WSJ Blog Article: Survival of The Fittest For Western Law Firms In China

We might describe it otherwise – but let’s stay with the polite version shall we !

 

Link through  to

http://blogs.wsj.com/law/2015/01/27/for-foreign-law-firms-in-china-its-survival-of-the-fittest/

 

or read the piece here

 

Foreign lawyers looking for work in China must compete not only with the 170 other international firms with offices there, but increasingly with the more than 19,000 Chinese firms. Above, downtown Beijing. Bloomberg News
The gamble of doing business in China came into sharp relief this past week when one U.S. law firm parted ways with China while another global firm took its relationship with the country to a whole new level.

New York law firm Fried, Frank, Harris, Shriver & Jacobson LLP announced that it’s shutting down its offices in Shanghai and Hong Kong in coming months. Meanwhile, global law firm Dentons unveiled plans to merge with mainland China’s largest law firm, Dacheng.

The moves, according to WSJ’s Sara Randazzo, underscore the pressure on law firms to succeed in China, where 170 other international firms with offices there compete not only with each other but with thousands of Chinese firms:

“In China the competition is fierce for everything,” said Eric Piesner, a Morrison & Foerster LLP partner responsible for the firm’s Asia offices. “And it’s growing more competitive by the month.”

Foreign firms have been in China since the early 1990s, starting around the same time that the Chinese government began allowing local lawyers to form privately run law firms. Even so, restrictions in the country prohibit all foreign lawyers from practicing Chinese law, including appearing in Chinese courts or in governmental hearings. The restrictions make forging relationships with local firms a necessity.

To get around that issue, more international firms could follow Dentons’ move and look for merger partners in China. But scrutiny from Chinese regulators over possible mergers, and culture clashes between Eastern and Western firms, present potential hurdles to such tie-ups.

Fried Frank’s decision points to the difficulty foreign firms have in turning a profit in China. “For us it was a question of discipline and sound business judgment,” said Fried Frank chairman David Greenwald, who said the firm’s Asian outposts “didn’t have a sufficient return.”

Most foreign law offices in China are fairly small, with a median size of 11 lawyers who account for less than 5% of a firm’s global revenue, according to a forthcoming paper from U.C. Berkeley researchers. Since China’s restrictions make it tricky for Western firms to handle litigation in a serious way, most of their work comes from mergers and acquisitions and other transactions.

Of all the firms in China, “there might be 10 that have any kind of meaningful practice over there,” legal consultant Peter Zeughauser told WSJ.