Kassaye Amare (BTSC), Asst. Professor
Conceptually, Direct Selling is understood as a business model where products are sold directly to consumers. Similarly, direct selling is not a commercial activity but a channel or a business distribution model whereby sellers and buyers meet to communicate in a simple method (through explanation and demonstration of the product). In the discussions about the business model, direct selling and direct marketing are synonymously used. How is direct marketing understood? According to the South African POPIA (2023), Direct Marketing’ means to ‘approach a data subject either in person or by mail or electronic communication, for the direct or indirect purpose of promoting or offering to supply, in the ordinary course of business, any goods or services …etc.
Direct selling and direct marketing are often confused to be the same thing and are taken as interchangeable terms. Both terms are actually very different from each other. The crucial difference between both methods rests on the mode of publicity: Direct Marketing uses one or more advertising mediums whereas Direct Selling relies on direct engagement with the purchaser to generate a specific response or call to action (KPMG, 2023). From direct selling business thoughts and practices of not using mainstream media, direct selling is the right candidate and preferred in market use.
Direct selling is one of the oldest, most traditional forms of selling globally, involving a direct interaction between the seller and the buyer. It is a successful industry operating in over 100 countries with a market size of more than USD 167 billion (WFDSA, 2014) and currently operates in more than 170 countries with USD 198.8 Billion market share (WFDSA, 2023). One can witness the enormous growth and contribution of the direct selling industry at global level.
The modern direct selling industry can be considered to have pioneered in the USA, with the establishment of Avon in 1886. The introduction of the multi-level marketing compensation plans (MLM plans) opened another chapter in the evolution of direct selling (KPMG, 2024), corollary with digital evolution (skillful use of social media marketing on sites like Facebook, Instagram, and TikTok) of direct selling. Thus, direct selling is a global phenomenon which is geographically wide, demographically diverse and legally supported in its operations.
In the legal environment, various countries follow different legal trajectories in managing the direct selling industry. Asia Pacific is the largest direct selling region in the world, followed by North America and South & Central America. With this background, it is the intention of this article to make cursory look at the legal landscape of direct selling experiences and lessons of different countries in North Americas, Asia – Pacific, and Africa as well Ethiopia.
The Legal Setting in India
Direct selling has emerged as a significant business model, engaging millions of people across India in various forms of self-employment. To regulate this expansive market and ensure fair trading practices, the Indian government implemented the Consumer Protection (Direct Selling) Rules, 2021, under the Consumer Protection Act of 2019. This legislative framework is specifically designed to protect the rights of consumers and to govern the operations of direct-selling companies within the country. The enacted rules embody: key provisions (accountability/ transparency, grievance redressal mechanisms), role of direct selling entities (legal compliance, transparency consumer protection, information provision and fair practices, data protection and grievance redressal) and compliance monitoring.
The implementation of the Direct Selling Rules marks a significant milestone in the evolution of the industry in India. With a focus on transparency, accountability and consumer protection, these rules aim to foster a fair and ethical marketplace where both consumers and direct-selling entities can flourish.
The Legal Setting in Canada
In Canada, direct selling is regulated by various laws and regulations designed to protect consumers and ensure ethical business practices at federal and provincial levels. These are the Federal Consumer Protection legislation and the Provincial and Territorial (thirteen in number) Consumer Protection legislation that govern direct selling (GoC, 2018). For this, Direct Sellers Association – Canada has been instrumental in promoting the interests of direct sellers by providing robust advocacy, education, and support. This has helped to shape the industry’s regulatory landscape, ensuring that direct sellers operate in a marketplace that values fairness and consumer protection. Since its inception in 1954, DSA Canada has been at the forefront of establishing ethical standards and ensuring consumer protection, enhancing the credibility and stability of the direct selling industry (DSA-Canada, 2024).
The Legal Setting in Africa: Kenya and South Africa
In Kenya, direct marketing is regulated in different laws. Thus, there are various legal frameworks that govern direct marketing. These are: Consumer Protection Act, 2012 (provides general consumer protection rights which extend to direct marketing activities), Competition Act, 2010 (ensures fair competition), Kenya Bureau of Standards (direct selling companies are required to adhere to standards set by the Bureau), Companies Act (fulfilling business registration and maintaining good corporate governance) (Kitili, 2023). From the adoption of different legal frameworks, direct marketing in Kenya is not governed by a single law. It is regulated under consumer protection, competition and product standards laws.
In South Africa, direct marketing is regulated by several laws that aim to protect consumers and ensure fair business practices. South Africa’s legal framework includes both specific laws related to direct marketing and broader consumer protection legislation. These laws are: Consumer Protection Act, 2008 (containing provisions of cooling-off period, disclosure requirements), Direct Marketing Association of South Africa (a regulatory body involved in direct marketing and promoting ethical practices within the industry by aligning the Code of Conduct with Consumer Protection Act)
The Consumer Protection Act (CPA) is one of the primary pieces of legislation governing direct selling in South Africa. It provides extensive consumer protection and includes specific provisions relevant to direct selling: Cooling-off period, disclosure requirements (providing clear and understandable information about product, pricing … and unfair trade practices) (GZ, 2008). In addition to the CPA, there are other legal instruments that regulate direct selling; these are: Direct Selling Association of South Africa, Companies and Intellectual Property Commission, National Consumer Commission and Competition Commission. In South Africa, MLM businesses are allowed as long as they comply with the regulations set out by the Competition Commission (Makore, Moyo, Madziba, 2023). Each of the regulatory bodies work hand and glove to ensure legally acceptable direct selling operations. Thus, the direct selling industry is an industry that gives birth to entrepreneurs and makes a critical contribution to the future of South Africa (WFDSA, Blog- 2024).
In Ethiopia, the direct selling industry requires a specific legal framework comparable to other countries. In Ethiopia, there is no specific legal framework that explicitly deals with direct selling trade (AAU Study Report, 2004). The enactment of rules and regulations that govern the direct selling industry is a necessity to bring about change and development individually, organizationally and nationally.
Despite the nonexistence of a specific legal framework for direct selling in Ethiopia, at Africa level, Ethiopia has signed the Abuja Treaty (to form an African Economic Community) in which most signatory states are applying direct selling trade exercises. On top of this, Ethiopia has been working for World Trade Organization (WTO) accession since 2003. Accession to WTO creates business opportunities for member states to compete worldwide. In the same way, the rules and ground experiences of WFDSA attest that the direct selling market enables countries to compete and share the global market. From this, it is understood that the formulation of rules of direct selling is a basic requirement in global, continental and national economic engagements.
The global, continental and national experiences demonstrate that direct selling has immense contribution in the economic and social sectors. The significance of direct selling is evidenced by its substantial economic impact, job creation, and high customer satisfaction. It serves as an entryway for individuals to start their own businesses, offering flexible income options and empowering entrepreneurs. Considering the visible role and influence of direct selling trade, the Ethiopian government has to give due attention towards reviewing the existing legislations. In a nutshell, Ethiopia has to revisit and amend pertinent trade rules.
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