The final leg of the so-called “one hour travel triangle” on the Yangtze River Delta (YRD) will be completed soon. Also, a new railway line connecting Nanjing and Hangzhou is due to open in the second half of this year.
With the 350 km per hour high speed train, a trip between the capital cities of Jiangsu and Zhejiang provinces will be reduced to less than one hour. This is an additional reduction of travel time, together
with the 75 minutes and 45 minutes on the existing Shanghai-Nanjing and Shanghai-Hangzhou high speed railways respectively.
As a result, Jiangsu, which is China’s number two province in terms of GDP and Zhejiang, which occupies the number four position, have been technically tied to Shanghai, the nation’s most populous
city and also its financial capital. This makes the YRD one of the wealthiest and most economically-active regions in the country. “The integration of the region is speeding up,” says Louis Meng, a
Shanghai-based senior partner at AllBright Law Offices. “A train trip to Nanjing is even shorter than a taxi ride home from the office.” Even the Shanghai city metro network has extended to Suzhou, the neighbouring city of Jiangsu. The YRD, consisting of Shanghai and the surrounding cities in Jiangsu and Zhejiang, is getting much smaller. Economic activities have been altered and lifestyles have
also changed. Anyone living in Hangzhou can make it to an afternoon tea party in Kunshan in Jiangsu province even upon late notice at lunch. “The convenience of transportation is changing the shape of
service industries like us,” says Meng.
Once the railway and metro network are eventually completed, it would take a client the same time to see a lawyer based in the same city as the time needed to visit one 300 km away. Such an idea is
beyond imagination in other regions of China. But in the YRD, it is a reality that is taking shape. Wu Chenyao, a Shanghai-based partner at Dacheng Law Offices says the “same city effect” is bringing more equal opportunities to everyone covered by the rail network. “When distance is no longer a problem, service quality becomes the priority,” he says.
With the remarkable speed and convenience of the transportation infrastructure, it is no surprise that big national firms would target more regional cities by either doing more one day trips from the old
base – normally Shanghai – or by opening more branches all over the region. It is now technically possible for lawyers to be officially “located” in smaller cities, while still living a metropolitan life outside
work in Shanghai; their preferred base.
Native appeal
Firms based in Jiangsu and Zhejiang are acutely aware of the threat that competition poses. “We do feel pressure from the expansion of the national firms,” says Zhu Honglan, a partner at Nanjing firm
Yongheng Partners. “We may not be as large as they are. It is where we are originated. We have maintained deeply-rooted connections with local clients for decades, which the non-natives could not match. The clients know us well and trust us.”
It is the same case in Zhejiang. Hangzhou-based T&C Law Firm also enjoys a comfortable advantage in competing for local cases, “because we are highly recognised by Zhejiang clients,” says partner
Wang Lixin. In terms of language, culture and social connections, native lawyers are more appealing to local clients on a regional basis, given that the YRD region has a very unique traditional sub-culture. According to AllBright partner Bao Fangzhou, such a well-built network could also be advantageous for the local firms when handling litigation jobs. However, due to the size and development level of the local
economy, the non-litigation practices of the local firms trail behind those in first tier cities. According to Zhu, one thing that has not changed despite the YRD region’s continuing merger with Shanghai
in terms of city functions and economic activities, is the quality of service.“We are still cheaper relatively, yet the level of our services is not necessarily lower. It is something about price ratio,” she says.
“This advantage is quite significant when assisting Chinese companies’ outbound FDI.” Zhu adds her firm would rather explore new frontiers than fight a price war. As the national firms approach from the more developed end, local firms could always be pioneers another way. One of Yongheng’s targets is Anhui province, a far less developed province towards the west of Jiangsu. “We have the geographical advantage of bridging the developed and undeveloped regions,” she says. Another direction for local firms is heading to Shanghai, the base of those national firms where the market has already been
cultivated into a sizable and mature one.
The convenience caused by integration is fair for everyone, although leaving home soil is not that easy. The ambitious ones have already started. Referring to T&C’s already open Shanghai office, Wang says: “Outside Zhejiang, our brand appeal is not as strong as well-established firms based in Shanghai
and Beijing. This is a general headache for provincial-level firms to open up outside the province.”
Localisation
International firms, in the meantime, are trying hard to localise their branches in the second and third tier cities. “Local branches are psychologically closer to the clients,” says Bao of AllBright. Generally, the YRD region is known for its prosperous small and medium-sized enterprises (SMEs) in the private sectors. In fact, law firm clients there are very diverse. In Jiangsu, Suzhou is well known for attracting foreign investment; coastal city Ningbo is close to two major ports with a busy logistics business; and Nanjing, the capital, has many state-owned enterprises (SOEs).
In Zhejiang, Wenzhou is the hometown of thousands of private entrepreneurs and their companies; the Zhoushan Islands manage maritime affairs; capital Hangzhou boasts of advanced tertiary industries and plans to become an international city like Shanghai. A high-profile legal player in the region is Dacheng Law Offices that has opened 11 offices all over the region in order to cover as many cities as possible. “Our strategy is to further increase our high proportion of market share, maintain a strong presence and the exposure of our brand, and bring forward our involvement in deals ahead of
time with our client information-collecting organs,” says Wu, who runs Dacheng’s Shanghai office and oversees the 11 YRD branches.
“When a potential deal is known to the legal community, all the firms will try very hard to push in,” he says. “We want to make sure that we have hooked it up way before that stage.” He cites a Maoist idea to explain the strategy. “We are carrying out guerilla warfare to encircle the central city from second or third tier regions,” he says. “We do not directly clash with some of our high-end competitors in the first place. We go to localities, develop distinguishing practice expertise, and grow ourselves.” Some other firms are less radical. For instance, maritime law specialist firm Wintell & Co recently opened its first two YRD offices in Zhoushan and Ningbo. “Our strategy is entering this region with a clear image of our expertise, as very few local firms have such a market segmentation identity,” says Chen Youmu, a Shanghai-based partner at Wintell & Co. “We are like foreign missionaries with a few shortcomings in understanding the local language and culture,” he says. “Therefore, we would like to recruit native people from partners to sales and administrators to make our offices both ‘professional’ and
‘localised’.” Good lawyers originating from the YRD cities are in high demand and working in the hometown is also a popular option for them, according to Meng of AllBright.
Another common “localisation” approach is merging with local firms, which is being used in many expansion deals. Even some famous firms with long histories have given up their names to become part of leading national firms. “AllBright is one of the best known brands in the YRD, and so local firms
would be willing to join us. We are always careful to choose the strong ones,” says Bao, whose firm has now reached out to firms in Nanjing, Hangzhou and Suzhou. Once merged, according to Meng, the
local lawyers can also benefit from an incorporated national network of resources and enjoy a rise in the quality of practice. “We are working on passing on our expertise in many high-end practices to our branches and training the local lawyers to our standard,” he says.
However, according to Zhu, some mergers are not as successful. “Some mergers are all about the change of name, while every substantial thing remains the same,” she says. “So we always cautiously evaluate each and every one of the possible merger opportunities, although we are open to such offers.” As a late starter, the YRD region has not matured. But with the increasing mergers, it is undergoing a consolidation, which is running parallel to the integration of the regional economy.
Management
For local firms, the arrival of national firms in their backyard means a provision of case studies to observe and learn from apart from competition and mergers. “Some provincial lawyers used to have
an old fashioned mindset,” says Wu. “When we enter a city, we directly export the advanced management to local branches in terms of practice, operation, and branding. And we will continue
the exchange with other firms.” Yongheng, according to Zhu, has adopted the internal organisational and management systems of top national and international firms. It has been using many means to promote the brand which, until a couple of years ago, was not a popular concept.“We also started doing promotion campaigns in law schools and running graduate intern schemes. We are learning this kind of things from the industry leaders,” she says. “Also, we are trying to connect with foreign firms. We now have a broadened view.” Wang of T&C says his firm is improving its management, marketing and sales tactics in order to facilitate professional development.
Economic opportunities
The SME and private sector clients of several Jiangsu and Zhejiang firms have been suffering since the global economic crisis broke out in 2008.IPOs in Shanghai and on overseas bourses, which used to
be strong, have been decreasing, and the once red hot real estate market has shifted from the first tier cities to second and third tier ones. However, other areas have made up for these - private equity
(PE) and RMB-denominated investments are getting stronger. YRD investors are trying out cross border mergers and acquisitions (M&As), says Bao. “It used to be foreign capital coming in. But in
current economic conditions, Chinese companies are the buyers. Not only are the central SOEs’ strategic moves directed by the government, but also the private enterprises are going out,” he says.
“This is good timing for us to help out.”
Zhu is acting on an EPC (engineering, procurement and construction) project in India for a local client. She is also advising Chinese enterprises’ real estate acquisitions in Australia and the U.S. “Many of our clients are quite ambitious,” she says. “We advise them to be particularly careful about labour, tax and environmental problems.” Trade in scientific and technological innovations is a potential
market for YRD firms. The economic crisis has forced enterprises to upgrade their technology and innovation is highly encouraged by governmental policies, says Wu.
Some practice areas are flourishing due to the easier access to Shanghai. For example, more and more multiprovincial or multinational disputes are undergoing arbitrations in Shanghai, partially due to better legal service. “The market is big enough in this region. We can position ourselves differently from the competition, and we can all still make money,” says Bao.
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