Why Are International Law Firms Retreating from China?
Summary: Last year, some law firms exited China, but why?
China is a booming market with nearly 1.4 billion people to serve. While law firms may want to work in the country because of the potential business, local corruption and political roadblocks are enough of a deterrent for clients to rethink whether or not the pros outweigh the cons of working in the Middle Kingdom. In the past year, several Am Law 200 firms have left China or consolidated their offices there. The Asian Lawyer, an ALM affiliate, reported that Chadbourne & Parke was one such firm that shuttered its China office.
Ward Bower, an Altman Weil consultant, told Law.com that the reason law firms may be abandoning China is that they rushed too quickly to go there in the first place. Law firms were excited about the idea of such a big market, but once there, they could not figure out a way to make money. Some firms decided it was best to close their offices, while others downsized, realizing that if the market did pick up that they would not be able to return if they were to have shuttered completely.
“They know the Chinese never forget anything and if they were to pull out they might never be able to get back in,” Bower said.
James Carbin of Duane Morris said that one problem companies encounter who do business in China is that there are manufacturing issues such as poor quality control or missing cargo. However, what causes companies the most concern is that there is often no recourse in the Chinese legal system for grievances.
“In my experience, I would say that the results [in cases mitigated in the Chinese judicial system] seem to be uneven and I’ve had similar cases with dramatically different results in different courts [across China],” Carbin said.
Carbin added that if China wanted more foreign investment and capital than it needed to demonstrate that its judicial system was fair.
David Woronov of McCarter & English acknowledged that there is corruption in the Chinese courts but that a lot of foreign problems actually stem from their own undoing. For instance, he saw that foreigners make the mistake of believing they can act like Chinese companies, when it fact there are different regulations to help domestic businesses. He stated that it was important for foreign lawyers to draft realistic enforceable contracts and to have the right parties sign the right documents.
All in all, no matter how slow business may be for law firms, some experts advise that people wait it out, as China is a huge market with tremendous opportunity for those who can find it.
Photo of Shanghai courtesy of O’Melveny & Meyers
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Do you think it is wise for law firms to close their Chinese offices? Let us know in the comments below.