I am translating an introduction to China sourcing for our Russian buyers. “Due diligence” is one of the terms I see all over the place. But I am not sure exactly how to explain it in Russian.

In my dictionaries it means slightly different things. So in our case is it:

1. checking business if it is legitimate, has all papers etc.?
2. checking anything you want to see?
3. something else?

ANSWER:

In the China sourcing industry, “due diligence” is a term used primarily in the following ways:

Type 1

An investigation of a business prior to signing a contract to ensure the company (supplier) signing the contract is who they say they are.  For example, do they really have 1000 employees, 50 million USD exports, own the factory 100%, have happy customers, good financial situation (will not close doors suddenly) and so on.

 

Type 2

Sometimes people include “audit of QC system” under “due diligence” to ensure the supplier has the equipment and experience to make a given product.

Due diligence can be conducted by the buyer, but usually 3rd party experts are hired to do the research. In my experience, the 3rd parties that conduct the due diligence specialize in doing either type 1 or type 2 but I don’t know of any companies that do both.  To get technical, type one is “financial due diligence” or “operational due diligence” while type 2 is “quality systems audit.”  But many buyers just use the terms “due diligence” to cover both types.  In short, “due diligence” means to verify that what the supplier is telling the buyer is accurate.

In my opinion, doing the due diligence is an essential step when sourcing from China. Perhaps I am jaded after 12 years living here, but I assume the worst unless proven otherwise.  Trust BUT verify.

 

Wishing you successful sourcing!

Best regards,

Mike Bellamy

CSIC Board Member

Author, “The Essential Reference Guide to China Sourcing”

 

Reference

Two of the CSIC sponsors are involved in the due diligence industry.

To get a feel for the service providers doing type 1, check out www.CBIconsulting.com.cn

To get a feel for the specialist of type 1, visit www.AsiaQualityFocus.com

 

 

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