More Due Diligence (and a Guide)

Related entries: Business Issues, General, Investment, Risk & Law, Services, Trading

I posted recently that Due Diligence = Sound Sleep, but the stories of sleepless / hapless businesspeople still pour in. Of course, examples abound (see: Don’t be Cheated by the Cheats and Corporate (Non) Governance) but for two very recent examples (one bad and one good) may help to underline the issue:

    • In one (bad) case a company (thankfully with a patent already registered in China) sent equipment samples to a potential distributor despite that fact the distributor had not agreed to sign a proper confidentiality agreement. They went on to copy the equipment and sell it at a 90 percent discount to the original. Action is now pending…

    • In another (good) case, a textile trading company decided to spend a few hundred dollars on an in-process inspection at their contracted manufacturing company in Hangzhou. The inspection found a high level of minor failures, and resulted in the factory agreeing to correct all the problems before shipment. That was a pretty quick and high return on the investment!

But rather than examine all the case studies individually, I would like to point you to a great, independent guide to the issues from Andrew Hupert at Diligence China. Read on. Take note…and sleep well.

    Due Diligence in China (follow the links for the full text of each section)

    Part 1: 3 Basic Rules for China Business
    Go Slow — the China-market isn’t going away any time soon.
    Build a network of professional service providers first — do business after.
    Have a Plan –and a Plan B

    Part 2: Pitfalls, Troubles and Traps to avoid
    Fraud and Theft
    Incompetence and Inexperience
    Inappropriate Standards and Quality
    Differing Agendas
    Irrelevant Experience

    Part 3: Due Diligence Questions
    A few questions that will help you decide if your potential consultant or service provider is right for you.

    Part 4: Checking References
    Most seasoned professionals know to ask for referrals before hiring a service provider or consultant. But like everything else, getting referrals in China is slightly different from referrals back home.

    Part 5: Managing your team of Consultants and Suppliers
    There are two basic approaches to handling a group of consultants and service suppliers.
    1) You manage them as though they were your own team
    2) Appoint a “lead consultant” or partner who acts as the project manager

    Part 6: Global Service Firms
    Well known global service firms are either here or chomping at the bit to get in. They have the most high-powered staffs, the nicest offices, prettiest receptionists and biggest bills. Do you need or want this kind of firepower — even if you can afford it? Know a little about the situation before you schedule that meeting.

    Part 7: Boutique Expat Service Firms
    One of the more interesting developments in the Chinese business environment over the last few years is the emergence of expat-run consultancies catering to the international market. These are usually small boutique shops that specialize in helping other expats or small-medium sized international firms perform specific business functions in China .

    Part 8: Local Chinese Service Firms
    One of the trickiest parts about doing due diligence on consultants or individuals in China is trying to figure out who is who and where they are from. There was a time when someone born in China was Chinese and someone born in the US was American, but those clear-cut distinctions are relics of a simpler, pre-China-boom era.

Is that enough due diligence? Yes, if you are sleeping better as a result…If not, give me a call.

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