While much attention has rightfully been paid over the last decade to the opportunity the Chinese market presents for US companies, it is also vitally important to remember the importance of Chinese foreign direct investment into the United States.
During the the first half of 2012, foreign investment by China climbed more strongly than in 2011, and the U.S. led all countries in receiving new Chinese investment during that period. While there have been some broken deals as well as political opposition to some investments, China’s outbound investment trajectory looks likely to continue to expand into in the future.
The value of China’s investment into the US
Current total value of Chinese investment into the US is estimated to be 42 Billion USD, according to a newly released report authored by Derek Scissors of the Heritage Foundation. The study focused on deals in excess of $100 Million USD, which were dominated by Chinese state-owned enterprises (SOE’s), however, investments by the Chinese private sector have risen markedly recently, and many are breaching the $100 Million USD mark. Mergers and acquisitions (M&A) accounted for one-third of China’s overseas direct investment in the first half of this year, and as Sonja Cheung reported last month in Dow Jones, “Chinese venture capital firms (VC’s) are increasingly investing in deals outside the mainland.”
Most growth of Chinese investment into the US is occurring in financial investments, while energy, metals, real estate, transport, agriculture, technology and chemicals compose the remainder of the sectoral focus of China’s overseas investments.
A Recent China-Western law firm merger highlights the opportunity
US Law firms have multiple options to build a Chinese client base
As Kriegler points out in The Lawyer: “As the world looks east, Chinese law firms are increasingly looking west. The convergence between Western firms and their Chinese counterparts has begun – but what models can international firms employ to best exploit the opportunities from the region?”
I can recommend the following options:
Develop effective referral relationships with independent Chinese law firms
Some firms have begun doing this. As Kriegler reports: Robert Lewis, International Managing Partner of Zhong Lun, a Chinese firm with foreign offices in London and Tokyo, stated their focused [is] on “develop[ing] ties with independent firms around the world. And he sees “outbound work from China [growing] significantly.” “Portuguese law firm PLMJ has entered into a strategic alliance with the country’s largest law firm by lawyer headcount, Dacheng.”
As I have written before: “in order to effectively build a referral relationship with another [law] firm, it is not enough to simply establish a relationship and “hope” your new partner refers business to you. Both firms must take a proactive approach to business development as a part of their firm culture.”
Identify and communicate opportunities in the US market of interest to Chinese companies
As Kriegler reported: “Stuart Fuller, global managing partner of King & Wood Mallesons (KWM)[stated]: “To start with, we’ve engaged with our large clients – multinational companies and Chinese state-owned enterprises [SOEs] – in serious discussions about where their business is heading and what we can bring across the region to help them seize opportunities and realise their objectives. The feedback from clients and our peers has been very positive.”
As I have written previously, the approach Fuller is taking is a highly effective one: Communicate to clients, prospective clients and referral partners in China the opportunities you are aware of in the US market. Serve as commercially astute counsel. Create a value add beyond serving as legal counsel. It’s this initiative, in my experience, that can build an enormous overseas client base.
I would also encourage you to keep in mind the counsel of Dan Harris, author of China Law Blog, about his experience of working with Chinese companies seeking to enter the US market.
Open a representative office in China
As Kriegler points out: “The fact that China offers tremendous opportunities is indisputable, but the hard truth is that having a [practice] presence there does not grant you a share of the market. It takes much more to succeed in China, not least because foreign lawyers and law firms remain barred from practising PRC law. Although there are still firms launching offices in the country, several European firms have started opting for alternative ways to build up their China practices.”
A representative office would not violate the proscription against practicing PRC law by a non-Chinese law firm. As well, it is a highly cost-effective and efficient means by which to establish a successful client-facing business development initiative in an overseas market. Firms who wish to develop new business from the market should seriously consider a representative office in China. I have previously outlined how this sort of initiative can be effectively undertaken.
In this case, a fluent Mandarin speaker, with a comprehensive understanding of your service offer, and very strong research, sales and organizational skills – are fundamental in a China based representative for your law firm.
Establish a China-focused social media initiative
It is increasingly important for law firms – as we enter a more digital economy, to establish and maintain a presence on social media. This active presence would increase the number of potential clients and referral sources in China that will learn about your practice. Additionally, it will allow legal and commercial media from throughout the world who maintain an active interest in the China market to find you and seek your commentary for stories that are important to key audiences such as potential clients and referral sources within China.
The central focus of this effort would be the establishment and maintenance of a blog (written in both English and Mandarin) dedicated to your ideal potential client and referral base, then secondarily the distribution of that content across social media platforms used in China and overseas markets.
Keeping in mind your audience is primarily in China, I would also recommend a presence on Weibo, in addition to other social media platforms traditionally used outside of China. Weibo, similar to Twitter, is widely used within China and will help to build your brand awareness on the mainland, while making Mandarin-language blog content available to a reading audience throughout China. Reaching some you might not have reached otherwise were it not for this platform.
Should your law firm embark upon an effective business development initiative focused on the China market you will build, over time, a new client base around China’s increasing foreign investment into the United States.