Executive Summary

Local purchases in China by US corporations and their Chinese subsidiaries will reach an estimated annual $500BN in 2008. The size and rapid growth of buying in China for production and import purposes, poses a massive risk of corruption that has not been adequately addressed by US public corporations and their boards.

While some of these questionable business practices may have been silently tolerated in the past by US management in order to accommodate rapid growth, today they represent very serious legal and ethical challenges that need to be addressed.  We believe that US corporations can neither afford to wait for evidence of corruption to emerge nor to undermine local management through intrusive and frequently ineffective audits.

Instead we advocate a systematic process, we call Forensic Sourcing, supported by a neutral outside party, that reviews all significant purchases and subjects them to market based competition and lets the resulting data reveal both economic inefficiencies and legal irregularities.

The expertise and independence brought to the process by a neutral third party consultant working with a law firm, helps protect US management from legal challenges under current law (Sarbanes Oxley and FCPA) and provides superior economic benefits in the form of better terms and pricing compared to internally driven reviews.

A typical project will start with a six week diagnostic phase in order to size the economic sourcing opportunity and assess the organization’s vulnerability to corruption at a high level.  If the diagnostic phase indicates that there is an economic opportunity or that corruption is likely, a Forensic Sourcing project prioritized based on opportunity and corruption risk should be launched. Typically such a project takes about six to nine months, depending on scope and complexity of the categories addressed and yields approximately 8-15% in annual savings.

The Mitchell Madison Group has recently partnered with The USA China Law Group, to bring the groups critical legal and local China expertise to the Forensic Sourcing Audit process in China.

As Mitchell Madison’s legal liaison, The USA China Law Group brings to the forefront their established strategic relationships with major investment banks, asset management companies, multinational corporations, and governmental and non-governmental organizations to strengthen a firm that already has extensive experience with e-commerce issues and has worked extensively on sourcing and supply chain transformation, global payment systems, and electronic trading networks.

Founded in 1994, The Mitchell Madison Group is a premier global management consulting firm that combines broad strategic capabilities with deep functional skills to deliver value to their impressive roster of Fortune 500 clients.  Mitchell Madison is 550-consultant strong firm, whose aforementioned worldwide roster of clients includes seven of the top 10 commercial banks, seven of the top 10 communications companies, six of the top 10 investment banks and securities companies and five of the top 10 European industrial companies.

The USA China Law Group’s domestic and international experience and expertise bring significant value to The Mitchell Madison Group allowing them to capitalize on their ability to explore, identify and validate new business opportunities, while extracting greater value by providing practical business and legal advice to their international clients.

Forensic Sourcing in China

To view the Forensic Sourcing PowerPoint of the article authored by Hans Dau of Mitchell Madison Group and Robert J. Allan of the USA China Law Group click here.