The Taiwan-born founder of Sunrider talks about his plans to build a business to survive the generations
Dr Tei-Fu Chen, the founder of California-based Sunrider is on a whistlestop tour of Asia, passing through Hong Kong to pass on a message of corporate renewal to the herbal-products maker’s staff and sales agents.
“The reason I’m here, is to try to teach our people to drop the old thinking and embrace the new thinking,” says the sprightly looking septuagenarian. “We established Sunrider 36 years ago, and most of the people who started with us are like me – they’re getting old. Every company faces this problem: people get old, they retire, you have the new people coming up.”
The question was how to regenerate the company’s business model and ensure that it survives and prospers in the global and connected world economy, Chen said.
For Sunrider, the process of renewal was made more urgent by a downturn in sales over recent years for the privately held company, which has been trying to expand beyond its direct-marketing model to embrace a more diverse and resilient sales model. The company still makes the bulk of its global revenue through so-called multi-level marketing, though has introduced a more transparent compensation structure for its network of agents in more than 40 countries.
The direct-selling industry – and in particular the subset known as multi-level marketing – has suffered from poor public perception in recent years. That’s especially so in some key markets such as China, where authorities have wrestled with the model since at least 1998, imposing and easing bans up until recent restrictions imposed late last year.
Multi-level refers to a marketing strategy where the company’s sales force is compensated not only for sales they generate, but also for the sales of the other people that they recruit. Opaque contractual terms, gouging of agents and other bad industry practices have all created problems in the industry, Chen said.
“When you talk about multi-level, people think, ‘oh, that’s just a Ponzi scheme.’ And I agree with them in many cases,” he said. In China, Sunrider opted to shift out of direct selling some time ago.
“The Chinese government didn’t really understand the business; they didn’t feel comfortable. So we decided to move out,” he said. “So we started a store-based model, using authorized agents.” – Think Apple resellers vs the flagship store.
Sunrider has spent time to rebuild the brand. Chen said they also decided the time was right to invest in new manufacturing capacity, including the state-of-the art plants in Los Angeles.
“When sales start to slow down, most people will start to cut back – staff, cut inventory… but we think that’s the best time for us to grow our manufacturing,” Chen said. “If you want to sell ice cream, it’s best to prepare in the winter time, and get everything ready.”
Chen said there are signs the new investments and business models are working. China based online retail stores brought in US$2.5 million in their first month of operations in May, It’s a different market segment for us since we’ve had physical stores in China since 1997, he said.
Benefits of oversight...
Part of Sunrider’s differentiated message comes from the choice of manufacturing locations, Chen said.
“California is the worst state to have manufacturing … I mean the worst. But one thing about it, because of high regulation, because they scrutinize us, we make sure, if we can cope with it, it means our product is good,” he said.
Sunrider prides itself on a design and manufacturing process that’s more akin to pharmaceuticals – with rigorous testing and processing of herbal ingredients to deliver concentrated doses of effective ingredients. Part of that rests on deep knowledge of the ingredients – and not chasing unethical fads.
On the downside, investments into new products, manufacturing processes and plant and machinery are costly. At the same time, returns are hard to protect because of the difficulty in securing patents for products made from already known natural ingredients, Chen said.
So the reason now for expanding manufacturing outside of the U.S.? To be closer to new markets and so more agile and responsive to changing consumers tastes, perhaps? To find a cheaper tax base and labor force? To create an integrated, seamless supply chain?
“So people don’t know our secrets,” Chen said, with a chuckle. “They all manufacture a certain part of the product.
“It’s just like magic: once you know the trick it’s simple. But to think about the trick is the hard part.”
Sunrider’s model is based on what Chen says are the four principle desires of all people.
The first is freedom from health problems.
“If health is one, the rest are zero,” he said. “Without health, everything goes back to zero.”
Second, financial freedom. Number three, time-freedom. Number four, freedom from worry.
“We offer all these four things to people.”
First, let’s start with the product: Sunrider sells herbal teas, supplements and household products that it says are healthy and free from harmful chemicals found in everyday items such as toothpaste. Now those claims have, over the years, brought direct sellers into conflict with regulators. Still, that may be the natural consequence for any pioneering consumer products company operating in a stringent and effective national regulatory framework.
Second, there’s the finances: Sunrider’s business model is based on the networks and marketing of its customers: you buy the products because you like them, but you get the chance to sell them on to your friends, colleagues and neighbors. (Little wonder that Sunrider was originally founded in Utah, home of that other global leader in the evangelizing mission of direct marketing – the Mormon church, of which Chen became a member while still in Taiwan.)
Because Sunrider’s sales people work when they want and as hard as they want, they have more control over how they spend their time, Chen says.
The company also rides on the wave of the global spread of the middle classes – this group is forecast to reach 3.2 billion people by 2020 and 4.9 billion by 2030, with the bulk of growth coming from Asia, the OECD says.
“When people are poor, like in China, 30, 40 years ago, people were just trying to survive, they want to have food in their stomachs,” said Chen. “Now, people in China say, if you’re poor, you ride a bicycle to work. If you’re rich, you ride a bicycle in the bedroom. Can you imagine in the old days, nobody would ever imagine you’d ride a bicycle in your bedroom?”
“Once society started to move forward, people got started to get some money, the second thing, they want to have better health and be younger looking,” he said. “Who doesn’t want to have better energy? Who doesn’t want to look younger?”
Echoing Victor Kiam, an entrepreneur from an earlier era who famously liked his Remington razor so much he “bought the company,” Chen says his decision to buy London’s St Ermin’s hotel was based on a similar instinct: “It’s very simple. Since I travel around the world, I like to stay in my own hotel.”
Chen says he enjoys dining in the Bazaar restaurant at the SLS Beverly Hills hotel. So Sunrider bought the property for US$195 million in 2015.
It’s hard to know how seriously to take the claim, delivered with Chen’s wry smile. Nonetheless, Chen has made real estate into a core arm of the group’s strategy.
“For example,” he says, gesturing around him, “this office: bought it.” We were speaking at Sunrider’s newly outfitted office in Mongkok’s Langham Place – a hotel, commercial and retail complex that rises from the area’s bustling and crowded streets of old low-rise apartment blocks and street-level stores specializing in construction materials. Through the window we have a sweeping and stunning vista of the Kowloon mountains, beyond which lie the New Territories and the border with Southern China.
The group also has hotels in Beijing and Taiwan, and owns its own factories in California, Singapore, Taiwan and China.