The year 2015 was an eventful year for Tahota Law Firm. The Chengdu-based firm posted impressive performance during the last 12 years, with new offices launched in Jinan, Shanghai, Kunming and Washington. Tahota’s Principal Partner, Cheng Shoutai, shares with Li Shangjing, ALB reporter, the secret to Tahota’s breakthrough as a law firm in West China and his insights into the lawyers community in China overall.
ALB: You proposed “a breakthrough for local law firms”, so what challenges has Tahota encountered when it broke out into the national and global markets?
Cheng: Tahota was confronted with numerous difficulties on its way to become a national law firm: (1) We’re headquartered in Chengdu instead of Beijing or Shanghai; (2) Which strategy is suitable for us, knowing that our headquarters do not benefit us with the “radiation effect”? (3) There’s no beaten track and we need to carve our way to success; (4) What can we bring to others, and why should people trust us? (5) Should we opt for direct investment and operations or a flexible approach? We didn’t have the answer to this question. (6) In Chengdu alone, there are nearly 60 law firms from other parts of China opening local branches here. The “enclosure game” has a particularly significant impact on our firm.
Tahota laid down a clear development strategy in April 2013, that is, we start with opening offices in the capitals of western provinces – this is our clear strategy, i.e. “prioritization of western provincial capitals”. We opened four offices in 2015 in Jinan, Shanghai, Kunming and Washington. Of them, the Jinan office was not planned at first, but it turned out to be the best performing office of the four.
Let me tell, with full confidence, the Jinan office only had four people when it was launched, but now it has almost 80 employees. As a local firm, it is very difficult for us to open local branches on a nationwide scale. The biggest challenge is about recruitment. Just think about it, why should people trust Tahota, a law from the west? I’m pleased indeed that they accept our business philosophy and work well with us now. That’s because they’re interested to know what they can get from us after joining Tahota, and what support we can offer them.
ALB: After the withdrawal from Sino-Global Legal Alliance (SGLA), has your firm considered joining another alliance, or founding an alliance by yourself?
Cheng: We didn’t plan to opt out ourselves, but Mr. Han (Han Deyun, partner of Solton & Partners) told me that it might be a good idea if we withdraw from the alliance, as all the members were local firms. We pulled out on 26 May last year after the withdrawal of AllBright Law Offices on 6 May. We have close ties with directors of many SGLA members. We decided to join them after careful consideration, and it was such a sad thing when we had to opt out. But it was only a matter of time after all. After we left SGLA, we won’t join any other alliance unless it’s an international one. Joining an alliance is a good idea, but for the most part alliances work to strengthen the law firms themselves, which is the purpose of building an alliance. Now we need to directly develop our own firm, and this is a straightforward approach.
ALB: Judging from your experience, how did the internet impact law firms in 2015? Could you give us some examples?
Cheng: O2O legal service is definitely the trend going forward, where routine and regular commercial businesses such as contract review, company registration and inquiries can all be performed online. I think these are the changes brought about by the internet. Needless to say, law firms need to build various knowledge management systems to assist in business operations.
Chinese law firms were reluctant to acknowledge the impact of the internet, but now they’ve developed an increasing interest in the internet. It’s a kind of “love and hate” mentality. Tahota started building its knowledge management systems in 2014 and has achieved substantial progresses in this area. We’re not interested in becoming an internet company but we want to leverage Chinese and foreign service systems to develop our firm. We’re not the pioneer in this respect but we’re determined to become the leader, because we’re willing to invest in money and energy in this area and to ensure effective business transformation. “First movers” in starting the transformation process are bound to ahead of other law firms.
ALB: What changes has the “One Belt and One Road” strategy brought to the west? Does the introduction of the strategy make a difference for law firms?
Cheng: I think law firms felt the difference after the implementation of the “One Belt and One Road” initiative. For example, some firms set up legal service centers and departments dedicated to the “One Belt and One Road” initiative. In recent years, Tahota has provided legal services for an increasing number of projects in countries along the “One Belt and One Road” such as the gold project in Tanzania, mining investment projects in Africa, Asia’s largest potash project, real estate projects in Myanmar and Angola, launch of the international flight (Moscow route), the West Asia Airlines project in Nepal, the establishment of the Cambodian Petrochemical Company and petrochemical project, as well as other projects in India, Italy, France, Australia, Singapore, etc. The firm has been actively involved in the construction of the “One Belt and One Road” and has therefore played an important role in developing new regional economies in western regions and establishing them as the fundamental driving force behind China’s economic growth. Hence, our lawyers must have played an increasing role in the process.
ALB: As a leading law firm in West China, what management experiences does Tahota have to share with other firms?
Cheng: I think 3-year or 5-year plans are too general now. What I have to say is that all our partners now care about Tahota’s strategic development, and this is an encouraging sign. We’re keenly aware that the competition for talent is the focus of competition among major law firms. It is very difficult for local firms to attract international talents. Our goal is to become China’s Baker & McKenzie. I hope that Tahota will succeed in breaking out from the west to the national market…to make a miracle.
As for Tahota’s other offices, we let partners at the head office to assist with the management of these offices, such that the management system and business operations are scalable. I think such an approach is suitable for us. We hope that every office of Tahota is fully localized. This is very important. We used to be a local firm before, so we know how to turn a local office into a major, strong competitor on the local market. Firm expansion cannot be achieved through simple addition “1 + 1 = 2”. What Tahota needs is not just [new] offices but human resources.
I think Tahota’s successful market expansion is also attributable to our courage and realistic approach. We managed to balance inputs and business operations. We want to grow together with our member offices. In this respect, we’re fully committed to developing together with local member offices “without reservation”, rather than taking away high-end businesses and leaving them only with basic ones.
Tahota plans to sponsor a “Tahota lawyer school” in the near future. It is another positive innovation toward improved knowledge management and talent training.
ALB: What are the management structures adopted by Chinese law firms? Which structures suit Chinese law firms best? And how would you categorize Chinese firms?
Chinese law firms are divided into general partnerships and special general partnerships, where there’re other models such as PLLC in the US and other Western countries. Special general partnership is the Chinese equivalent of limited liability partnership (LLP). Tahota was transformed into an LLP in 2009. At the current stage, we believe a beneficial development model involves reinforcing the sense of responsibility and awareness of risk control among partners, and consolidating and building on the law firm’s competitiveness.
In my opinion, today’s law firms in China can be divided into four categories, i.e. classes D, C, B and A. Start-up firms are in class D; those in class C are leading law firms in provincial capitals, municipalities [directly under the central government] and autonomous regions; class B firms are those selected by the national lawyers’ association as best Chinese law firms. So how can class B firms upgrade to class A? In think, class A firms in China should possess a certain degree of internationalization. Typical examples are King & Wood Mallesons and Dacheng Law Offices. Both of them have been internationalized through the “Swiss Verein” model. Apart from them, there’re also other successful Chinese law firms but they tend to be less internationalized. I think Tahota now is graded A- as we just expanded into the national market, or perhaps we’re somewhere between class A and class B.
Above all, class A firms should rank among the largest local law firms, and have successfully overcome regional barriers. I think we’re one of the would-be class A law firms in the west. Today, if you call us a local firm or a leading local firm, I agree! And next year, too. But we’ll be going through rapid changes in the future.
ALB: Which Chinese law firms have the most promising prospects in your opinion? How has the local competitive landscape changed after these firms came to the west?
Cheng: It’s really hard to say which firms are most promising. At present, King & Wood Mallesons is the one that I respect the most. Jun He has a certain air of nobility about it. AllBright is the one that I like the most. Zhong Lun has the most developed methodology. Fangda has unrivalled expertise in the capital market. And I think we’re the best in terms of differential management. Of course, T&C in Zheijiang is also very good at it.
ALB: What’s Tahota’s development strategy next? Which cities will you choose to open new offices?
Cheng: We must have a positive attitude. The more economically developed a place is, the more leading law firms it attracts. This means staff turnover is inevitable. To compete with them, we must implement the differential or “dislocation” competition strategy reasonably. Sometimes, we also need to face the competition head-on, depending on the actual deployments and approach we adopt.
I always think that large firms are not necessarily competitive, and vice versa. I’ve never said that Tahota would enter eastern markets. I will reserve the best resources for the west. We want to become a competitive firm of an adequate size in the west. In the future, whoever comes here would be tempted to compare itself with Tahota. We have a relative advantage. Our offices in eastern regions only aim to consolidate our competitiveness there, as there’re already many mature and good law firms. In those markets, we need to foster our strengths while circumventing weaknesses, and every office must have “specialty” businesses under the direction of leading experts in the field.
Tahota pursues a strategy of flat management and differential business operations. For me, the “differential strategy” can be interpreted on two dimensions – first, we’re not as good as some of our competitors; second, because we’re not as strong we adopt a different approach, and this is what we mean by “differential”.
Tahota will official launch our Hong Kong office on 30 March 2016. Next, we’ll consider opening another office in New York, Australia or South Korea, but I’m not supposed to tell you when the office will be launched. In China, we’re planning to set up new offices in Guiyang, Xi’an, Lanzhou and Tianjin. Basically, we’ve finished formulating the plans for these cities, but I can’t tell you the exact time. These’re our plans for the near future.
