Large U.S. law firms have trained their sights on Asia for more than a decade. But how to conquer the burgeoning legal market there seems a question that few have successfully answered—if office openings and closings there are any indication.
In the last year alone at least five firms have shuttered their Asian offices, while three others are opening new ones.
The jockeying is partly the result of the increased importance of Shanghai and Beijing after the handover of Hong Kong to the Peoples Republic of China. But it also reflects the difficulties of entering a culture still unfamiliar with American lawyers and law firms.
Asian companies “are less mature than European or U.S. companies that have been out in the world for decades,” says Gregory Nitzkowski, a partner in the Los Angeles office of Paul Hastings, which has offices in Tokyo, Hong Kong, Beijing and Shanghai. “The average Chinese company is much more focused on being serviced by Chinese lawyers than, for example, a French one is.”
In addition, the kind of work readily available in Asia, especially in China, often is not what big U.S. firms expect or want, says Howard Chao, partner in charge of O’Melveny & Myers’ Asia practice.
“If you look at sources of business, there are some large state-owned projects,” says Chao. “They can be good projects, but there are not a lot of them and to get them you have to have Chinese speakers and a Chinese office.”
The competition among law firms for the big-ticket corporate and financing work has sparked price wars, causing some firms to rethink their Asian presence. Cravath Swaine & Moore last year closed its Hong Kong office after eight years, says partner Robert Joffe.
“Since we are able to do business in London and New York without having to discount our fees, it just seemed like a more economical use of our resources to just have offices there,” says Joffe.
Pillsbury Winthrop closed two offices in Hong Kong because of similar concerns. The firm continues to maintain a Tokyo office.
“We decided that there was no sufficient economic justification to keep [the offices] open,” says partner Ronald Bornstein. “The firm really looks at the economics of all these offices to maintain them.”
SO MANY OFFICES—SO FEW LAWYERS
Staffing also has been a problem. Only a handful of senior lawyers possess the requisite contacts and language skills, says Chao. The result is a game of musical chairs as this elite group of lawyers hops from firm to firm.
“Most firms in the United States do not know much about Asia. They do not know about the market and they certainly do not know much about Chinese law. You need expertise from somewhere. You need to bring in laterals. But how many laterals can you hire?” says Chao.
Many firms find it too costly to bring in a senior partner from the United States every few years. “If you bring an expatriate in for a temporary assignment, the expectation is that they will come home. Then you have to pay for them to maintain that home. It is a very expensive proposition,” says Nitzkowski.
Practice prohibitions on foreign lawyers mean that many firms have to associate or merge with Asian law firms, often resulting in thorny working relationships when two cultures collide.
But many firms are gradually learning to survive and even thrive, says legal consultant Joel Henning of Hildebrandt Inc. “American firms are getting a lot more savvy about overseas offices. Most firms are realizing that you have to have a critical mass of work and people who know how to do the work, which means local and U.S. lawyers,” he says. “You just cannot send one or two people over there and expect miracles to happen.”