Managing Partner Roundtable: The International Firms’ Perspective
The Chinese legal market is rapidly changing, with client demands increase and domestic firms becoming increasingly sophisticated. Amid this competitive environment, international law firms need to have a proper strategy to succeed. In this roundtable, leaders from four international law firms -- Katten Muchin Rosenman, Clifford Chance, Baker McKenzie and Ince – talk about the developments they have seen in the market and how they are tackling challenges along the way
ALB: What are some of the key trends you’ve witnessed in how your relationships with clients have evolved in the past few years? How are you looking to adapt to these changes?
Howard Wu: Nowadays, clients are looking for more than legal advice. They not only want creative, business-minded, cost-efficient solutions that meet their business needs, but they are also looking for multiple ways to buy legal services. In response, we are investing heavily in advanced technology and legal operations to transform the way we deliver our service. We are integrating our business management capabilities, legal project management, pricing strategy, service design and other alternative legal services offerings on a global scale, so that we can optimise the client experience and deliver our service in a way that provides value.
Feng Xue: Over the past couple of years, some clients want us to accept fixed fees or flexible-fee arrangements. Some clients have started to use both international and Chinese firms for some types of work. We try to maintain the quality of our work while accommodating the expectations of the client by modifying our fee model in China and using locally trained U.S.-qualified lawyers.
Tim Wang and Terence Foo: Our clients come to us because as an international law firm with significant depth and range of resources across five continents, we can marry our global perspective with our strong understanding of the local market, which stems from being on the ground in Mainland China for more than three decades in the region. As Chinese clients become more international, their legal risk exposure extends across borders and jurisdictions, and requires advisers to look around the corner and help them with risk management. They look for external counsel who understand their business and internal requirements and who can help bridge cultural differences with foreign partners. Likewise, international clients look for advisers who understand the local market, and can deliver practical solutions and nuanced advice, with a global perspective and solid understanding of their business.
ALB: What have been the biggest challenges that China-based offices like yours have faced in the past 12 months? How have you as a firm looked to overcome them?
Paul Ho: From our perspective, if you look at the last twelve months for Ince, the challenges are two-fold, being pre-merger and post-merger challenges. The biggest challenge pre-merger was, whilst having one eye on the merger, not losing our focus on our practice and our people. Post-merger, the challenge is in integration, as we have effectively doubled in size following the merger. There are also challenges in keeping the market and our clients informed regarding the (positive) effect of the merger
I firmly believe that there remains a lot of potential in the Chinese market that we have not tapped into yet. We have a strategic growth plan and a clear path to diversify our practice but it is going to take a little time to implement those plans; having said that, the revenue of Ince China is projected to increase by 60% this year, so we are very much on the right track. As a listed law firm, we have access to capital and strong financial support to enable us to execute our growth plans; at the same time, by having a flat management structure we are also able to make decisions very quickly which is important when seeking to capture growth opportunities.
Both Chinese clients and Chinese law firms are becoming increasingly sophisticated nowadays, in terms of the services they demand and provide. Chinese law firms continue to improve on the quality of their services, and a lot more of their partners and lawyers can speak good English, so it is no surprise that they are also seeking to expand in the international arena. Organic growth internationally is likely to be challenging and time-consuming, so I think more and more they are seeking cooperation with other international law firms.
Xue: The China-U.S. trade tension is affecting the business community and international law firms profoundly. However, we have been faring very well by focusing on key clients and diversifying our practice areas into those that will continue to grow in years to come.
Wang and Foo: In general, the evolving geopolitical and macro-economic dynamics means businesses are navigating a lot of uncertainty and encountering new areas of risk. This presents opportunities for our lawyers to provide strategic and sophisticated advice to clients to help better manage risks and prepare them for a range of future challenges. Another challenge is the continuing war for talent in a highly competitive market in China. We continue to focus on our ability to attract, develop and retain the best team, and to realise our vision to be the employer of choice.
Wu: International firms in China are increasingly being challenged by the major Chinese law firms, which are growing both in size as well as quality and reach. This has impacted the talent and client pipeline in international firms.
Fortunately for Baker McKenzie, we have been able to mitigate some of these impacts through our Joint Operation office with FenXun Partners. Chinese lawyers are now able to keep their PRC licenses and advise on local matters; and at the same time, our clients have access to an integrated service offering that offers strong domestic and international law expertise with the support of a world-class global platform.
ALB: What are the keys to succeeding in the China market for a firm of your size and scope? What are some of the big strategies you’ve put in place for business growth for the rest of the year and beyond?
Xue: Since the opening of the Shanghai office in 2012, Katten has focused on client service and offered competitive pricing for our clients. We endeavour to establish our reputation and market position as a go-to firm for outbound M&A firms among our clients and the community, and our efforts have paid off. We are also looking to work with those underserved Chinese private and mid-size public companies, and represent clients in middle-market transactions. As a result, we can serve a very large client base and keep healthily expanding our business.
Wu: For international firms that would like to serve the China market, having a strong presence in China is critical, as clients typically value having their legal representatives “within arm’s length” and prefer to obtain counsel in Chinese. Through our Joint Operation office with FenXun Partners, we have been able to serve clients with a global and PRC law capacity from a single and aligned platform, assisting them with their legal needs across China on a full-service basis.
With the increasing economic clout of China, we will continue to enhance our transactional practice capability in China, particularly in M&A and private equity, banking and finance, and project finance, where there is strong client demand. We are also strengthening our advisory service offerings, including PRC dispute resolution services, contentious tax, compliance, IP, real estate and employment, which most other international firms currently cannot match.
Wang and Foo: We have a successful and thriving practice in China built over more than three decades, opening in Hong Kong in 1980 and then becoming the first international law firm to open an office in Beijing in 1985. We opened in Shanghai in 1993. One of the key differentiators for us is that we have market-leading partners and strong teams across all major practice areas on the ground in China. We are widely recognised for our capability to advise on complex matters, which often requires experts across different practice areas to collaborate seamlessly to provide holistic solutions.
Our success is defined by our people. Over the last decade, we were able to attract some of the brightest graduates, and we made great efforts in training and developing our PRC background lawyers, helping them gain international experience and expertise, to help them become world-class lawyers. We have a well-established talent training system, including rotation program for trainees, LLM sponsorship and overseas training and secondment opportunities for mid-level associates and the Academy Development Centre for senior associates. Our people want a rewarding career. We are committed to investing in our local talent, and that includes partner promotions.
ALB: What are your predictions for the next few years for the China legal market?
Xue: Chinese clients will become more sophisticated and law firms will compete in terms of services and pricing. Chinese firms will continue to expand globally. Some international firms may choose to exit the Chinese market, and some will enter into strategic alliances with Chinese law firms to broaden their operations in China. Competition among law firms will become more intense in the next few years.
Ho: In the next three to five years, I believe we will see a lot more law firms seeking to list – and I would be surprised if other law firms are not already exploring this possibility. I can see first-hand the benefits of being a listed law firm, as amongst other benefits we have access to capital to support our plans to grow and diversify. Having said that, one does need to spend a lot of time, effort and expense to do so, as well as the common challenge in obtaining the required partnership approval. Further, I also expect to see more mergers and/or alliances/associations between law firms in the future. These could be between two foreign law firms, between an international firm and a Chinese law firm or between two Chinese law firms. Everybody wants a bigger slice of the Chinese market, but there is a limit on how much an international law firm can penetrate the Chinese market when they cannot practice Chinese law.
Wang and Foo: The demand for legal services in China will become more sophisticated – we are already seeing Chinese companies embark on more complex cross-border transactions, and they will face increasingly complex regulatory issues that span across multiple jurisdictions (GDPR and economic sanctions as examples). This would naturally lead to in-house legal teams at Chinese companies having greater influence and voice in business decisions and risk management. External counsels will have to demonstrate strong value-add to win the confidence of clients.
Both international law firms and domestic law firms in China will increasingly look to use legal tech solutions to work alongside lawyers to improve efficiency, for example, the use of AI for searching legislation or court cases, to do legal translation, to support due diligence or facilitate basic contract drafting, or the use of blockchain technology for document signing. Technology is already impacting the way we work as lawyers today. We're focused on using the latest technology and innovations to deliver the best and most efficient service in the market. We are already applying AI or automation tools to a variety of tasks, from contract automation, transaction management to large scale due diligence exercises.
Wu: China is emerging as a leader in the use of legal technology even though its legal sector is comparatively young when compared to the western economies. It has set up internet courts, which offer livestreaming of trials and enable claimants to file cases, submit evidence and resolve disputes online. China is clearly leapfrogging through the traditional path of building legal and judicial infrastructure by integrating advanced technologies and judicial systems. For law firms, we need to be able to harness new technology to modernise how we deliver legal services so that we can be better at addressing changing client needs, new industry dynamics, and the broader role of digitisation across the Chinese economy.
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