Is the spread of the coronavirus causing you to lose track of your compliance obligations?

By Juliet Lui | Director of Corporate Strategy & Development | The Red Flag Group®

As the outbreak of the Wuhan coronavirus accelerates across China, the world’s largest manufacturing economy has almost ground to a halt. Analysts and economists have already begun talking about the economic fallout as a result of factories remaining shut and transportation routes being cut off.

Transparency in question

Yet the increasingly harsh quarantines and restrictions on its own citizens are signs that the Chinese authorities are struggling to contain the virus in fear that their image as the world’s most commercially successful authoritarian regime might no longer be validated. There have been multiple reports that the Communist Party may have suppressed early efforts to alert the public of the outbreak.  Transparency and political freedoms are conducive towards thriving free markets, a notion that China has long attempted to defy, and this situation might be the ultimate test.

Insights and intelligence to protect business disruptions

The Communist Party’s main priority is to reassure the world that China, and by that they mean China’s economy, will bounce right back under the guidance of their leadership. Businesses, however, may be wise to hedge their supply chains and manufacturing partners in ways that are more resilient against the uncertainty that comes with an authoritarian government. At the same time, it is important to ensure that the new risks are folded into your existing due diligence programme. Due diligence is more than just gathering data, it is about being able to have insights and intelligence to respond to potential business disruptions.

8 ways to protect your supply chain when using Chinese suppliers

Is your supply chain at risk?

Steps to ensure the resilience of your supply chain

Inventory is predominantly held offshore in China.

Consider where your nearshore partners are located (e.g. Mexico for USA, and Turkey for European countries) and check whether their due diligence records are up to date.

If your goods are being routed via alternative shipping partners, ensure that due diligence is performed on them as well.

Force majeure clauses are already being used by Chinese companies to avoid contractual obligations and penalties.

Not all impediments can be covered by a force majeure clause (e.g. delays due to shipping rather than manufacturing). A review of existing contracts to assess potential disruption should be done.

Contracts do not contain wording on how to address infectious diseases and epidemics.

Add clauses dealing with infectious diseases into template contracts and upon contract renewals.

Due diligence has not been performed on alternative suppliers.

Our IntegraCheck® due diligence can be performed as quickly as 48 hours. We are more than data gatherers, we can quickly adapt for cases which have urgent and special requirements.

Is your due diligence provider based in China and unable to help you meet your compliance obligations?

Our Research & Analysis teams have been strategically set up to avoid such single points of failure, and our China due diligence services remain at full operational capacity due to our staff in Hong Kong and Malaysia.

Procurement and Channel teams are rushing to find alternative suppliers and partners, without consulting Compliance.

We can assist in bridging the communication to your Procurement and Channel teams by outlining clear and concise solutions for due diligence. Instead of asking open-ended questions to a team who is under stress, we can help with a proactive approach that specifies turnaround times and demonstrates the value of due diligence to avoid further complications.

Existing due diligence is not appropriate in managing the new risks posed by the coronavirus outbreak.

Our team of experts will specialise our research to include new business and integrity risks that have arisen (e.g. newly issued travel bans disrupting business continuity, or potential risks of trafficking through underground routes due to both export and migration restrictions).

Difficult to locate documentation and due diligence reports done on your third parties.

Our SaaS software Platform, Supplier Integrity®, helps manage your third parties, from onboarding to continuous monitoring. New risk factors such as travel restricted locations, health and safety risks and new regulatory factors can be added to the automated evaluation system so all impacted suppliers can be assessed at once. It is used as a centralised repository to manage third party compliance risk.

Our advisors at The Red Flag Group® are currently working with clients to stay on top of their compliance obligations in light of the coronavirus outbreak. Contact us and we can help you assess whether your business might be affected.


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