Eastern Firms Accessing The West

30 Oct 2015

Last month in ‘Western Firms Closing Their Middle-East Offices’ we wrote about the different methods a number of western firms heading east with varying degrees of success. Now we are looking into how eastern firms are moving west, more specifically the different ways Chinese firms are accessing western markets.

Chinese inward & outward investment.

It is well documented that in recent years Chinese firms have invested heavily into all regions of the world, their widespread investments range from motorways in Ethiopia to universities in Papa New Guinea. Overall Chinese growth may have slowed recently, along with a wobble in confidence over the Yuan, but nevertheless the world’s second-largest economy has serious investment plans. With the welcome mat recently rolled out for President Xi Jinping, it is hoped Chinese firms investment into the UK will hit £105billion by 2025 (mostly in infrastructure).

Our article ‘Western Firms Closing Their Middle-East Offices’ looked at the methods western law firms were using to expand east, noting their preference for direct foreign direct investment by opening new offices and starting from scratch in new countries. This is quite different to the approach Chinese law firms are using to expand west, instead mainly opting for alliances, mergers and joint ventures to establish ties with western firms. This approach expands their reach into western market more cautiously than simply opening a new office in a western city.

Chinese companies in other sectors are investing westward are doing so in a contrasting more aggressive manner to that of their law firms. Often acquisitions are used to enable them access to a western market, no European company has ever done a deal larger than £1 billion in China, but last year alone there were five Chinese acquisitions in Europe of around this size. Law firms on the other hand are mainly taking a different approach, utilising alliances, mergers and joint ventures with UK law firms to offer a wider range of services. Worldwide it is a similar story, with Chinese law firms merging, creating joint ventures or alliances with foreign firms. Here are a few notable examples: 

Dacheng Dentons – merger.

This is the largest example. Denton’s announcement to merge will grow their business ties in the east.The merger will create the world’s biggest firm by headcount, growing business ties of east and west. 6,600 lawyers, 125 offices in more than 50 countries. The merger was announced at the beginning of the year, with the sheer volume of staff, translation and other issues it aims to be complete by the end. 

King & Wood Mellisons – merger.

The first merger of a large Chinese firm (King & Wood) and a large foreign firm (Mallesons Stephen Jaques and later SJ Berwin), currently making them the only law firm in the world able to practice People’s Republic of China, Hong Kong, Australian and English law.

FenXun Partners and Baker & McKenzie – joint venture.

Conversely Baker & McKenzie has focused on giving its clients access to Chinese legal advice through a joint operation with FenXun Partners. Protectionism in China makes access to its markets more difficult for western firms, with the creation of Baker & McKenzie FenXun the most viable option.

The firm announced the deal in April, saying it had received the first regulatory approval for a joint operation in the China Free Trade Zone. That gives Baker & McKenzie clients access to lawyers who can practice Chinese law, something not allowed at non-Chinese firms.

However things could be changing. 

The UK’s first wholly-owned Chinese law firm, YangTze Law has recently opened in London. Operating as an ABS and launched by two Chinese lawyers, Steve Ng and Winston Gao, the firm looks to operate as a legal case office for Chinese firms investing in the West. It is part of the YangTzejiang Legal Network of more than 40 law firms in China, it will also receive legal back-office support from south-west firm Michelmores. Yangtze Law is aiming to connect firms in the network with those in the UK, expanding Chinese participation in the UK and overcoming cultural and legal barriers.

If such a method is successful, it could be that we begin to see more wholly-owned Chinese firms in the UK. Perhaps, more aggressive acquisition based investment like the non-legal Chinese companies could be seen within the UK legal market.