Some foreign law firms are learning some hard lessons from the Chinese legal market.
The Lawyer has published a very interesting "long read" article on the disappointments that some prominent foreign firms, especially Magic Circle firms like Linklaters and Allen & Overy, are experiencing in their China practices. In "Why the Magic Circle is Struggling in China" Yun Kriegler has summarized recent problems that some foreign firms are experiencing as the Chinese legal market matures. We highly recommend this article to our clients. Some of the observations and comments might describe some aspects of your firm, as well.
There are several quotations from law firm partners that caught my eye and suggest a combination of firm-specific external and internal factors. For example:
"The biggest challenge for the magic circle is that US clients are leaving them to go back to US firms for Hong Kong and China matters."
"...It's one thing to lose older partners who are reaching retirement age, but not the sort of partners [Linklaters] are losing, who are at their peak and really should be the engine of the firm's growth in the next 10 years."
"It's hard to walk into the general counsel's office at headquarters and say – please send more work our way to Asia. Winning work in Asia is about being around in the market for a long time and having relationships with the right individuals who hand out the work."
"...When the office's profitability is below firmwide average it's difficult for people from London to buy in to the idea of investing more money and people here, so there wasn't a huge amount of interest in pouring huge amounts of money back into Hong Kong."
"It has driven some unhappy behaviours as individual partners try to maximise their individual performance. People started to be protective of their own business and less willing to share clients or work with other partners."
"Foreign firms are underestimating how strong the top-tier Chinese firms have become... They will face a real battle with leading Chinese firms in the mid-cap market space."
What went wrong?
These quotations are from partners inside some of the most successful international law firms in the world. However, it is important to recognize that these problems are common challenges for any foreign firm seeking to establish and maintain a good market position in China -- or anywhere else in Asia. The difference between disappointment and dreams coming true can be in the way that a firm responds to changes in the competitive environment. Even the best strategic plans have relatively short shelf lives these days.
We do not intend to offer in this blog posting any diagnosis about the specific problems faced by the firms mentioned in Yun Kriegler's article in The Lawyer. Over the past 20 years, as my colleagues and I have advised law firms on strategy and tactics worldwide, including in Asia, we have observed at least three almost-universal characteristics of law firms that seem to have avoided similar problems or, when they have encountered them, have implemented successful and sustainable responses.
- They continually challenge their own assumptions. They do not assume that business development strategies and internal management practices that have always worked well in London or New York will work in Shanghai or Hong Kong. They do not assume that traditionally loyal clients or their most dedicated partners will stay with them forever. They challenge most vigorously the propositions that they most fervently want to believe.
- They are alert to the early signs of changing market conditions and their competitors. These firms seldom, if ever, are surprised. They take indicators of change seriously, rather than deny that the new developments will affect them or adopt a "wait and see" posture.
- "What if" scenarios and contingency planning are ongoing activities, not an academic exercise or an occasional diversion (usually right before golf) at a partners' retreat. As one Walker Clark client described it, "We are not wasting time when we make these plans that we hope never to use."
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