What Isn’t Your Third-Party Partner Telling You?

How Supply Chain Due Diligence Mitigates Risk in Cross-Border Deals

Today’s companies are connected globally through supply chains that grant access to a wide
range of talent and materials. Companies utilise supply chains in various ways, including hiring
consultants, outsourcing software design or development, and buying raw materials.
Whatever the reason for working through a third-party, the result of operating through a supply
chain is that companies can gain the benefits of working with qualified experts or accessing
goods without paying the added costs of bringing the required services or competencies in-
house.

However, the savings of working with a supply chain can quickly outweigh the costs if a
company does not adequately perform due diligence. Supply chain due diligence is especially
important when the supply chain extends across national borders.

Why Supply Chain Due Diligence Matters in Cross-Border Deals

In general, due diligence refers to thoroughly investigating a third-party before agreeing to a
partnership. The investigation’s length and depth can vary depending on the potential risk that
each third party brings to a company.

It’s important to remember that due diligence is not a one-time-only event. Companies should
continually monitor all third-party partners to identify potential risks and quickly take action.
What to Assess During Supply Chain Due Diligence

Due diligence will vary somewhat from one company to another. Three key things that should
always be considered during due diligence are the third party’s financial, operational, and legal
risks.

Financial risks
Companies need to be extremely mindful of the third party’s accounting system and how it may
differ from theirs, especially when foreign currency is involved. Understanding tax principles and
differences will help inform a decision. Because currency differences present an added layer of
complexity to any business negotiation, tax and accounting due diligence is essential to mitigate
risk in any cross-border deal.

Operational risks

For cross-border supply chain deals, understanding cultural differences, assumed business
practices, and communication preferences will be essential to ensure that both parties are in
agreement about how they will conduct business.

Legal risks

Because laws vary from one country to the next, identifying foreign regulations and laws is
essential. The last thing a business wants is to end up embroiled in a costly international legal
dispute because it did not adequately perform due diligence prior to engaging with a third-party.

Conclusion

Many companies find that developing third-party relationships gives them a critical advantage
over the competition. However, there is always an inherent risk associated with working with
third parties. Because there are often other elements at work in forming partnerships, such as
connected networks or alignment with business objectives, it’s best to approach supply chain
due diligence objectively.
The stakes are too high when it comes to the risks associated with cross-border partnerships for
companies to blindly sign agreements with third-party vendors, suppliers, or agents. We help
businesses perform in-depth due diligence to mitigate risks and fully assess third parties before
a company enters into any type of partnership with them. Learn more about our services by
contacting us today.

 

 

 

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