How are law firms capitalising on localisation in mainland China?
Troutman Sanders’ announcement to terminate the operations of all three of their China offices startled the industry, even more so, their own staff after a profitable year in 2017. Though apparently non-financially related, the decision to forego overseas offices due to lack of synergy with their national work seems coherent with global trends of ‘localisation’ and ‘isolation’. With China mirroring the rest of the world, how can localisation be integrated to benefit the presence of international law firms in mainland China? Our consultant Levana Huang discusses why localisation is important for law firms and how they are achieving this.
Firms with success in China have long been investing and continue to nurture local capabilities, intentionally steering the wheel to service Chinese clients, advising from a PRC law perspective, or introducing more flexible management rules, rather than inheriting a pedantic, centralised control. According to The Lawyer China Top 30 2017, Clifford Chance (US$35.85 million), Hogan Lovells (US$29.84 million), Allen & Overy (US$25.47 million), Baker McKenzie (US$25.19 million) and Jones Day (US$24.82 million) reign above the other international firms in regards to Chinese revenue. Surely, a long-term presence in China contributes to the size and revenue of these firms overall; nonetheless, these firms have all demonstrated belief in the paramount importance of localisation in the following ways.
The term ODI (‘Outbound Direct Investment’) has certainly gained popularity with the Belt Road Initiatives. Visionary partners with sustainable businesses are not relying entirely on institutional clients or referral work from satellite offices. They are proactive on the ground, pulling social strings to access the panels of state-owned enterprises and Chinese tech giants. Linklaters predicts the outbound investment of China based clients to grow to US$1.5trn over the next decade. To ensure success in winning over Chinese business, the firm has announced an alliance with a PRC firm in the Shanghai Free Trade Zone.
New generation of ‘local’ partners
Localisation is also evident in leadership appointments; for example, Clifford Chance made a strategic decision to pair up Terence Foo and Tim Wang as co-managing partners for their China offices. This complementary duo features a home-grown partner and a Chinese native with a strong local network. As we witness the retirement of first generation expat lawyers, who initially relocated from London or U.S. offices to launch in China and/or help solidify the practice on the ground, the new generation of partners in their succession are usually of a local profile. With this mentality, when John Kao of Jones Day left his post as the Partner in charge of the Beijing office last year, the firm opted for a native Chinese rather than another American Chinese. Jessie Chenghui Tang, started her career at a top domestic firm assisting Chinese companies with their outbound investments.
Caliber of associates
As a new generation of Chinese partners begin to reign at the managerial levels of international firms, it is also generally seen as anachronistic to prefer an English speaker over a native Chinese at the associate level. Transcending the linguistic proficiency is the ability to fit in with the team culturally and understand the way of doing business locally, i.e. embracing ubiquitous interaction with clients on any given social media platform. Besides local talent, we are coming across growing numbers of overseas Chinese lawyers with interest to return to the region, as Belt Road Initiatives continue to generate prolific business opportunities in the East.
A Chinese tie-up
The most explicit way of achieving localisation for an international law firm is forming an alliance with a domestic firm. However, the Chinese government is encouraging PRC firms to access a global network from the perspective of assuring the success of the Belt Road Initiatives. Therefore, with different agendas, there are obvious challenges to overcome. For a further discussion on this topic, please refer to The Challenges of a Chinese Tie Up by Shawn Chen.
For more information on the current law firm market across China please contact Levana Huang on [email protected].