About Trust and Due Diligence in Asia

Last week I went to Kuala Lumpur for the Association of Service and Computer Dealers International and the North American Association of Telecommunications Dealers (ASCDINATD), Asia Pacific Conference; I was invited by a couple of customers to talk about the challenges of doing business in Asia.

Petronas towers

Overall, it seems that the majority of the attendees–from Singapore, Malaysia, Japan, India, Korea, or China, just to mention a few—have the same concerns about similar challenges when doing business either locally or globally on this side of the planet.

The challenges go from cultural differences, training, and hardware counterfeit to intellectual property and governance. But the most commonly shared challenge was that the level of visibility with their suppliers was close to zero, generating uncertainty and an unreliable relationship.

 

These companies did great business with them—millions of dollars in trading every year—but every time they wanted to meet the providers face-to-face or have a visit to their offices, they just came up with some story about any topic pushing the date and meetings forward until they needed to go back home. One person told me, “my only communication with my supplier over the last year is by SMS, email or a rare phone call, and I have about half a million dollars a year in business with him.”

Gaining trust and visibility is a common challenge.  The way that we have been dealing with these situations in the past is by creating a thorough due diligence process that requires a stringent execution. This is even more critical when the supplier is located on the other side of the world. Our recommendation is that the due diligence, at minimum, includes the following key points:

  1. Always visit your suppliers before engaging with them. Spending $5,000 is worth it and will bring peace of mind.
  2. Always do a background check on their companies and if possible, on the head of the company.
  3. Ask for references, since the best and worst experiences are usually shared across the different vendors.
  4. Do a spot visit once or twice a year. Aside from making sure that the operation works smoothly, this will help to improve the relationship with the suppliers. In Asia, having a good relationship is probably the most important part of the business.

Finally, we all know that there is no magic set of rules to achieve a perfect relationship when working with other suppliers. However, what we have learned by working with different partners in more than 20 cities across China is that a small investment of time, resources and capital at the beginning of an engagement will certainly reduce the risk of investing more than originally expected in the future.

Topics: Due Diligence, trading, Nearshore Outsourcing, ASCDI

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