Avon 2014 Annual Report Download - page 20

PART I
Our ability to conduct business, particularly in international markets, may be affected by
political, legal, tax and regulatory risks.
Our ability to achieve growth, particularly in new international markets, and to improve operations, particularly in our existing international
markets, is exposed to various risks, including:
• the possibility that a foreign government might ban, halt or severely restrict our business, including our primary method of direct-selling;
• the possibility that local civil unrest, economic or political instability, bureaucratic delays, changes in macro-economic conditions, changes
in diplomatic or trade relationships (including any sanctions, restrictions and other responses such as those related to Russia and Ukraine)
or other uncertainties might disrupt our operations in an international market;
• the lack of well-established or reliable legal systems in certain areas where we operate;
• the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities, including exposure to tax assessments
without prior notice or the opportunity to review the basis for any such assessments in certain jurisdictions;
• the possibility that a government authority might impose legal, tax or other financial burdens on our Representatives, as direct sellers, or
on Avon, due, for example, to the structure of our operations in various markets, or additional taxes on our products, including in Brazil;
and
• the possibility that a government authority might challenge the status of our Representatives as independent contractors or impose
employment or social taxes on our Representatives.
We are also subject to the adoption, interpretation and enforcement by governmental agencies in the U.S. (including on federal, state and
local levels) and abroad of other laws, rules, regulations or policies, including any changes thereto, such as restrictions on trade, competition,
manufacturing, license and permit requirements, import and export license requirements, privacy and data protection laws, anti-corruption
laws, environmental laws, records and information management, tariffs and taxes, laws relating to the sourcing of “conflict minerals,”
health care reform requirements such as the Patient Protection and Affordable Healthcare Act, and regulation of our brochures, product
claims or ingredients, which may require us to adjust our operations and systems in certain markets where we do business. For example, we
are subject to government review of our brochures in Venezuela. Another example is privacy and data protection laws which are subject to
frequently changing rules and regulations, and which may vary among the various jurisdictions where we operate. If we are unable to
adhere to or successfully implement processes in response to changing regulatory requirements, our business and/or reputation may be
adversely affected. We cannot predict with certainty the outcome or the impact that pending or future legislative and regulatory changes
may have on our business in the future.
We face intense competition and can make no assurances about our ability to overcome our
competitive challenges.
We face intense competition from competing products in each of our lines of business, in both the domestic and international markets.
Worldwide, we compete against products sold to consumers in a number of distribution methods, including direct selling, through the
Internet, and through mass market retail and prestige retail channels. We also face increasing direct-selling and retail competition in our
developing and emerging markets, particularly Brazil.
Within the direct-selling channel, we compete on a regional, and often country-by-country, basis with our direct-selling competitors. There
are a number of direct-selling companies that sell product lines similar to ours, some of which also have worldwide operations and compete
with us globally. Unlike a typical consumer packaged goods (“CPG”) company which operates within a broad-based consumer pool, direct
sellers compete for representative or entrepreneurial talent by providing a more competitive earnings opportunity or “better deal” than that
offered by the competition. Providing a compelling earnings opportunity for our Representatives is as critical as developing and marketing
new and innovative products. Therefore, in contrast to typical CPG companies, we must first compete for a limited pool of Representatives
before we reach the ultimate consumer.
Representatives are attracted to a direct seller by competitive earnings opportunities, often through what are commonly known as “field
incentives” in the direct-selling industry. Competitors devote substantial effort to finding out the effectiveness of such incentives so that they
can invest in incentives that are the most cost-effective or produce the better payback. As one of the largest and oldest beauty direct sellers
globally, Avon’s business model and strategies are often highly sought after, particularly by smaller and more nimble competitors who seek
to capitalize on our investment and experience. As a result, we are subject to significant competition for the recruitment of Representatives
from other direct-selling or network marketing organizations. It is therefore continually necessary to innovate and enhance our direct-selling
and service model as well as to recruit and retain new Representatives. If we are unable to do so, our business will be adversely affected.