When China’s King & Wood merged with Australia’s Mallesons Stephen Jaques last year, the move sent shock waves through the Chinese legal market. The first time that a Chinese firm had combined with a top-tier firm from outside China, the merger was a bold step toward King & Wood’s already announced aim of following its Chinese clients around the world. Jun He Law Offices, like China’s other prominent firms, watched carefully. In Jun He’s Beijing headquarters, the six members of its management committee met several times to ponder whether the firm needed to rechart its own strategy, given the changed competitive landscape.

The answer was no.

Jun He decided that it would not look for an international merger or open new offices abroad, in addition to the outposts it has now in New York, Silicon Valley, and Hong Kong. The firm will remain committed to practicing Chinese law and building close relationships with international law firms—a key source of referrals—continuing a strategy that has been highly successful so far. In the two decades since its founding, Jun He has grown to more than 400 lawyers and nine offices, and counts Exxon Mobil Corporation, Sinopec Group, General Motors Company, Bayer AG, and American International Group Inc. as regular clients. Revenue has grown 10–20 percent in each of the past three years.

“It’s not to say that we are conservative, or that we do not have international ambitions,” says newly elected managing partner David Liu. “But we believe there is a lot more work in China to be had, and that it is best to leave international law to Western lawyers who do it best.”

Still, some adjustment of the firm’s mission was in order. Liu’s election as managing partner marks a shift in Jun He’s orientation. Its lawyers want to raise the firm’s profile and broaden its reach. “I think this year we are reflecting on our visions, plans, and strategies—that’s why a new management team has been elected,” says Liu.“Partners want to be more exposed.” The firm is trying to build its Chinese client base by developing practice areas such as outbound mergers and acquisitions, intellectual property, and litigation. It’s also taking a newly assertive role in pursuing international clients. “We want to work with more international firms, good ones that we can trust, and maybe jointly pitch for work, advise on their business, and offer new value for clients,” Liu says.

A partner at another Beijing-based firm says that Jun He is perhaps best placed, among the major Chinese firms, to work closely with international firms, since the firm already has strong networks with its counterparts abroad. Global firms don’t always feel comfortable joining forces with Chinese firms because of concerns about quality, he adds, so many local firms focus on local clients. Jun He is in the enviable position of being able to pursue both Chinese and international clients.

“The thing about Jun He is that they are constantly changing and improving their services,” says one client, the general counsel of a global automobile company with operations in China. “Their teams for us are restructured according to our needs and have worked very well for us. There are differences between international and local firms, but Jun He tries very hard to close that gap.”

The firm has a keen sense of where its competitive advantage is located. “Jun He’s strengths lie in its focus on key markets in China,” says partner Li Xiaoyang. “And it is in China where we have the upper hand, with advantages in languages, knowing the law, and having the relationships.”

Back in 1989, when Jun He was founded, there were just a handful of law firms in China—all state-owned—that advised on foreign transactions. China’s private law firms were small and “collectively owned,” essentially groups of solo practitioners who worked under the same firm brand.

“These small firms only had the capability to act on small local deals and disputes,” says Jun He partner Jasson Han. “Jun He founders wanted to pioneer a different firm.”

Those lawyers—John Chu, Wu Xiaoji, Wang Zhilong, Helen Duan, and Xiao Wei—were veterans of the state-owned firms, including Great Wall Law Firm and China Legal Affairs Centre. Their goal was to handle the same kind of international deals and major commercial disputes that their old firms did, but at a private firm.

In its first decade, the firm hired lateral partners with international backgrounds—including Gong Jun, who has an LL.M. from Columbia Law School; Liu Ge, who had worked at Jenner & Block as a Chinese law consultant; Li Xiaocheng, who has an LL.M. from the University of California, Berkeley School of Law; and Zhang Wei, who had worked as a visiting attorney at LeBoeuf, Lamb, Greene & MacRae—and found itself well positioned to take advantage of rising inbound investment.

“In the nineties, there was already a lot of foreign direct investment, and Jun He had focused on advising international companies,” says Liu. “Many cross-border transactions needed local law firms, and foreign law firms at that time didn’t have China offices, so they didn’t have many choices but to come to us.”

Among the firms that have come most frequently to Jun He in recent years are Clifford Chance, Sullivan & Cromwell, and Baker & McKenzie. In 2011, for example, Jun He worked alongside Sullivan & Cromwell in advising the underwriters in China Zenix Auto International Ltd.’s $77 million initial public offering on NYSE Euronext. The firm is also a member of legal alliances Multilaw and Lex Mundi. But Jun He’s long-term friendship with Magic Circle firm Slaughter and May is perhaps its most notable outside connection.

While the relationship is not exclusive—Slaughter and May also works with Fangda Partners, Haiwen & Partners, and Zhong Lun Law Firm in China—the two firms have worked together frequently on major transactions. Both represented Tokyo-based Dentsu Inc. in its $5 billion acquisition of London’s Aegis Group last year, for instance.

“We’ve known Jun He for a very long time,” says Benita Yu, a Slaughter and May partner in Hong Kong.

Jun He founder Xiao worked at Slaughter and May in London in the 1990s, as part of a placement program, and his firm provided Chinese legal advice when Slaughter opened in Beijing in 2009. Yu says that Jun He’s low profile, focus on quality, and expert transactional lawyers echo her own firm’s model: “Compared to many other Chinese firms, Jun He is probably more keen on developing quality practices.”

Jun He’s Li estimates that around 20–30 percent of the firm’s work is referred from foreign firms, but the percentage varies widely from practice group to practice group. Half of Jun He’s cross-border mergers and acquisitions work comes from referrals from international law firms, says Beijing corporate partner Janet Hui. For capital markets, as well as banking and finance, most work comes directly from clients. Fewer than 20 percent of his assignments are via referrals, says capital markets partner Yu Yongqiang, who notes that Jun He is on the legal panels of financial institutions that include Goldman, Sachs & Co., Morgan Stanley, UBS AG, Deutsche Bank AG, Bank of China Limited, and Standard Chartered Bank PLC.

“We tend to advise banks as underwriters on cross-border IPOs,” he says.

In December the firm worked alongside Slaughter and May advising the underwriters on one of Hong Kong’s largest IPOs in 2012, that of Chinese state-owned insurer People’s Insurance Co. (Group) of China Ltd. Davis Polk & Wardwell and King & Wood Mallesons advised the issuer on its $3.6 billion offering. (Han declined to comment on whether the work was referred from Slaughter, but said that Jun He and Slaughter frequently pitch for work together.)

There’s some risk, of course, in relying on work from other firms. Liu says he doesn’t think his firm is overly reliant on referrals. Still, more local work for Chinese businesses would be a useful cushion for the firm if the volume of foreign deals shrinks.

As part of the firm’s new focus on local clients, Yu is putting more effort in advising on cross-border listings, especially for Chinese firms listing in Hong Kong, a specialty where he believes the firm has an edge and where it competes mostly with King & Wood Mallesons, he says.

“Most Chinese firms don’t have the relevant English writing skills, especially when it comes to drafting underwriter documents,” says Yu.

Last year Jun He advised sovereign wealth fund Government of Singapore Investment Corp. Pte. Ltd. on subscribing part of the $1.34 billion worth of shares placed by Shanghai-based China Pacific Insurance (Group) Co. Ltd., which was advised by King & Wood Mallesons. Jun He was also adviser to Chinese Internet company Tencent Holdings Ltd. on the issue of $600 million in senior notes in Hong Kong in 2012.

At a firm best known for its corporate advice, Liu says it’s time to build up practice areas such as litigation, antitrust, and IP.

“There’s plenty of work from local companies, and we want to be able to service both sides—international and national,” says Liu. “Building up those practices will make a truly full-service law firm and help us serve Chinese companies that are going to do business outside of China.”

Leading the IP practice—which now includes nine partners and counsel—is partner Ma Qiang, who joined the firm in 2011 from IP boutique Unitalen and specializes in trademark applications and prosecutions.

“We’ve realized that the volume of IP work in China is huge, especially in trademark litigation,” says Ma. “If you want to provide full services to clients, you will need to have expertise in IP, because they will surely require that at some point.”

Ma works frequently with disputes partner Zhang Wen, who says that Jun He’s disputes practice, which includes 29 partners and counsel, has gained traction since being placed on the “focus practice” list two years ago.

“We only do commercial litigation,” says Zhang. “And [we] mostly compete with King & Wood and Fangda.”

About two-thirds of the firm’s disputes work—most often joint venture disputes, quality control issues, trademark, and Foreign Corrupt Practices Act–related matters—are referred to her internally, usually from existing corporate clients. Less typical—but certainly high-profile—was partner Bai Tao’s representation of the family of former Chinese premier Wen Jiabao last year in disputing a New York Times report that family members had amassed a fortune of at least $2.7 billion over the last two decades. (Han declined to comment on the status of the matter or whether a suit had been filed.)

Jun He partners are paid on a modified eat-what-you-kill compensation system—the “China constitutional model,” as Li puts it.

“The harder you work, the more money you make,” says Li. “So if you are a young partner but work very, very hard, you might make more money than a senior partner here.”

While most other Chinese law firms have similar compensation systems, Hui says that Jun He is different because earnings—instead of going directly to individual partners—are pooled and distributed by management according to a formula. If a partner brings in a client but requires help from a partner in another practice group, fees are divided according to a mutually agreed-upon percentage; however, the originating partner also gets an additional percentage for bringing in the business. The remaining earnings are applied to practice group revenue and later divided among partners in that group, usually according to hours and type of work.

“Some people say our model doesn’t encourage teamwork, but that’s not the case here at all,” says Li. “Our lawyers are encouraged to work across different teams and support different partners as needed so they work very well together,” he adds.

Han, though, admits the possibility that a more distributive model might foster even stronger teamwork. King & Wood Mallesons has “outperformed” Jun He in having more institutional clients, Han says: “It might be because they have what is closer to a lockstep model” [“Outward Bound,” Winter 2011].

Jun He associates also work with different teams of lawyers as required. According to Yu, a former Commerce & Finance associate, associates in most Chinese firms are assigned to a single partner who will be their only mentor during their entire tenure.

“So, it felt really weird when I first joined [Jun He]. There was no one partner in charge of me, and I was left to work independently,” he says. “But it’s definitely a better model for junior lawyers who are looking to grow step-by-step.” It’s also a better model for the firm, Yu adds, because associates are less likely to leave if they aren’t assigned to an “autocrat.”

“Autocratic ways make it harder for firms to expand,” says Liu. “Just look at most of the Chinese firms—there are so many, but most of them are still very small, with 10 or so lawyers.”

Jun He, by contrast, prides itself on being relatively democratic.

“People keep looking for democracy in China,” Li says, laughing. “When all they have to do is to look into Jun He.”

He cites the firm’s four-step lateral hiring process: Potential partners must be vetted by a practice group and then receive a two-thirds vote from the firm committee, approval from the management committee, and a majority vote from equity partners.

“All it takes at most other firms is for the chairman to say ‘Yes! I like you,’ ” Liu says.

Indeed, partners have a say in almost all major decisions—including any potential mergers. So far, aside from absorbing a 16-lawyer group from the former Junyi Law Offices in 2007, the firm has steered clear of growth via external combination. Rumor has linked Jun He with smaller competitor Jingtian & Gongcheng, but both firms have denied having talks. One obstacle to merging with a Chinese firm, Liu says, is that partners at local firms tend to be less specialized.

“Our partners try not to be all things to all people,” he says. “Sure, we are a full-service firm, but each of our partners is expert in strictly one area of practice.”

That’s a more Western model, but Liu also rejects the idea of merging with a foreign firm.

“We don’t want to open more international offices, and we are also not after a merger,” says Liu.

An international merger would end most of Jun He’s lucrative referral relations with other global firms. Moreover, China’s lower legal fees would restrict Jun He’s choice of merger partners: A foreign firm with profits per partner at the same level as Jun He’s is unlikely to be top-tier, Li says, and that option is not appealing. Among the models that Liu cites are Cravath, Swaine & Moore and Slaughter: “They also don’t have very many offices, but are all indisputably excellent and very successful firms.”

Jun He is aiming high—and the firm is confident that it can find its own path to accomplish its ambitions, without outside help.

“Integration [postmerger] is always a challenge, and it takes time,” says Li. “I don’t think Jun He is ready to follow King & Wood’s footsteps. It is still a long way for local firms to improve on skills and practices to compete with international firms.”

Email: jseah@alm.com.