ALB Insights #44: Is tech the answer for U.S. law firms in China?

In this issue of ALB Insights, we look at the legal work being generated by China’s rising technology companies, and whether that could sustain the presence of U.S. law firms in the region. We also find out what the departures of international law firms say about the waning investment star of Myanmar, and chat with TSMP’s Stefanie Yuen Thio as her firm celebrates its 20th anniversary.

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Is tech the answer for U.S. law firms in China?
While a number of U.S. firms have closed or scaled back their presence in Greater China in the past couple of years, two have actually opened offices in the PRC in recent weeks. As both focus on legal work related to mainland’s booming technology industry, could this be a sustainable model for other U.S. firms in China, asks John Kang.
The past few years have seen a string of U.S. law firms either shrink their presence in Greater China or exit the region entirely. The most recent one was Troutman Sanders, which will close its offices in Beijing, Shanghai and Hong Kong by the end of May. It is set to follow in the footsteps of Winston & Strawn, Cadwalader, Wickersham & Taft and Fried, Frank, Harris, Shriver & Jacobson, all of which substantially withdrew from the region in the past few years.
But even as these departures continue, two U.S. firms have announced new offices in China in the past few weeks, and both are focused heavily on a particular industry: Technology. In December last year, Chicago-based Brinks Gilson & Lione became the first foreign firm to open an office in the southern Chinese tech hub of Shenzhen. A month later, Palo Alto-based Cooley opened an office in the Chinese capital of Beijing, where it focuses on private investment funds formation and structuring work.
Brinks, an intellectual property specialist is advising Chinese companies that export to the U.S. by helping protect their IP and technology, as well as providing defence against infringement allegations. “China is becoming increasingly more important for firms like ours that are devoted to helping high-tech companies with their intellectual property needs,” says Brinks president Gustavo Siller and shareholder Harold Johnson.
Meanwhile, the Cooley Beijing office has three lawyers: resident partner Xun Zeng, who joined from Ropes & Gray, and two associates, both of whom relocated from Cooley’s Shanghai office.
The Silicon Valley firm has been representing venture capital funds targeting China since 1989, but now it is representing Chinese funds as well. “We work with numerous globally recognised venture capital firms in China that are on the ground backing China-based companies, primarily in the technology and healthcare spaces,” says Jordan Silber, a partner in the firm’s global private investment funds group. ”Perhaps half of those venture fund clients are based in Beijing.”
RISING TECH HUBS
Shenzhen and Beijing, in the south and north of the country, respectively, are both rising centres for technology, along with the commercial hub of Shanghai.
Shenzhen, often referred as the Silicon Valley of China, is home to some of China’s biggest tech companies like Tencent – a client of Brinks – and Siller and Johnson are optimistic that there will be more tech giants there. “We expect that more Chinese companies will become world leaders like Tencent and will need the full range of IP services that Brinks offers,” they say.
The numbers look optimistic. According to a special report on Shenzhen by The Economist last year, the city’s Nanshan district is home to about 125 listed firms with a combined market value of nearly $400 billion. Also, the city spends more than 4 percent of its GDP on research and development, double the average in the rest of the nation, the report said. For example, Shenzhen-headquartered Huawei spends more on R&D than Apple does. As a result, companies in Shenzhen file more high-quality international patents than those in France or Britain.
And on the other side of the country in Beijing is a capital city flush with venture capital funding.
“In our experience, Beijing is one of the world’s most important startup company environments worldwide,” says Cooley’s Silber. “As a firm centred around venture capital, technology and healthcare, this is what drove us to focus on Beijing in addition to our vibrant office in Shanghai that opened in 2011.”
Beijing topped the list of cities with the most "unicorn" companies – startups valued at more than $1 billion – in China, according to the Hurun Greater China Unicorn Index 2017. Out of the 120 unicorns listed, 54 startups – such as Didi Chuxing and Xiaomi – were in Beijing, with a total estimated valuation of 13.75 billion yuan. For comparison, second was Shanghai with 28 unicorns, amounting to about 4.58 billion yuan.
“The growth of the China venture capital industry has been lockstep with the growth of these technology companies and, as such, it’s been robust, especially in the last 10 years,” says Silber. Just last year, VC investment in China reached a record high of over $40 billion, according to an analysis by KPMG last month, a 15 percent increase from the $35 billion seen in 2016.
“It might have been fair as of some time ago to say that many of the most successful Chinese startup technology companies were piggybacking on business models that had been successful in the United States or elsewhere outside of China,” says Silber. “But this statement wouldn’t be very fair today.”

Law firm office closures yet another sign that Myanmar’s star is waning
In the month of February alone, two international law firms announced they were shutting offices Myanmar – Berwin Leighton Paisner and Herzfeld & Rubin, which in 2013 became the first U.S. law firm to open in the country. These are just the latest signs that Myanmar, once one of Asia’s hottest investment prospects, is becoming an increasingly frustrating destination for investors, says Ranajit Dam.
So long, farewell: Last week, the UK’s Berwin Leighton Paisner announced that it was closing its office in Yangon, which it had opened 2015 after hiring the Baker McKenzie managing partner there. BLP had been doing Myanmar work since 2012, and in 2014, it even added a local firm in Yangon—Legal Network Consultants—to its Asia network. As striking as that departure was, BLP was actually the second international law firm terminating its outpost in the Golden Land in the month of February itself. Earlier in the month, the Myanmar affiliate firm of New York-headquartered Herzfeld & Rubin (H&R) announced that that it too was headed for the exit. In 2013, the firm had set up an affiliate firm in Myanmar—Herzfeld Rubin Meyer & Rose Law Firm Limited (HRMR) – with the team being made up of advisors to ex-president Thein Sein and State Counsellor Aung San Suu Kyi.
‘Three-legged stool’: In a statement accompanying its announcement, BLP cited lack of work as the main reason for its plan to close its office in a country that only three or four years ago was viewed as Asia’s most exciting new market, both in the region and beyond. “With the majority of the Myanmar related work currently being serviced out of the BLP Singapore office, the flow of locally generated business does not justify currently maintaining a physical presence on the ground,” the statement said. H&R provided a bit more detail. After an initial statement from H&R managing member Mark Meyer that the local office would be closed following a “strategic review,” Eric Rose, HRMR’s lead director, opened up further in the Myanmar Times. He cited a “three-legged stool” hindering the country’s progress: Economic stagnation under the National League for Democracy (NLD)-led government, remaining U.S. sanctions, and the ongoing crisis in the troubled Rakhine State.
Steps forward, and then back: Those who were following the developments in Myanmar about five years ago will remember it as a heady, hopeful time. After spending more than half a century as a closed state ruled by a military junta, the country in 2011 first moved towards a partly civilian parliamentary form of government, before starting out on a path towards economic reforms aimed at attracting foreign investment. However, despite overhauls to the country’s investment and companies laws, a feeling of stagnation appears to have set in, particularly after the NLD came to power in 2015 following the first openly contested election held in the country in more than two decades. The ongoing atrocities against the country’s Rohingya minority have also served as a red flag for foreign investors. Last year the country approved $5.6 billion worth of new FDI, down from $7.8 billion a year earlier. Myanmar is currently ranked at 171 out of 190 countries on the World Bank’s Ease of Doing Business list, above Liberia but below Sudan.
Renewed urgency: So is all hope lost for Myanmar? Well, not necessarily. The government, having realized the urgency of the matter, is taking steps to increase Myanmar’s attractiveness in the eyes of investors. Last year it passed long-awaited amendments to the centuries-old Companies Act, although those amendments are only expected to come into effect in August 2018. In January, it looked to kickstart four power plant projects with an estimated value of $5.6 billion after long delays; these should help to alleviate the country’s crippling power shortages. According to a report in the Asia Times, other planned initiatives include reviving Myanmar’s state-owned banks, implementing of Basel standard regulations for the banking system, potential privatization of state-owned enterprises and the launching of public-private partnerships. And overall, the country’s citizens appear to be optimistic about the future. However, the Rohingya crisis will remain a sticking point for many. For as long as the NLD government remains defensive about its role in the situation, investors might be wary about getting into the country given the reputational risks involved.

‘We were a startup before startups were sexy’: Singapore’s TSMP marks 20 years
Singaporean firm TSMP Law Corporation recently celebrated its 20th anniversary. John Kang speaks to joint managing partner Stefanie Yuen Thio about the firm’s biggest achievements in the past two decades, the benefits of being boutique, and running the firm with her joint managing partner and husband, Thio Shen Yi.
ALB: What have been some of the most significant achievements for TSMP in the past two decades?
Thio: TSMP went from seven lawyers when we opened in 1998 to more than 60 fee-earners in 20 years. We were a startup before startups were sexy. We survived, and even thrived, through some harrying times: The Asian financial crisis, the dot-com bubble burst, SARS and the global financial crisis. We came through stronger, and each time with a more definite idea of what kind of lawyers we wanted to be. For a small outfit, we received a lot of accolades, which was testament to the good work we were getting from our clients.
But I think our real achievement was in building a firm that is value driven. All of our partners had come from large firms, where we enjoyed the challenge of cutting-edge work, but did not want to be driven solely by the bottom line. We wanted to be able to spend time cultivating client relationships, growing our people, supporting the causes we believed in.
TSMP was named as the best boutique firm in Southeast Asia by ALB in 2016. As a boutique firm, what are some of the biggest advantages over bigger firms?
We are nimble and the partnership is collegiate. Being boutique also allows us to respond quickly to disruption in the market. We don't have to innovate by committee.
Unlike in a big firm, where you have to toe the institutional line, TSMP can forge its own path. Shared values form the core of our partnership, but we have the freedom to grow, whether by establishing a new practice area, adopting a charity or being an advocate in a developing area of law. It's a very empowering partnership.
Being boutique sized also allows us to respond quickly to changes in the industry. A few years back when we were having difficulty recruiting top talent, we raised our starting pay to a market leading salary that was more than a thousand dollars more than the large firms', for a newly qualified lawyer.
We are also about to create a co-working space in the office for our clients' use. This will help us to enhance collaboration with our clients and connect with a new class of millennial entrepreneurs, more comfortable working at a Starbucks than in a traditional law office.
What are the keys to success as a boutique firm?
Play to your strengths. We tried, in the initial years, to ape the big firms that we had left. We would tell clients that we could provide what they could – large dedicated teams and abundant resources. We soon learned that our strengths lay elsewhere. We had the domain knowledge to handle complex disputes and transactions, and also the liberty to dedicate more personalised attention to the brief. Clients get tired of having to explain their transactions to (and pay for) different specialised legal departments within the same firm – they prefer to deal with one partner who is able to advise on a variety of areas.
We also do not charge based solely on time. We believe in value billing. Often, by the time we commence an engagement, we would have spent hours discussing possible transaction structures with the client. Because of this, many of our projects were named for the café where the deal was first born, on the back of a beer napkin. That commitment builds strong relationships with clients and also helps us to understand their business better.
What’s next for TSMP? What are you most optimistic about?
The entire world – from banking to Big Pharma – is being disrupted. That heralds change, both bigger in scale and more rapid in development. In periods of volatility, a nimble and outward-looking firm like ours will do better than in times of stability and plenty, which favour more established franchises.

I'm optimistic that our focus on people – from the talent that we hire, to the clients we dedicate ourselves to – will reap returns. There was a time when, because lawyers had technical know-how that clients did not, law firms were able to mint money through a commoditised legal product. The age of the internet and the advent of Google changed all that. Now, we need to play to our human strengths.
You and your husband are the joint managing partners of the firm. What’s that like? What are your tips for balancing home and work life?
Shen Yi and I have a true partnership, born of a real respect for the other as an equal. There's no one I admire more than him, and that allows us to not pull our punches with each other. As lawyers, we are blessed with good communication skills which is the backbone of every successful relationship.

Some couples swear by never bringing their work home. I think that takes away a crucial support mechanism. If I did not have my husband to lean on, to discuss problems with and to strategise together with, I would be much poorer for it. TSMP is stronger because Shen Yi and I are stronger together.