X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Political winds shape business plans, and in 1994 Akin Gump Strauss Hauer & Feld scented something in the air. With the fall of the Soviet Union and a flood of outside capital into the former communist state, Akin Gump, whose name partner Robert Strauss had just returned from a stint as U.S. ambassador to Russia, decided to start an office in Moscow. The future was uncertain, but unlike the other U.S. law firms that fought for business from Western clients rushing to the Russian market, Akin Gump banked its future on the nascent domestic industry. By securing foreign capital for Russian clients, Akin Gump lined up a coterie of indigenous clients, particularly energy heavyweights like OAO Lukoil, which it continues to represent to this day. (In 2004, for instance, the firm helped steer Lukoil into a joint venture with ConocoPhillips Co. to develop reserves in northern Russia.) Now the trade currents aloft have shifted from Moscow toward Beijing, and Akin Gump is once again looking to open new territory. “As China becomes a bigger and bigger player in the global economy, they are going to have a need for a number of services, and part of it is access to Western capital,” says Bruce McLean, Akin Gump’s chair, who says his firm is deciding whether to open an office on the mainland. “And they need a lawyer with expertise in New York capital markets and energy laws to facilitate that.” Akin Gump is hardly alone. Dozens of U.S. firms have swept into the Chinese market in recent years. Of the largest 250 U.S. firms, 39 have offices in Shanghai, Beijing, or Hong Kong, according to Legal Times‘ sister publication The American Lawyer. And for good reason. China’s economy is growing almost 10 percent per year and foreign direct investment rose nearly 24 percent in 2005 to $167.21 billion, according to the U.S.-China Business Council. “Anyone who wants to be a global firm is going to have to be in China,” says Timothy Waters, co-managing partner in the D.C. office of McDermott, Will & Emery, which is looking to get into China as well. But Washington firms have been late to the game. In 2001, only four of what today are D.C.’s top 20 firms had offices on the mainland, and all of them — Skadden, Arps, Slate, Meagher & Flom; Sidley, Austin, Brown & Wood; Latham & Watkins; and Jones Day — were based outside of the District. Today, a handful more have set up shop, including WilmerHale and Hogan & Hartson. Others, like Covington & Burling, are considering similar moves. The tardiness of D.C. firms has some justification. Most of the law firm money to be made in China stems from burgeoning corporate activity — foreign investment, IPOs, and mergers and acquisitions — work that is largely the province of the big powerhouse firms in New York and Los Angeles, like O’Melveny Myers, Sullivan & Cromwell, and Morrison & Foerster. For many D.C. firms, which tend to specialize in litigation and regulatory law, the opportunities in China may seem less immediate. Foreign firms are prohibited from appearing in Chinese courts. And a domestic regulatory framework in areas like antitrust and intellectual property is still years down the road. Still, China won’t be ignored. There’s too much money at stake. O’Melveny & Myers partner Patrick Norton, who recently returned to the District after six years in China, says his firm is often referred work from D.C. firms that are unable to help their clients with China-related matters. “There is a lot of work that you can’t service unless you have people on the ground in China,” Norton says. So, like Akin Gump, D.C. firms big and small are mapping out when, where, and how to try and ride the Chinese dragon. “There is significant risk in going to China,” says Peter Zeughauser, a legal consultant who has advised firms about expanding into China. But with the potential to be left out of big-company representation, he says, it is “probably more risky not to go. Even though it’s not too late now, it may become too late if they wait too much longer.” BEGINNERS’ GAMBLE Wilmer’s China bet began in 2001 when it hired Charlene Barshefsky and her deputy, Robert Novick, fresh out of the Office of the U.S. Trade Representative. Without the corporate capabilities of its New York peers, Wilmer played off its D.C. cachet, using the policy expertise of its two new international trade partners to capitalize on the rising foreign investment in the region. “We had a number of clients who were interested in the China market,” Novick says. By 2004 the firm had rounded up enough interest to launch a Beijing office, luring Lester Ross, head of Paul, Weiss, Rifkind, Wharton & Garrison’s Beijing office. Since then, the firm has advised companies like Anheuser Busch Cos., American Express Co., Estee Lauder Cos., and Cisco Systems on China-related issues. But international trade is a limited niche, so Wilmer has its sights on expanding corporate work in China as well. With the firm’s merger with Boston-based Hale & Dorr, which counts among its strengths a strong emerging-companies practice and a cadre of high-tech clients, Wilmer just might have enough of an edge to succeed. And by combining policy with business, Novick hopes Wilmer can differentiate itself from the competition. Wilmer is testing how its Washington connections can help grow its China portfolio, but this path to market expansion is by no means a gentle climb. Covington, for one, remains unsure of its China prospects. The firm is on the short-list for many companies seeking a national security check to do business in China. Most notably, Covington counseled longtime client IBM Corp. in its national security review for the sale of its personal-computer business to Lenovo Group Ltd., a Chinese technology company. The firm has also monitored Chinese textile imports for U.S. and foreign companies, and partnered with Chinese firms to handle on-the-ground work for U.S. clients operating in the country. But whether keeping and growing that business requires an outpost in China is up in the air, says partner David Marchick, who worked on the Lenovo deal. The firm has hired consultants and talked to clients about opening an office, but, says Marchick, “It’s a very tough call.” The economics are the biggest challenge. Profitable firms like New York’s Cravath, Swaine & Moore have already entered and then departed from the Chinese market. With a plethora of new firms clamoring to get into the Middle Kingdom, some are undercutting each other with prices far below their normal market value. The decision isn’t a casual one. It means sinking millions while waiting for an office to become profitable. (Akin Gump chair McLean estimates it will be at least three to five years before the firm sees returns from a China office.) And that investment could turn sour if the political momentum for change in China slows. Moreover, says Stephen Harder, Clifford Chance’s Shanghai managing partner, competition for lawyers qualified enough to open a new office is stiff. “There is a doubling, perhaps, of senior-level slots at the firms in China without a doubling in available people,” Harder says. (Witness the battle over Coudert Brothers’ top-notch China practice last year, which eventually split between DLA Piper Rudnick Gray Cary and Orrick, Herrington & Sutcliffe.) And the established firms aren’t slowing down their growth either. Some may still end up pulling up stakes, but “firms that have been there and have a presence are not going to stand where they are. They are going to be trying to move forward in terms of their market place,” says Andrew Kramer, a partner at Jones Day, which opened a Hong Kong office in 1986, Shanghai in 1999, and Beijing in 2003. DISTANCE DATING The pitfalls are not lost on a number of D.C. firms, which are eyeing the China prize from a distance. “We are really thinking hard about China,” says Howrey partner Bert Reiser. “But I don’t think it’s the cornerstone of our future.” The firm has an outpost in Taipei, but as a litigation firm, Reiser isn’t sure there is a broader market on the mainland. Instead, firms like Howrey; Arnold & Porter; Steptoe & Johnson; and Dickstein Shapiro Morin & Oshinsky hope to capture work while staying grounded in the United States. In the past year, each of the firms has set up working groups to strategize the best way to court China business. The firms’ focus is largely on Chinese clients who are increasingly making inroads in the U.S. market. The most significant area: intellectual property. Those firms are also picking up international trade cases and lawyers anticipate a spike in antitrust, securities, and contract-dispute litigation. But that market is still a fledgling one. Yet as newcomers like Wilmer; Hogan; and Pillsbury, Winthrop Shaw Pittman (which has filed an application for a license in Shanghai) make inroads into China, they too are aiming for those same Chinese clients. Washington firms without a meaningful presence on the ground in China may have a tougher time establishing meaningful contacts with government officials and clients, China lawyers say. Those firms are hiring lawyers with experience in the region, ones likely to have the necessary guangxi, or business connections, to help land top-tier clients. Some D.C. partners acknowledge their firms may be handicapped because the Chinese government and businesses put a high premium on firms that have a significant commitment to the country’s development, something a local office clearly represents. Back at Akin Gump, the debate over a China office rages on. Momentum picked up after the firm made a big splash representing the state-run Chinese oil giant CNOOC, the China National Offshore Oil Corp., in its unsuccessful bid for Unocal Corp. last year. Richard Burdick, chair of the firm’s transactional practice, hopes it is a sign of more to come. “CNOOC gave us the opportunity to build additional relationships in China. And that perhaps could be a tool to developing client relationships,” he says. But partners wonder: How much investment will it require and how long will it take to see a financial return? Is a China office worth more than expansion in, say, San Francisco or New York? What do partners in practices without a connection to China get out of the deal? (The office would focus on energy project finance and transactions, intellectual property, and international trade.) “The answer is that you have to believe that, over time, having a significant international footprint is going to be a competitive advantage to all the practices in the law firm,” Akin Gump chair McLean says. Russia, after all, is still paying dividends. Recently, the Indian national oil company ONGC, the Oil and Natural Gas Corp., hired Akin Gump to advise it on a joint venture with Sakhalin Energy in eastern Russia. With a deal like that, perhaps the firm ought to think about setting up in India as well.
Emma Schwartz can be contacted at [email protected].

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.