Reuters reported yesterday that China has now become Germany’s largest trading partner. As Rene Wagner and Michael Nienaber detailed — China has overtaken the United States to become Germany’s number one trading partner, just ahead of France.
German imports from — and exports to — China — rose to 170 billion euros ($180 billion) last year, as the German Federal Statistics office detailed and Reuters reported. German government and trade association officials were interviewed for the report and they indicated their intention to continue efforts to expand trade with the greater Asia-Pacific region. Eshe Nelson also reported in Quartz that European Union officials and Chinese President Xi Jinping are both focused on expanding the trade relationship between China and the EU.
And ‘the growth [of German-China trade] is partly driven by complementarities between China and Germany’s industries, [according to] Bai Ming, a research fellow at the Chinese Academy of International Trade and Economic Cooperation, as the Global Times reported [last week]”. All three reports cited the backing away from more robust support for international trade and investment by the United States — as one reason for the change in trade flows. Wang Cong and Xie Jun detailed Bai Ming’s identification of Germany’s advanced technologies as complementary to Chinese manufacturers, who, he said, “are going through industrial upgrade.” He also cited China’s “One Belt and One Road”, of which Germany is an original member — as another opportunity for bilateral trade expansion.
Next Steps for law firms
Law firms in China and Germany are now in a position to capitalize upon this expansion of trade between the two nations. In recent years the expansion of China’s trade and investment posture in Europe has seen a number of law firm mergers take place between Chinese and European firms. Perhaps the most prominent was the King & Wood Mallesons merger with the UK’s SJ Berwin. Other mergers have occurred recently including the recent merger of European law firm Fieldfisher with Chinese firm, JS Partners. As well, European and Chinese firms have also established joint marketing initiatives via the utilization of international legal networks like LexMundi, as well as various forms of bilateral marketing tie-ups. These and similar initiatives, while common, present both opportunities as well as challenges for firms seeking to generate new business from joint initiatives.
Beyond joint tie-ups and marketing initiatives, firms can also act unilaterally to seek to generate more work for their firm in their own market while working more loosely with affiliated partners in non-exclusive marketing initiatives. Some of the benefits and challenges of these option include:
Mergers — China-European law firm mergers tend to be Swiss-Verein in nature — which means the firms are not financially integrated — but rather operate under a joint brand which seeks to — over time — develop internal integration in marketing, business development and operations. Mergers also create an instant deficit in referral business from the jurisdictions where the merger partners are operating. For example, should a German firm seek to merge with a Chinese firm – they must keep in mind that any referral relationships they currently enjoy with other Chinese firms are almost certainly going to dry up as those Chinese firms will now see you in competition with them as a result of your merger with their domestic competitor. Law firms who would seek to merge, therefore, must seek to ramp up their respective and joint business development efforts as a means to make up for this “referral deficit”. Not to mention the need to capitalize upon the opportunity that underpins the merger in the first place. I’ve earlier detailed my thoughts on the challenges Swiss Verein mergers face from a business development perspective both here in Asia Law Portal in an article: 3 challenges facing the Dentons-Dacheng merger and in an interview with Law360: Dentons’ Tie-Up With China’s Dacheng Sets Model For Rivals
Marketing alliances — Firms might seek a less formal initiative than a merger in the way of a joint marketing initiative. However these can be perhaps even more challenging than mergers as there often is no or less of an internal driver in place to ensure that firms will jointly seek not only to refer existing clients to one another – but to also identify new potential clients in their respective markets. Too, it’s vital firms that establish marketing alliances put in place proactive internal mechanisms to shepherd potential clients through a business development process to the consummation of new business for the marketing alliance partner firm. I recently briefed Lex Mundi member firms in Jakarta on this very topic and cited my own writings on the challenges associated with this form of alliance. Perhaps the best summation of my thoughts are contained in my article which appeared in Remaking Law Firms entitled: BigLaw: How to Win More Work From an International Law Firm Alliance: I noted: “To effectively build an effective marketing tie-up with another firm, it is not enough to simply establish a relationship and “hope” your new partner refers business to you (however attractive the tie-up may appear in theory). Both firms must take a proactive approach to business development as a part of their firm culture and the joint alliance business development efforts in particular.”
Individual Law Firm Initiatives — Law firms in Germany and China may wish to initiative new business development initiatives in their own firm that they themselves control. These initiatives will rise or fall with the quality of their own strategy and follow-through and not be reliant upon partners for success. I wrote in an article published here on Asia Law Portal in August of 2014 entitled: Why German law firms should be focusing on China’s investors — of the “immediate opportunity German law firms have to develop new business emanating from China.” I cited an article from July of that year in Asia News entitled Chinese investing big in Berlin, authored by Yao Jing.
As the article explained: “Chinese companies are making big investments in Germany, eyeing the country’s advanced technology and management, a senior Chinese commerce official said. “The value and the amount of Chinese investment in Germany are both rising quickly,” [according to] Meng Fanzhuang, minister counselor for commerce at the Chinese embassy in Germany. Embassy figures show that about 2,300 Chinese companies are investing in German industries – [including] finance, aviation, telecommunication and machinery – with a total investment of more than US$4 billion.” I recommended then that: “German law firms should be focused on researching each one of the Chinese companies who are identified as entering or investing in the German market – then endeavoring to prepare specific (albeit not too extensive) briefs composed of tangible opportunities for those companies – and seeking to secure face-to-face meetings with that information.
Beyond that – this story ought also to be a lesson to not only German law firms but law firms worldwide – to be ever-prepared as a gateway to your market – as a means by which to rapidly react to an opportunity this explicit – as well as a means by which to properly package a comprehensive service offer aimed at inbound foreign direct investment wherever it may be emanating from.”
This is a general outline of what German or Chinese firms might do upon their own initiative. And more detailed efforts can and should be made based on these recommendations — in order to maximize revenue generated from the effort.
The Germany-China bilateral economic relationship continues to deepen – and law firms in both nations have an opportunity to expand their client base as a result of it. But in order to do so — firms must first put in place a well-informed strategic initiative designed to achieve that objective.