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In the decade since O’Melveny & Myers entered Shanghai, the Los Angeles-based law firm has established a lengthy client list, employed dozens of attorneys and set up shop in a sleek modern office in one of the city’s most upscale shopping districts. Newcomers like Thelen Reid & Priest sure have a lot of catching up to do. “The market here is a lot tougher than it seems from the outside,” says Thomas Shoesmith, a Thelen partner who is leading the firm’s push into China. Even so, as confidence in China has grown, foreign law firms have sprung up nearly as fast as the skyscrapers that house them. More than 100 foreign firms are currently in China, and it seems as if hundreds more are on the way. But the later arrivals are finding some formidable challenges that range from recruiting laterals in a red-hot market to figuring out the best neighborhood in Shanghai to hang a shingle. The obstacles begin well in advance of a firm actually practicing any law in China. Before even filing an application for a license � a process that takes about nine months � firms are required to submit an inch-thick binder of documents that include everything from passports and certificates of good standing to articles of partnership. Every document must be notarized and many must be translated into Chinese. The paperwork then moves from the local jurisdiction of the proposed law firm office to the Chinese Ministry of Justice in Beijing, which is often flooded with foreign law firm applications. “Theoretically, you could hire someone who knows someone but it could easily backfire,” says Shoesmith. “Law firm approval is pretty routine so asking to jump the queue could result in a who-do-you-think-you-are reaction.” Still, there are ways to get a helping hand. Littler Global, the international immigration and employment law arm of Littler Mendelson, hired CCTong Legal Consulting in Shanghai to provide tips on the process. For example, it’s essential to include a strong explanation for why a firm wants to open an office in China. It’s not enough to merely submit a glossy brochure that details the firm’s overall mission. Lawyers who have gone through this process also say that it’s important to be attentive to the Chinese government, keeping officials informed, asking for guidance and accepting all courtesy calls. Once a law firm receives a license, the next critical decision is where to set up shop. While waiting for approval, firms are allowed to lease temporary work space but cannot otherwise refer to a China office on business cards, brochures or other law firm materials. As is the case in most cities, law firms operating in China tend to cluster in key financial areas. Not surprisingly, most foreign firms want to be in the choicest office buildings, a pricey endeavor in a city like Shanghai. According to a May 2006 survey of global rental rates, Shanghai’s two top business districts rank 37th and 39th, well behind Manhattan, in 23rd place, but ahead of Los Angeles and San Francisco. While other surveys vary a bit in terms of specific rankings, no one disputes that Shanghai is an expensive place in which to do business. The top business districts, Puxi and Pudong, sit on opposite sides of the Huangpu River, a tributary of the Yangtze. Choosing between them is something akin to a firm deciding to locate in Silicon Valley versus San Francisco or Century City versus downtown Los Angeles. “That river makes a big difference,” says Shoesmith. Personal factors, of course, can also enter the picture when it comes to picking out a specific office location. Shoesmith and other law firm partners say they take into account factors such as which international school their children will be attending when deciding which side of the river is most convenient. While many foreign firms identify key partners to lead their growth, recruiting on the ground can be a challenge. The market is especially hot when it comes to Chinese-trained lawyers who also have bar credentials in the United States. The competition for talent led to a different business approach by Carmen Chang, a partner at Wilson Sonsini Goodrich & Rosati who has been leading her firm’s China initiative. When the firm receives its license, it plans to work with a headhunter to court Chinese lawyers who are also admitted to practice in the United States. But Chang says that Wilson Sonsini is not going to compete with Chinese firms for local business. The firm is looking to avoid the mistakes of other foreign firms who hire Chinese lawyers but don’t offer them the same growth opportunities as their American counterparts. “We’ve decided not to go down the route that some American firms are going,” says Chang. Instead Wilson intends to hire Chinese lawyers who can also practice in the United States and treat them the same way as American attorneys, without any ceilings on how far they can advance within the firm. “I will not participate in the dual track where Chinese nationals are trapped in a career that ultimately means they’ll have to leave for a Chinese firm because they don’t have a future,” says Chang. “I believe this is one of the things that will make us attractive.” Finding the right person to fill nonattorney positions can also prove daunting. The flood of interest in working for foreign firms often results in a mountain of applications. Within days of posting a paralegal job online for Littler Global’s fledgling Shanghai office, Becky Xia, the firm’s China manager, found herself swamped with 120 resumes. With each desirable candidate going through three rounds of interviews, it was going to be a time-consuming process to fill the position, says Xia. As for the practice of law itself, with so many foreign firms saturating the Chinese market, it’s hardly enough to set up an office and expect clients to start walking in. The current atmosphere may be more hospitable to business but that also means there’s that much more competition. Law firms “are coming in at a time when China is the flavor of the day,” says Christopher Stephens, a Hong Kong-based partner at Orrick, Herrington & Sutcliffe who previously worked in China for Coudert Brothers. “I don’t think we could do this now � come in and start a green fields operation.” But Wilson’s Chang says just because a firm doesn’t have an office yet doesn’t make it a newcomer. Wilson, she points out, was one of the first foreign firms doing deals in China. And because Silicon Valley and China are already linked in the technology sector, the firm has also established inroads as a result of its technology work, she says. Sheppard, Mullin, Richter & Hampton, another California-based firm in the process of launching a China operation, is banking on a pre-existing client base to power its way into the market. “Sheppard isn’t going with a gold rush mentality,” says David Huebner, the partner who is leading the China effort. “We’re not going to hunt clients. Many of our clients are already there and several are planning to move soon.” As firms like Wilson and Sheppard edge closer to their China licenses, other U.S. firms are much further behind in the process. Ropes & Gray, for example, is just now beginning to explore the Asian market, with a particular eye on IP litigation. The firm is decidedly cautious about entering a new market. “A little of the herd instinct takes over,” says Cary Armistead, who co-chairs Ropes’ international practice group. “You can spend a lot of money thinking you have to be there because everyone else is.” Caution makes sense even if the market is more open these days, say veteran China lawyers. Not everyone can make money despite � or perhaps because of � the mad push to open up offices overseas. Walker Wallace, a 10-year veteran of O’Melveny’s Shanghai office, has seen periodic shakeouts during the course of his career there. The pattern typically goes like this: Someone in the United States will push for a China office without realizing the extent of the commitment or accurately assessing the business opportunities. When management realizes that the firm is not making enough money, the China office disappears. Now it’s a new wave of firms coming into the country. But like before, there’s still no guarantee of success. “Some are making money, some are losing it,” says Wallace. For those just entering, of course, it’s hard to temper the optimism. Chang, for her part, says she is eager to get started and that Wilson’s effort is long overdue. She left the firm in 2003 after Wilson decided against opening a China office. She was wooed back last August by the prospect of starting one. When she left several years ago, says Chang, “everyone called up the firm and said, ‘Are you guys crazy? Do you realize how important China is?’ “

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