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Due Diligence In the midst of COVID-19

In the midst of COVID-19, why Due Diligence matter on the medical gloves and equipment suppliers?

Since the very first wave of COVID-19 on the global in general and Vietnam in specific, the market of medical equipment, particularly medical gloves (Nitrile gloves), has witnessed an unprecedented surge in demand on a global scale, and this trend shows no sign of cooling down for the time being. To catch the wave of this newly emerged business opportunity, many companies manufacturing medical gloves have been reportedly established in Vietnam, which target abroad purchasers and retailers. However, the mushrooming emergence of medical gloves suppliers, unfortunately, entails a certain risk to purchasers: The credibility of the suppliers.

Recently, the news has reported many cases that abroad purchasers and retailers were scammed by fraudulent suppliers in Vietnam by being provided with inaccurate presentations on such “suppliers” and their made-up factories. The booming demand for medical gloves leaves purchasers executing the contract with insufficient due diligence, which is regarded as the major reason for these fraudulent transactions.

To avoid surprises when engaging in the said transactions, there are some key scenarios to be considered that we are pleased to share with you, such as the following.

By law, to be considered legitimate manufacture of medical equipment such as surgical gloves, a company must fulfill the procedure of public announcement on eligibility for the manufacture of medical equipment (the “Announcement”). The Announcement stipulates preconditions to be met, namely, production facilities (factory, production line, warehouse, logistic), qualification of related personnel (educational proof, appointment decision, working experience), etc. By reviewing such an announcement, it allows purchasers to have a good grasp of the overview condition of the potential supplier before determining to execute the sales contract. For the Announcement, the purchaser can either ask the supplier to provide it or check directly on the website of the Ministry of Health. In addition to the Announcement, there are other legal documents that should be employed when the purchaser performs due diligence such as lease contract of the factory location, documents on the environmental impact of the factory, Enterprise Registration Certificate, CE marking Certificate, FDA labelling, etc.

Besides checking the legal documents of the potential supplier, it is advised that the purchaser should go a further step to carry out on-site check on the intended supplier by employing a third party based in Vietnam. Such an on-site inspection provides not only a distinct picture of the supplier business profile, which is a basis for the purchaser to identify the manufacturing capacity of the supplier, but also a close-up view of actual operation of the factory. During the process of inspection, there are certain aspects that the inspector should take into consideration such as:

(1) The conformity between the registered address and the location of the premise;
(2) The operating condition of the production lines;
(3) The number of factory workers; and
(4) Product and raw material storage.

Notwithstanding the above-mentioned aspects, there is no one-size-fits-all standard when it comes to due diligence in general and medical gloves in particular, purchaser(s) should develop their own check-list to best match with the nature of the transaction, the supplier, and available resources. By following these steps, the risk of fraudulent transactions shall be considerably reduced.

We hope that this article can provide traders with the necessary information to mitigate risks during this difficult period..