When Everything Checks Out

I have been on both sides of factory due diligence in China: assessing suppliers before a major contract, and later working with them through years of project execution. A strong technical due diligence is essential. Welding procedures, quality systems, equipment, materials and fabrication capability all need specialists who know exactly what they are looking at.

When a supplier’s report shows an exceptionally low weld repair rate, that apparently positive result may itself deserve a closer look. In some Chinese factories, there can be a strong instinct to present the best possible result to the customer, particularly when poor numbers may reflect badly on the team or management. The issue is not whether a low repair rate is possible, but whether the number reflects production as it actually happened. An experienced welding or NDT specialist will therefore look behind the reported figure, at the underlying records, inspection practices and what can actually be observed on the shop floor.

A good due diligence also depends on recognizing what deserves a closer look, and understanding what it means in the context of that supplier and project.

Are these the people who will build your project?

During one factory visit, I noticed something small: the welders we were shown had brand-new coveralls and even brand-new safety shoes.

It proved nothing. They may simply have been well prepared for the visit. But it made me wonder how representative the group was of the wider production workforce. Were these the people we happened to see, or experienced lead welders selected for the visit? Would the same level of experience be present across the workforce once production ramped up?

There is a second question: how stable is that workforce? As elsewhere in heavy manufacturing, Chinese factories rely on a mix of permanent employees and subcontracted labor. Skilled crews can move between yards as projects start and finish. In established industrial clusters, that can give factories access to a large pool of experienced trades. Elsewhere, a new factory may have impressive equipment and plenty of space, but find experienced workers much harder to attract.

There can be another dimension to subcontracted labor. Poorer working conditions and longer hours for subcontracted workers raised questions not only about workforce stability, but about fatigue, motivation and ultimately the consistency of the work itself.

The people you meet during due diligence can tell you something about a factory’s capability. The harder question is what the workforce behind that capability will actually look like once your project moves into production.

What does your supplier actually control?

Most large Chinese heavy manufacturers I have worked with operate their own production facilities. So when I encountered a different model, where the company signing the contract relied on facilities, equipment and workforces belonging to other companies, it raised a different set of questions.

The factories were real. The equipment was real. The people running the projects were capable. But they did not necessarily belong to the same company.

That distinction matters.

Who employs the workforce?

Who decides how the yard’s resources are allocated?

If production is spread across independently operated yards, how consistent are the quality management systems and working practices between them?

How secure is access to the facility for the duration of your project?

If something goes seriously wrong, what financial strength, assets or contractual security actually stand behind the company you signed with?

This distinction can be easy to miss during a few days of factory due diligence, when the immediate focus is understandably on whether the facilities and people are technically capable.

The risk can also be underestimated further up the organization. From a management perspective, having access to a capable factory can easily be mistaken for having control over its capacity and resources.

The deeper question is not simply whether the capability exists, but how much control your supplier actually has over it.

When capacity is shared, who has priority?

I have visited a yard where commercial fabrication was taking place alongside military shipbuilding.

This can mean controlled areas, restrictions on photography and visitor registration, with additional limitations on where foreign personnel can go.

These may be manageable during a two-day due diligence visit, but rather different when a project requires resident inspectors and regular client access.

There is also a more basic question: if your offshore wind project and a priority domestic program need the same workshop or quay at the same time, who gets priority?

The answer is unlikely to be found in a capacity presentation.

These are only three examples. In practice, the list of signals worth following is much longer.

Look beyond the checklist

Some of the most useful clues in factory due diligence are not hidden at all. The workers you are introduced to, the restricted area at the other end of the yard, or the relationship between the company you are assessing and the factory you are standing in may all deserve another question.

A blind spot is not always something you failed to see. Sometimes it is something you saw clearly, without recognizing what it represented.