People’s Republic of China
Adam Li, Jun He

• Firms that branched out into emerging areas of practice (IP, AML and labour law) already started reaping rewards towards the end of a difficult 2009
• Investment in and commitment to new areas will be the keys to success for law firms in 2010

Focus in the legal services market has shifted: traditional FDI, M&A and even venture capital businesses have significantly shrunk in volumes, size and fees. However, law firms that have prepared themselves for non-traditional businesses have reaped the opportunities. These firms include those that specialised in IP, anti-monopoly law, labour law, tax and trade.  While more experience can still be transplanted into China’s legal practices, the difference between the domestic market and other markets means having different focuses. For example, while Chapter 11 for bankruptcy law could be good practice in the US, it may not be the most appealing business in China. On the other hand, China’s legal services market is diverse and ranges across many different provinces. The major challenges facing practitioners in China are institutionalisation and specialisation.  While the Chinese market is one that requires a lot of investment, the vast majority of PRC firms are not organised as true partnerships and lack support for new market penetration. Law firms should capitalise on the bounceback which will be seen in market conditions in 2010 to introduce better talent and invest in new areas. 

HONG KONG
Lindsay Esler, Deacons

•  GFC highlighted need for diversified practices and strong dispute resolution capabilities
• International law firms will have to differentiate to set themselves apart

2009 was a year of decidedly mixed fortunes for law firms in Hong Kong. The SARS outbreak five years earlier in 2003 resulted in the closure of smaller or niche practices by many international firms and a subsequent strategic focus on a narrow range of practice areas, at the time considered more profitable.

Now the GFC has demonstrated the benefits of maintaining a diverse practice – in particular the importance of maintaining strong litigation capabilities. Firms that were poorly diversified in terms of their client base and practice areas suffered disproportionately in the downturn to those who were prepared. Hong Kong is evolving into a market overflowing with foreign firms, where being a locally-based business with a broad-based practice has become an extraordinary status for a law firm.
In 2010 the challenge will be for US and UK-based firms to separate themselves from their competitors, in a market which is increasingly saturated with firms focusing on the same range of practice areas. Due to increased competition, fee pressures will naturally increase in those practice areas where foreign-based firms have clustered.

Maintaining morale and recruitment will likely prove more difficult in future for those who have let staff go. Law firms that had been reducing their client base for strategic or conflict reasons will find themselves more reliant upon (and therefore vulnerable to) a smaller base of clients.