Friday, January 14, 2011

What is Network Marketing?

Variously termed as network marketing, multi-level marketing (MLM), and referral marketing, direct selling is a business model that differs from the conventional model in that products are marketed and sold directly to consumers away from fixed retail outlets through personal contact via one-to-one demonstration, word-of-mouth marketing, and personal referrals.

Direct selling typically has a hierarchy of multiple levels of sales agents consisting of a single or a group of sales agents at the top with subsequent levels of agents beneath them. The agents earn their multi-level commissions from direct product sales and from the sales generated by the agents beneath them in the hierarchical structure. MLM activities are prevalent in Oman.

Network marketing is often maligned because of its likeness to pyramid schemes in which an individual is offered a distributorship or franchise primarily for enrolling other people into the scheme rather than to market a product. The real profit is earned, not by the sale of the product, but by the sale of distributorships. A few at the top of the pyramid benefit as the commission earned dwindles steeply down the pyramid. Eventually, as the supply of potential investors is exhausted and individuals at the bottom of the pyramid are unable to recruit any followers themselves, the pyramid collapses. As pyramid schemes are a form of fraud in most countries, the legitimacy of MLM is also called into question.

The key criterion to distinguish a legitimate MLM plan from a pyramid scheme seems to be whether the basis for earning commission is the sales made to the distributors and to people outside the plan or the number of distributors recruited. Development of the organisational structure should be based on expansion of the customer base as new distributors are recruited. Modern-day direct selling plans also use the internet as a matrix for making speedy forays into target markets.

Before investing in an MLM plan, the marketing plans, the promoting company’s track record, product details, payment scheme etc. should be carefully studied. As there is no explicit legal provision on MLM under Omani law, the local law implications for an MLM scheme should be examined in terms of:

  • the legal status of the company and the distributors;
  • distribution of the products in the local market;
  • payment mechanism; and
  • customs duty and other tax issues.

In addition, agency law and employment law implications should be thoroughly analyzed for assessing the viability of the scheme.


Wednesday, January 12, 2011

Anti-Dumping Issues with India Rekindled

As the Sultanate continues to further diversify the national economy beyond oil and gas, Omani businesses are discovering that their export success depends not just on their ability to deliver quality products, but also on their ability to navigate the import laws of the foreign countries in which they seek to sell.

As reported recently in the Omani press, India has again imposed anti-dumping duties on imports of polypropylene from Oman. This rekindles an issue that has flared up from time to time over the past several years, as India has imposed these duties on Oman, Saudi Arabia and other polypropylene-producing nations.

Anti-dumping duties, such as India’s, are import taxes that are intended to raise the price of imported goods being sold at below-market costs up to the true market cost of the goods. The premise for anti-dumping laws and duties is that even nations committed to free international trade have the right to protect their domestic industries against foreign sellers that are willing to sell goods at a below-cost basis (ie, “dumping” the goods). There are a variety of reasons why some exporters may be willing to sell their goods at cut-rate prices or even below cost: they may be attempting to build their market share or drive competitors out of business; alternatively, they may be receiving subsidies from their home country governments.

The argument stated above is, in any case, the theoretical economic foundation for anti-dumping duties. Nations also may impose anti-dumping duties to protect the comfortable monopolistic or oligopolistic positions of domestic firms that are well-connected with the nation’s political establishment. In practice, many anti-dumping duties likely involve a mix of economic and political considerations. As Oman’s delegation of government and trade officials heads to India to attempt to resolve this issue, it should provide an opportunity for Omani diplomatic prowess to shine.


Friday, January 7, 2011

Litigation Practice Notes: Costs Borne by Losing Party

One of the hallmarks of Omani court cases is that it is very unlikely that the losing party will be ordered to bear the winning party’s legal costs. Even when the Courts do order the losing party to pay some of the winning party’s legal costs, the amount that the Court imposes is normally de minimis, at approximately the level of RO 100 (approx. US$250). To the best of our knowledge, the highest sum ever ordered by the Omani courts to be borne by the losing party in respect of the winning party’s legal fees was RO 1,000 (approx. US$2,500) – and that was in a case where the winner’s legal fees actually exceeded RO 20,000 (approx. US$50,000).

However, there is a silver lining for winning parties when it comes to litigation costs: the Courts normally order the losing party to bear the entire costs of any Court-appointed expert(s).


Tuesday, January 4, 2011

Legal Developments in Oman - January 3, 2011

Iran Sanctions and Iran-Oman Trade – Part I Oman is a close neighbor and a significant trading partner of the Islamic Republic of Iran, which is located just across the Strait of Hormuz from the Sultanate. Iran accounts for approximately 4% of Oman’s exports. As reported in the Omani press, Oman and Iran recently held the 13th round of the Omani-Iranian Joint Committee to discuss ways to strengthen their trade relationship in areas such as investment, transportation, banking, tourism, mining, oil and gas, petrochemicals, shipping and telecommunications. However, numerous aspects of Omani-Iranian trade are likely to come under stress as a result of the sanctions that have been imposed against Iran in recent months by the international community. Nuclear Program Prompts Sanctions In response to Iran’s nuclear development program, which many suspect of pursuing nuclear weapons, the United Nations (“U.N.”) Security Council, the United States of America, and the European Union have all imposed sanctions relating to trade with Iran. All of these sanctions have the potential to affect Omani companies that do business, directly or indirectly, with Iran. This month we discuss the U.N. Security Council resolution against Iran, Resolution 1929. In next month’s Client Alert, Part II of this article will discuss the sanctions that the United States and the European Union have imposed against Iran. U.N. Security Council Resolution 1929 In recent years, the United States, many European nations, and other countries have grown increasingly alarmed at the prospect of Iran developing nuclear weapons, and have urged the larger international community to take measures to rein in Iran’s nuclear program. On June 9, 2010, the U.N. Security Council passed Resolution 1929, holding Iran in violation of its non-proliferation obligations under international law and instituting a fourth round of sanctions. Resolution 1929 was passed by the Security Council with twelve votes in favor, one abstaining, and two against. Under Chapter VII of the U.N. Charter, Security Council resolutions finding a threat to the peace, such as Resolution 1929, are binding upon member states and require implementation of their provisions via national law. Accordingly, all U.N. member states, including Oman, are obligated to implement and enforce Resolution 1929. Resolution 1929 institutes a number of measures targeting Iranian military and nuclear capabilities, as well as entities that provide financial or transportation services related to Iran’s military or nuclear activities. Among other measures, the resolution seeks to ban the sale of weapons and military equipment to Iran. Furthermore, all U.N. member states are prohibited from allowing Iranian investment in uranium mines, enrichment facilities and other nuclear technology. Finally, Resolution 1929 calls on U.N. member states to ban travel by, and freeze the assets of, specifically named Iranian officials and entities tied to the Iranian government, in particular those connected to the Islamic Revolutionary Guard Corps.