Slow boat to Chinese profitability

 At The Lawyer Management Conference last week I chaired an absorbing session on pricing. In the past few years the debate has, thankfully, moved away from whether the hourly rate is dead towards are more nuanced exploration of the issue. Certainly, The Lawyer Management session delegates explored topics from organisational behaviour to how to decouple time-recording from the pricing mechanism.

 When it comes down to it, we agreed, it’s about understanding your unit of production and adding whatever value on top. In a mature client market like the UK the formula is tricky enough, but at least there’s an accepted price bracket for most jobs. But how do you devise a global pricing strategy across jurisdictions?

 That is what our lead feature touches on this week (page 20). Asia editor Yun Kriegler investigates whether Western firms are making any money at all in China. As we reveal, the Chinese market is rife with gossip about who’s undercutting whom. Are such manoeuvres ever going to work in the long term? Oddly, I’ve never met a lawyer who’s cut their rates. Pricing conjugates as follows: we bid tactically; you offer deep discounts; they lowball suicidally.

Western law firms are in a double bind. Some are buying the work in a way that makes it harder to articulate the value proposition and therefore build a relationship with the client, while local firms are coming of age. And I don’t mean King & Wood here, although that is the most striking example. Local firms, as featured in our Asia Pacific 150, have professionalised to such a degree that they are scooping up more work than they would have dreamed of five years ago.

Off the record, most managing partners consider Western-style profitability a distant dream; it’s more a question of making sure you don’t lose money. As Hogan Lovells Asia managing partner Patrick Sherrington admits with disarming candour, “When it comes to making money in China, it can be a long march.”

 You can say that again. The partner pay differential between Western and Chinese firms works in the latter’s favour. China may be the future, but at the moment most global firms’ PRC practices are still subsidised.