Identifying Risks in the China Supply Chain

Naturally, every business environment has certain risks. But for many companies, the operational risks in China are the most complex of all.

Do you have questions about identifying specific risks in China? Are you taking the appropriate action to mitigate threats there? If you're looking for some valuable insights about these issues, I strongly suggest spending a few minutes with the conversation that that been unfolding at Rich Brubaker's All Roads Lead to China blog.

For instance, in a post from earlier this month, Neal Beatty, Regional Director, Global Client Services for Control Risks, offers some solid advice about identifying, planning for and managing risk in China. Beatty outlines a long list of potential risk concerns, ranging from compliance/integrity and corruption/graft to labor disputes, natural disasters and political and regulatory risks. And, of course, as Beatty says, what makes China unique in that political, cultural and commercial risks are interconnected, thanks to "engrained local business culture and business practices, and very patchy, often lax, legal and regulatory enforcement."

So, what does it take to succeed in this uniquely risky environment? Beatty suggests doing your homework and developing a comprehensive risk management strategy:

I feel the biggest risk is not taking the time to sit back and look really seriously at "what if this doesn't go according to plan?" or "what if this should happen?" The opportunities in China are huge, as all the business books tell you, but although most people are aware to some degree that there are very considerable risks out there, not so many are keen to think too long about the downside and address that head on when they don't see any immediate, severe problem.

If you are new to China, whether sourcing, selling or manufacturing, the first step needs to be to ask for advice. But who to ask? Lawyers are a necessity, but as I have seen from my own experience, they do not always give you the full picture of the risks your operation may face.

So the biggest risk is actually not actively assessing and properly planning for the risks! Many firms still don't really do this until something goes wrong.

In other words, as I have said before, don't finalize any contracts until you have completed your research thoroughly. Be clear on your objectives. Know your limitations. And fine-tune your supplier risk strategies.