Too often, companies don't do their due diligence when vetting potential partners. It is much akin to early romantic relationships where; all a-flutter- with stars in their eyes, two people totally overlook each others flaws in the name of love. Then; when the romance fades and life kicks in, all that rubbish comes out.
Take Apple and Foxconn; a very profitable match- on paper, who have been in the headlines lately for appalling working conditions in their Chinese factory. Proper research into Foxconn's practices would have lead Apple to make a more suitable partnership. And what about Nike? No stranger to distribution chain scandal; they still maintain buildings named after disgraced professional athletes and coaches.
To think, all of this trouble could have been avoided with just a little more research. I believe this excerpt from CBI Consulting hits the nail on the head (click here to read the full article):
- Proper due diligence must be conducted. You would investigate your domestic business partners, so why not your overseas partners? Due diligence in Asia should, however, be done on a more thorough level, including researching the company’s debt history and verification of hard assets. Some effort must be made to verify the company has the equipment, personnel, and time to produce your orders. Otherwise, it’s possible the company will lead your order through an endless maze of subcontractors, some of which might not conform to the high standards you expect.
- Contact should be initiated with the potential supplier’s customers — and its own suppliers. If a supplier says it can product your order in 30 days, does it mean 40 days is close enough?
- Unannounced, pretext visits must be made — but NOT BY YOU. If you can read
this in English, you will probably stand out in an Asian crowd, and if you visit a factory, you will not see things the way they really are; you will see what the principal want you to see. Visits must be made periodically by local people. If you have a branch near your potential associate, ask a local worker to visit for you. If you don’t have a branch in Asia, find professionals you can trust. - The partners’ reputation in the media should not be ignored. Most Western companies are keen to the role the media plays in business, and few things sting like being criticized in the press. Find a market researcher or hire a consultant, but learn what the local newspapers are saying about your potential partner.
- Finally, remember Ignorance Is No Excuse. When in doubt, imagine how your CEO will look with a microphone in his face explaining that he really didn’t know the soccer balls were being made by nine year olds chained to sewing machines.
- CBI Consulting, March 28th, 2011
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