Downsizing your China team, what do you need to consider?

Recently, there has been a lot of discussion over the concentration of supply chains in China, and downsizing. The general consensus is that many feel there needs to be more diversification. In addition, factors such as environmental concerns, trade tariffs and hostile attitudes to foreign firms have pushed companies to reconsider their sourcing strategies. With this in mind, plenty of law firms are enticing companies to hop on the bandwagon.

As mentioned in the opinion piece written by Kinyu CEO Benjamin King, the reality is that China will remain a central part of most supply chains for many years to come. The result is that total diversification is unrealistic. However, more and more countries are looking at re-shoring or at least nearshoring for some components and assembly.

So, if you plan to diversify, you may need to reconsider the size of your team. How will downsizing affect your China team, and what are your options? Here are a few points you should consider:

Developing a new team structure

You will most likely need to rethink your China team organizational structure when downsizing. It may not be as simple as letting a couple of people go. Entire departments or functions may have to be cut or indeed merged. As a result, it is much better in the long term to draw up your new structure from scratch instead of reshaping what you have now.

Who to keep on the ground

Once you have your new structure, you must work out who can best fill these roles. Again, you will have to balance experience against versatility and long-term planning. Whilst some team members who have been with you longer will know more about the company and operations, they may not necessarily be able to adapt to your new structure.

Downsizing, redundancy and budgeting

Before making any decision, you must understand all the impacts of letting your staff go. It is never an easy conversation, but preparations can be made in advance so that you are in control of the situation.

The cost of redundancy will always be a factor, as people who stay with you longer will be entitled to a more significant pay package. Before making any decisions, seek advice on the costs and make sure your management team has budgeted for this.

Outsourcing Administrative functions

If you plan to hire an HR team or accounts department, it’s worth checking the outsourcing options available. For example, it is possible to outsource the financial controller role to another firm; the firm’s representative can safeguard your company chops, deliver monthly P&L, and upload payments to your banking system for your approval. The same goes for HR; since your team headcount will be smaller, such an operation may not be so complex. Therefore, this is an effective way to downsize your operation whilst continuing to run it smoothly. Of course, you must work with a licensed and professional services firm for this part. Kinyu has a partnership with CW CPA, which provides this service alongside many others.

Closing your entity

When downsizing your team, you need to ask yourself: do I need a company to operate this, or am I able to do it myself? Some scenarios may require you to keep your entity. For example, if you use the entity to export or as a sales operation. However, if it’s mainly to house your sourcing operation, it’s not strictly necessary.

Closing your entity is not a straightforward process. Just like opening a company, there is a lot of paperwork that you will need to file with the local government bureaus, and it takes time to close a company. However, it will allow a light-touch operation with a quicker exit strategy.

Not sure where to start?

The China Desk supports companies that prefer to have a light touch operation. As part of our strategic HR and management offering, companies can cost-effectively maintain operations in China. If you find this task a lot to digest, feel free to get in touch to see how we can help.