GUO Yi

［Abstract］Researches on marketing channels constitute an important part of marketing research.With the change of the competitive situations in the markets and the development of the marketing theories，the focus of the marketing channels research changed from emphasizing on efficiency and benefits to power and conflicts，and then to relationship and alliance as well as networking.Most of the previous marketing channel studies have applied an efficiency-based task environment perspective and largely overlooked a legitimacy-based institutional environment approach in studying the process of channel governance.In the paper，I propose that marketing channel is a kind of institutional arrangement and inter-organizational relationship in the nature.So companies must pay attention to the degree of acceptance and agreement of their decisions and behaviors when they are governing marketing channels.The paper first reviews previous theories and studies on marketing channel governance and inter-organizational relationships.The author absorbs valuable ideas from them and proposes a theoretical framework and some propositions，and explains and tests the framework and the propositions through two case studies.

［摘要］营销渠道研究是营销研究的一个重要组成部分。随着市场中竞争性环境的变化以及营销理论的发展，营销渠道研究的关注点从强调效率和利益转向强调权力和冲突，进而转向联网以及关系和联盟。在研究渠道治理过程方面，以往的营销渠道研究大多采用以效率为基础的任务环境视角，而在很大程度上忽视了以合理性为基础的制度环境方法。本文提出，营销渠道从本质上说是一种制度安排和跨组织关系。因此，企业在治理营销渠道时，必须关注其决策和行为的接受度与认可度。本文先是回顾了营销渠道治理和跨组织关系方面的理论与研究，进而从中吸收有价值的观点，提出了理论框架和一些命题，并通过两则案例研究进行解释和检验。

［Key words］Marketing Channels ;Inter-Organizational Power；The In stitutional Environment

［关键词］营销渠道；跨组织能力；制度环境

［中图分类号］F712［文献标识码］A［文章编号］1005-6432（2014）5-0008-10

1INTRODUCTION

Wilkinson(2001)divides studies about marketing channels into three stages：channel structures，channel behaviors，and channel relationships.In the first stage，researchers tried to find out ways of optimizing the efficiencies and benefits of managing marketing channels.In the second stage，researchers tried to unveil the power and conflict between channel members.In the third stage，researchers tried to find out ways of reducing or eliminating opportunistic behaviors through mutual commitment and honest.Actually，some scholars had begun to study marketing channels from the perspective of network governance.

In most of these studies，many scholars have used the political economy framework(Achrol，Reve and Stern，1983；Frazier，1999；Hutt，Mokwa and Shapiro，1986，Stern and Reve，1980).Scholars implicitly have ascribed active choice behavior to channel members while stressing efficiency in governing channel relationships.They have considered the implications of environmental uncertainty or dependence on environmental resources for dyadic channel relationships(such as conflicts and cooperation，Dwyer，Schurr and Oh，1987)，power balances(such as power-dependence relationships，Frazier，1983)，and relationships with entities outside the dyads(such as regulators and other actors，Dutta，Heide and Bergen，1999)from traditional economic efficiency perspectives.In the process，scholars have largely overlooked the ubiquitous influences of the institutional environments and how inter-organizational relationships such as marketing channels are embedded in the larger social context(Granovetter，1985；Grewal & Dharwadkar，2002).Recent advances in organization theory suggest that organizations strive for both economic fitness，which emphasizes the competition for scarce resources and underscores the importance of the task environment，and social fitness，which stresses the pursuit of legitimacy in the eyes of important societal stakeholders and pinpoint the significance of the institutional environment.

The term governance has been broadly defined as a “mode of organizing transactions”(Williamson and Ouchi，1981).A more precise delineation was offered by Palay(1984)，who defines it as “a shorthand expression of the institutional framework in which contracts are initiated，negotiated，monitored，modified and terminated.” Heide(1994)states that governance is a multidimensional phenomenon that encompasses the initiation，termination and ongoing relationship maintenance between a set of parties.

In this paper，the authors propose that marketing channels are inter-organizational relationships in the nature.When companies are governing marketing channels，they are actually governing inter-organizational relationships.This is an institutional process.The primary measuring standard of the governing effects is legitimacy，but not the traditional efficiency.

2THEORETICAL BACKGROUNDS AND MODELInstitutional theory holds that a company餾 institutional environment is made up of the norms and values of its stakeholders，which include customers，investors，guilds，trustee councils，governments，and partners.According to institutional theory，a company adopts some structure，behavior or process to satisfy other stakeholders.This behavior of seeking external recognition is the result of the institutional environment餾 influence.Therefore，legitimacy becomes a key concept in institutional theory.

Suchman(1995)“a generalized assumption or perception of the actions of an entity are desirable，proper，and appropriate within some socially constructed norms，values，beliefs and definitions.” Legitimacy requires companies behaviors to be consistent with public cognition and emotional expectations.That is，companies will adopt those structures，behaviors，and processes that are considered as effective，appropriate，and popular.Accordingly，companies are not rationally pursuing efficiency but conforming to external rules and norms，so as to make their behaviors be accepted，understood，and recognized by other stakeholders.Therefore，gaining legitimacy is of great importance to companies that operate within the institutional environment.In order to gain legitimacy，many aspects of organizational structures and behaviors are designed and performed to be accepted by the institutional environment but not to pursue efficiency.

Marketing channels governance is a part of a company餾 operations.The decisions，behaviors，and processes of governing channels must be consistent with the company餾 strategy.They all have to be accepted，understood，and recognized by other stakeholders.This is an institutionalized process.Therefore，gaining legitimacy of their channel-governing decisions，behaviors，and processes is also of great importance.Market channel won餿 be one of the sources of sustained competitive advantages if the decisions，behaviors，and process are not legitimate.

2.1Inter-Organizational Studies

Inter-Organizational institutions

Institutional theory insists that we should study organizations environments so as to better study and understand companies behaviors and explain organizational phenomena(Meyer & Rowen，1977).Institutional theory divides environments into institutional environments and task environment，which have different influence on organizations.Organizations should take into account the task environment and the institutional environment as well，since organizations are always influenced by the institutional environments and they are institutionalized organizations.Institutional theory stresses that organizations are able to take initiatives to change their environments so as to better survive and develop.According to institutional theory，a company is operating within a social framework of norms and values.Their economic behaviors are constrained by technology，information，income，and social constructs as well.Being consistent with social expectations is beneficial to their survival and successes(Baum and Oliver，1991；Carroll and Hannan，1989；DiMaggio and Powell，1983；Oliver，1991).Organizations improve their legitimacy，resources，and surviving capabilities through following up so as to gain benefits.

2.2Inter-Organizational Imitations

Inter-organizational imitation of practices and structures plays a central role in several theories of organizational actions(Haunschild，1993).For example，theories of organizational learning argue that organizations copy other organizations，letting others absorb the costs of experimentation or discovery(Dutton & Freedman，1985；Levitt & March，1988；Lant & Mezias，1990).Strategic choice theories suggest that imitation can be a strategic response to competitor activities，so second-movers take the advantages of the fact that the risks associated with product development have been absorbed by first-movers(Lieberman & Montgomery，1988).Institutionalization theory argues that organizations copy practices that adopted by others in an effort to gain legitimacy(DiMaggio & Powell，1983).

It is self-evident that inter-organizational imitations are of great importance.But how do organizations imitate？ Haunschild & Miner(1997)indicate three modes of inter-organizational imitation，including frequency-based imitation，trait-based imitation，and outcome-based imitation.With frequency-based imitation，organizations tend to imitate actions that have been taken by large numbers of other organizations.Several theoretical rationales have been marshaled to support frequency imitation，and considerable empirical evidence documents its occurrence.According to early institutionalresearch，firms adopt practices and structures that many other firms have adopted because when many firms adopt a practice，the legitimacy of that practice is enhanced(Tolbert and Zucker，1983；DiMaggio and Powell，1983).This effect can occur because the desire for legitimacy leads firms to adopt legitimate practices(Meyer and Rowan，1977).In trait-based imitation，organizations may also selectively imitate practices that have been used by some subset of other organizations.Arguments for trail imitation have generally emphasized the importance of social processes.Early institutional theorists(e.g.，DiMaggio and Powell，1983)suggested that firms adopt the practices of “legitimate” organizations and that legitimacy is inferred from traits like large size and success.Organizations may also seek to acquire status by imitating higher-status organizations(Fombrun and Shanley，1990)，which are usually large and successful.With outcome-based imitation，organizations use the outcomes that occur after other organizations use a practice or structure to determine whether they should adopt.Thus，neither the number nor the characteristics of others doing practice “A” is important.Instead，it is the apparent outcomes that occur after other organizations do “A” that determines whether “A” will be imitated.Practices or structures that produced positive outcomes for others will be imitated；those that produced negative outcomes will be avoided.Selective imitation does not arise from features of other users but from perceived consequences of the practice.Companies are not limited to only one of the three modes.During the competition，the imitation mode they will apply varies with their competitors and decisions.

2.3Inter-Organizational Power and Dependence

The most comprehensive theoretical statement on inter-organizational power and dependence was a 1978 book by Pfeffer and Salancik，which presented a detailed theoretical discussion as well as the results of a number of the authors earlier empirical works.Pfeffer and Salancik began with four key premises：organizations are first and foremost concerned with survival；in order to survive they require resources which they cannot generate internally；as a consequence，organizations must interact with elements in the environment on which they are depend，which often include other organizations；survival is therefore based on an organization餾 manage its relations with other organizations.Because organizations depend on elements in their environment for resources，those groups can make claims on them，and organizations may find themselves attempting to satisfy the concerns of these environmental constituencies.According to Pfeffer and Salancik，there are three crucial factors that determine to which one organization depends on another：the importance of the resource to the organization餾 survival，the extent to which a particular group inside or outside the organization has access to or discretion over use of the resource，and the extent to which alternative sources of the resource exist.

One important feature of Pfeffer and Salancik餾 discussion is their point that dependence can be mutual.Just as one organization can depend on another，two organizations can simultaneously depend on each other.Power becomes unequal when one organization餾 dependence exceeds the other餾.

3CONCLUSION

In order to survive organizations should first be recognized by other organizations or stakeholders.That means they should acquire legitimacy first.Only after acquiring legitimacy can organizations create efficiency through operating resources they obtained from their interaction with the task environment and facilitate organizations sustained development.Therefore，organizations should first consider the legitimacy of their decisions，behaviors，and processes in their operations，and then pursue efficiency.In this way，organizations can survive and develop in the long run.

Since late 1990s，some scholars have begun to elaborate and argue the institutional environment餾 influences(Handelman and Arnold，1999；Homburg，Workman，and Krohmer，1999；McFarland，Bloodgood，and Payan，2004).Grewal and Dharwadkar(2002)indicate that the institutional environment influences the channel attitudes，behaviors，processes，and structures.They proposed a theoretical framework and logic for studying the institutional environment餾 influence on dyadic channel relationships.They developed three institutional processes(regulating，validating，and habitualizing)and their underlying mechanisms according to the various attributes of the institutions and legitimacies，and elaborate on how these processes might influence channel relationships.Reacting to Grewal and Dharwadkar餾 calling for empirical studies on the institutional environment in marketing channels，McFarland，Bloodgood，and Payan(2004)applied institutional theory to examine channel reaction behaviors in supply chains，attempting to explain why fellow channel members imitate one another餾 behaviors.The study explains how the institutional environment influence channel behaviors and processes.They argued that institutional isomorphism can provide a rationale for the take-for-granted channel behaviors，which are not able to be explained with economic rationality.

FIGURE 1ORGANIZATIONS SURVIVAL AND DEVELOPMENT

INSTITUTIONAL PERSPECTIVES ON MARKETING CHANNEL GOVERNANCE

In order to study the roles of the institutional environment in marketing channels，we should first know what the institutional environment in marketing channels is.Based on institutional theory(Meyer & Rowan，1977；DiMaggio & Powell，1983；Scott，1987)，we divide institutions into regulatory institutions，normative institutions，and cognitive institutions.We can describe the rules，expectations，and habitual behaviors by dividing the three institutions(Scott & Meyer，1983).But the power and acting space the organizations get are double-edged and locked-in.On the one hand，organizations must conform to rules，expectations，and habitual behaviors required by the institutional environment，which might be a constraint.On the other hand，organizations can tactically use the institutional environment as a resource and an entry barrier as well.Therefore，the institutional environment might be an extraordinary competitive advantage.

3.1Legitimacy in Marketing Channels

In the past decades，sociologists have offered a number of definitions of legitimacy.Pfeffer and his colleagues stressed that legitimacy is an evaluation，but highlighted cultural conformity rather than overt self-justification(Downing & Pfeffer，1975；Pfeffer，1981；Pfeffer & Salancik，1978).In this view，legitimacy connotes “congruence between the social values associated with or implied by organizational activities and the norms of acceptable behavior in the larger social context”(Downing & Pfeffer，1975).Meyer and Scott(Meyer & Scott，1983；Scott，1991)also considered legitimacy as stemming from congruence between the organization and its cultural environment.However，they focused more on the cognitive than the evaluative side(Suchman，1995).Organizations are legitimate when they are understandable，rather than they are desirable.“Organizational legitimacy refers to the extent to which the array of established cultural accounts provide explanations for an organization餾 existence”(Meyer & Scott，1983b:201；DiMaggio & Powell，1991).Suchman餾 definition of legitimacy includes the both aspects.He defines legitimacy as “a generalized perception or assumption that the actions of an entity are desirable，proper，or appropriate within some social constructed system of norms，values，attitudes，and definitions”(Suchman，1995).

Our definition of legitimacy in channel governance is based on Suchman餾 definition.We define channel governance legitimacy as “the extent to which the decisions，behaviors，and processes are accepted and recognized by other stakeholders when they are governing inter-organizational relationships in channels”.

The institutional environment requires legitimate behaviors，so managing legitimacy is of great importance.We argue that managing legitimacy is a dynamic and continuous process(figure 2)，including gaining legitimacy，maintaining legitimacy，and repairing legitimacy(Suchman，1995).Besides，the gained legitimacies are not always effective，since they have lives.When one kind of legitimacy can not satisfy the organization餾 demand for surviving and developing or a new legitimacy is needed，the organization will begin a new process.Therefore，legitimacy managing is a dynamic and loop process.

FIGURE 2THE DYNAMIC PROCESS OF

MANAGING LEGITIMACY

When evaluating effectiveness and performance of a company餾 channels structures，behaviors，and processes，we should consider both efficiency，which is influenced by the task environment，and legitimacy that is stressed by institutional theory.An organization餾 demand for legitimacy is bigger than that for efficiency.Efficiency is only guaranteed in the long run after the organization has gained legitimacy.We can completely understand and explain the process of forming and implementing decisions and explain the problems organizations encounter in channel governance through combining efficiency and legitimacy.The ultimate goal of organizations is not to pursue legitimacy and efficiency，but to gain sustained competitive advantages so as to ensure long-term survival and development(figure 3).

FIGURE 3THE PROCESS OF GAINING SUSTAINED

COMPETITIVE ADVANTAGES

Based on the above discussions，we propose proposition 1 and proposition 2.

H1：Organizations channel governance decisions，behaviors，and processes are embedded in specific institutional environment.The judging standard of channel governance is the extent to which the decisions，behaviors，and processes are accepted and recognized by other stakeholders.The extent determines the possibility of gaining efficiency.

H2：Managing Legitimacy is a dynamic process，during which organizations will apply different strategies to gain，maintain，and repair legitimacy soas to make the extent to which their decisions，behaviors，and processes are accepted and recognized become higher and higher(figure.4).

FIGURE 4JUDGING STANDARD AND OBJECTIVE

OF CHANNEL GOVERNANCE

CHANNEL GOVERNANCE MODEL AND STRATEGY MATRIX

3.2Theoretical Model

Channel governance is a kind of inter-organizational relationship governance in the nature.The fundamental objective of channel governance is to make marketing channel be one of the sources of organizations sustained competitive advantages so as to ensure their long-term survival and development.In order to survive，organizations need to gain efficiency.But it is of more importance that their strategies and behaviors should be legitimate.Organizations should consider long-term benefits as their ultimate objective when they are governing marketing channels.This requires them to apply different governing mechanisms to obtain legitimacy and efficiency.Guo(Guo，Zhan，Hou，Zhou，and Xiao，2004)argued that the sustained competitive advantages gained from channel governance should not only be measured by efficiency，but also be measured by the legitimacy of strategies and behaviors.They expressed the standard as “channel governance efficacy”(figure 5).

FIGURE 5THEORETICAL MODEL FOR CHANNEL GOVERNANCEAll companies are institutionalized ones，whose channel governance decisions and practices are influenced by both the institutional environment and the task environment.With regard to marketing channel governance，the task environment is highly related to uncertainties and dependence an organization encounters，while the institutional environment has an impact on the legitimacy of its decisions，strategies，and practices.Managers should first take into account the demands of both the institutional environment and the task environment when they are governing marketing channels.Then they decide the channel structures and choose appropriate governing mechanisms and strategies to gain legitimacy and efficiency.In the end，they will achieve high channel governance efficacy，making marketing channel a real source of sustained competitive advantages.

Managers should not attempt to reduce uncertainties and dependence at the expense of legitimacy.When managers are trying to increase legitimacy，they are actually reducing the uncertainties and dependence at the same time.Therefore，strategically speaking，managers should reduce uncertainties and dependence in market channels during the institutionalized process of channel governance.

H3：Companies first pursue the legitimacy of channel governance decisions，behaviors，and processes.The higher the legitimacy is，the higher is the possibility of achieving high efficiency.

3.3Channel Governance Strategy Matrix

It may lead to misunderstanding by separate the task environment from the institutional environment in marketing channels，letting believe that the institutional environment and the task environment are independent.But actually，they are not mutually exclusive but concomitant.The two different environments have different impact on marketing channel governance.

Scott(1995)divided both the institutional environment and the task environment into weak and strong and get a two dimensional matrix with four combinations(figure 6).He proposed that different organizations are located on different positions in the matrix.

FIGURE 6CROSS-COMBINATIONS OF THE INSTITUTIONAL

ENVIRONMENT AND THE TASK ENVIRONMENT1

Referring to Scott餾 Matrix，we propose that organizations belong to different quadrants in different stages of their development.Companies should apply different governing mechanisms and relevant strategies to gain legitimacy and efficiency，so as to improve their channel governance efficacy.

FIGURE 7CHANNEL GOVERNANCE MATRIX

H4：Organizations can apply different combinations of governing mechanisms in accordance with the institutional environment and the task environment餾 influence.

H4.1：When the institutional environment餾 influence is stronger than that of the task environment，organizations should pay more attention to legitimacy mechanisms.

H4.2：When the institutional environment餾 influence is weaker than that of the task environment，organizations should pay more attention to efficiency mechanisms.

4CASE DISCUSSION

In this paper，we conduct a case study to explain our propositions.We study the development of Avon and Amway in China.Since their entry into China餾 market，they have experienced two tremendous changes of China餾 policy.The first change forced to transform their operation patterns.The second one gave them a chance to develop.During the first change，the two companies chose different transforming path.The second change just begins.Our analysis tries to figure out why they chose different transforming paths during the first change and what they should do to deal with they second change，especially what Avon should do to deal with the problems raised by the second change.

4.1Different Transforming Paths

In a response to the policy change，Avon and Amway transformed the operation modes.They both saw the big prospect of China market and wanted to survive and achieve fast development in China.So their operations have to conform to legal requirements and satisfy other stakeholders.After the release of the“Notice on the Relevant Issues concerning Foreign Investment Pyramid Sales Enterprises Change of Sale Modes”，the first thing that both Avon and Amway had to do was to transform their operation modes so as to gain pragmatic legitimacy that is required by legal institutions.Therefore，Avon began to set up counters and stores in China餾 tier-1，tier-2，and tier-3 cities through cooperating with its distributors.Amway set up about 110 counters with its own investment.Avon totally changed its original operation modes and its transformation is considered as a successful example of combining abidance by the rules and market operations.However，Amway餾 transformation is more like temporary compromise.Although Amway set up 110-plus counters according to the Notice，these counters are just Amway餾 outlets.

SCENE 1THE FIRST TRANSFORMINGAvon entered China餾 market in 1990.It applied direct selling as its main distribution channel.Amway entered China in 1995 and it also applied its traditional direct selling to operate its business in China餾 market.However，with the fast development of direct selling in China，some cheating companies rushed out in the name of direct selling.They sold inferior products and were blamed by customers.On April 21 of 1998，China government issued a bill，prohibiting pyramid sales(including direct sales)in China.On June 18 of 1998，the Ministry of Foreign Trade and Economic Cooperation，the State Administration for Industry and Commerce，and State Bureau of Internal Trade co-released the “Notice on the Relevant Issues concerning Foreign Investment Pyramid Sales Enterprises Change of Sale Modes” and regulated that foreign investment pyramid sales enterprises must transform to store operation，urging ten foreign investment direct sales enterprises to transform their operations.

Avon and Amway began to transform in 1999.But the difference is that they choose different transforming paths.Avon began to set up about 6000 counters and stores in China餾 tier-1，tier-2，and tier-3 cities，most of which were invested by its distributors.In contrast，Amway just symbolically set up about 110 counters，which were all invested by Amway.The nature of its operation modes did not change

Actually，their choices of transformation paths are closely related to their strategies and their respective core capabilities.Their choices of different modes are based on their core competences and inherent advantages.They both realized that the closer their transformation directions are to their core capabilities and inherent advantages，the lower the expense will be and the higher the possibilities of achieving successes.

Avon was founded by David McConnell in 1886 and was respected as the originator of direct sales.There are only two levels(SM-FD)in Avon餾 system of direct selling.All its incomes are based on sales.Avon never used words like “up-line or down-line”.This system is totally different from the pyramid sales.Miss Avon only sells products but never persuade anybody to participate in alliances.SM is rather a small distributor in Avon餾 original sales chain.The only difference is that there was no counter at that time.Therefore，Avon餾 transformation is reasonable and logic.

Avon餾 traditional mode is single level marketing.Selling products at fixed places has been invented and promoted by Avon Philippines in 1970s.Avon found that the mode invented by Avon Philippines has a good effect on covering new customers，recruiting and training sales representatives，providing services to the representatives and customers，and building the company餾 image.Therefore，Avon decided to transform to sell products through wholesaling and retailing.Avon applied and approved the new mode of “store plus salespersons” later，but this was just an alternative choice for Avon.Actually，Avon had transformed from a direct sales enterprise to a traditional manufacturer，which sells its products through wholesaling and retailing.In order to sell products，Avon set up counters in department stores，wholesale products to distributors and retailers，and set up stores of their own.

Amway has been famous for its pyramid sales mode all over the world.Sales are achieved within the multi-level network made up of sales representatives and customers.Amway餾 core capabilities and inherent advantages determined that Amway would not set up too many counters and stores.Discarding pyramid sales，Amway won餿 be Amway any more.“Amway” stands for “the American Way”.Amway left too much imaginative space for Chinese customers when it entered China in 1995.After its transformation，Amway began to recruit salespersons through the stores.In early 2005，Amway decided to stop recruiting new salespersons and manage its 70000-plus salespersons according to their geographic locations so as to appear to be normative and effective.Actually，Amway has been retaining the essence of stimulation mechanisms of pyramid sales after its transformation，which is a key driving force for its rocket development after the transformation.

The way of implementing sales is the key to distinguish pyramid sales and traditional sales.Amway looks like other commodity manufacturers after setting up stores，but actually the stores are just extensions of its previous distribution center.Up till now，Amway only set up about 110 stores in China.Amway has repeatedly stressed that its salespersons should not sponsor sales training programs in the cities which have no Amway stores.Therefore，the stores are just symbols.They are just Amway餾 storehouses and outlets.The real sales are achieved through person to person sales.

Amway餾 advertisements are used to prove that it has transformed and is not a traditional pyramid sales enterprise any more.But actually，advertising is the basis of pyramid sales in China.When pyramid salespersons are confronted with customers challenges，they will reply with “it is impossible to cheat you because this product has been advertised by CCTV”.But all Amway餾 advertisements are only limited to Nutrition that has brought huge sales and profits to the company.

Amway has left people a impression that it is good at political public relations.Because of its political public relation capability，Amway was not force to really change its operation mode.

4.2Who Suffer From Setbacks

SCENE 2AVON AND AMWAY餝 DEVELOPMENT SINCE 1998

In April of 1998，China Government released the “Notice on the Relevant Issues concerning Foreign Investment Pyramid Sales Enterprises Change of Sale Modes” and regulated that foreign investment pyramid sales enterprises must transform to store operation，urging ten foreign investment direct sales enterprises to transform their operations.About 7 years later，Avon had set up more than 6000 stores in China and nearly changed into a traditional cosmetics manufacturer.In the contrast，Amway just symbolically reacted to the change and set up about 110 stores.Amway goes on to apply its traditional operation mode.In 2005，Amway餾 sale in China had exceeded one billion US.dollars.China has become Amway餾 biggest market on the globe.Avon餾 sale is four times of that before the change.But it is only 2.4 billion RMB and is less than one fourth of Amway餾

According to the description above，Amway餾 sale is far better than Avon餾 since their transformations in 1998.Our analysis provides several accounts that might explain the disequilibrium.

First of all，Avon餾 transformation from direct selling to traditional stores caused twitches to Avon餾 development.Avon had to take time to adapt to the sudden change.In the contrast，Amway just set up about 110 stores，which are just symbols of its transformation.Amway餾 operation mode does not change in the nature.For Amway，it is just an investment in channels instead of twitches.Although Amway餾 sale once fell to 10 million RMB in the r＼early stage of its transformation，that was just the temporary result of the release of the Notice.

As a sale method that has been existed in western countries for decades，pyramid sale do have its own merits.It is said that the newly issued “Regulation on Direct Selling Administration” also acknowledges this.Amway did not seek incomes from its salespersons.It was a honest enterprise.Since its transformation in 1998，it gained even more living space，since other pyramid sales enterprises were suffering from twitches raised by sudden transformation.

Secondly，most of Avon餾 profits were taken away by its distributors since its transformation，since most of the stores were invested by the distributors.Amway invested all its stores.When Avon chose to transform to stores，its purpose was to occupy the national market.This could be testified by its rapid expanding speed.Avon wanted to set up stores in most of China餾 tier-1，tier-2，and tier-3 cities，it was impossible for itself to invest in all the stores.Avon had to cooperate with regional distributors.Avon could save money and time as well through cooperation with distributors.But Avon had to separate part of its profits to the distributors，or the distributors would not make investment.This is part of the reason why Avon餾 sale was only one fourth of Amway餾.

In the contrast，Amway餾 prices did not change after the transformation，since its operation mode was the same.A prerequisite for pyramid sales is high price，which include the profits of multilevel salespersons.The extra high price of Amway products had always been challenged by Chinese consumers.

In the end，Amway餾 success of dodging policy makes those companies that really transformed look like victims.For example，Avon suffered a lot from its real transformation.Amway achieved fast development when Avon was suffering from twitches.

Based on the above analysis，we can find that both Avon and Amway have gains and pains during their first round of competition.Although Avon餾 sale was only one fourth of Amway餾，its image as “a good boy” had been recognized.This was proved by the first license of pilot direct selling.Beside，its sale had been improved to four times of that before the transformation.Amway developed even faster and its sale had exceeded one billion US.dollar.But it has left an impression of “the bad boy”.

4.3Avon餾 Conflicts with Its Distributors

SCENE 3CONFLICTS BETWEEN TRADITIONAL CHANNEL

AND MODERN CHANNELOn April 8 of 2005，Andrea Jung declared in Beijing that Avon had been approved by the Ministry of Commerce and the State Administration for Industry and Commerce to conduct pilot direct selling in Beijing，Tianjin，and Guangdong.On April 19，Avon announced its pilot plan in Guangzhou.Avon would recruit 3000 salespersons in Beijing，Tianjin，and Guangdong.The salespersons would carry out sales in the three places after being trained.The bonus that the salespersons would get would not exceed 25%of the sales.To guarantee customers benefits，Avon deposited 20 million RMB into an account specified by the Ministry of Commerce as warrants.

However，Avon had no time to applaud its victory since it encountered conflicts between traditional channel and modern channel in Guangzhou.The salespersons could provide products and service to consumers.This leads to pressures on the distributors.Several distributors gathered at Avon餾 headquarters in Guangzhou and desired return of goods

Avon encountered conflicts with its distributors at very beginning of the second round of competition with Amway.We argue that the conflict is inevitable，because Avon didn餿 take into account the extent to which its decision and plan of the pilot direct selling are accepted and recognized by the distributors，and threactions the distributors would take.At the present，Avon had set up more than 6000 stores and 1700 counters，most of which are invested by its distributors.Avon once promised 34%to 40%profits when it persuaded the distributors to invest in setting up stores and counters.After implementing pilot direct selling，sales would skip the distributors and the salespersons could pick up goods directly from Avon.It was obvious that the stores would be stroked.

We argue that the conflict is inevitable out of the following reasons.

First of all，there exist a wide gap between the objectives of Avon and its distributors.Actually，Avon餾 operation mode in China is not pure single level direct selling，but is more like traditional stores that wholesale and retail simultaneously，since it does not have salespersons team，nor does it have stimulation mechanisms for salespersons.Its main income comes from stores and counters.Avon and its distributors form a relative loosely connected super-organization，whose distinct feature is that the members maintain different and interdependent objective systems.Although both Avon and its distributors have contributed to improving efficiency and saving costs so as to achieving channel objectives，they have different claims and opinions with regard to how to achieve the whole channel objectives.For example，as the only enterprise that got the license for pilot direct selling，Avon surely wants to improve its market share in China and competitiveness through the pilot direct selling，so as to realize its long-term development strategies.However，the distributors treat the pilot direct selling as ominous sign，since pilot selling did not only reduce their sales，but also make their inventories a burden.

Of course，Avon wants to see co-existence of the salespersons and the distributors，providing superior service to Avon餾 terminal consumers.But this seems to be Avon餾 own wishful thinking.The channel conflicts caused by the differences in their objectives will test the marketing skills and channel governance capabilities of Avon餾 top management.

Secondly，the benefits of the salespersons and the distributors are unbalanced.Different channel members play different roles.Each member has its own space and action range.What餾 more，each member will try to strive for a decision area that is unique to itself.At the present，Avon餾 income mainly comes from stores and counters，who are the main forces of providing services to customers and promoting Avon餾 development.However，the pilot direct selling will have a great influence on the counters and stores.Since salespersons have the right to pick up products directly from Avon，direct selling can reduce indirect and direct costs.Therefore，they have the price advantages.Maybe in the near future，most of Avon餾 income is gained by salespersons and the stores and counters would become Avon餾 exhibition hall and after-service stations.The benefits of the salespersons and the distributors will be unbalanced.

Thirdly，there exist cognitive differences between Avon and its distributors.Avon believes that the advantage of direct selling lies in person to person sales，since salespersons can send products to consumers homes and offices.The distributors hold that their patrons will become salespersons if Avon implements direct selling，which will directly influence the incomes of their employees and lead to employee drainage.The stores are not pure stores any more after the implementation of direct selling，but outlets for Avon餾 direct selling.This makes the distributors unable to afford the high costs of running the stores.The cognitive difference between Avon and its distributors is also one of the causes of the conflicts.

Finally，it is a result of the conflicts between multi-channels.At the present，consumers can buy appropriate Avon products from various channels，including counters，stores，internet stores，and informal channels such as gray channels and illegal stores.Of course，the stores and counters contribute the most to Avon before the implementation of pilot direct selling，so Avon is highly dependent on them.Avon relies on high profit to keep its distributors loyalty.Nevertheless，direct selling requires lots of salespersons to show its competitive advantages.In order to adapt to the rules of direct selling，Avon has to reduce its dependence on its distributors and pay attention to rear its salespersons.Since its transformation in 1998，Avon餾 distributors have contributed a lot to its development in China.Avon餾 implementation do direct selling will have a great impact on the stores performance.The multi-channel conflict between person to person sales and traditional stores is a twitch that Avon experienced during its transformation.

It is obvious that Avon餾 decision and implementation of direct selling is not accepted and recognized by its distributors，leading to the conflict and hostile behaviors.Avon has to apply appropriate strategies and tactics to solve the problems.

5DISCUSSION AND STRATEGIC IMPLICATIONS5.1Discussions

Marketing channel has been considered as one of the sources of sustained competitive advantages.But few companies can really gain sustained advantages from market channel.In the long-range，the primary goal of a company is to survive and then develop.The competition becomes more and more intensive，so the importance of market channels increase.But in previous studies and practices，researchers and managers paid too much attention to the influences of channel governance decisions and behaviors on organizations performance and overlooked the influences of the extent to which those decisions and behaviors were accepted and recognized by other stakeholders on organizations efficiency.

5.2Limitations and Suggestions for Future Research

Our study is explorative.Some concepts are not described in detail and need further complementation and improvement.The institutional environment and the task environment may influence each other.But the influencing process might be very complicated，so we do not carry out a in-depth study.

5.3Strategic Implications

Our study suggests that it is important for managers to understand how institutional environment shapes channel structures and processes.Institutional environment(1)regulates，(2)validates and(3)gives meaning，to channel structures and processes.Although the influence of regulatory processes is clearly visible and discernible，problems may arise when managers deal with normative and cognitive institutions.By understanding how these institutions constrain and facilitate channel structures and processes，managers should be able to(1)better manage their channel within the confines of the institutional environment and(2)devise strategies to think and move beyond the confines of the institutional environment.

ENDNOTES

1.Scott，W.R.Institutions and Organizations［M］.Thousand Oaks CA：Sage,1995.

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