ANALYSIS: Going boutique: niche players expand market influence

The growth of boutique firms has been one of the main themes seen in China’s legal industry over the past 12 months. While the financial crisis presented a heavy burden for larger full-service law firms to shoulder, it proved to be a blessing in disguise for burgeoning boutique practices. Post-GFC, these boutique firms across China are reaping the rewards of their tighter focus.

Being boutique isn’t just about resisting large-scale growth, of course, it is about a certain quality of work and carving out a market niche. Boutique firms have features that their fullservice counterparts lack – lower costs and tailored ‘bespoke’ legal services, for example – and these are qualities which have successfully fuelled their practices over the past year. Keeping with existing core philosophies has paid off for many.

Smart strategy
Over the last year many boutique firms have seen a one-, two- or threefold increase in work volumes and revenues. They have also gained major clients who have migrated from bigger firms in search of lower fees and customised legal advice.

Boutique firms such as Tiantong & Partners, which specialises in high-end corporate litigation, reported 100% growth in volumes for 2009, with 90% of its total revenue derived from that one sector. Tiantong’s focused strategy has won the firm long-term clients like Changhong, the four major banks and Sinochem. “Our clients have told us that they used to just tolerate disputes because they didn’t have a developed legal department. Over time, their legal teams have evolved along with Chinese law, and they now understand the need for and advantages of solving issues with litigation,” says partner Ding Le.

The firm also attributes its success in part to the financial crisis. “As litigation specialists, we saw the GFC as our biggest opportunity to shine,” said Ding. “Bad economic times resulted in a rise in conflicts and disputes and many firms have come to us for litigation advice. One area that showed a notable increase in the number of cases was labour disputes, usually related to large-scale layoffs in companies. We seized this chance to provide the best legal service in order to retain clients for the future.”

Tailored services
The ability to tailor legal services is a key weapon in the boutique firm’s arsenal. Boutique firms can fastforward past unnecessary processes and potential costs, and the task of assigning resouces to mandates is for them often more straightforward.

“Large full-service firms have to manage big groups of practitioners. Sure they can diversify more, but communication and work conflicts also tend to arise in such situations. In boutique firms direct communication seldom poses a problem, hence lawyers work swiftly together on all cases. We have the same expertise and vision,” said Ding.

The fact that legal practitioners in boutique firms have one focal point means they are often intimately familiar with the changes in law, regulations and policies pertaining to their practice area.

A good example of this is seen in niche specialisation areas, such as tax. Shanghai ForTran is one of the leading boutique tax firms in the country – tax advice contributes 80% of the firm’s total revenue each year. The firm has chosen to grow organically and within its specialisation. “Tax is a specialty that requires nothing less than expert advice and foresight. Our lawyers are highly up-to-date with the market and possess great foresight on tax evolutions,” said partner Lu Guoyang.

Industry specialists
While some law firms launch their boutique practices to focus on particular practice areas, others have profited from concentrating on industry sectors.

Sunshine Law Firm is one example, providing legal services for the development, investment, financing, construction, operation and management of energy projects. Specifically, the firm designs strategies and legal structures for energy project deals, and is also involved in the coal, electricity, natural gas and oil markets. 95% of Sunshine’s total revenue comes from advising on energy projects for its long-term clients (State Electricity Regulatory Commission, State Grid, China Guodian Corporation, and China Power Investment Corporation). Like Tiantong, Sunshine has concentrated on an even narrower market focus over the past 12 months: new energy.

The firm provides legal advice on the development and construction of nuclear, wind and solar power facilities. “Rather than simply report to our clients on what the law says, we attempt to educate and teach our clients on how to approach and solve legal problems,” said Jane Chen, managing partner of the firm.

Tough choice
Lawyers often describe the choice of ‘going boutique’ as one that requires courage and involves long periods of ‘growing pains’. “The main focus of going boutique is the ability to isolate a single practice area and let go of others. Many firms are incapable of doing that,” said ForTran’s Lu. “The first few years will definitely be tough, but with patience and determination, you will pull through.”

While boutique firms usually keep up good collaborative relationships with other firms, they still feel competitive pressure from large generalist Chinese firms. Several boutique firms have merged with or lost a large number of partners to their larger competitors, due to their inability to get work on large-scale projects. For example, Kingfield Law Firm, which specialises in shipping and aviation law, recently merged with Dacheng; Guangzhou-based IP firm Roy Liu & Partners merged with Beijing Lifang & Partners. In 2007, Junyi, a strong boutique firm, also had to make a change. A team led by Junyi managing partner Liu Yi merged with the team of Run Bo led by managing partner Wang Yadong to establish Run Ming Law Office, while several other Junyi partners decided to join Jun He. 

While some boutique firms have lost the will to endure those ‘growing pains’, many are still tempted by the success of those who have stayed the course, and the boutique model seems to be here to stay. “In the past, legal problems were much simpler in nature, dealing mostly with issues pertaining to the individual, debts and crime,” said Sunshine’s Chen. “With the rapid development of China's economy, the legal system has also dramatically expanded. As a result, commercial law firms will naturally evolve into boutique law firms. In fact, many large law firms have set up boutique teams in order to address this very issue. In the future, I anticipate a large rise in the number of boutique law firms.”