Part 3 – Sample Due Diligence Questions

Let the buyer beware. When shopping around for service providers in China , there is no such thing as full disclosure. One thing is sure – the interview stage is when your counterparty is at his most cooperative, open, and conscientious. Ask hard questions, and make sure you like the answers you receive. This is not the time for ambiguity or vague assurances.

1) Background

Who are they? Consultants with an industry specialty, or industry specialists who consult?

Where are they from? Expat? Shanghaise? Returnees? Taiwanese?

If they are a multi-cultural company, how do they see themselves? Expats with Chinese staffers, or a Chinese company with expats on the staff?

Why are they in this business? What other businesses are they involved in? How long have they been in business?

2) Experience – General

What is their work experience? What is their management experience?
How long have they had their own company?
If they worked for a MNC, what did they do? Did they have client responsibilities?

3) Experience – Specific

Do they have experience in your industry? Have they already done the transactions you will need them to do for you? Do they have experience with clients from your industry? Have they worked with clients of your size? Have they worked with clients who reside overseas? How much of their business is international? How much is repeat business? How much of it is referral?

4) Specialty -- Industry and transaction

Can they give you an overview of your industry in China ? Are they familiar with your target market? Where do they see the industry moving? Do they understand the industry drivers? How is the market for YOUR product developing? How does your business model fit in with the future of the industry in China ? What challenges do they foresee you facing in China ? How will they help you to overcome those challenges?

5) Range of activities -- do they do everything for everyone?

What do they do? What do they NOT do? If you have a problem that they cannot help with, what will they do about it? Do they have a network of professional referrals, a few classmates, or are you on your own? Do their different business activities relate to a specific set of competencies, or are they purely opportunistic.

6) Local experience & connections

What have they been involved with in your base Chinese city? (Get specifics) What deals have they done as consultants in the cities that matter to you? Have them describe their last 3 deals

7) Operating procedure

Are you the only client? How many clients do they generally have at any given time? What happens when they get 50% more?

What is their general operating method? How will they work with you if you are overseas? How long will it take them to respond to email? Will you be working with the person you are speaking with, or will there be an account executive? Try to meet anyone that you will be dealing with.

8) Payment

How much will they be charging for their basic services? You will want as detailed a cost breakdown as possible. How do they compare to others? Why are they cheaper or more expensive? How did past clients structure payment?

9) Value – added assessment of your business plan

Will they be able to assess the feasibility of your business plan, including marketing and operating plans? This is important if you are paying for business advice as opposed to hiring someone to complete a specific transaction.

10) Who owns them? Who invests? Who do they own or have relations with?

Make sure you get clear answers about who the actual owners are. This is can be a problem – particularly in cases were a partnership breaks up. There is nothing wrong with talking to an employee, unless he has represented himself as an owner.

11) References

You want at least 3 international client references from overseas businesses in a related industry. Try to make sure they are recent. Do not trust local references, former colleagues, or people that they have done business with when they worked at other firms. If you cannot get current referrals to international clients, you should probably not be doing business with this firm.

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