Marketing firms leave investors in the lurch

By A. Harikumar

ALAPPUZHA, SEPT. 17. Absence of proper laws or an efficient mechanism to regulate the innumerable multi-level marketing companies that market their intangible products like Web sites and online education packages through the Internet, results in mismanagement of funds worth several crores, deposited by the investors.

The investors, or associates as they are known, join these multi-level marketing firms (network marketing companies) by paying an amount to make use of their products and to promote its sales for a commission.

While the amount they pay is for using the product for a fixed period, the company often winds up before the period or abandons the business to start a new one, thus causing huge loss to the associates. Moreover, many fail to pay the promised commission.

The recent cessation of operations of an American network marketing company in India has brought to light several unhealthy trends in the working of some network marketing firms, which, the investors feel, result in irreparable loss to them.

It is reported that the operations of the firm in India, which began in 1999, have been temporarily suspended following an investigation by the Enforcement Directorate on whether the company has violated foreign exchange laws. It is learnt that a huge amount paid by the associates, mostly by way of demand drafts, to the Maharashtra office of the company, has been stuck up following this. The associates are now wary about their investment.

It is learnt that the total number of associates in the firm comes to some two lakhs. The amount to be paid by the customer per package is $125, according to some of the associates. The number of associates from Kerala in this company is reported to be more than 10,000.

Recently, a large number of them formed a forum, with its office in Alappuzha to find a solution to the problems faced by them.

According to Mr. V.A. Joy, Mr. Santosh George and Mr. George Koilpparambil, president, general secretary and convener of the forum, the problems began after the opening of the Maharashtra office which was intended to collect the money. They point out that the associates stopped getting commission for their sales after the opening of this office.

The forum leaders feel that the Indian associate of the company does not have the right to collect money as it does not provide service to the associates. At the same time, they do not have any complaints against the American parent firm. According to the forum, the American company, when contacted, has promised to check whether it had violated Indian rules and correct them, if any.

According to the forum leaders, some Rs 23 crores paid by the associates has been stuck up when the company stopped its operations. Most of the investors are of middle class background and they mobilised funds by selling valuables and taking loans.

The leaders wanted the Government to institute a proper inquiry into the real reasons that led to the closure of the firm and enact laws to control the companies doing network marketing. They urge the authorities to disclose whether the Maharashtra office is a legally constituted one.

Explaining the modus operandi of some of the fake companies, they say these firms lure associates by projecting wonderful business plans offering fabulous returns. The representatives of the company convene meetings at big hotels giving advertisements in newspapers.

It is learnt that many of the investors join them because of the business plan and not because of the utility of the package offered. The companies exploit this attitude. It is learnt that many of the companies even manage to extract money before starting operations and actually form the company with the money thus collected.

Some others, after launching the business, change it abruptly after a few months and ask the associates to join the new plan, resulting in huge loss to them. It is reported that many of these companies in India are not following the ethical standards practised outside. The idea of sharing profit is not practised by many. It is reported that the commissions promised by some companies are greater than their total income.

The investors wanted the Government to constitute a suitable system so that the investors could find whether the company is legally constituted or not. They wanted the Government to specify some sizeable amount as the security to start a company as it would discourage fly by night operators from launching fake companies.

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