Opinions, knowledge and resources from China Checkup's expert contributors

“Do I Really Need China Checkup?” - How Important is Due Diligence in China?

by Matt Slater November 18, 2013

Due Diligence in China

One question we sometimes hear from potential new customers is "do I really need China Checkup?" Of course, we’d love to just answer “yes!” and leave at that, but that wouldn’t be very helpful for readers here. Instead, we’ll make it fairer and more general by looking at the question: how important is due diligence in China?

First, a few quotes from some experts in the field:

“One of our recurring themes is the need for due diligence when working on any business matters in China.”

 – China Law Blog

“I frequently lament about the number of importers who take high risks by not doing any quality control. But the most under-rated tool to reduce risks in China is certainly running a background check on potential suppliers.”

 – Quality Inspection

“The vast majority of problems that foreign companies encounter when engaging in business transactions in China could have been avoided by carrying out some due diligence at the start of proceedings.”

 – China Britain Business Council

“…compare the business license of the Chinese company to the information you’ve been told about them. Such data is useful as the license determines the legal limited liability of the company, in addition to confirming other useful details such as registered legal person, registered address and their permitted scope of activity.”

 – China Briefing

Due diligence is an essential first step for (Canadian) companies doing business in China. You may find a local partner on alibaba.com, elsewhere on the internet, or through referrals by friends but the fact remains that due diligence is required to reduce the risk to your business.

 – Canadian Trade Commissioner Service

"Multinationals from Europe and America are not even doing the things they do back at home to protect themselves. They're not screening their employees, they're not screening vendors. I think a lot of times they assume that all their business partners will do these things for them, and it's just not the case in China."

 – Benjamin Simar

It’s clear from the above that due diligence is especially important when doing business with Chinese companies.

This due diligence can take place in many forms, ranging from initial background checks to deeper, more extensive assessment later in the process. Let’s have a look at where exactly China Checkup fits into this process:

  1. The most basic, quick checks – are there any immediately obvious red flags about this company?
  2. Checking a company’s documentation. This is another fundamental stage in the process – does the company seem able to offer evidence of its own trustworthiness and validity? China Checkup can help you at this early stage. We make it easy for you to access the official registration records of a company.
  3. Independent background checks. It would of course be unwise to accept the documentation a company provides about itself without verifying it. This is another step where China Checkup can make things easy for you. We can quickly and affordably verify the background details of any Chinese company. Find out more.
  4. Inspections. If you’re sourcing products from China, factory inspections will be another essential step in the process for you. Speaking more generally, third party checks and inspections are a wise choice once background checks suggest that it’s worthwhile to proceed with a particular company.
  5. Visits. Visiting a Chinese company in person not only lets you make your own first-hand assessment, but also demonstrates to the company that you are serious about doing business with them and about the quality of the deal.

Always remember that none of the above steps can ever guarantee the success of your deal or partnership. It is important to have a comprehensive risk management program in place.

But that’s not to say that they’re not worth investing time and effort in, though: they’re an increasingly narrow funnel for reducing risk in your business with Chinese companies. Not filtering companies in this way, or not continuing the filtering as far as possible, can create massive unnecessary risk in your business.

Even the initial steps of this process can be very difficult for companies outside of China who have little access to China knowledge and expertise. China Checkup bridges this gap. We give you convenient, affordable access to background checks on Chinese companies, letting you make an informed decision about a Chinese company before you proceed.




Matt Slater
Matt Slater

Author

Hi there, I'm Matt, the founder of China Checkup. Originally from the UK, I am now based in Brisbane, Australia.

Frustrated by the scarcity of concise, high-quality and timely information about Chinese companies, I setup China Checkup whilst living in Shanghai in 2013.

My team are proud that China Checkup's company verification reports have now helped thousands of clients from all corners of the world to do business in China more safely.

  

 


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