American nutrition supplements company Herbalife Ltd. announced today it has created a “China Growth and Impact Investment Fund” to accelerate growth of its business in China.
The RMB600 million (US$90 million) fund will focus on five key areas: new acquisitions in health and wellness products and companies; expansion of nutrition clubs; increasing and improving technology; providing additional research, learning and training; and public-private partnerships focused on eradicating obesity, the company said.
Herbalife develops, markets and sells nutrition supplements, weight management, sports nutrition and personal-care products via a multi-level marketing scheme.
“China is instrumental in our global growth plans and to fulfill our purpose to make the world healthier and happier," said CEO Rich Goudis. "We are making this significant investment in China to leverage our deep operational expertise in nutrition to accelerate growth as well as helping address some of the most pressing and challenging societal issues such as the rise in obesity.”
Herbalife recorded US$868.8 million in sales from China, accounting for 19.4% of its global sales in 2016. As of December 31, 2016, it had approximately 300,000 sales and independent service providers in China, accounting for 7.5% of its global sales force, according to the company’s annual report.
While direct selling is permitted in China, multi-level marketing is not. The company claims that it has adopted a different business model in China using independent contractors that is in line with Chinese regulations. However, when the Chinese government announced a crackdown on pyramid schemes last August, the company’s shares dropped more than 5%.
In 2016, Herbalife was charged by the Federal Trade Commission for deceiving consumers into believing they could earn substantial money selling diet, nutritional supplement and personal care products. As a result, the firm agreed to pay US$200 million in penalty and will restructure its multi-level marketing business model.