In their headlong rush to globalize, companies around the world often conduct extensive, sophisticated analyses of the strategic and financial considerations of an overseas investment or market entry. But when it comes to selecting a local partner, assessing the strengths and weaknesses of the in-country competitors and understanding all the practical risks of doing business in a distant, culturally unfamiliar market, many companies are settling for less than optimum intelligence. With each passing day, the risks and consequences of this approach are becoming clearer.

Consider the following:

• The local operating partner chosen by a large telecommunications firm for its privatization project in Eastern Europe had been convicted of criminal fraud on four separate occasions in Germany. In two years of posing as an operational expert from the West, his past had never been uncovered.
• A western company bidding for corporate properties through a Latin American privatization was unaware that local government authorities were deciding to make additional properties available, which would tilt the process toward the specific interests of a competing bidder.
• The proposed local partnership team of a broadcast venture in Russia was closely connected to a particularly violent faction of Russian organized crime. The investors pursing the partnership only realized this after one of the proposed participants was murdered and a second suffered a suspicious "accident."

Lawyers and accountants correctly stress how difficult it is to conduct due diligence abroad, where potential business partners have a different approach to legalities, financial niceties and the exchange of "private" information. To better understand the strengths, weaknesses and dangers of a given business engagement, company executives are often encouraged to travel abroad, "press the flesh" and make their own assessments.

While that step should certainly be taken, investors must remember that they are the "road team": the playing field may not be level and the home team's rules apply.

When managers decide they need more business information than they can obtain from their own sales force, colleagues, normal advisors and contacts, they may be confused by the bewildering number of "consultants" available. There are experts on specific regions, countries, particular industries, geopolitical issues, business strategies and other specialized areas. However, it is very difficult--and often critical--to know the connections, loyalties and motivations of one's consultants.

For example, in India, an American power company recently hired one such "advisor" to assist in finding an appropriate local partner and to aid in raising local capital. As a key qualification, the Indian consultant had touted his local connections, especially his direct family relationship to a senior government official. It was later found that this local consultant had no appropriate personal or business relationships and no experience in any related industry. All he had was a common, famous last name.

The New Business Intelligence

In a new approach to obtaining precise, practical intelligence about individuals, companies and markets around the world, companies are increasingly turning to global investigative firms that are well known for their work in most parts of the world and are also able to leverage unusual local connections and intelligence abroad.

In fact, "intelligence" is a new buzzword in international business, for a full range of business needs--everything from high-end assessment of major companies in worldwide corporate contests, to planning new trade in an unfamiliar market, to identifying partners for overseas ventures.

Of course, not all intelligence engagements produce such dramatic outcomes. But they do share a common goal: to provide accurate timely, carefully assessed intelligence to enable companies expanding in uncertain new environments to make more informed strategic and operating decisions.

Targets of Understanding for Business Intelligence

Based on the recent lessons of business intelligence in new markets, a certain minimum of understanding is required when companies are candidates for an acquisition, joint venture, strategic alliance, involvement with project finance or critical supplier or distributor relationship. This intelligence includes the following:

• Is the company available?
• Is it over-leveraged, over-expanded or badly operated?
• Does it have significant contingent liabilities?
• What is its legal nature--public or private, single asset or complex business?
• What is the nature and extent of its operations?
• Is its management strong, well-connected, committed?
• What is the state of its technology; how committed has it been to research and development?
• Are they people of integrity?
• For US companies, are there Foreign Corrupt Practices Act issues?
• Doe they have a track record as partners?

Intelligence gathering skills can also be used to determine key information about one's competition. "Competitor intelligence" can, for example:

• identify current competitors in a geographic and industry market
• assess their various operating, financial and management strengths and weaknesses
• evaluate the likelihood of a competitor's moves or strategies which will significantly impact one's company.

Focusing next on "customer intelligence," similar skills can help companies to understand how buying decisions are being made by current and prospective customers--and who in the company is making them. For example, an exporter of high-end capital goods learned that buying decisions were not being based on price and support but rather on broader political matters.

Still other relationships and techniques can help companies to reach political risk judgements and provide a blueprint to the rules of doing business in a given country.

Intelligence can also be critical to solving problems once companies have already moved into an overseas market without an accurate appraisal of their partner. For companies selling goods or services in foreign countries, investigative support is especially critical to identify and solve headaches related to:

• Distribution systems controlled by the partner
• Distribution systems with kickbacks to customers
• Distribution systems with equity ownership by customers and employees.

For example, a consumer goods manufacturer eager to attach the Chinese market relied heavily on a local partner to build and activate its distribution network. The manufacturer later learned that the network was rife with kickbacks and pay-offs and was loyal to the local partner.

It should not be surprising that investigative and intelligence services are often used to address possible corruption or mismanagement of the affairs of one's affiliates or business associates. What is novel, however, is a growing reliance on intelligence services to plan, initiate and conduct marketing and business activities, especially in new geographic and industry markets.

Today's wisdom: gain as much intelligence as possible about your future business environments and associates--tapping the best possible international expertise and proven trustworthy sources. And do so before and during market entry--not after-- to avoid falling victim to the many seen and unseen threats of unfamiliar waters.

Chris Marquet is Executive Managing Director of the Kroll Associates, New York.