In the era of globalization became increasingly important the role of the information. Knowledge is a key element for the management of a company or organization to gain competitive advantage and achieve growth targets in the medium and long term. Much more than in the past, today companies seeking to enter new markets that provide niches waiting to be discovered consequently increasing the risks associated with the lack of specific information on the new competition and new economic environment.

1. 1 B e d f o r d R o w , W C 1 R 4 B Z L o n d o n – U n i t e d K i n g d o m
2014
Due Diligence
Focus on China and Russia
Michela Gatti
G3 Intelligence Limited

2. G3 Intelligence Limited 1
In the era of globalization became increasingly important the role of
the information. Knowledge is a key element for the management of
a company or organization to gain competitive advantage and
achieve growth targets in the medium and long term. Much more
than in the past, today companies seeking to enter new markets
that provide niches waiting to be discovered consequently
increasing the risks associated with the lack of specific information
on the new competition and new economic environment.
Even greater risks when referring to countries like China, Russian or
Latin America, where economic information of companies are not
necessarily computerized and easy to find except by site staff.
Strategic intelligence and due diligence are an important manager's
tool and has a key role to play in every area of management and
corporate determination of future plans.

3. G3 Intelligence Limited 2
Due Diligence in China
In the context of joint venture operations in China is frequent
recourse to equity joint ventures in which Chinese companies
contribute all or part of their structures as a contribution to the new
entity. This formula meets the needs of foreign investors who wish
to incorporate the company as their potential Chinese competitor
and avoid that the same assets are used by this in the future,
however, involves certain risks should not be underestimated,
especially in the due diligence phase.
First of all, the difficulty in finding reliable local consultants,
followed by issues related to the accounting records, since the
international accounting standards have been introduced recently
and not many companies today are using them. Another problem is
also the poor accessibility to public records and the difficulty in
assessing the real exposure of the company to the banks, a situation
that arises from the recent growth of Chinese companies that made
it necessary to get credit for the face of strong domestic demand.
Tax evasion is very high and the payment of all local taxes should be
based on careful analysis.
Different solutions can be taken to limit the risk, however, the first
thing to do is a careful analysis of the company, both in view of
future purchase, that joint venture, or of mere cooperation or
supply contracts.
Due Diligence is also important in reverse, ie if it is a Chinese
company that intends to invest in Europe. However, it is essential
starting from a careful analysis of the company with which it
maintains relations.
On the basis of estimates of A-Dragon Capital Index, in 2011 they
arrived in Europe investment by Chinese companies, for $ 10.4
billion, rising to 12.6 billion in 2012, or about a third of all Chinese
investment abroad. Acquisitions such as Weetabix in England, Kion
and Putzmeister in Germany, Bang & Olufsen in Denmark, Ferretti
and Fastweb in Italy, and the sorties of the Chinese sovereign fund
infrastructure British have filled the headlines in 2012.
Due Diligence in Russia
Even in Russia, a country characterized by a high level corruption
and the difficulty of doing business due to laws complicated and not
well known is essential to initiate a careful analysis of the target
company before starting business negotiations. And like in China, it
is necessary to make use of on-site staff.

4. G3 Intelligence Limited 3
Transparency International, in its latest report "Corruption
perceptions" has placed Russia in 154th place among 178 countries
in the world, along with Cambodia, Central African Republic,
Comoros, Congo, Guinea-Bissau, Kenya, Laos, Papua New Guinea
and Tajikistan (Italy occupies the 67th place), considering the
volume of corruption in Russia about $ 300 billion annually.
The annual report Doing Business 2011, prepared by the World
Bank, placed Russia in 123th among the 182 countries, ranked
according to the criterion of "the ease of doing business."
For many observers, the main problem of the Russian economy is to
encourage the development of small and medium-sized enterprises
in the presence of a banking system still young and often inefficient.
Several banks are owned by the "oligarchs", ie wealthy businessmen
linked to political power, which often use the depositors' money to
support their businesses.
Encouraging foreign investment to the country is a big problem,
because of the particularities in the Russian legal, cultural, linguistic
and economic development. Nevertheless, in recent years there has
been a certain influx of European capital, attracted by cheap land,
from a lower cost of labour and higher rates of growth than the rest
of Europe. The Due Diligence must therefore be addressed and well
focused, mainly run by people who are familiar with the Russian
environment.
In fact, the centre of gravity of the world economy was moving more
and more to the east, as also said the famous U.S. economist Nial
Ferguson, placing the centre of global GDP "just north of
Kazakhstan", or in Russian territory, but with the eyes wide focused
on Asia.
Nearly 150 million of attractive customers for our companies to
which, in addition to the usual rich, include fewer poor (in 2012 are
17 million, 12% of the population, a minimum of 20 years) and
especially more and more members of the middle class

5. G3 Intelligence Limited 4
From http://www.emergingmarkets.org/
October 2013
Russia has had a bad few months. There are signs that the economy
is growing again – but not at a rate that will make everyone happy.
The summer’s reverses in emerging markets reached Russia when
two government bond auctions failed, in August and September…
All this came on top of a sudden decline in growth in the first half of
the year. Most economists say economic growth will recover in 2014,
but there is a longer-term question of whether consumer demand
can replace energy exports as the economic driver, as Russia feels
the impact on gas prices of the US shale revolution…
Leading economists interviewed by Emerging Markets expect the
slowdown to be short term, caused by rapidly growing consumer
debt at excessive interest rates. They foresee a quick revival of
growth, although not at the annual rates of 6–7% seen before 2008.
Darya Isakova, economist for Russia at VTB Capital, foresees a 1.7%
growth rate for this year, accelerating in the second half, and a 2%
growth rate by the second quarter of 2014. Investment is growing,
the 2013 harvest was good, government expenditure will expand in
the second half-year, and there is a global recovery, she says…