Eastern promise

People have travelled the globe by foot, horse, cart and ship for thousands of years and conducted business with many far-away nations. The UK and US firms currently setting up shop in droves in Beijing and Shanghai are pioneers only relatively speaking. As a market, China has been prized by the western world for a long time. The ancient peoples of the Sahara imported domesticated animals from there between 4000 and 7500 BCE; and Venetian trader Marco Polo, while travelling on the Silk Road to China, became trusted adviser to the reigning Kublai Khan’s more than 200 years before his fellow Italian, Columbus, set sail to find a new passage to the sought-after East.
Of course, only in modern times has mankind experienced the current level of connectivity, integration and interdependence – globalisation. It is often credited to the late Theodore Levitt (‘The Globalization of Markets’, Harvard Business Review, 1983), who asserts that in an era of global competition, ‘one size fits all’. A successful marketing strategy, he says, evolves from customised offerings for each individual country market toward that of a single standard on a global basis.
As the attraction of China’s rapid economic growth brings an ever-rising amount of business and investment from the West, law firms feel increasingly under pressure to open an office in Mainland China, Hong Kong or other countries in the region. The past few years have seen a wave of office openings in China, as firms look to establish a Chinese presence or to increase their existing Asian network; although a number of the largest international firms have had representative offices in China since the early or mid-90s. In the past few months, the legal press has publicised office openings on an almost daily basis.
However, on their quest for global reach, eagerly following busy clients to a market of over 1.3 billion people, many a firm has learnt a painful lesson that clients in China do not always comply with Levitt. While the Chinese economy is moving quickly, the uninitiated westerner can often feel that business is conducted with much subterfuge. Nothing is as it seems and nothing about doing business in China is easy. One size certainly does not fit all.
What works on one side of the Pacific (or the Ural Mountains) might be detrimental on the other side. The reason for this is one of the most powerful forces in the world – local custom and culture. Perhaps Dutchman Geert Hofstede, could have saved law firms at least some headache. He warns that “for those who work in international business, it is sometimes amazing how different people in other cultures behave. We tend to have a human instinct that ‘deep inside’ all people are the same – but they are not. Therefore, if we go into another country and make decisions based on how we operate in our own home country – the chances are we’ll make some very bad decisions.”1 And cultural differences can occur in so many ways. They are partial to different symbols, heroes, rituals and values. They have tastes, preferences, expectations and interpretations that we might not completely understand or share. To take a harmless example, some native-English speakers would not be delighted if shown a red flag. Presenting an abundance of the same red flag to a Chinese person, however, is more likely to bring a smile to their face – as it symbolises wealth and happiness.

Yin and Yang
It comes as no surprise that research has found that Asian and Western cultures typically vary in numerous ways. Hofstede identified five cultural dimensions, which include the level of equality (or not) between superiors and subordinates in a culture; the role of the individual compared to the group; typical and accepted gender roles; the level of tolerable uncertainty; and, the general outlook on time and patience. Author Fons Trompenaars (Riding the Waves of Culture, 1993) distinguished cultures on how people relate to others. For example, does one rule apply to everyone or is it preferable to consider the special circumstance? Do people decide as a group or should the focus be on the individual? Are people judged by what they have achieved individually or by the family they come from?
Recognising and respecting such differences rooted in thousands of years of cultural evolution is indeed the first step to business enlightenment and success in this market. True to the old Chinese saying ‘Ru xiang sui su’ (enter village, follow custom) success in China revolves around truly understanding its culture. Laurie Young, author of Marketing the Professional Service Firm, has suggested that “While Western minds are typically very linear, step-by-step, Chinese have yin and yang and are comfortable with two positions simultaneously, which would drive many of us crazy.”
Meg Sullivan, chief business development and marketing officer at Paul Hastings, has been travelling to China since 2003, when her firm opened offices in Hong Kong, Beijing and Shanghai. “When adapting to a new business culture, there is always a learning curve,” she says. “It is important to understand the cultural differences and appreciate how things work. It is all about relationships, especially in China.”
In addition, the region is rapidly transforming, which can only be expected from a society turned upside down by reform, having arguably been led by a party that has shifted from ‘wealth refutation’ to ‘wealth creation’. In the past 25 years, the Chinese economy has changed from a centrally planned system largely closed to international trade to a more market-oriented economy with a rapidly growing private sector. Reforms started in the late 1970s and were accelerated by China’s entry to the World Trade Organization at the end of 2001, which set in motion the most far-reaching reforms since Beijing opened its economy to the outside world.

Growing demand for legal services
Today the Chinese government is speeding up economic development by reforming the banking system, encouraging foreign investment, and through the privatisation of state-owned enterprises. According to UNCTAD [United Nations Conference on Trade and Development] and World Bank reports, foreign direct investment (FDI) into China has been steadily growing since the 1980s and Chinese activity abroad has just started to reach international significance, with enormous growth potential for the future.
Since 1978, China’s open-door policy has ushered in foreign capital and goods from many multinationals, which has resulted in enormous demand for legal services. While the economy has developed in leaps and jumps, China’s legal market has done so at a slower pace and the profession is still at an early stage with regards to international legal practice.
The legal system was only re-established in 1979 after the cultural revolution between 1966 and 1976, and foreign law firms have only been allowed to set up offices in China since 1992. “In the early days, it could take years before a foreign firm would receive a permit to open an office,” explains Stella Wei Ying Yap, USA China Law Group. “On top of that, not the firm, but the government, would determine in which city.”
The legal market in China is still quite small, with no more than 120,000 lawyers. Few local firms are experienced in working on major international transactions. According to Yap, currently only nine Chinese law firms have more than 100 lawyers and less than 20 have between 50 and 100 lawyers. A small number of firms practice in capital markets and corporate transactions. Foreign lawyers and investors are not allowed to establish a (Chinese) law firm, or hold shares in any Chinese law firms directly or through a joint venture.
Law firms have a number of alternatives to enter the Chinese market, such as setting up a representative office in Mainland China; or partnering with a law firm in Hong Kong, which has been an attractive solution for many years owing to the ‘one country, two systems’ arrangement and the Common Law legal system in Hong Kong. Inbound corporate firms with a strong domestic or international corporate client base looking to invest in China typically choose to go directly to the mainland to establish offices, while more financial services-focused firms, supporting clients such as investment banking and private equity houses, usually look to Hong Kong (being a regional financial services hub) as their first port of call. Another possibility is setting up a consulting company in the People’s Republic of China (PRC), which is not under the jurisdiction of the Ministry of Justice. Working with Chinese lawyers on PRC law matters can be an acceptable and viable alternative. In this way, firms can establish an alliance – non-exclusive or exclusive – with Chinese, or other foreign firms. In 2003, US firm Butzel Long joined forces with three other regional firms (Armstrong Teasdale LLP, Michael Best & Friedrich LLP, and Blake Cassels & Graydon) to form the China Alliance, for example.

Is it worth it?
Before hoisting one’s suitcase onto the check-in scales, Air China tickets in hand, a firm’s management should be clear about its intentions. Friedrich Blase of consultancy Kerma Partners warns that the biggest problem is often the lack of an underlying rationale for law firms setting up shop in the People’s Republic. “Everybody is rushing to China today, but few firms have a clear strategy and sound business plan,” he says. He argues that law firms, like any organisation, need to ensure their ability to survive. The principal goal of a firm must be better positioning in the future, in terms of attractiveness for professionals, level of innovation, and productivity. Liquidity and profits will follow as a result of successful management of the above factors. “Opening an office in China should only be on a law firm’s agenda if it improves its success factors and/or minimises its sources of risk,” says Blase.
Young agrees. “The ambition to be global is not reason enough to enter China. Clear market opportunity is,” he says. “The drive of many law firms to be ‘global’ and a herd mentality is causing them to take unprecedented risks. It is important though for managing partners to take a hard-headed look at local cultural variations before investing their partners’ money.” The challenges do not stop here. “Everyone wants a piece of China now, but keeping on top of such a large region is a challenge,” says Andrew McGrath, Hong Kong-based head of business development, Asia, at Clifford Chance. He has been working in the Chinese market for over ten years. Business development and arming the lawyers with information to effectively cross-sell the firm’s services is not easy.
Currently, one of the biggest challenges in Chinese legal marketing is to relate marketing to actual development of work. Marketing may well be a good way to get on the radar and stay there, but personal referrals are the best way to market in most of Asia. Some firms favour a combined brand-building strategy of raising visibility through targeted public relations and a tailored one-on-one approach to relationship development. “Personal referrals are the most important marketing tool,” says Matthew A. Murphy, managing director of management and legal consulting firm MMLC Group in Beijing. Writing articles and giving speeches at events are much less effective in his opinion and he believes that face-to-face meetings and roadshows are the best way to reach potential Chinese clients. Joesph J Melnick, CMO and director of planning at Butzel Long (part of the China Alliance) agrees. “So-called ‘suitcase lawyers’, quick ins and outs, do not work in China,” he says.

Building trust
Relationships with the right people are critical according to Richard Levick, president and CEO of Levick Strategic Communications, and a long-time business traveller to China. “Establishing all these relationships surely is a big investment, both in terms of time and energy. But that’s necessary to build a trust, ” he says. No trust equals no transaction. Chinese society has a concept for it – guanxi – which stands for personal relationship and connections. It describes social interaction within a group where repeated favour exchanges ensure a measure of trust (xinyong). In English, we would refer to it as a ‘gentleman’s word’. Xinyong guarantee is personal and generally more important than legal bonding between firms. Both relationship marketing and guanxi are about relationships, however they have different directions of causality: the basis of the relationship in relationship marketing is satisfactory transactions; while in guanxi, the relationship is built prior to the transaction.
Despite the willingness of firms to invest in the long term, a medium-term challenge is already looming. “As the Chinese firms get larger and have more years and experience under their belt, they will soon compete for the same work as Western law firms,” says Robert Allan, founder of the USA China Law Group. The trick is not to over-expand – getting too enthusiastic about new areas and offices, but not being sensitive to the bottom line. It is better to be selective about what one does best as firms can easily diffuse their practice and get caught up in chasing work that everyone else is chasing, or eventually being forced to compete on price. This is particularly important in a country where price appears to be an important selling point, much more so than in, for example, the US market. In fact, typical US and UK fees can bring quite a sticker shock to Chinese firms. Murphy also believes that Chinese clients tend to have very different expectations towards their legal services providers. “Lawyers are generally treated as hired guns,” he says. “They struggle to see the value that lawyers can provide other than being hired guns or bulldogs.” According to Murphy, Chinese clients value in particular low cost and fast turnaround. Hence law firms can try to add value by working at lower rates and getting into their business. In fact, McGrath warns that while personal referrals are indeed often key, “… a firm can also lose the work because of a poor service, lack of communication on pricing, and so on, no matter how strong the personal relationship is.”
But there is also good news: Just like the US and UK markets a decade ago, the Asian marketplace is wide open for the bold firm that shows market leadership. Few firms have taken significant marketing steps to differentiate themselves in China. “Law firms wanting to distinguish themselves will find that the web is wide open for optimisation; the bar associations receptive to major sponsorship; speaking opportunities flourishing before large audiences of legal buyers; the legal press constantly looking for authors; and business journalists desirous of developing relationships,” says Levick. “How people are influenced is no different in Asia than it is in domestic markets. It is relationships first, followed by what people read. Reach and repetition is how you get noticed.”
In line with the cultural inclination to see things more long term when marketing in China, exercising patience is a promising virtue. Avoiding aspiring to quick deals and quick wins should keep the Tylenol-consumption at bay. Seek stability and trust (not necessarily intimacy, closest friendship). First, enjoy your dim sum, rice, noodles and tea with your new business acquaintances, find common interests, be likeable and engaging. Just think, Marco Polo was able to do this with the grandson of Genghis Khan; why would you not be able to do this with modern Chinese who, more often than not, are quite interested in the West?

Silvia Hodges is a strategic marketing consultant and founder of legal marketing italia. She can be contacted at s.hodges@marketude.it

References

1.Cultures and Organizations, Software of the Mind, Geert Hofstede, 1991.