The Chinese economy grew an astounding 9.5% in 2004. This strong growth in GDP will undoubtedly signal greater trade and investment with one of world's fasting growing economies. However this seemingly ‘blue sky’ scenario masks significant risks for companies and investors. Similar to the gold rush corners are being cut in the pursuit of profits, setting the scene for future casualties in many commercial relationships with subsequent losses in investment and reputation. These are the findings of Synthesis Management Consultants, a leading risk management consultancy.

Before entering any new market is vitally important to assess risk using proven business intelligence tools and due diligence checks. This will include an analysis often referred to as PEST which examines the Political, Economic, Social, Technological and Legislative environment. In China, Russia and the Middle East standards of corporate governance, transparency and intellectual property protection are evolving, but are often lower than US or EU markets.

It is equally important to carry out due diligence and check the integrity of the proposed business partner and examine their relationship to the local business environment. Consider the accuracy of any claims relating to reputation, business performance and review the company culture with an analysis of the ethics of key executives. In the extreme this could mean uncovering links to organised crime, corruption or money laundering.

The necessity to mitigate risk is often overlooked when emotions run high and competitive pressures dictate the need for quick decisions. Instituting a business intelligence strategy and incorporating it into the planning process will ensure authoritative information is obtained about a market and intended business partner. This will not only prevent expensive commercial errors but will significantly reduce the chances of being associated with an unethical business.

Due Diligence Case Study

A manufacturing company wished to increase its presence in the Middle East and focus its regional presence through a key Joint Venture agreement. As part of this evaluation a short listed local company indicated it had strong links to the government, a management structure to adequately implement the company's plans and the financial resources to achieve these objectives.

Upon closer examination it was established that these claims were exaggerated and additionally evidence of previous financial mismanagement indicated inexperience with respect to corporate investment. These findings were used to assist the UK company in their negotiations in achieving a successful outcome.