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Expert web consultancy Gerson Lehrman Group has become the latest due diligence firm to lay off staff in China as Beijing intensifies scrutiny of the industry on national security grounds.
U.S.-based GLG has a network of experts that global investors can use to conduct due diligence on deals, several people familiar with the matter said. The company started laying off Chinese workers last month.
The layoffs come as the Chinese government cracked down on foreign consultancies this year, shocking international investors at a time of rising Sino-U.S. tensions. The campaign has made it harder for foreign companies that rely on consultants to help navigate the world’s second-largest economy to do business in China.
GLG declined to comment. But GLG cut about 3.5 percent of its workforce globally in May to better align its business with client needs, improve efficiency and accelerate investment in other areas, a source close to the company said.
The company announced last week that it had replaced former chief executive Paul Todd with former chief executive Gemma Postlethwaite of business information firm Aizent.
Sources close to the company said the reduction in China’s workforce is in line with the global reduction.
However, GLG originally planned to expand in China early this year, moving staff from Shanghai to new offices and hiring new staff, a person familiar with the matter said.
“GLG is upbeat in March and says business is booming. They are hiring and have just moved into a bigger office,” the person said.
GLG has stepped up compliance checks in recent weeks after the raids, the person said, adding that clients had become increasingly nervous about hiring Chinese experts.
A network of experts and other advisers who conduct due diligence for foreign companies have come under pressure in China after state media revealed in May that police raided offices of Triumph Group, which has extensive operations in China, for national security reasons.
Triumph is accused of using government agents to provide sensitive information, including military-related data, to overseas clients, according to Chinese state media.
The raids were part of a series of investigations by Capson this year into foreign consultancies in China, which also included Bain & Company and due diligence group Mintz, whose five local employees were detained in March.
The Financial Times reported last month that U.S. tech-focused group Forrester Research was cutting jobs in response to growing restrictions on foreign companies operating in China. The company said it would close its China office as part of a previously announced global restructuring.
Investors and foreign multinationals say the crackdown has made it difficult to conduct due diligence on investment and procurement contracts with Chinese partners and suppliers.
GLG said in its 2021 U.S. initial public offering prospectus that its “Greater China business unit,” which includes mainland China, Hong Kong and Taiwan, accounted for 6.8 percent of its total revenue in the first half of the year. It later pulled out of the IPO.
It warned in its prospectus that “the Chinese government may interfere or affect our operations at any time, which could result in material changes to our operations”.
“Rules and regulations in China and their enforcement may change rapidly and with little advance notice,” the company said in its IPO prospectus.