For a foreigner looking forward to doing business in China, risk prevention and preparedness are crucial attributes for success. Due diligence is paramount when handling any deal with Chinese parties. If you simply assume that the process is okay, it is possible to put your enterprise at serious risk. Therefore, due diligence services in China are very helpful in providing intelligence for business strategy enrichment and negotiations.
This post takes a closer look at due diligence to determine what it is and core areas of focus. We will also tell you why it is so important to seek the help of the best due diligence services in China.
What is Due Diligence?
Due diligence entails investigating a potential investment, company, staff or product to confirm that the details that have been provided so far are correct. It is mainly done before one can enter into a contractual or other agreement with another party. The nature of due diligence differs depending on the type of the companies involved, the complexity of the transaction, and the thoroughness of the investigation.
In China, you should consider carrying due diligence when looking for potential to ensure that only those committed to business growth are selected. For example, if you want to form a joint venture (JV) with a Chinese partner, using the right due diligence services in China can come in handy to help narrow down to the best.
Due diligence is also important when hiring employees, especially those for managerial levels, to ensure only the committed ones are brought on board. If the candidate indicates that he/she helped the previous company grow sales by 50% of 70%, is the information true? With due diligence services, you can gather information to help you make the right decision.
Types of Due Diligence in China
If you are a foreign investor, due diligence services in China can help you work with confidence and rapidly grow your business. It will also help you to avoid scammers and get the right deals. So, let’s look at the main types of due diligence services you can expect:
● Operational Due Diligence
This due diligence helps to authenticate the identity and legitimacy of a company’s potential partners. You can get this information by checking on the State Administration of Industry and Commerce (SAIC), which holds information of all companies registered in China. The information that you can gather from SAIC includes the registered address, registered capital, business scope, and license expiry date.
● Reference Checks
A good company operating in China should be open and provide references when requested. This means that you can check back with customers, vendors, and even competitors to understand the operating network of a potential partner or contractor. For example, a business being considered for partnership/ merger should be flagged down as a high-risk party if it has only one supplier or a limited market.
● Financial Checks
Whether looking for a supplier, potential business partner, or enterprise for a merger, the best practice is to go for the one that is accountable. Its books of accounts should be clean, allowing you to gauge its performance over the last couple of years and future projections.
As you can see, due diligence is an important step that you can only skip at your own peril when opening a company in China. We must also indicate that the process is never easy because you are trying to dig into details of other parties or regions, which are not direct. Therefore, it will be an excellent idea to work with due diligence services in China for the best results. Remember that it is not a one-time thing but an integral part of your enterprise. So, go for the best!