Doing Business With Lawyers in China

What type of clients do you typically work for?

In terms of sectors, our clients can vary a great deal –some are manufacturers, some are retailers, some are private equity firms who want us to support their portfolio companies, and there are many others. Much of the work we do tend to fall into one of two major categories: performance improvement – where we help healthy companies perform even better; and turnaround and restructuring – where we help businesses in distress get back on their feet.

How has the trade war affected companies in China?

Before the trade war, businesses in China were already under pressure from rising labor costs, volatile commodity prices and increased competition. The tariffs have added to that pressure. For entities in China that are part of global companies with complex supply chains, the tariffs are incredibly disruptive. Already, we have seen an uptick in requests to help companies diversify away from their reliance on China manufacturing, with Southeast Asia, Mexico and Eastern Europe as viable alternatives. In most cases, however, supply chains cannot be rebuilt overnight and business continuity is critical. Therefore, many companies are planning alternatives while closely watching the China situation.

How are companies in China coping with IP related theft, and stricter rules on counterfeit products and e-commerce restrictions?

First, let me make clear that these challenges are not unique to China. Companies all over the world deal with these issues. We can't change the market environment, but we can help companies succeed in it. With IP theft and counterfeiting, companies can put in place structures and procedures to identify and mitigate IP theft, but it is usually impossible to eliminate it. Regarding e-commerce, China is proving to be one of the most innovative and fastest growing markets in the world. Companies need to determine the online and offline models that work for their business and to put in place the management, supply chain and technology infrastructure to support it. Also, China has a vibrant market of outsourced e-commerce support companies, including in offline areas such as logistics, and for many companies outsourcing is most economic and efficient.

What types of work would you go to a law firm for?

We use virtually every type of legal service. Our full range of services include pre-investment financials, tax, commercial and operational due diligence; post investment performance improvement; financial and operational restructuring; data analytics; fraud investigations; and M&A. During our work, we encounter general corporate issues, financial issues, labor issues, debt and equity capital raising, investigations and litigation. As interim managers, we drive the appointment of legal advisers and, we influence the appointments. Depending on the situation, we often need legal assistance in multiple jurisdictions and require a combination of local and international law firms.

What do you look for when appointing an external counsel or law firms?

First and foremost, we look for competent problem solving. There are many lawyers who can advise on law and practice, but the best ones jointly and proactively solve problems using sound commercial judgment that goes beyond the law. Secondly, jurisdictional experience is critical, as each country in Asia is very different. Finally, trust is also critical, which is why we rely on law firms where we have established multiple points of contact and close relationships over the years. You only know how good someone is when their mettle has been tested.

How would you evaluate the performance of an external counsel, and how would you ensure you receive the level of service to achieve your desired outcome for your client?

Performance evaluation is simple, did we get the best outcome possible given the circumstances? Did our legal advisers think like a principal and help us drive to a solution? When dealing with company performance issues or crisis, we need partners who are as focused on the goal as we are.

In your opinion, what are the key factors that would determine if you retain the services of a particular law firm in China?

Assuming that we don't already have a proven, trusted partner for the particular need, we would consider reputation (we have a wide group of financial and corporate clients whom we usually ask); relevant relationships in the business, government or legal community; and a problem-solving mentality. Fee is not usually a major consideration when significant value is at stake.

Do you have a preference when choosing firms to work with, in terms of local firms, international firms, joint venture firms? And why?

No, we pick the right combination of lawyers to suit the situation. For instance, for entirely onshore litigation or transactions, local law firms are often best. For more international issues, the well-known international law firms are best. These lines are blurring, however, as many local law firms have grown internationally, either organically or via M&A, while international law firms have grown experienced with onshore issues. In most cases, we use more than one firm as an integrated team.

What is the difference between doing business in China, with law firms or other stakeholders, compared to in other parts of the world, in your experience?

The biggest difference is that you have to be mindful of government policies in China. Government policy matters in every jurisdiction, but the influence on everyday business can be greater in China, not only directly affecting companies, but also guiding the overall economic environment. In this area, a good lawyer can be a hugely valuable resource and a trusted adviser.