its growth, writes LIN ZHAOWEI

Best World International, a company that has made its name through the direct selling of nutritional supplements, skincare products and healthcare equipment, had a good year in 2006. The multi-level marketing (MLM) company saw net profits last year rise by 40.1 per cent as revenue grew 40 per cent. In September 2006, the company, which was formerly listed on the Sesdaq, was upgraded to the mainboard of the Singapore Exchange. It is the only direct selling company listed here.

Mr Huang: 'We need to focus all our efforts to make sure that (our business in) China is done correctly from day one.'

Best World's executive director Huang Ban Chin credits the success of the company thus far to its strong branding and superior product quality. The company's focus on building a consumer brand has built up a certain level of expectations behind its products. That has ensured consumer loyalty over the years, says Mr Huang.

In particular, he points out that the company's Avance brand of health products has won several branding accolades, including the Superbrands Consumer Choice Award in 2006.

Best World has managed to establish itself in Asia, with 10 regional centres and 54 lifestyle centres in Singapore, Malaysia, Indonesia, Taiwan, Hong Kong, Vietnam, Brunei and Thailand. The company's key markets are Malaysia, Singapore and Indonesia, and it intends to continue growing in these markets by increasing the number of direct sellers and introducing new products.

When Best World expanded into Hong Kong and Taiwan by setting regional centres there last year, it also had its eye on the Chinese market. Mr Huang says a Hong Kong presence is important in breaking into the Southern Chinese market due to its proximity, while many Taiwanese direct sellers have personal contacts in mainland China.

This year, unlike previous years when the company concentrated its efforts to break into two or three new overseas markets, the company is only going to focus on one new market - China. Its first regional centre in China, which was established earlier this year, is expected to start business next month.

'We need to focus all our efforts to make sure that (our business in) China is done correctly from day one. We see it emerging as the most significant market for the company in two to three years,' says Mr Huang.

Interestingly, they have chosen to start in the city of Changsha in Hunan province.

This is a strategic decision, Mr Huang tells BT. Since China liberalised its direct selling sector in 2005, most of the licences have been granted for places like Guangdong, Shanghai and Beijing. Best World wanted to start in a place where no direct selling licences have been granted yet, which may lead to faster approval of their application. Furthermore, the company had established good relations with the provincial officials in Hunan.

'With the Chinese government keen to develop the central provinces of Henan, Hunan, Hubei, Anhui, Shanxi and Jiangxi, they will put in huge resources and build infrastructure very rapidly. It is a great opportunity for us to locate ourselves in the centre of this development. Changsha will be the first driving point in Hunan,' says Mr Huang.

'We expect market acceptance will be higher, competition lower and provincial government support to be high.'

Starting through retail

Best World aims to expand to other provinces within the following two to three years and set up regional centres in each province where it has operations in.

However, the company is set to kickstart its China operations by selling its products through the retail channel instead of its traditional direct selling channel. Mr Huang explains that this is a necessary condition for gaining a direct selling licence in China due to concerns over unscrupulous hit-and-run sellers. Best World intends to set up a sizeable number of retail outlets within a year or two.

The company will then identify customers over time who are keen to join its network, train them and provide them with the necessary knowledge to do direct selling.

Another difference with Best World's Chinese operations is that the Chinese government requires it to set up a manufacturing presence. What the company has been traditionally doing is working strictly with contract manufacturers from places such as the US and South Korea. They have been looking actively for factories to acquire or to take a stake in.

One of the risk factors the company faces is the time it takes to register new products in new markets. Any delays with registration means that products cannot be sold yet. To counter this, the company often starts product registration early, even in markets where it has yet to enter.

'We got our product licences in China way before we even knew where we were going to set up,' says Mr Huang, referring to the company's acquisition of the Vigor brand of health products back in 2005.

Best World is confident of success in the Chinese direct selling market not only because of rising affluence but also the strong 'hunger for business', which Mr Huang says is a vital quality of top direct sellers. According to Xinhua News, China's direct-selling market is expected to reach 80 billion yuan (S$15.9 billion) to 100 billion yuan by 2009.

On the whole, Mr Huang predicts a good performance for the company this year. Referring to figures released last year, he says that the company expects to grow at a compounded annual growth rate of 30 per cent for the next three years, excluding contributions from China. Membership numbers, which are an indicator of how the company is doing, grew by around 11 per cent within the first four months of 2007.

CIMB raised Best World's target price to $1.15 in February and maintained an 'outperform' call 'on the back of cash-generative business and attractive yield backing of 5.0 per cent for FY07', while SBI E2-Capital Securities has set its target price at $1.34 on a 'buy' rating. Best World's shares fell 1 per cent to close at $1.02 yesterday.