Navigating cross-border due diligence: challenges and mitigation strategies

Engaging in business affairs with foreign companies can be challenging. This is particularly true when it comes to addressing concerns over their potential environmental and social impacts, accusations of unfair business practices, as well as competition with local companies.

Thus, the European Commission’s Corporate sustainability due diligence, the US Foreign Corrupt Practices Act (FCPA), and the UK Bribery Act advise businesses to really know who they are conducting business with by carrying out due diligence.

Identifying risks

Due diligence is not a walk in the park for foreign companies. This is due to several unique challenges and risks that may arise, including cultural differences, language barriers, complex regulations, intellectual property concerns, human resource issues, political instability, and intense competition.

First, the regulatory environment can be complex. China, for example, has a complex regulatory environment that can be difficult to navigate, as well as various regulations by region or industry. Chinese companies may also lack transparency in important areas such as financial reporting, ownership structures, or compliance with laws and regulations.

Second, cultural differences can further complicate the process, and access to sensitive information can be restricted. For example, Japan is a country with the stereotype that “the people are extremely law-abiding”. It’s largely true that the government itself complies with privacy protection regulations, including keeping the records of those who violate the law under wraps. In general, criminal and court records — with the exception of Supreme Court records — are not open to the public domain.

In contrast with Japan, Thailand court records are accessible to the public even though they are not available online in an integrated manner. Hence, one should pay a visit to the courts to access it.
Third, language barriers can be a significant challenge, as many business records and documents are written in local languages.

Overcoming Challenges

To overcome such challenges in conducting full-scale due diligence for potential business partners, suppliers, and supply chains, a third party equipped with local experts is needed.

Integrity Asia provides comprehensive due diligence, carried out by local experts and supported by advanced technology. This must be done in order to prevent failure while performing proper due diligence. This failure may cause companies to be vulnerable to financial losses, legal penalties, damage to their reputation, and other negative consequences.

All things considered, conducting appropriate due diligence is essential in order to mitigate risks and make informed business decisions.

Putri

Photo by Mathias Reding on Unsplash