1+1>2?
Mergers and alliances between law firms in China are not new. We note these from the past.
In 1999, AllBright Law Offices was established by a merger of three firms〞Shanghai Jinlian Law Firm, Changcheng Law Firm and Tianhe Law firm. Today AllBright is one of the largest local law firms in Shanghai.
In 2000, Zhong Lun Law Firm merged with Beijing Jintong Law Firm.
In 2004, Jincheng & Tongda Law Firm was established by a merger between Jincheng Law Firm and Tongda Law Firm.
In 2007, Hylands Law Firm was established by a merger between Hao Tian Law Office and Li Wen & Partners.
In 2007, the first formal alliance between a western law firm and a Chinese domestic law firm was formed by the US-based McDermott Will & Emery and Shanghai-based Yuan Da Law Firm.
In 2007, Lovells formed the Sino-Global Legal Alliance (SGLA), a ground-breaking new alliance with nine leading Chinese law firms located in key regions of China.
In 2008, Zhong Yin Lawyer was established by a merger between Zhongyin Law Firm and Zodiac Teamer Law Firm.
We note that with increasing frequency law firms are merging and forming alliances. What are the drivers of this trend?
Compared to law firms in developed markets, many Chinese law firms are small. As practice areas increase in mainland China, as legal practice becomes more sophisticated demanding more depth of knowledge, as law firm clients expand business operations across China, and abroad, law firms in China must grow in size and specialization. Law firm managing partners in China are considering different methods to be stronger, more competitive. Some pursue a ※strong-leads-weak§ approach; some pursue a ※strong-strong§ cooperation. At the same time, growing opportunities for legal services in China have attracted foreign law firms to enter into the market in past years.
Mutual benefit and reciprocity are key principles in cooperation to reach a 1+1>2 benefit formula. Law firms can obtain benefits through collaboration:
enhance cross-regional / cross-national capacity
Some large domestic firms keep expanding to provide service geographically. Many of them choose to merge with small-scale regional law firms. This facilitates the big firms blending into the regional culture in a shorter time. They maintain local client resources.
Since PRC law does not allow a merger between a Chinese law firm and a foreign law firm, the main approach for cooperation between them is a strategic alliance. Many foreign law firms have used this approach to enter and compete in mainland China.
reinforce practice; share clients
A common strategy for a law firm to grow a practice area, or reinforce a weak practice area, is to absorb a group or team of lawyers from another firm. Some domestic law firms gain clients in China through the strategic alliance arrangements with foreign firms.
reduce risk
A bigger law firm platform, with multiply practice areas, will more likely withstand an economic down turn. When some practices areas are cold, other practice areas may be hot.
No collaboration is perfect. In fact, creating a successful merger, or alliance, is difficult, and many fail to achieve their potential. Clear understanding and consensus to carry out sincere and rewarding cooperation is essential from the beginning. Cooperation may be hindered by:
1. imbalanced distribution of profits
When profit distribution is considered unfair, disputes result, even some worse consequences. One principle of collaboration is choosing partners with both reputation and strength.
2. deficient management system and policy
A reasonable and efficient management system with operational rules for finance, human resources, office resources, working style, etc. that is suitable for the merged entity is essential.
3. conflicts involving client sharing
Sharing clients can significantly benefit firms. At the same time, sharing clients is often a sensitive matter and causes problems for collaborating firms. Cooperation and mutual benefit must be emphasized rather than competition.
4. unreasonable use of legal talent
A merger can result in a need to adjust the number of lawyers. Some may loose their positions. Lawyers are a core value of a law firm. Staffing issues must be handled with care to maintain a positive atmosphere for all lawyers.
5. unmatched culture and lack of communication
A merger results in a joining of two firm cultures. A perfect match of cultures may not be found. A new entity will develop its own culture as established over time by the actions and behavior of the firm leaders. Prompt and effective communication to the entire team is essential.
Collaboration through a merger or alliance provides an effective development strategy for law firms. But, it does not necessarily bring success. In fact, it＊s difficult to achieve success. Law firms in mainland China are not holding back. The trend to collaborate in strong; it is growing. In the chart below we describe recent mergers and alliances among law firms in China during 2009-2010.
