Acritas’ data provides both industry and regional context, so GCs and their legal departments can confidently benchmark their legal needs against their peers. Here, my analysis of the most recent market data from Sharplegal1 to determine the driving forces behind U.S.-based GCs’ legal needs in China.
Chinese Legal Is Holding Steady
By the end of 2015, 59 percent2 of U.S.-based GCs told us that they will have legal needs in China in the next 12 months. This is a marginal increase from 2014, when 58 percent3 of U.S. GCs had legal needs in the country. While the 2015 data highlights that the needs in China remain fairly stable, the percentage has fallen since 2013, when 66 percent of U.S.-based GCs had needs in China. However, even with a reduced need, China remains the third most important international market for U.S. companies.
Where Is U.S. Spend Originating?
In assessing the legal needs of your peers, our data is robust enough to provide regional and industry breakdowns to help organizations benchmark their legal spend more effectively. So what types of firms are driving growth in China’s legal market?
Demand is very consistent at a regional level across the U.S. Only in the South do legal needs in China fall below the U.S. average. Looking more closely at the data reveals greater variances across the U.S. states. Perhaps unsurprisingly, California, with its high concentration of technology and electronics companies, tops the list, with 70 percent of legal departments based in the Golden State confirming a need for international legal support in China.
Acritas’ data also has the capability to cross-examine which industries are contributing the most and the least legal demand in China.
The pharmaceutical industry tops the most list, with 75 percent of organizations needing external counsel in China in the next 12 months. Compare that with general counsel in the real estate, construction or engineering industries, where only 31 percent expect to need legal advice in China in the year ahead.
Legal Spend Grows
While the percentage of organizations needing legal advice in China has remained stable in 2015, those that have needs are forecasting an increase in spending over the next 12 months. On balance, when we look at the U.S. organizations with needs in China, 38 percent more organizations are predicting an increase in spend, compared with those planning to reduce spend, making China a key growth market for U.S.-based law firms with international capabilities.
Tale of Two Cities
It may come as no surprise that when U.S. GCs were asked which areas in China where they required legal advice, the two urban epicenters were top, with 54 percent of U.S. general counsel citing demand in the Shanghai and 41 percent in Beijing.
Demand from Within China
Acritas’ data can also provide vital insight for GCs who may need to acquire legal advice in China in the future,4 and it highlights potential risk factors when entering or continuing to do business in the Chinese market. When asked what industry challenges they are currently facing, GCs spoke most about difficult market conditions, challenges with the economy and a competitive market.
A technology sector GC cited market conditions in China as a key concern, saying, “The market saturation [is a challenge]. In consumer electronics, it’s all about this trend: supply exceeding demand in the market.”
Within the transportation industry, oil prices are a major issue. “The biggest challenge of our industry is that the price of the crude oil is too low for our industry .... [If] the petrol price is low, this is actually not good news for our industry,” one GC responded.
An energy/utilities GC shared his concerns about market conditions too, particularly in relation to “[e]xcess capacity [and] lack of orders,” adding that there’s “too much pressure on the downwards economy.”
In manufacturing, one GC talked about the challenge of how to deal with the decreasing economy: “The current economic environment is not good. How we can respond to this kind of feedback is the problem for everyone.”
Another respondent in a chief legal role in the energy/utilities industry confirmed that the current economy is causing the biggest challenge to businesses in their industry as well, noting, “China’s economy is decreasing. We provide products to manufacturers, and therefore, in fact, it affects us a lot.”
For any organizations doing business or planning to invest in China, understanding the market conditions and the challenges faced by fellow GCs will provide valuable insight to best prepare your legal department and business for the challenges that lie ahead.
Join the Debate
In 2016, Acritas celebrates 10 years of providing detailed research through Sharplegal, the world’s most comprehensive annual study of the global legal market. If you would like a detailed report on the legal needs of any region or industry, (generated from data provided by your peers), then all you have to do is complete a short Sharplegal telephone interview with Acritas. Please email Deirdre Roddy at email@example.com or go to acritas.com/takepartinsharplegal2016 to register interest in participating.
Lizzy Duffy, Vice President of Acritas
1 Acritas interviews over 2,300 senior corporate counsel across 50 countries every year for Sharplegal, the world’s most comprehensive annual study of the global legal market.
2 Based on the responses of 343 U.S. corporate counsel in organizations with revenues of $50 million and above who took part in Acritas’ Sharplegal survey in 2015.
3 Based on the responses of 375 U.S. corporate counsel in organizations with revenues of $50 million and above in who took part in Acritas’ Sharplegal survey in 2014.
4 In 2015, Acritas interviewed 54 corporate counsel in global elite organizations in China (with revenues of $1 million and above).
Published March 4, 2016.