Had a nice meeting last week with one of my firm’s few Chinese clients.
Though the bulk of my law firm’s work involves helping mostly US companies go overseas, we also sometimes help foreign companies come into the United States. Our language and cultural capabilities means most of that work should be done for Russian, Korean, Spanish/Latin American, and Chinese companies, but we have done disproportionally little for Chinese companies. There are many reasons for this, but the two chief reasons are money and culture.
Let me first digress by describing our history with Russian and Korean companies and then I will explain where we are with Chinese companies. The purpose of this history is to try to put Chinese companies in a context in terms of where they are in becoming sophisticated consumers of legal services, which, in turn, directly reflects on their international sophistication writ large. For other service providers who have worked with Russian, Korean, or Chinese companies, this history will only be interesting because it will be exactly the same as theirs.
Many many years ago, we started out representing American companies doing business in Russia/Korea and/or with Russian/Korean companies. Fairly soon after that, we started representing Korean-American and Russian-American businesses as well, mostly relating to their transactions with Russia/Korea. These Korean-American/Russian American businesses were, for the most part, run by Russians and Koreans who had been in the United States for at least five years and who spoke excellent English. They already had a good understanding of how business is conducted in the United States and their knowledge of how to use lawyers pretty much matched that of a comparable wholly domestic business.
Then the lawyers with whom we worked in Russia and Korea and the U.S. based Russian and Korean companies started referring us to Russian and Korean companies looking to do business outside their home countries. Though we initially welcomed these referrals, we very soon came to dread them. These Russian and Korean companies knew nothing of how the world operated outside their own countries and they knew even less of what a US lawyer-client relationship should consist.
Most of the time our fees precluded our representing these Russian and Korean companies at all. I cannot tell you how many times we would quote our hourly fee, get a long pause, and then a response along the lines of, “that’s for the entire project, right?”
Two main factors were leading to this disconnect on fees. One, our fees, denominated in dollars, were crazy in relation to what things cost in Russia and in Korea. Our hourly rates were greater than the average weekly salary in both countries. In addition, our fees were completely out of whack as compared to what these companies were paying their domestic lawyers, as we were typically charging three to eight times as much per hour. Two, these companies were shocked by the hours we were estimating to give them the answers or the resolution they sought. They would often insist to us that our finding the answer should consist of our simply reading the applicable code section and there was just no way doing that should take more than twenty minutes. They would stress that they would be more than willing to pay us a “reasonable” fee for us to answer their questions off the top of our heads, but our having to research it indicated to them that we did not know what we were doing. On top of this, the Korean and (even more so) Russian lawyers were charging a flat fee per project, not by the hour.
To try to solve the fee problem, we started quoting flat fees and we did start getting some business, mostly confined to those situations where the Russian or Korean company had virtually no choice but to retain an attorney outside their home country. It was only then that we realized the fee problems would prove to be the least of our issues.
Once we started representing these companies we had to deal with cultural disconnects. Some of the (now) funnier stories from those days:
1. I am in a packed courtroom representing one of Russia’s largest companies at the time. Opposing counsel tells the court how my client essentially controls the Russian Far East and how it has been using the Russian government to try to collect debts from his American client. I stand up and give an impassioned speech on how opposing counsel does not have a shred of evidence to support his accusations and that all of what he had said was nothing more than blatant and unfair stereotyping of Russians as mob bosses. then proudly and confidently sit down. The opposing lawyer stands up and cites how my client had used the Russian Coast Guard and the threat of arms to seize his client’s ships while they were out fishing and then forced them at gunpoint to come to port in Russia so my client could seize them, all this in violation of the bankruptcy court’s stay order.
As opposing lawyer is talking, I very quietly ask my client out of the side of my mouth whether what he is saying is true. My client says it is, to which I ask him why he had never told me, especially since I had asked a number of questions which by all rights should have elicited all of this information. My client’s response was that he was worried that if I had known of this, I would not have represented his company as zealously. I refrained from asking him if he thought his failing to tell me had achieved the result he expected, mostly because I had by that point shrunk so far down in my chair that I would have had to yell it up for him to have heard me.
2. Having to deal with clients who ask me what the federal judge on their case earns per year from salary and from “other arrangements.” I would always respond to this by saying that federal judges earn a very good salary and that if “other arrangements” means bribes, the amount is unequivocally zero. They would then make me out to be a naif, to which I would usually unload on them by saying something like the following:
You were referred to me by Oleg (made up name). He is your lawyer in Russia. He is also who we use when our American clients have matters in Russia. We both use him because he is an excellent lawyer, right? He has referred you to me because he thinks I am an excellent lawyer, right? Why do you think your Russian lawyer tells you to use us in the United States and we tell our clients to use him in Russia? And would you agree Oleg has an excellent understanding of how things work in the United States? And would you agree that my firm has an excellent understanding of how things work in Russia? So why then would your lawyer refer you to us and why then do we use him for our clients’ Russian matters? The answer is because no matter how well we know each other’s countries and their respective legal systems, he is always going to know Russia and its legal system better than me and I am always going to know my country and its legal system better than him. And I am telling you that American federal court judges do not take bribes and I am telling you that I have never bribed anyone in my life and I sure as hell am not going to do it now on your case. I’m just not and if you are going to persist in believing that bribing a judge is the way to go (which, by the way is crazy here because we can win this case on its merits) then you should go back to ____ and tell him you want to do things the way they are done in Russia, as you put it, and you want him to represent you over here.
3. With the Korean companies, one of our biggest problems was how much they relied on us. Lawyers in Korea are hugely respected (think doctors in America in the 1950s) and so they would too often want us to make business decisions for them, that they should have been making after we had provided them with our legal analysis.
Our Korean and Russian clients eventually gained enough familiarity with the US legal system and with lawyer-client relationships that our relationships with them are, in all important respects, pretty much no different than our relationships with our American clients.
Now let’s talk about the current state of Chinese companies, generally:
1. Our hourly rates compare with the average monthly salary in China. Chinese companies have in house lawyers who are paid weekly less than we charge by the hour.
2. Chinese companies expect us to be able to give them an answer to virtually all of their legal questions off the top of our heads.
3. They generally hire us only when they are facing a problem there is absolutely no way they can resolve without qualified legal assistance.
4. Many of the Chinese companies that seek to hire us for one thing (let’s say, forming a US company) really have another goal in mind (let’s say getting visas for their families and getting their kids into U.S. schools). They do not tell us of their real goals until we are way into the project.
5. Once Chinese companies do actually hire us, they want to tell us exactly how we should be doing our job. We were retained for a Chinese company once to sue an American company which owed the Chinese company millions of dollars. Upon our hiring, we sent a memorandum explaining our proposed course of action and we then completed a few of the initial steps. We soon received a memorandum back from the Chinese non-lawyer client, setting forth the steps we should follow, which steps made absolutely no sense at all in an American context. We told the client that they either had to trust our competency as lawyers or they should let us go and we would return all that they had already paid us. They let us go.
The above is typical, yet something else is starting to happen as well. We are getting hired by Chinese companies that have been doing business in the United States for a few years and who have seen how attorneys have helped some of the companies with whom they have done business. These companies are reticent to use American lawyers for cost reasons, but they do not have crazy cost expectations either. They, like every smart company, simply do not want to get involved in a situation where their costs might spin out of control. We understand this and have been working with them to explain how things go in the United States and in other countries and, when possible, we have been doing their work on a flat fee basis and, when that cannot work, we charge by the hour, with a cap. We also tell them how important it is that we stay in constant contact and to stress this, we oftentimes tell them we will not bill for client-attorney communications.
Slowly but surely, these Chinese companies, who have been in the United States long enough to realize how different we are than China, are starting to want to learn how to better operate here and are starting to gain enough confidence to realize that their U.S. operations can handle a U.S. based cost structure.
What happened with Russian and Korean companies on the legal front was always being mirrored in other business arenas. And what is happening with Chinese companies on the legal front is, I believe, no different from what is happening with Chinese companies on all fronts as they begin to expand into developed economies worldwide.
If you are a service provider looking to work with Chinese incoming clients, you will need to understand where your Chinese clients and potential clients are coming from and where they are going and you will need to show patience and an educator’s spirit to help them get there. It is going to take time, but my experience with Russian and Korean companies tells me there is light at the end of the tunnel.
U.S. service providers, what are you seeing out there? Any light in your business?
