I know if I write on something relatively neutral and light like Chinese food or great Presidents I will get a lot of comments and no e-mails. I know if I write on a highly technical legal subject I will get just a few comments and a few probing e-mails. I now know that when I write about law firms in China, I get surprisingly few comments but a whole host of e-mails. My recent post on an ABA Journal story on foreign law firms in China is a great example of that.
I received a whole slew of e-mails in response to that post, many of them of the “isn’t such and such firm a joke” or can you even believe so and so China lawyer is still even in China” variety. Most of them concluded by asking me to do a post on what they had sent me. I usually respond to these sort of e-mails by saying I also am fascinated with this stuff, but I do not think I am terribly well positioned to write on such things and I am not sure I would want to even if I could.
A very loyal reader at an absolutely top tier mage international law firm with a very strong China presence wrote me the following e-mail in response to my ABA Journal post:
I read with interest your recent post ‘Chinese Foreign Lawyer Ethics Rules Unclear?’.
I didn’t post a comment on the blog, because this one is a bit close to home!
I’m very curious about anything on the legal services market in China, particularly on the different models law firms in China use, which have been successful and which have been unsuccessful, and especially which are predicted to be successful in the long term and why.
I think this ties in very closely with China business in general. I am always interested in reports on the issues foreign companies doing business in China encounter, especially management issues relating to Chinese staff, and reports of foreign companies just rolling out their international business plans in China, and failing. The common thread, as you and others have said many times, is that success in China requires some knowledge of local conditions.
I think some law firms approach China business in the same way they approach any country, and so far, because they don’t sell a product or deal with the Chinese marketplace, they don’t suffer, or at least don’t realize that they suffer. However, on the basis that Chinese companies will more and more become clients of foreign law firms, and that foreign firms will become more and more savvy on the quality of their China advice, I don’t see this situation persisting. I see the distance between the true cross-cultural lawyers and the lawyers in China who only have a slim understanding of China widening rapidly. Do you agree?
A good example concerns international law firms whose China expertise is based in Hong Kong. Though Hong Kong is desperately trying to hang on to its position as the gateway to China, the mainland does not need Hong Kong to broker its deals any more. The knock on the lawyers is that native Hong Kong lawyers and foreign law firms whose business is based around China advice are facing more and more competition from mainland Chinese lawyers, and are behaving like the proverbial dog in the manger. They still push the view that Hong Kong is the place for China advice. Though there is of course a lot of expertise in Hong Kong, this is getting less and less true. Hong Kong lawyers are already at one remove, definitely from an environment like Beijing, which is very different to Hong Kong. Law firms often seem not to understand that Hong Kong Chinese are not mainland Chinese. I wonder if this is true of UK firms more than US firms!
The topic of which law firms will succeed in the long term in China, or at least what strategies will succeed, might be worth a post!
I’d be very interested to hear what views are out there.
I still check the China Law Blog almost daily, and agree with pretty much everything you post, unless the topic is the US!
To which I responded:
That is a good idea for a post, but I am not sure I can pull it off without looking like an ass.
You are right about the declining importance (other than in their own minds) of Hong Kong lawyers re China. The action for international lawyers is in Shanghai and Beijing.
I think you are also right about how the gap between those who really know China and those who are just there will continue increasing and that is exactly what is happening. This will be complete when more foreign lawyers speak and read Chinese.
At this point, hardly any Chinese companies make good clients for US and British law firms because they do not value lawyers enough and, more importantly, they are not willing to pay.
China’s market for foreign law firms is going to go just the way of the US (and UK?) in that you are going to have the international big firms that will succeed by doing big work for big companies and you will have the small firms that will succeed by doing everyday work for small and medium sized companies. Our law firm fills that small market and it is still woefully under-served.
There is little to no room for the medium market and those firms which go to China to open an office with no real reason for doing so, beyond being able to say they did will never make it. Those firms without a compelling person in China will not make it.
Mid-sized firms that think they can open a China office with a mid-tier Chinese national who got his or her law degree in the US or in the UK are going to get crushed.
How do I turn this into a real post?
To which I got this response:
I’ve been thinking about how to deal with this topic for a post, and I’ve canvassed a few views from colleagues. The topic is a bit like corruption – the only examples I can give are anecdotal, because no-one wants to jeopardize their position.
One colleague helpfully scribbled down a questionnaire on the topic:
“The Long March to Law Firm Success in China.”
Here are a few signposts for law firms to follow on the route:
1) Are you opening to “boast” of presence in China. If yes, leave now. If no, go to 2).
2) Does the head of your China office understand Chinese culture? If yes, go to 3). If no, book business class flight home now.
3) Is the head of your office able to relate across East West cultures? If yes, go to 4). If no, quit now if you are an equity partner.
4) Does the head of your office understand integration issues in a transition economy?
5) Does the head of your office understand the Chinese legal system?
6) Does the head of your office know how to relate to the Chinese media?
7) Does your China law office have a definite “client profile” to which it is aiming its product?
8) Does the head of your office know how to build client contacts in China?
I think it is obvious she feels the office head is very important.
A colleague also related a story of what a friend told her about his experience of looking for lawyers in China. The guy in question was an old friend of hers from law school, who had since become a private fund manager. The fund is fairly big, and employs about 500 people. She met him for lunch during one of his business trips to Beijing. She told me he said he had been looking for lawyers in Hong Kong, Shanghai, and Beijing, but could not find anyone in whom he had confidence. He said he found there are generally two types of lawyers in China:
i) Foreign China attorneys who think they are managing but aren’t. They are not adapted to the market. They have US or European products, which they are convinced are brilliant but which take no account of local conditions. The example he gave was that he had been advised that the best structure for a recent deal was a reverse takeover, when in fact a simple share offering would have been better and much cheaper. His main point was that he didn’t want someone to talk to him about London, he wanted someone who could talk to him about local conditions. He considered taking the lawyer to see the project, a port on the Yangtze River, but the HK lawyer he considered taking thought the Yangtze was in Guangdong. He soon realized that if he did take the lawyer, he would probably end up looking after the lawyer, not the other way around.
ii) The second type are local Chinese lawyers who are being kept down because of management concerns that they won’t be able to sell.
When asked what his ideal China lawyer would be, he said it should be a local person, with considerable overseas experience, who has good local knowledge, and good local commercial sense.
To this I would add that from what I have seen, local Chinese lawyers are kept down in foreign law firms not just because management are worried they can’t sell, but because international law firm management does not by and large understand Chinese culture or Chinese people, and does not have any interest in understanding Chinese culture or people. Because they don’t understand the Chinese staff, they don’t trust them.
My guess is that law firm management’s perception is that their Chinese staff are happy to work for a foreign law firm, and are generally happy with their lot. My experience of Chinese staff at foreign law firms in China is that they make significant sacrifices to continue doing their jobs, for various perceived benefits. For example, maybe they feel that a few years at a foreign law firm will give them opportunities later. Whatever the reason, it is clear that the Chinese staff at foreign law firms make constant concessions. The key is that while the management feel that everything is peaceful, the Chinese staff are constantly working very hard to resolve ever-present conflicts.
The other thing that the international law firms do not sufficiently take into account is that the local Chinese foreign qualified lawyers are in a booming sellers’ market, and are in short supply. While not all are good, this is the pool that the good ones come from, and that pool is limited.
What this means is that far from being stable, there is a tipping point in the market. We are already seeing national confidence growing very fast in China, and to me it looks like there will be a point where the rug will suddenly be pulled from under the feet of the foreign law firms in China, and by and large, they will not see it coming. This point will come when the balance between the tensions the Chinese staff experience and other opportunities that exist changes sufficiently.
The market will divide along the lines of the firms which are sensitive to the cultural environment, the market, and their staff, and the firms which aren’t.
I responded by saying I loved the analysis and would post it pretty much word for word and I have.
I am in near total agreement with this person’s analysis of China’s legal market and I just love the questionnaire compiled by this person’s colleague. Hell, I even agree with the assessment of my being pro-U.S.
Anyway, let’s get some discussion going on here regarding these issues. Please.
Because we are offline in China right now (I hope and believe this is only temporary), I may end up keeping this post front and center for longer than usual.