Bribery scandal to hurt business in China

US prosecutors have presented evidence in the investigation into whether cosmetics company Avon Products Inc broke foreign bribery laws, the Wall Street Journal reported Monday, and an expert said yesterday that the scandal would hit Avon's already declining business in China.

A 2005 internal audit report of the company showed that Avon's employees in China had paid hundreds of thousands of dollars to Chinese officials and some third-party consultants in 2005, when Avon was applying for a license to engage in direct sales in China, the newspaper reported. 

Avon Products (China) Co did not respond to a request for comment by the Global Times by press time yesterday.

Avon would be seriously affected by the bribery, especially in its future strategic planning in China, including market expansion, competition strategy and staff recruitment, Jing Linbo, deputy director of the Direct Sales Expert Committee of the China Marketing Association, told the Global Times yesterday.

"Integrity is critical for companies. Enterprises without integrity can hardly win support from employees and consumers, and would even lose talent," Jing noted.

"If Avon was qualified to engage in direct sales in China, it would receive administrative penalty, and responsible people would be punished for the bribery. However, if the company offered a bribe to win a license which it was unqualified to get, the license may be revoked," Liu Jiahui, a lawyer at Beijing-based Derun Law Firm, told the Global Times yesterday.

Avon fired several former China executives connected to the bribery, including general manager and financial officer of the China unit, following its internal probe since 2008.

Avon's performance in China remains weak in recent years, partly due to the bribery. Its sales totaled $229 million in 2010 in China, much less than $3.2 billion of its largest rival Amway. It even reported a loss of $10.8 million the same year in China.

Jing believes it is because Avon has failed to adapt its business model to the challenge of the Internet era and its competitors.

Before Avon's bribery scandal, several international companies were reported to have engaged in bribery in China, including Siemens AG and Daimler AG.

"A number of grey areas have emerged in the process of China's economic restructuring and we need to improve the supervision system to check commercial bribery," Jing noted.

China imposed a ban on direct sales in 1998, but the Ministry of Commerce reopened the sector in 2005.