Great haul of China

It might sound very Zen, but the laws of legal business are not too different from the laws of nature, according to one China-based partner at a leading international firm. When, either by chance or design, a model comes along that gives a firm the edge over its competitors, imitators are never far behind. Soon the model becomes ubiquitous and natural selection starts to take place - the explosion of legal process outsourcing is a good example of this.

This sort of competition is particularly prevalent in the Chinese legal market. Nowhere else in the world, except maybe London, do you have such a large number of the top-tier firms competing against each other. And as the competition grows, the margins for success shrink. In short, a small advantage can make a big difference.

So it stands to reason that, after two-and-half-years of Lovells’ (now Hogan Lovells) ground-breaking Sino-Global Legal Alliance (SGLA) and a distinct lack of ­imitators, questions are being asked about the value of alliance ­networks in China.

Bringing firms together

The SGLA was created by Lovells in ­September 2007. Linking with local firms in cities across China, it was the first ­platform to offer clients integrated ­international and local legal services.

It began as a 10-member organisation (including Lovells), but by March 2009 had grown to 14. It is a non-exclusive alliance - an arrangement insisted upon by Chinese regulations.

In addition to Lovells’ offices in Beijing, Hong Kong and Shanghai, the network spans 10 second-tier cities in China: Guangzhou, Shenzhen, Hangzhou, ­Qingdao, Tianjin, Wuhan, Shenyang, Chongqing, Chengdu and Xiamen.

It was an ambitious project to say the least. “It was a novel concept and we had to be realistic that it was something that was expected to yield results in the mid-term, not the short term,” says Crispin Rapinet, Hogan Lovells’ Asia and Middle East ­managing partner. “Referrals, even within China, are something that’s only just getting started now and we were bringing firms together that in some cases hadn’t even heard of each other,” he says. “And this is something that takes time, but that’s what we’ve done in the past 18 months and we feel we’ve made good progress.”

And according to Rapinet, since its ­merger with Hogan & Hartson on 1 May 2010, the firm is now in a better position to catch the outbound investment work ­coming out of China that has grown over the past two years under the encouragement of the Chinese government and the relative strength of Chinese companies.

Indeed, Hogan & Hartson had already participated in some high-profile ­acquisitions for Chinese corporates, ­including that of US hotel management company ­Interstate Hotels & Resorts by Jin Jiang International Hotel Corp and Geely’s buyout of Volvo from Ford.

With regards to the SGLA, Rapinet says Hogan Lovells is now focusing on ­cementing relationships between member firms and working with them to target clients and win business as opposed to merely referring work to each other.

Alliance share

But the departure of Robert Lewis from Lovells to SGLA member AllBright Law offices has brought the issue of the practical value of a network alliance in China sharply back into focus.

Lewis was instrumental in establishing the SGLA. A partner at Lovells since 2001, he was the firm’s Beijing office managing partner and is a Mandarin-speaker. And Lewis was largely responsible for the ­selection process Lovells went through before inviting firms into the alliance.
Consequently, Lewis’s departure has led some to ask whether the firm letting him go was a sign that, post-merger, Hogan Lovells was not as committed to the SGLA as it once was. The reality is quite the opposite, says Rapinet.

“AllBright was always one of the members of the alliance, so Robert’s move is a fairly natural development in the evolution of the SGLA,” says Rapinet. “He [Lewis] is very interested in the development of the legal profession in China and there are demands on a partner in an international firm that are not always consistent with what Rob ­wanted to spend his time doing.”

Lewis also stresses that his decision to leave Lovells was made before the firm’s decision to merge with Hogan & Hartson.
“My leaving had nothing to do with the Hogan Lovells merger,” he says. “I’m actually a pretty big supporter of the alliance. But I see the market shifting and I think with my move there’s a lot more opportunity to expand into certain areas, such as doing more peer-to-peer work for the SGLA.”

Why no copycats?

Though both Hogan Lovells and Robert Lewis affirm their commitment to the SGLA, the question remains: why has no other firm tried to do anything similar? The answer, according to some partners in China, is that they don’t see the value in it, or even if they do, the landscape of the Chinese market makes extracting that value ­difficult. “Conceptually it’s a great idea,” says a partner at an international law firm in China. “But one of the issues facing them is that clients, to the extent that they’re ­sophisticated, tend to know which PRC [People’s Republic of China] law firms they want to work with anyway. So in practice it may be difficult to execute and I’m not sure how much they’ve got out of it.”

Another international law firm partner says the reason alliances have failed to take off is because top-tier domestic law firms are at a premium and have no need for tie-ups.

Quality among law firms in China still fluctuates wildly, and those firms that are recognised as reliable will always be sought out by the top firms. So an alliance, even if it is non-exclusive, would only serve to limit domestic firms’ options.”Clearly, domestic firms are in a very good position,” says the partner. “If I were them I’m not sure if I would want to be in an exclusive alliance, when firms like ourselves and Clifford Chance will always want to go into deals with them anyway.”

However, not everyone’s assessment of the alliance has been sceptical.

“[Hogan Lovells] has been doing a lot of referral work for local clients as a result [of the SGLA],” says David Boitout, co-head of Gide Loyrette Nouel’s Shanghai office. “I think that this has helped Lovells, and it will certainly help Hogan Lovells to get Chinese clients in the future.”

Targeting the provinces

With regard to the assertion that sophisticated clients already know with which PRC law firms they want to work, Rapinet agrees that fact is true - up to a point.

“I think that it’s true in Beijing and ­Shanghai and always has been,” he says. “But one of the reasons we set up the SGLA in the first place is because it’s not true in the second-tier cities, and they’re becoming more and more important.

“So we carried out thorough market research as to who the best firms were in the provinces and targeted alliances with the premiere firms in each of these cities. I believe the SGLA is still a unique offering. We can say to a client that we have this firm in Wuhan which we think is the best. But not only that, we know the firm. That was the sell and still is.”

Rapinet does admit, however, that this sell has a limited shelf life.

“The point to be taken against us is that in 10 years’ time that will not be such an easy sell because by then general counsels will be more aware of local firms,” he says. “But who knows what the legal market will look like then. It’s very fast-moving and we hope we would be able to practise PRC law by then.”

Another possible reason why no other firms appear to have picked up on the alliance model is that it is difficult. Not least having to scour the country to find the right firms to join the network. But also, not all Chinese law firms, even smaller ones in the provinces, are eager to jump into bed with an international law firm.

“There’s a pretty high hurdle rate to get in through the door,” says Lewis. “You need a management team that’s supportive of the concept… and my view is that there has to be some brand value too. What we [Lovells] were trading was that we helped the local firms move up the chain and increase their brand value outside their respective regions and helped them improve their firm ­management systems. To make that level of commitment is not the easiest sell.

“I don’t see a big magic circle firm or a New York firm going for it because there’s not the same rationale for it at the very top of the market. But there might be some ’next-level-down’ firms that want to do it. The question is: do they have the brand value?”

Lewis is realistic about the amount of tangible success that Lovells can attribute to the network. But there has been success.
“To be brutally honest, I think that the SGLA is still a platform with unrealised potential,” he says. “And while Lovells’ management has been able to get some work out of it, it was not the same flow as was expected. But the firm has been able to get the advantage of being able to market itself as having the network. So there have been benefits but it is yet to achieve the value it has the potential to achieve.”