Local firms need to address their root problems to remain competitive

By Robert Sawhney, Managing Director, SRC Associates

With Asian legal markets increasingly being '¨opened up to foreign law firms, local firms '¨are under greater pressure to keep up with the practices of their international counterparts.

Firms in Hong Kong have faced international competition for years, but even this is intensifying as more foreign firms opt to practice local law and hence poach locally-qualified partners from both local and international firms. Many once highly-profitable local firms are finding times tougher and are in need of updating their approaches to meet the needs of demanding clients, as well as being able to retain quality people. Some of the larger local practices are hiring COOs and other non-lawyer executives to help modernise their firms.

It is not just Hong Kong, however. China, South Korea and Singapore are all undergoing various stages of market openness and local firms will need to adapt to remain viable over the longer term, even though that may be many years away.

Even Indian firms will want to keep an eye on foreign competition, given the fact that foreign firms have been given the all-clear to fly in and out to conduct business with clients in what is still a '¨closed market.

Small and mid-sized practices (SMPs), which make up the majority of practices in Asian jurisdictions, may face challenges even greater than larger local firms. One of the key reasons is the older generation of lawyers heading these firms, who are often resistant to change.

Local firms need to understand where they can really add value in working with clients and which services are becoming commoditised, so '¨that they can move up the value chain.

The market is changing and firms must change too. '¨Local firms can no longer get by on the idea that what has worked in the past will work in future, so having an open mind to making changes in the way they practice is crucial as a first step in becoming more competitive.

Unfortunately, this mindset change is the hardest shift for many law firms in Asia. For example, a small Hong Kong firm recently asked what they should do in light of certain challenges facing the firm (including talent retention and fee pressure). After a long discussion about potential approaches, the conversation ended with the senior partner saying: “I guess hiring an office manager won’t fix the problems then?”

This is a classic example of what I find all too frequently in Asian law firms when they develop ideas on improving their performance. They tend to look at band-aid approaches (sales training, hiring executive staff, new websites, brochures, branding and promotion initiatives), without a clear understanding of their root problems.

These root problems may include '¨poor leadership, a poor match between client expectations of value and what the firm can deliver, as well as poorly-designed incentive systems and talent retention programmes.

Addressing these root problems frequently involves a more systemic assessment of what the firm is doing. Any change initiative will have to involve a multitude of stakeholders, including firm partners. However, it is often this involvement that senior partners want '¨to avoid, as it “causes too much trouble”.

All in all, competitiveness revolves around leadership and a market/knowledge orientation. If local firms are not prepared to address the need for change on a systemic basis, they '¨will continue to lose ground to international firms that are often more prepared to do what is needed to meet the '¨needs of clients.

bob@srchk.com