Purchasing power

By Robert Sawhney, Managing Director, SRC Associates

In-house counsel are becoming increasingly influential in the procurement of legal services in Asian organisations, with the key role they play as a business partner becoming more widely accepted.

In China recently, the profession has gained considerably more credibility through the instigation of formal associations and training programmes. An increasing number of companies have more in-house counsel as part of their senior management teams and some companies have promoted senior in-house counsel to lead their business units.

For example, Haier Group’s former head of legal, Su Xiaoxi, is now a vice president and takes a lead role in the group’s global operation department. In addition, Sinochem International’s legal manager, Liu Wenzhao, has recently been elected as deputy general manager of the company’s logistics business unit.

Many multinational firms in Asia choose China, Hong Kong or Singapore as the base for their in-house counsel. Increasingly, these are of Asian descent and play an expanding role in the choice of legal provider, often in collaboration with the chief legal officer at the head office.

West vs. east

There are some interesting regional differences when it comes to what influences in-house counsel in choosing a law firm. Inside Counsel’s annual survey of US-based general counsel in 2008 showed the following factors to be most important:

1. responsiveness;

2. industry expertise;

3. creative solutions;

4. billing rates; and

5. reputation.

By contrast, in a 2009 survey of in-house counsel throughout Asia (including Hong Kong, China and Singapore), Asian Counsel found the following factors to be most important:

1. expertise in a specific area;

2. responsiveness;

3. fees;

4. reputation of the firm; and

5. relationship between the company and firm (personal relationship with a lawyer came in at number 7).

The fact that relationships score highly in the Asian survey is not surprising, given the collectivist nature of Asian cultures and the importance of relationships.

An increasing number of in-house counsel in Asia are of local origin, with a number of these coming back from work experience in the west. Law firms which help in-house counsel to fulfil their expanding roles as internal strategic business partners can certainly get a leg up on the competition. In a culture where social bonding and reciprocity are so important in building client relationships, this can be a key differentiator between one firm and another.

The problem for many international firms is the lack of patience partners often show in building these relationships. Many firms lack the willingness to engage in client research to better understand how they are perceived and what clients really value.

Billing trends

While in Europe and North America there is constant talk about in-house legal departments reducing their budgets and moving more work in-house, that doesn’t seem to be the trend in Asia.

In the 2010 Asian Legal Business study of China’s in-house lawyers, less than 20 per cent of respondents said their external legal spend had reduced over the preceding 12 months, whilst nearly 50 per cent stated their legal budgets had increased compared to the previous year.

The troubling statistic for international law firms is that nearly 70 per cent of respondents said they will increase their use of domestic firms. This is not altogether surprising, given the growing competitiveness of local firms and their ability to attract foreign lawyers of considerable repute.

As the Asian legal markets continue to burgeon, foreign firms will increasingly have to take notice of the value that clients seek and no longer rely on the fact that, since activity levels are high, they can get work no matter what approach they use. Competition is fierce and the need to be truly differentiated is growing every day.