The Sunrider Corporation History

Address:

1625 Abalone Avenue
Torrance, California 90501
U.S.A.

Telephone: (310) 781-3808
Fax: (310) 222-9271

Private Company
Incorporated: 1983
Employees: 500
Sales: $700 million (1997 est.)
SICs: 2833 Medicinals & Botanicals

Company Perspectives:

Our goal is to bring the unique Sunrider lifestyle--eat healthy, drink healthy, look healthy and live healthy&mdashø all corners of the world.

Company History:

Operating in over 27 nations in 1998, The Sunrider Corporation is one of the world's largest herbal products firms. Based on Chinese formulas, Sunrider's nutritional and body-care products are created from over 100 kinds of herbs grown and processed by the company. Sunrider products are manufactured in plants in California, Taiwan, Mainland China, and Singapore and then sold around the world by distributors using multilevel marketing and traditional sales methods. Although the firm has experienced serious legal and public relations problems, it has grown and prospered because of the twin appeals of better health and financial independence. Combining ancient Chinese herbalism with modern manufacturing technology, Sunrider continues to play a key role in the herbal renaissance of the late 20th century.

Origins of Sunrider

Three people with very different backgrounds founded Sunrider: Tei Fu Chen, Oi-Lin Chen, and K. Dean Black. Tei Fu Chen was raised in poverty in Taiwan following World War II. He reported having an early interest in health because of his own childhood illnesses, noting that his health was restored using ancient Chinese herbal formulas and martial arts training. Tei Fu Chen met his wife Oi-Lin Chen, a Hong Kong native, when they attended Kaoshiung Medical College in Taiwan. Oi-Lin earned a medical degree there, while Tei Fu studied traditional Chinese healing and herbalism and earned a bachelor's degree in pharmacy at Kaoshiung. Although Tei Fu Chen would use the title "Dr." following the Chinese customary use of this term for one with his training in traditional Chinese medicine, he never claimed to be a medical doctor. Later Tei Fu Chen served in the Taiwanese military and lived in California.

Chen and his wife moved to Utah County, Utah, in 1976, having converted to the Latter-Day Saints (Mormon) church. Tei Fu Chen attended Brigham Young University (BYU) from 1975 to 1977 as an undergraduate chemistry student and also taught martial arts there. He left BYU to work at an herbal products company called Nature's Sunshine, then in 1979 began working for Murdock International, another Utah County herbal company later renamed Murdock Madaus Schwabe.

Meanwhile, Oi-Lin Chen completed a medical internship in Pennsylvania and then passed her board exams to become a licensed M.D. in Utah. In Orem she set up her medical practice in her family's home. By this time her husband's parents and sisters had moved to Utah County.

Around this time Tei Fu Chen met the other key Sunrider person, K. Dean Black, who had grown up in Salt Lake City and Denver in a Mormon family. In 1971 he received a Ph.D. in human development at Pennsylvania State University, with specialization in gerontology. After teaching at BYU, in 1979 he became the president of NaturaLife International, a Murdock subsidiary that had been incorporated in 1976 in Utah.

In an interview, Black reported that Chen's herbal products helped him recover from hayfever and food allergies. "I was just amazed at what was going on," said Black. Chen explained to Black how the herbs helped restore balanced metabolism and optimal health.

Murdock allowed Chen's Chinese herbal formulas to be sold in stores but did not actively promote them, preferring instead the American herbal products based on the work of Utah naturopath John Christopher. Murdock's reliance on Christopher's concepts frustrated Chen and Black, who continued in vain to make believers out of the Murdock officials. Eventually Murdock prohibited Chen and Black from meeting together on company time. Murdock insisted that "America was not ready for Chinese herbs," said Black.

Both Chen and Black decided to break away from Murdock. On October 8, 1982, shareholders in NaturaLife International voted to name Tei Fu Chen, Oi Lin Chen, and Yung Yeuan Chen, all of Orem, Utah, as directors. However, it was not until October 15, 1983, that the articles of incorporation were amended to change the company's name to The Sunrider Corporation. In February 1984 the firm under the name NaturaLife International filed its annual report with the Utah state government; it listed Tei Fu Chen as chairman of the board and K. Dean Black as president. With Black's departure as president in 1984, Tei Fu Chen became both chairman and president. The transition was completed.

NaturaLife products had been distributed by the multilevel marketing (MLM) system, also known as network marketing, used by Amway, Mary Kay Cosmetics, and Avon. In a 1998 telephone interview, Sharon Farnsworth of Sandy, Utah, maintained that she had one of the largest NaturaLife organizations with about 13,000 self-employed distributors, and she thus became a key player in the early Sunrider MLM effort; Farnsworth continued into the 1990s as one of the firm's main distributors with a downline in several nations.

Sunrider's position in Utah was influenced by two general trends. First, the Mormon heritage of herbal use under founder Joseph Smith and his successor Brigham Young continued into the 20th century and clearly influenced some individuals to use and sell Sunrider products. Several commentators have pointed out that Utah was a leading state in the natural products industry, with over 40 companies selling herbal products and vitamin supplements.

Second, "Utah is an important state in multi-level marketing," according to David Owen, the author of an article in the October 1987 issue of the Atlantic. Owen pointed out that a former BYU communications professor was the president of a consulting firm that worked with mostly MLM firms. Moreover, he observed, there was a "heavy evangelical element in MLM," and "Mormons are a big presence in MLM." Dennis Lythgoe in a 1997 newspaper article reiterated Owen's point: "Utah has often been called 'the network marketing capitol of the world."'

Chinese Herbal Products and Philosophy

In the 1980s Sunrider marketed a wide range of natural products said to be based on Chinese formulas thousands of years old. According to the company's literature, its whole food products marketed by its Sunergy Division included Nutrien, "a whole food concentrate for general nourishment," and an Oriental tea called Calli, billed as "the perfect whole food beverage to follow meals and encourage digestion." Other Sunergy products were whole food formulas designed to regenerate and strengthen specific body systems, such as Alpha20C for the immune/lymphatic system, Lifestream for the circulatory/cardiovascular system, Prime Again to help the reproductive system, and Assimilaid for the digestive system. Yet other Sunergy items were herbal concentrates, such as white willow bark (Salix alba), dong quai (Angelica sinensis), Korean white ginseng (Panax ginseng), goldenseal root (Hydrastis canadensis), and Siberian ginseng root bark (Eleutherococcus senticosus).

A second Sunrider division, Vitalite Weight Management, produced whole food concentrates for weight control. The three basic Vitalite products were Vitalite Breakfast Drink, Vitalite Lunch, and Vitalite Dinner (a soup). Sunrider's third division, Kandesn Skin and Personal Care, sold shampoo, hair conditioner, aftershave, cleansing bars and creams, and hand and body lotions.

Sunrider founder Tei Fu Chen based his products on the concept of regeneration, that is, restoring the body to optimal health by using concentrated herbal extracts. Chen favored food herbs and preventing disease over the American herbal tradition of using medicinal herbs to treat disease.

After Dr. Dean Black left Sunrider in 1984, he formed his own Springville, Utah, company called The BioResearch Foundation, which produced newsletters, books, videotapes, and audiotapes promoting the validity of herbalism and alterative healing. Although no longer officially part of Sunrider, Black gave presentations to groups of natural products users and distributors, including Sunrider distributors.

Growth and Legal Problems in the 1980s

In 1987 Sunrider recorded $24 million in annual sales and had 125 employees and 40,000 distributors worldwide. "Our goal is to become the largest and best health products company in the United States," said Kerry Nielson, Sunrider's director of operations, in a 1987 book on the history of Provo and Orem.

In 1987 the Chens decided to expand in the Los Angeles area. The headquarters shifted to Torrance, while a new plant was being built in the City of Industry. Utah economic development leaders tried to convince Sunrider to expand in Utah, but the Chens found no building already in place to handle their needs. Sunrider's leaders also wanted a new location near a Pacific port, since some Sunrider ingredients were imported from Asia.

Meanwhile, several government agencies, including the U.S. Food and Drug Administration, the Utah Department of Agriculture, the Utah Division of Consumer Protection, and the Utah Health Department's Bureau of Epidemiology, were investigating Sunrider. In Utah and California, salmonella bacteria were found in the firm's Nutrien product, which may have caused illness in several consumers. None of those cases were life threatening. Sunrider responded by recalling all Nutrien products on February 5, 1988, and offering to reimburse customers for the recalled products. A couple of weeks later the company issued a second recall--of Vitalite products containing Nutrien.

Sunrider also shut down its Orem plant where the salmonella-contaminated products were made. A new plant with new equipment was opened in Orem in late February 1988, after state regulators gave their approval. The new plant produced Nutrien. Although no lawsuits occurred over this problem, the recalls and new plant cost the company about $5 million.

On March 14, 1988, the Utah Department of Agriculture closed Sunrider's Orem plant and continued working with Sunrider to resolve several problems. The department had cited the firm for nine violations of state regulations, including false product labels, sanitation violations, and using unapproved additives.

The main problem of course was the salmonella contamination from raw soybean products imported from Taiwan. Unlike other firms that heated soy to kill bacteria, Sunrider used unheated soy products in order to preserve its nutrients.

Unable to find a U.S. supplier of its soy ingredient, Sunrider later in 1988 decided to eliminate its Nutrien and Vitalite products as part of an agreement with the Utah Department of Agriculture. Sunrider also agreed to pay $20,500 to the state of Utah for these violations, a reduced fine given the company's cooperation.

Meanwhile, a six-part television series of short reports broadcast by Salt Lake City's KSL Channel 5 added to the Sunrider controversy. Reporter Con Psarras began the series called "Herbal Medicine: Miracle or Mirage" as part of the Sunday evening news on February 7, 1988. The series looked into Tei Fu Chen's background and qualifications and of course the usefulness or dangers of using herbal products. Some Sunrider distributors claimed the company's products could cure a wide range of serious illnesses. Those claims were consistently discouraged by the corporation, according to its attorney, Cecil McNab.

The KSL-TV programs, along with the numerous newspaper articles on the government investigations of Sunrider, generated a lot of controversy in Utah in 1988. Sunrider advocates appeared on TV and talk radio shows to rebut the criticisms, while critics took up the offensive. Not surprisingly, Dr. William Jarvis entered the fray. Jarvis was a Loma Linda University health education professor and president of the National Council Against Health Fraud, a major organization opposed to the misuses of herbs and various forms of alternative medicine. Dr. K. Dean Black defended Sunrider, concluding that "KSL and its reporter began their investigation with a negative and biased story in mind, and sought only to support it."

In the midst of these legal difficulties, the Chen family experienced considerable conflict over herbal products and corporate issues. In 1989, Dr. Jau-Fei Chen, Tei Fu Chen's sister, started a rival herbal firm called E-Excel International, Inc. in Provo, Utah. Jau-Fei was supported by her parents, who no longer supported Tei Fu Chen and his Sunrider business. Dr. Jau-Fei Chen in 1988 earned her Ph.D. in microbiology at Brigham Young University. The internal conflicts within the Chen family continued to play a role in Sunrider's legal problems in the 1990s.

However, these legal and family problems did not stop Sunrider from expanding in the 1980s. In 1984 the company began operating in Canada, followed by Hong Kong and Taiwan in 1987, Thailand in 1988, and Australia, New Zealand, and Korea in 1989.

Expansion and Challenges in the 1990s

In 1990 Tei Fu Chen received an honorary doctorate of agriculture from the Chinese Culture University in Taipei, the largest university in Taiwan, the Republic of China. By 1990 Sunrider's sales had reached more than $200 million based on operations in the United States, Canada, Taiwan, Malaysia, Hong Kong, Japan, Korea, Australia, Thailand, and New Zealand.

Sunrider finally shut down all its Orem, Utah, facilities in 1991. It laid off 150 workers, who were not transferred to the company's more advanced plant in the City of Industry, California. However, many Sunrider distributors remained in Utah, and The Sunrider Corporation, doing business as Sunrider International, remained registered as a Utah corporation.

Meanwhile, Sunrider's legal battles continued. In 1989, the firm agreed to pay the state of California $175,000 and to cease claims that its products had any effect on medical conditions or disease.

A Phoenix, Arizona, jury in 1992 decided that Sunrider had broken the state's racketeering laws and at the same time awarded $650,000 to a woman who said she had been deceived by Sunrider representatives and had become sick after using company products.

In 1995 the Sunrider Corporation, Tei Fu Chen, and Oi-Lin Chen were charged with tax evasion, conspiracy, filing false company tax returns, and smuggling. The company was charged with overstating the costs of importing materials in order to understate company profits. Moreover, in 1997 the Sunrider owners were found guilty of tax evasion for not paying taxes on more than $126 million of taxable income earned between 1987 and 1990. Tei Fu Chen received a prison sentence of two years, plus six months home detention. His wife was sentenced to two years probation, including six months home detention. The Chens also paid $93 million to the federal government for back taxes, interest, and penalties.

Not surprisingly, Sunrider since its founding in 1982 has had its share of critics, often from the medical profession. One example was Stephen Barrett, M.D., a well-known critic of alternative medicine. Barrett in 1998 reported that Sunrider was among the 100-plus companies using multilevel marketing to sell health products. Other such companies included Melaleuca of Idaho Falls, Idaho; Matol Botanical International in Canada; Provo, Utah's Nu Skin International; and Nature's Sunshine also in Provo. Barrett concluded in his Quackwatch web site that, "Consumers would be wise to avoid multilevel products altogether. Those that have nutritional value ... are invariably overpriced and may be unnecessary as well. Those promoted as remedies are either unproven, bogus, or intended for conditions that are unsuitable for self-medication."

In spite of such critics, Sunrider and other herbal corporations in the 1990s were aided by more studies showing the potentially beneficial uses of herbs and even more acceptance of alternative medicine in the medical establishment. For example, in 1993 the federally funded National Institutes of Health organized its Office of Alternative Medicine. In 1997 a federal advisory panel strongly approved the use of acupuncture for certain conditions, such as headaches, lower back pain, and stroke rehabilitation. The Bellevue, Washington-based consulting firm of Hartman & New Hope estimated that the natural products and supplement industry accounted for over $14.8 billion in 1997.

According to an article in the Journal of the American Medical Association, a survey of approximately 1,000 Americans found that 40 percent said they had used some form of alternative medicine not available from their medical doctor. Alternative medicine was found to be equally popular among both men and women and among various age and racial groups.

A strong consumer or self-help movement also helped Sunrider grow. Twenty or 30 years prior most Americans put all of their trust in medical doctors, but as more people started asking questions about different companies and professions, they began to take more responsibility for their own life and health. Such emphasis on wellness, fitness, and personal responsibility influenced some to seek out companies such as Sunrider that catered to those values.

International Growth

Sunrider moved into several new international markets in the 1990s. The company's strong Asian business expanded with the 1997 creation of Sunrider Philippines, headquartered in Pasig City near Manila. In 1998 Sunrider celebrated its fifth year in Indonesia, where over 47,000 distributors were registered in 27 provinces. The company also opened a $13.2 million manufacturing plant in Singapore to support its growing worldwide business.

The People's Republic of China (PRC) in Beijing on April 21, 1998 announced a ban on multilevel and direct marketing in China. Nevertheless, Sunrider continued to sell its products through hundreds of Chinese dealers with wholesale and retail stores. Sunrider's Chinese operations had begun three years earlier, and by 1998 the firm operated manufacturing plants in the cities of Tianjin and Huang Pu.

Sunrider entered the Latin American market in 1992 when it began operations in Mexico City. In 1996 the company opened an office in Bogota, Columbia, and in 1998 established its Sao Paolo, Brazil, office.

In 1992 Sunrider started operating in Western Europe. Based in London, Sunrider Europe supported distributors in the United Kingdom, Ireland, France, Germany, Belgium, Austria, Italy, the Netherlands, and Finland. The company in 1994 expanded into the Eastern European market by commencing business operations in Budapest, Hungary. In 1997 the company opened Sunrider Hungary's new office to accommodate the growing number of individuals interested in starting their own business after the end of the Cold War and the collapse of communist state-controlled economies. Also that year the Sunrider Latvia subsidiary was started in the capital of Riga and operations began in Russia. The following year the company opened an office in Warsaw, Poland. In 1998 Sunrider planned to commence operations in Belarus, India, South Africa, and the Ukraine.

Expanded Product Lines

By 1998 Sunrider was offering some of its original products, plus new lines developed in the 1990s. "Eat Healthy" products included Dr. Chen's Secret Sauce in regular and vegetarian flavors without preservatives or artificial flavors, NuPuffs, SunBar, and NuPlus. "Drink Healthy" items featured the original Calli tea, plus newer VitaFruit, Fortune Delight, Sunectar, and SunnyDew products. Sunrider also sold Vitalite Weight-Management products, herbal nutritionals items, and vitamin and mineral supplements.

In addition, the company produced Kandesn 2000 eyeshadow and other cosmetics as well as the Oi-Lin Signature Line of lipsticks and perfumes. Its SunSmile items included herbal toothpaste, teeth whitening gel, lip moisturizer, mouth refresher drops, and a fruit and vegetable rinse.

Sunrider literature proclaimed that, "Because Sunrider controls its entire production process, our products are incomparable in their exclusivity, quality and the conditions under which they are manufactured." The company's largest plant was its 188,000-square-foot facility on Sixth Avenue in City of Industry, California. Sunrider plants featured automated devices to clean, grind, formulate, extract, and concentrate herbal raw materials to make finished powdered or encapsulated products.

In 1998 Sunrider continued to develop new products, and held annual conventions in California, where distributors from around the world could see the company's manufacturing facilities and also its 300,000-square-foot headquarters on nine acres of land in Torrance. The firm planned to expand its headquarters another 50,000 square feet in 1999. Visitors to the Sunrider Museum of Harmony learned about the ancient traditions of Chinese history and art and especially the story of Chinese herbalism and medicine.

In spite of its serious legal problems, in 1998 Sunrider continued to expand, especially in international markets. Due to increasing consumer demand for better health based on natural products, as well as the fact that more individuals were seeking financial opportunity with a home-based multilevel marketing business, Sunrider was riding a strong wave into the next century.

Principal Subsidiaries: Sunrider Australia; Sunrider New Zealand; Sunrider Brazil; Sunrider Canada; Sunrider China; Sunrider Colombia; Sunrider Europe; Sunrider Hong Kong; Sunrider Hungary; Sunrider Indonesia; Sunrider Israel; Sunrider Japan; Sunrider Korea; Sunrider Latvia; Sunrider Malaysia; Sunrider Mexico; Sunrider Philippines; Sunrider Poland; Sunrider Taiwan; Sunrider Thailand; Sunrider Russia.

Principal Divisions: Sunergy Division; Vitalite Weight Management; Kandesn Skin and Personal Care.

The Sunrider Corporation History

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