China Legal Departments Are Feeling the Pinch and Looking for Creative Solutions

As an unpredictable year draws to an end, organisations around the world are looking into their proverbial crystal balls in an attempt to forecast what is on the horizon in 2021. In Shanghai, in particular, organisations are faced with cost-cutting measures despite the country’s recovery from the pandemic and are therefore looking for creative solutions to fulfil headcount and save money.

Currently, the China business for many multinational corporations (MNCs) has bounced back with GCs reporting that revenue is close to, has reached or even exceeded revenue expectations pre-pandemic. However, other markets in which these MNCs operate are not faring as well due to the borders in China being closed and quarantine measures still being in place. China GCs are then either left with already reduced budgets or are being asked to make additional cuts to spending. Some general counsel are wondering if this is indicative of where the company plans to focus their growth and recovery efforts and if the China operations will go down with a sinking ship or keep the company afloat. Therefore, they are taking a restrained, cautious approach to staffing their teams, avoiding layoffs but not hiring replacements for those who leave or only filling critical positions.

Some legal teams are reducing overall spending by limiting use of external counsel and collection of fees or even changing their panel of external counsel based on costs. Others are relying on secondees from law firms more frequently than before as a solution to their lack of resources. And for companies with a little flexibility to hire, many are forgoing hiring senior lawyers as originally planned but instead are hiring more junior lawyers to help with more operational matters.

Though most corporate legal departments are taking on more responsibilities than before. For example, a few legal departments have taken on more litigation matters; others are seeing a rise in M&A activity. There has also been a greater focus on collaboration between functions to better support the business due to budget reductions.

To get the work done, legal leaders will need to look towards alternative solutions. While in China, the interim legal staffing industry is currently under-developed, as cost-pressure continues, more and more GCs are likely to start considering how they change their legal function to adapt to the new business environment. One of those way likely will be with the use of contract lawyers who work on a project-based model. We’ve seen this first-hand with an increased demand and interest in interim legal counsel via my colleagues in the US and Europe, and through our newly established interim team in Singapore. GCs may also consider looking into new technologies that will help manage and streamline workloads, saving their teams time on repetitive, tedious tasks.

Business has been impacted a lot, and there is still uncertainty in the market. While many are recovering relatively well, it is difficult for business leaders to see when things will go back to “normal.” Also, within the China market, there are more regulations and price-cutting policies by government right now; they are likely to continue the challenges and obstacles for the business going forward. Therefore, heads of legal and general counsel are looking for Q1 for answers and considering new business models and technology as the way forward.