The Silk Road Sequel: Legal Services Version

Editor’s Note: The author of this post is the founder and CEO of Legal Mosaic, a strategic consulting firm and a regular contributor to Big Law Business.

By Mark A. Cohen, Chief Executive Officer, Legalmosaic

Who would have imagined even a few years ago that the Chinese would jump head first into the global legal marketplace? If historydoesrepeat itself — as is so often the case — then China’s “One Belt, One Road” (OBOR) development strategy enacted in 2013 might prove a catalyst for a Silk Road Sequel, this time featuring China’s participation in cross-border, cross-continent, and global delivery of legal services.

Surprised? Well, a flurry of activity is already underway suggesting that China will soon be playing more than a cameo role in the legal version of “It’s a Small World After All.” Chinese firms are linking arms with established global giants as well as emerging market law firms to stake a claim as serious players in the $650b annual legal services industry.

China’s “One Belt, One Road” (OBOR) Initiative: Red Bull for Law

[caption id="attachment_2935" align="alignnone” width="640"][Image “https://www.flickr.com/photos/14589121@N00/5447446847/in/photolist-6BvstZ-9inAan-7cYqBR-7dpTFP-aUX8hV-oUJqM-rixAdy-9pBhhZ-9UxS3M” (src=https://bol.bna.com/wp-content/uploads/2015/06/5447446847_1054a549b8_z.jpg)]Photo of map of luxury train Silk Road tour by Simon Plelow (Flickr/Creative Commons)[/caption]

The story begins with the Chinese OBOR development strategy announced in 2013. Its objective is to promote greater cooperation between and among 66 countries along the so-called Silk Road economic belt and 21^stcentury maritime Silk Road.

The historical reference to The Silk Road through which Chinese silk passed in dynastic times and which became a symbol of China’s interaction with the outside world is not merely symbolic. It represents a platform by which Chinese business — and that includes law — can participate outside domestic borders. Like its eponymous antecedent, the new Silk Road created by OBOR consists principally of developing countries across Asia, Africa, the Middle East, and Europe. This dovetails with China’s rapid emergence as a net exporter of capital and its desire to forge ties to those nations with whom it is investing. Which brings us to China’s emergence on the global legal stage.

The new Silk Road created by OBOR consists principally of developing countries across Asia, Africa, the Middle East, and Europe.

Chinese Alliances with Emerging Nation Law Firms

Shanghai-based Boss & Young, utilizing OBOR, has recently initiated an international alliance of law firms in a bid to tap into participating countries and, so, become a player in the global legal marketplace. It has become a Chinese member of International Referral (IR), an established referral network of law firms practicing in all 66 of the OBOR nations. The benefits are obvious: Boss & Young can now provide its Chinese clients with legal expertise in these far-flung outbound investment markets — albeit with the assistance of their referral firms — and will also be able to maintain tighter control over its legal business across a wide and rapidly developing swath of the globe.

Boss & Young’s managing partner summed it up this way inThe Lawyer:“Our OBOR alliance initiative is driven by the foreseeable increase in Chinese companies’ outbound investments into developing countries.” And let’s not forget that as these countries develop there will be inbound business and legal opportunities, too. Look for many more similar referral groups to establish compacts with Chinese firms for the same reasons. But the Chinese legal play does not end here.

“Our OBOR alliance initiative is driven by the foreseeable increase in Chinese companies’ outbound investments into developing countries.”

Chinese Alliances with Global Goliaths and the BigFour

The past year has seen a series of high-profile mergers between global Goliaths and Chinese law firms. Let’s start with Dentons, the largest global law firm of them all (by headcount, countries, and offices). Dentons has recently merged with Dacheng (for a fuller discussion, see “Dentons, Dentons, Everywhere!” ), thereby gaining a foothold in China. At the same time, Dacheng, which will continue to operate in its own name in China (whilst branding itself as Dentons everywhere else), will have a powerful global platform from which to expand its operations beyond China, albeit under the Dentons banner.

Let’s note that Dentons is a Swiss verein, meaning, among other things, that each member firm operating under the Dentons brand is its own profit and loss center. Translation: Dentons taps into the lucrative Chinese legal market with its local partner while Dacheng will no doubt apportion profits of outbound Chinese client business/legal activity with Dentons.

And on the topic of global Goliaths, consider that Baker & McKenzie, long the world’s largest law firm by head count and geographical presence until it was eclipsed by the Dentons juggernaut, has also entered into a joint venture with FenXun Partners. Not surprisingly, Baker & McKenzie, like Dentons, is a Swiss verein, a structure that helps firms to negotiate regulatory restrictions. Don’t be surprised to see other global Goliath firms, especially those that are Swiss vereins, follow suit.

The BigFour’s Foray into the Chinese Legal Market

The BigFour have recently stepped up their already substantial penetration into the legal services vertical. Last year, three of the four BigFour members secured ABS licenses in the UK, enabling them, among other things, to engage in inter-disciplinary practice there. This means that they are now able to augment their already substantial “legal consulting” practices by operating directly with law firms and sharing profits and management responsibility with them.

It comes as little surprise, then, that Ernst & Young (EY), an ABS holder, has recently entered the Chinese legal market, partnering with a local law firm there. This, of course, is significant not only because it adds to the increasingly crowded field of big-name entrants into the Chinese market providing their Chinese partners outbound opportunities, but also because it demonstrates that the Chinese legal market is a prime target for global knowledge-based service providers other than law firms.

Last year, three of the four BigFour members secured ABS licenses in the UK, enabling them, among other things, to engage in inter-disciplinary practice there.

The path followed by EY to gain entry into the Chinese legal market is an interesting one. EY has recently been granted a Foreign Practice License (“FLP”) in Singapore, enabling a foreign law firm to establish a branch in Singapore and to practice foreign law there. But how would this work in the case of Ernst & Young that is not a law firm? It’s tricky and additional evidence of EY’s intent to extend its reach into the legal vertical—and on a global basis.

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Follow the steps: First, two EY partners, one formerly the managing partner of the Singapore office of a law firm there, the other EY’s General Counsel for the Asia Pacific Region based in Singapore, established an entity called DA partners last year; second, EY entered Singapore’s legal market by making PK Wong & Associate, a local firm, part of its global network; third, DA partners used the Wong local presence to secure an FPL license moths later.

The result: John Dick, the “D” in “DA Partners,” was quoted inThe Lawyer:“We view Singapore as a regional hub for providingcross-border services to clients operating in the ASEAN (sic) region.” (Italics added)

Soaring rhetoric without substance? E&Y already has affiliated law firms in Vietnam, Korea, a Chinese firm based in Shanghai, as well as plans for Malaysia, the Philippines, and Thailand. These are countries where it already has in place well-established accounting practices and physical presence, clients, technology, process and project managers, as well as other professionals. Translation: they are not jumping into the legal vertical from a standing start, and China opens the door to a slew of other Asian markets.

E&Y already has affiliated law firms in Vietnam, Korea, a Chinese firm based in Shanghai, as well as plans for Malaysia, the Philippines, and Thailand.

Conclusion

If the foregoing creates an inference that the discussion is broader than law, let me confirm it. The emergence of China as a serious player on the global legal stage results from its standing as an economic super-power, steps it has taken to expand and to protect domestic and foreign geo-political and economic interests, and the regulatory climate it has created to facilitate it.

The legal vertical, as big an economic market as it is, is a footnote to a much bigger prize. Translation: if one wants proof that lawyers no longer work in a self-regulated vacuum (attention: ABA 20/20 Commission), here it is.

China is flexing its economic muscles, and Chinese lawyers are among the beneficiaries. That is why OBOR is enabling Chinese law firms to reach out, while the super-heavyweights of the legal marketplace are, increasingly, reaching in to effect mergers with Chinese firms. It’s a new ball game being played in a new venue.