Brief Solution for Risk Management before Cooperation

 

 

» Applicable Scope

 

The Solution is a recommended reference before business cooperation, especially for the first-time cooperation, which helps enterprises prevent risks caused by poor fulfillment capability and credit standing of business partners.

 

 

» Frequently Asked Questions

 

“We intend to cooperate with a company based in Beijing , but we know little about its real status. How could the potential risks be avoided?”

 

“We are in cooperative negotiation with a company located in another province. The company only provides us with its business license. Is the company reliable?”

 

“How to identify whether the buyer is able to pay in time?”

 

 

» Brief Solution (Sample)

 

I. Causes of Risks before Cooperation

Cooperative risk is caused by deficient consciousness on the potential risks in business cooperation. The causes of cooperative risk generally consist of the following two types:

A. Objective factors: Cooperation is retarded due to external factors such as changes of business environment, state policies or natural disasters.

B. Subjective malice: It generally refers to the risks of one party in contractual capacity. The real strength of the enterprise is exaggerated or false information is made up in order to promote the cooperation.

 

II. Significance of Risk Prevention in Advance

The integrated enterprise risk management system includes risk prevention in advance, risk control in process and crisis intervention afterwards, among which, risk prevention is the first step and also the basis in the risk management system. Risk prevention helps enterprises hold the initiative in commercial activities and reduce risks and losses.

 

III. Countermeasures

A.  Due diligence investigation

1. Significance of due diligence investigations

The due diligence investigation is the investigation on the asset and credit standing of an enterprise, which includes the check on its history, operational state, asset and credit standing. The due diligence investigation helps enterprises avoid blind investment and operational risk, and make appropriate decisions

 

2. Basic Methods of Due Diligence Investigation

Due diligence investigation on the business partner can be conducted by an enterprise itself basing on its actual requirements. The basic process and methods for due diligence investigations include:

 

a. Investigation on the basic information and history of a the subject enterprise via registered information kept at relevant authorities;

b. Field visit to the subject enterprise for its actual operation status;.

c.  Investigation on the reputation, public praise and credit standing of the subject  enterprise via interviews with relevant departments and individuals;

d. Overall analysis on the above information,to access the operational strength, credit record and development prospect of the subject enterprise before cooperation.

 

Due diligence investigation can be conducted by the appointed staff from the enterprise, or the professional investigation agents for an in-depth knowledge on the due diligence of the business partner.

 

B.  Other methods

To invite legal experts to work out proper contract terms is also one of the common methods for cooperative risk prevention. The combination of legal techniques with due diligence investigation is an effective way to prevent risks before business cooperation.

 

 

Links

» Comparision and Analysis of Various Investment Modes of

    Foreign Enterprises in China

» Other Risk Research Report on Business Investment

» Talking of Investment Risk Control via a Case