Avon 2015 Annual Report Download - page 25

• 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 Foreign 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 abroad and in the U.S. (including on federal,
state and local levels) 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, from time to time, local governments and others question the legal status of Representatives or impose burdens inconsistent
with their status as independent contractors, often in regard to possible coverage under social benefit laws that would require us (and, in
most instances, the Representatives) to make regular contributions to government social benefit funds. 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. For instance, in 2015, the Court of Justice of the European Union (“E.U.”) invalidated the Safe Harbor framework for the
transfer of personal data from the E.U. to the U.S. In 2016, the E.U. and the U.S. reached an agreement on a new framework, the details of
which are not yet publicly available.
If we are unable to address these matters in a satisfactory manner, or adhere to or successfully implement processes in response to changing
regulatory requirements, our business, costs 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 the markets we operate. 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 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
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