Chinese lawyers say UK advisers need to move beyond hourly billing to win state clients

Western law firms need to think more creatively about which companies they target and how they bill in order to win work in China, according to partners at leading local firms Fangda and Jun He Law Offices.

The suggestions were made during a presentation at Legal Week's Independent Law Firms Forum last month (22 March), chaired by former UBS chair Peter Kurer (pictured right), which also covered the rise of Chinese law firms in the international legal market.

Jonathan Zhou (pictured left), who has been a partner at Fangda Partners since 1994, warned that international law firms needed to be more flexible about how they were billing companies from mainland China for work, with larger state-owned companies in particular likely to be tough on fees.

"International firms shouldn't expect the largest companies to pay their normal fees – they're spoilt by all the firms trying to win work. A good client in terms of profile may not necessarily pay good fees," Zhou observed.

DingFa David Liu, a partner at Jun He, commented: "Some smart companies – especially if they can appreciate the added value lawyers provide – are willing to pay firms' prevailing hourly rates where a specific scope of work is spelled out. But generally Chinese clients are quite fee-conscious."

In particular, Chinese corporates often expect fixed or capped fee arrangements from legal advisers, with Liu warning that firms will find it almost impossible to recover their full fees if they are not honest and upfront about how long work is likely to take and the cost in advance.

Tight internal controls at state-owned enterprises are more likely to squeeze firms on pricing, though there may be opportunities for firms to receive greater volumes of work in return for reduced fees.

Despite growing trade between China and the West, international law firms lack clarity about what Chinese clients want in a legal adviser, according to Zhou. He pointed out that while many companies choose to go simply with the best-known UK and US law firms, the growing internationalisation of Chinese law firms, as typified by the King & Wood Mallesons deal, Fangda's forthcoming plans to open in Hong Kong and Zhong Lun W&D's alliance with 30-lawyer City firm DKLM, meant this was likely to change.

This could create opportunities both for Chinese law firms and for smaller Western firms with offices in the region, or forging links with local firms.

Zhou commented: "It is true that some Chinese firms are starting to look abroad, and London is one of the targeted cities. However, different firms have different strategies, and we are still only in the early stages of exposure to the international market.

"It is hard to say which strategies will prove successful as there are always challenges ahead – cultural, linguistic and impact on profitability."