Overseas Corporations: Laws and Markets

International Business

The international company to be featured in this paper is Avon International. Avon is a cosmetics company located in about seventy-five countries in five geographical locations: Latin America, North America, Central, Eastern and Western Europe, Middle East and Africa, and Asia Pacific. In addition to cosmetics (fragrances, skin care, personal care and color cosmetics), Avon also produces fashion items (fashion jewelry, watches, apparel, footwear, accessories and children's products) and products for the home (gift and decorative products, house wares, entertainment and leisure products and nutritional produces) (Forbes, 2014).

Avon was founded in 1886 in the United States and has 36,700 employees; Avon has annual sales of around $9.98 billion and is ranked #70 in Forbes' list of "World's Most Powerful Brands" (Forbes, 2014).

The company is unique in that it doesn't generally sell its products in department stores or other retail venues. It hires women to go door-to-door and use direct sales methods so that when the product that a customer has ordered arrives, it is delivered by the sales woman, a smart way to establish a long-term sales relationship.

Avon says it is "committed to empowering women," and that two-thirds of the population that lives under the poverty line are women (www.avoncompany.com). Hence, when a woman in a third world country (or in a poverty area of an industrial nation) becomes a successful sales person she has a "lifeline" in earnings opportunities.

Question Two: There are so many countries in which Avon has a business presence it would be impossible to present even a few of them in this paper. So South Africa and China were selected as examples of Avon internationally. In South Africa Avon has to abide by local laws, the same as home-grown businesses. Avon claims that a woman who sells Avon products for 16 months "or more" earns enough to "manage their household expenses" (Avon South Africa). The market system in South Africa is a free / open market where foreign companies are welcomed but must adhere to the legal systems in South Africa. "The Companies Act" has all the legal particulars that go along with operating a for-profit company in South Africa. The "memorandum of incorporation" (MOI) of a private company working in South Africa must prohibit the offering of "shares" to the public (ENSafrica, 2013). A private company like Avon doesn't have to appoint an independent auditor but it is obviously wise to do so because the South African government expects honesty when it comes to profits and taxes.

Foreign workers are not required to have a "separate residence permit," as the work permit they are issued gives them the right to live where they wish to live. The South African Labour Relations Act of 1995 (LRA) governs how employees must be treated by any company and foreign entities are also obliged to follow the LRA guidelines. Under the LRA employees are protected against "unfair dismissal and unfair labour practices," and the LRA regulates disputes between workers and employers, and it regulates strikes and lockouts.

China, meanwhile, is a tightly controlled communist country but it has opened up its market to foreign investment. China has its "12th Five-Year Plan" which, in summary seeks to: a) protect the environment and improve energy efficiency; b) transition to an economy driven by domestic consumption instead of exports; c) develop "Seven priority industries" (new and renewable energy sources); new IT; energy conservation; biotechnology; clean energy cars (KPMG). Also, China can: deny residency permits for companies not making enough money (or seeming to not pay sufficient taxes); companies can be penalized for buying "so much of their raw material from outside China" (Harris, 2014).

Question Three: the political risks in South Africa are significant, according to David Jones (Yahoo News). There are reports of "black-on-white murder" as an estimated "70,000 whites have been killed by blacks since 1995" (Jones, 2013). And the number of white farmers has dropped "by two-thirds," Jones writes. The basic nature of Avon's sales strategies -- door-to-door -- could put sales people in harm's way. As a consultant I would emphasize that the existing tensions call for great care when going into neighborhoods that might be sources of violence. The political risks in China are different. According to a report in Bloomberg Businessweek, 60% of businesses operating in China say the country "…has become a less welcoming place to do business"; that is up from 41% in 2013 (Roberts, 2014). Apple's iPhone is now called a threat to national security (because of a location-tracking app) and Volkswagen and Fiat / Chrysler recently were fined $46 million for violations of pricing policies (Roberts). As a consultant, I would advise companies thinking about establishing their brand in China that "Big Brother" is watching you and waiting for you to make a mistake that could cost millions.

Question Four: The stakeholders in South Africa are the women who sell Avon, the consumers, those that benefit from corporate taxes in South Africa, and the shareholders back in the United States. The stakeholders in China are the sales people, the management, the consumers and the communist government, which oversees audits and taxes. It is tough being a foreign company in China because of censorship, limited use of the Internet, and because Chinese values are so vastly different than those in the United States.