The international due diligence process can be challenging for even the most seasoned professionals. The location is unfamiliar, the risk profile is unclear, and environmental hazards can pose significant liability. Working with a local partner is a great way to mitigate these risks and help understand these uncertainties. Selection of the right partner is a crucial factor in a successful due diligence process.
Many multinational firms offer environmental due diligence services, and these specialists can competently offer different kinds of assessments in many countries around the world. Although their geographical coverage is vast, many of these firms lack a key ingredient to success: a true, genuine local perspective. This article highlights how a local perspective can help provide unique insight for the due diligence process.
Knowledge of Local History
A consultant with a local perspective will understand the specific historical circumstances surrounding an identified issue, and their team of specialists will turn the typical “snapshot” of the due diligence process into a complex analysis. Local businesses understand the history of the country, the reputation of the different stakeholders, and the previous history of the acquisition target in an intimate way.
Besides acting as a historical reference, these local consultants can also use their historical knowledge to contribute to the implementation of the diligence process in several ways. They can help identify possible issues which are not clearly apparent, like tensions between different groups of stakeholders. They can suggest areas to focus the process more effectively by considering what other issues have come up in past investigations. They can help identify priorities for compliance actions based on their relationship with and understanding of local regulators. This historical knowledge, when combined with their company’s technical expertise, offers unique value and insight to due diligence professionals that will help ensure a more accurate and successful examination of the target.
Appropriate Mindset and Operating Experience
A local consultant will view the unique challenges in their geographies in a different way than foreign professionals who work from abroad. A potential issue identified during due diligence will be analyzed using a broad understanding of the impact on the client, the local risk profile, the regulatory environment, and the operational challenges present in the region. The due diligence exercise will incorporate many of the unique insights that can be gained only by working for a long time in the local region, which provides significant value to clients, especially those operating in parts of the world where they’re unfamiliar.
Cultural and Social Insights
A significant part of due diligence is the appropriate consideration of social factors related to the target, many of which are not easily understood by outsiders. Foreign professionals who are performing due diligence may not realize which cultural factors are important to different stakeholders and could fail to properly recognize different risks associated with a potential investment. For example, some regions may have more active labor organizations, and others may be more skeptical of foreign investors. These types of factors can influence the success of a project and are not readily obvious from the outside.
This area is often neglected in the process because of the difficulty of finding trusted partners who can help gather information. Local consultants can help with that complex information-gathering process and can provide valuable insight into these intangible factors. Information about a population’s politics, values, and priorities must all be considered when evaluating the real risks to an investment, and a local perspective and mindset is critical to properly understand these topics.
Practicalities around Regulatory Climate
Qualified local consultants intimately understand the regulatory climate of their countries. Their teams understand which current regulations are most important, they understand the intent of why those regulations were set, and they understand how the regulations are enforced in practice. Some regulators take a very strict stance on certain issues and a more collaborative approach on others. This insight requires a long history of operational experience in-country and cannot be effectively gained by foreign personnel who are visiting only for a short-term project.
A proper risk analysis also considers potential future changes to the regulatory climate, and local experts are best positioned to offer this kind of advice. They understand the political and social context of the country and can offer their own opinions on trends and likely changes to the appropriate regulations.
More Effective Post-Transaction Support and Services
A strong local partnership helps ensure that post-transaction changes in the business happen smoothly. After a merger or acquisition, business continuity must be maintained, which is particularly challenging in a foreign country. The corporate policies and corporate culture of the acquirer must be integrated into and adapted for the local culture. This can be particularly challenging in international environments. A misalignment of expectations around working hours and methods, cultural practices, compensation, or other relevant issues can hurt a company and a full understanding of these factors is critical for success. New employees must be onboarded into the acquirer’s business using a method that creates buy-in and a feeling of ownership. All of these services are done more effectively by partnering with an effective local partner who understands the history, culture, and politics of the country.
In summary, a local perspective is a crucial part of the due diligence process. Consultants with local knowledge intimately understand the history of their operating environment and can turn the typical snapshot of due diligence into a complex, multi-layered analysis. They provide cultural context to any issues which are identified and understand the practicalities of the regulatory environment. Finally, these experts can provide insight which add a level of strategic depth to the due diligence analysis and ensure more effective post-transaction support. These benefits are invaluable for a serious international due diligence process and should be considered when selecting professional consulting services.
Inogen Alliance is a global network made up of dozens of independent local businesses and over 5,000 consultants around the world who can provide these intimate boots-on-the-ground insights through one point-of-contact and help make your due diligence process a success. If you want to learn more, you can explore our individual Associates or Contact Us. Watch for more News & Blog updates here and follow us on Linkedin.
The Inogen Team