TITLE:A STUDY ON THE FACTORS THAT INFLUENCE THE INDEPENDENCE

DISTRIBUTORS TO JOIN GUAN FANG INTERNATIONAL MARKETING SDN

BHD (GFI)

BACKGROUND OF STUDY

Guan Fang International Marketing Sdn Bhd or famously known as GFI is one of the company
that is license under the direct selling company in Malaysia. Since the beginning of its business,
GFI has managed to attract independent distributors form far and wide, regardless of gender,
experience and professions. The GFI independent distributors encompasses industry
professionals, employees, employers, self-start entrepreneurs, homemakers, full-timers, part-
timers, and generally anyone from any background imaginable, making GFI a truly diverse
business platform. Since the month of GFI commencement which is in May 2009, the number of
independent distributor that registers under GFI has increase from 777 members to 12,018 in
December 2009. This has shown that the independent distributor acceptance towards GFI
business is good even though there are some people who perceive the MLM industry as the most
controversial industry in the modern business. The purpose of this research paper is to study on
the factors that influence these independent distributors to join GFI.

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1.0 INTRODUCTION

Guan Fang International (GFI)

GFI is conceived and managed by Guan Fang International Marketing (M) Sdn Bhd (“Guan
Fang International”), a fully-licensed Malaysia-based network marketing entity founded by
professionals with decades of hands-on experience in the sector, and who collectively possess a
genuine passion to better lives and enrich the communities.

Strategically located in the Shah Alam Technology Park of Malaysia, Guan Fang International
oversees all regional operations of GFI through its Malaysian headquarters as well as from
associates / offices located in countries boasting GFI’s footprint. This geographic presence links
the GFI network effectively, allowing members to communicate and carry out their businesses
speedily and without fuss.

Guan Fang International’s inherent marketing capabilities are complemented by the financial
strength and robust support of its public-listed affiliate Envair Holding Berhad (“Envair”). An
established technology giant with its very own state-of-the-art facilities, Envair provides the
platform and muscles for GFI to control its entire supply chain; specifically in conducting
research & development and creating exceptional in-house products.

Due to Envair’s dynamic support, GFI is also one of the few network-marketing brandnames in
the region to boast its own production capabilities, which translates to more-effective costing,
better-managed distributions, and generally greater returns to members of the GFI programme.

Today, Guan Fang International and Envair continue to work hand-in-hand to take the GFI
brandname to higher grounds. This synergistic collaboration, encompassing both marketing and
production aspects, has been the foundation of GFI’s rapid expansion plan; laying a solid
pathway for GFI’s active seeking of business opportunities in both the local and international
arenas.

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2.0 LITERATURE REVIEW

MLM (Multi-level Marketing)

Direct selling is a method of distribution of consumer goods involving face -to-face contact
between salesperson and buyer away from a fixed business location (Bernstein 1984; Wotruba
1992;Braulio Alturas,2006). Although it is a centuries-old set practice and is the bread and butter
of a number of successful organizations today, there was a paucity of published empirical
research on direct selling until the late 1980s.

Multi-level marketing is one of the direct selling methods. According to the Fair Trade Laws,
multi-level marketing (MLM) is defined as marketing activities in which participants pay a
certain amount of fees in order to gain the membership from a sales or promotional who ran its
members the right to sell/distribute the product/service, to recruit other new members and to
obtain economic rewards.

Today MLM is recognized throughout the world as a legitimate way for products to be moved
into the market place whilst the individuals that make the referrals and distribute the products,
are rewarded for their efforts. Even recognized and substantial conventional companies are
embracing Network Marketing as an effective way to expand their customer bases. It is
estimated that well in excess of 80 billion dollars in global business turnover is channeled
through Network Marketing businesses (Samina M. Saifuddin,Mohammad Nazmul Huq and Abu
Hena Reza Hasana , 2006) MLM companies deals with variety of products from chocolates and
sweets through to petrol and cars with a gamut of products and services in between.

Virtually all products and services, especially nutritional and health products, can be more
effectively marketed by networking companies. The underlying success beneath the concept of
network marketing is in a world full of marketing hype, consumers have become quite immune
to the continual clamor of exaggerated claims and slick advertising gimmicks. Yet if a close
friend or acquaintance shares his own experience with a particular product or service- all the

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advertising glitz and glamour and countless expenditure counts for nothing compared to a simple
word of mouth referral.

There is an intensive effort to give multi-level marketing a credibility and dignity. The people
involved in multi-level marketing are depicted as a new and exciting breed of people (Poe, 1995;
Brian Bloch,1996). The multi-level marketing industry sells an idea that appeal across the board
to many, which one is in a business (King and Robinson, 2000).

The normal rhetoric includes “You have personal independence, benefit personally but have a
downline that works for you and with you” or “You are indeed in business for yourself, but not
by yourself.” Distributors believe that the down line that they build is their pipeline that will
pump the money, 24 hours a day, 12 months a year, year after year whether they continue to
work or not (Hedges, 2001). MLM distributors are hooked on the prospect of “working from
home, wearing the most comfortable clothes in their (your) closet, taking a break whenever they
want to and still earning a substantial income in a now respectable profession” (King and
Robinson, 2000).

Perception on MLM (Multi-level Marketing)

Despite its impressive growth, MLM (multi-level marketing) suffers from a negative reputation
in some quarters. In the past, many business ventures that used network marketing techniques
were actually pyramid schemes. These illegal scams promised participants the chance to make
huge amounts of money while doing very little work, provided they made a sizeable initial
investment (Ziwica, Kristin, 1999). The people who started the pyramid scheme were paid off by
those who joined later, but most participants did not see any return on their investment. An MLM
(multi-level marketing) is more likely to be offering a legitimate business opportunity if it has
low startup costs; charges a reasonable price for products; does not require sales representatives
to purchase a lot of inventory; allows sales representatives to return unsold merchandise; and
provides the majority of sales representatives' income from the sale of products( Roha, Ronaleen
R,1997)

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Even legitimate MLM businesses have been criticized for employing hard-sell methods. "To
critics and turned-off erstwhile customers, MLM conjures up images of being hounded by door-
to-door salesmen or pressured into hosting or attending 'parties' where pushy salespeople hawk
products of dubious value amid peer pressure to buy something. And, to top it off, you're
subjected to an evangelical pitch to join the downline."( Roha, Ronaleen R,1997) Finally, some
critics note that most people who become involved in network marketing businesses do not make
much money. A 1991 study by the Direct Selling Association found that 90 percent of MLM
sales representatives made less than $5,000 per year (Gitomer, Jeffrey, 2000)

Factors that Influence Independent Distributor to Join Multi-Level Marketing

i. Business Development

A network marketing/multi-level marketing (MLM) is a great opportunity for people to have

their first business, their first sales role, etc. It's a business, and you are a business owner.
Network marketing is just a business model, and it really amounts to "micro-franchising". Its
upside is that it has a very low cost of entry, with the potential for exceptional revenue, and there
are those who achieve that (Scott Allen, 2008). Other than that in the Multi –level marketing
industry, some of the company offers great marketing plan where the networker sees it as the
motivation for them to be successful in their business and with that, they’ll have the courage to
widen up their network and people. When this happen, the networkers will be able to set their
own goals and strategy in order to achieve their mission and vision in their own business.

Committing to network marketing to generate additional income may be the most inexpensive
business training available. Entrepreneurs who want to build businesses outside of the
mainstream multi-level marketing (MLM) will b able to learn the following skills, which apply
to all aspects of building an effective business:

• Developing a Customer Base

• Retaining Customers
• Explaining Benefits of Goods and Services
• Recognizing co-branding opportunities
• Adaptive Management Strategies

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 • Internet Based Marketing Strategies
• Presentation Skills (Jule Rizardo,2009

ii. Financial Independence & Incentives

According to the definition set by Wikipedia, Financial independence is a term generally used
to describe the state of having sufficient personal wealth to live indefinitely without having to
work actively for basic necessities. In the case of many individuals whose financial
circumstances fit this description, their assets generate income that is greater than their expenses.
So,financial independence means the ability to manage your money in such a way that you have
sufficient funds to live your chosen lifestyle without assistance from others. In other words,
enough money to meet all your needs whether you work or not, because a job is really assistance
from someone else — your employer (John Cummuta, 2008)

In the Multi-level marketing scenario, financial independence is seen as the opportunity that
provides passive or residual income that offers the possibility of a high level of income, which is
not attainable by those who only enjoy linear income (Kiyosaki, 2004; Hedges, 2001). It is a
business that promises financial independence and personal freedom with the power of
leveraging, by focusing on the ability to earn residual income or passive income rather than a
linear income (Kiyosaki, 2004; Samina M. Saifuddin,Mohammad Nazmul Huq and Abu Hena
Reza Hasana , 2006).

According to the business dictionary, incentives is define as the inducement or supplemental

reward that serves as a motivational device for a desired action or behavior. A firm practicing
network marketing or multi-level marketing business (MLM) offers a rewards program that
encourages its salespersons or independent distributor to build their own sales teams (downline)
and also be responsible for the promotion and sale of the company’s products. As an incentive
for the salespersons/distributors, the organization pays a commission based on the sales of the
distributor as well as those of the people below him (Coughlan and Grayson, 1998; and Msweli
and Sargaent, 2001). Individual salespersons of a multi-level marketing company do not merely
earn from their own sales but also enjoy an overriding commission from the sales of those

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recruited by him (Bloch, 1996). Salespersons will be rewarded according to their performance
and their contribution to the profitability of the company (Biggart, 1990; Peter Tan,2000).

iii. Product Quality and Credibility

The term quality means different things to different people. In the Multi-level marketing, its
promote wider views (Gitlow et al., 1989 or Ozeki and Asaka, 1990), which include the
expectations that the product or service being delivered 1) meets customer standards, 2) meets
and fulfills customer needs, 3) meets customer expectations, and 4) will meet unanticipated
future needs and aspirations. Still others simply ignore definitions and say "I'll know quality
when I see it." It seems that we all 'know' or 'feel' somehow what quality is.

A product or service that exceeds our preconceived idea about the quality of that product or
service is likely to be judged as having "high quality." It is equally clear that the best of a group
of bad products is not likely to be perceived as a quality product. In multi-level marketing
(MLM) industry,a strong product line is one of the most important aspects of the business varied
with a common feel. It is extremely difficult to be credible when selling a water filter, and then a
minute later, a pair of shoes. A company should have quality products that are remembered long
after any price or volume incentives are offered (Der-Fa Robert Chen, 2007)

iv. Social Benefits

Network marketing offers social networking at its finest- an opportunity to grow a business and
nurture new relationships. Many people enter network marketing to create multiple streams of
income, and realize they have found a great group of new friends. The most supportive type of
friends who are genuinely interested in the team's growth and in providing training and support
to new marketers. After all, the success of the group is co-dependent on all of the members of the
network (Jule Rizardo,2009)

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Building any new business requires time and cooperation. Network marketers/ independent
distributor quickly learn the following social benefits when doing multi-level marketing
business:

• Working across social barriers to achieve team goals

• Developing conversational skills
• Overcoming social anxiety or public speaking fear

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3.0 PROBLEM STATEMENT

The Multi-Level Marketing (MLM) business is perhaps one of the most controversial industries
in modern commerce. Even it is perceived as the most controversial industries, but ironically the
number of independent distributors register under Guan Fang International (GFI) had increase
from time to time.

4.0 RESEARCH OBJECTIVE

The main objective of doing this study is to:

 To investigate the main factors that influence the independent distributor to join
Guan Fang International Marketing Sdn Bhd (GFI)
 Provide some ideas or recommendation to Guan Fang International Marketing Sdn Bhd
(GFI) to improve their service to the independent distributors

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5.0 THEORETICAL FRAMEWORK

Business Development

Financial Independence &

Incentives
Factors that influence
independent distributors to
join Guan Fang International
Social Benefits (GFI)

Product Quality & Credibility

Independence Variables Dependent Variable

Theoretical Framework is a network of connections among the various factors identified earlier.
From the theoretical framework, which is the meaningful integration of all the information
gathered, several hypotheses can be generated and tested to determine if the data support them.
Above diagram is the theoretical framework for the study on the factors that influence the
independent distributors to join Guan Fang International.

Independence variables are variables or alternative those are manipulated and whose effects are
measured and compared. The independent variables in this research are business development,
financial independent and incentive, social benefits (personal freedom), product quality and
credibility. While dependent variable is that measure the effect of that independent variable.

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6.0 HYPOTHESIS

H0 - There is no relationship between business development and the factors that influence
independent distributor to joins Guan Fang International (GFI)

H1 - There is relationship between business development and the factors that influence
independent distributor to joins Guan Fang International (GFI)

H0 - There is no relationship between financial independent and incentives, and the factors
that influence independent distributor to joins Guan Fang International (GFI)

H2 - There is relationship between financial independent and incentives, and the factors that
influence independent distributor to joins Guan Fang International (GFI)

H0 - There is no relationship between social benefits and the factors that influence
independent distributor to joins Guan Fang International (GFI)

H3 - There is relationship between social benefits and the factors that influence independent
distributor to joins Guan Fang International (GFI)

H0 - There is no relationship between product quality and credibility, and the factors that
influence independent distributor to joins Guan Fang International (GFI)

H4 - There is relationship between product quality and credibility, and the factors that
influence independent distributor to joins Guan Fang International (GFI)

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7.0 RESEARCH METHODOLOGY

This study will utilize both the exploratory and the conclusive research designs. The exploratory
will help to define the research problem more precisely and give understanding to the direction
of the research.

7.1 The sampling Design Process.

7.1.1 Target Population

The target population is the independent distributors who had joined Guan Fang
International specifically.

7.1.2 Sampling Size

A sample size of 150 independent distributors will be selected randomly for the
purpose of this study.

7.1.3 Sampling Technique

The sampling method used is the convenience sampling. Respondents are selected
because they happen to be in the right place and at the right time.

7.2 Data Collection Method

Data collection will be done from 26 February until 26 March 2010. The data will be
collected through face-to-face interview with the selected respondents at the areas
mentioned earlier. With this method, it will reduce the tendency of misunderstanding
when answering the questionnaire. Besides, this will minimize the number error in data
collection. The questionnaire will be given to the independent distributors that come to
the Guan Fang International headquarters and during roadshows or company events.

Primary Data

Primary data is gathered and assembled specifically for the project at hand.
Primary data can be gathered during the personal interview and questionnaire
distribution.

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7.3 Questionnaire

 The questionnaire will be distributed to the respondent (independent distributor) to

bring out information.

 The questionnaire is design into (3) three different section which consists of Part
A, Part B and Part C.

o Part A - questions on their position and level of achievement in Guan Fang

International

o Part B- questions on reasons for joining Guan Fang International

o Part C- questions on respondent’s demographics

 Scaling technique – A 5-point Likert scale response (i.e., 1 = strongly disagree, 2 =

disagree, 3 = neutral, 4 = agree and 5 = strongly agree) will be used in the
questionnaire.

 Multiple-Choice Question- There will be few multiple-choice questions for the

respondent to answer, where the respondent will be asked to choose only one of
the alternatives given.

 Open-ended question- The respondents have to answer the open-ended question by

writing down their own answer or comment based on the question stated in the
questionnaire.

7.3.1 Interview

Interview session will be conducted randomly to employee and the independent

distributors in Guan Fang International. The objective of the interview is to
measure and identify beginning issues related to the study.

Secondary Data

Secondary data is also one type of data collection in any research work.
Secondary data are the data that have been previously collected for some project
other than the one at hand. Secondary data can be used for research work,
multipurpose need by researcher and can be used in different situations. This type

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 of data can be collected inexpensively, quickly and not need much time to
research for it. The data gathered for this research are obtained from several
journals, article, research from Internet and Guan Fang International company
profile.

7.4 Data Processing, Analysis and Interpretation

All the data collected from the respondents will be processed and analyzed by using
Statistical Package for Social Science (SPSS- for Windows) version 14.0. The analysis
using this software is for the purpose of forecasting and testing the economies theories.

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8.0 SIGNIFICANCE OF STUDY

This study is expected to benefit both Guan Fang International (GFI) and to the researcher to
identifying the factors that influence the independent distributor to join Guan Fang International
(GFI).

 Company (Guan Fang International (GFI) )

The outcomes that came from this research can be the guideline for company to
see the important factors that makes the independent distributors to join Guan
Fang International.

 Researcher
The valuable opportunity to them is it opens the appropriate way to explore multi-
level marketing (MLM) industry. Upon completion of this study, the people that
conduct the research would have to exercise all knowledge and experience
relating to multi-level marketing (MLM) industry which gives the best outcome
for satisfying users’ preferences.

 Public
The information in this research can be used by the public especially for the
student to be used as reference for their upcoming research or etc.

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9.0 RESEARCH CONSTRAINT

Some problems that may be associated with the conduct of this research are as follows:

• Time
The limited time given undertakes this project will make this study to be more
focused on pertinent issue rather than the global issue.

• Limited Budget
There are limited budget that can be spend to finish the proposal where this make
the process of preparing the proposal is not going smoothly.

• Lack of cooperation
A few of the respondents may not give good cooperation by during the
questionnaire distribution session. Accurate information still can be gathered from
the other respondents.

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 10.0 SCHEDULE

SUBJECT DATE

Submission of Final Proposal 22nd February 2010 – 26th February 2010

Presentation of Findings 10th April 2010 – 18th April 2010

Final Draft Submission 19th April 2010 – 26th April 2010

Final Report Submission 3rd May 2010 – 7th May 2010

11.0 RESEARCH BUDGET

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Items Cost

A4 Paper (2 Binds) RM 30.00

Car Fuel RM 100.00

Internet surfing RM 68.00

Photocopy RM 250.00

Printing RM100.00

Total RM 548.00

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