I recently spoke with a reporter who asked me why our clients that had chosen to locate in Vietnam had chosen Vietnam over China. I mentioned lower costs, less competition, and how some had told me that it was because they just flat out preferred spending time in Vietnam to China. He then said, “But it must be strictly the low costs in the end, right?” I said that could not be the case because if companies were choosing their locations on low costs alone, countries like Yemen and Niger would be on the top of their lists, rather than nowhere on them.
We are always getting asked why our law firm has its lead China lawyer and an office in Qingdao — we also have an office in Beijing, but nobody ever asks us why there. The answer is actually quite simple, particularly when compared to the high-level analysis many companies employ in making their location decisions. Steve is in Qingdao because we have had an excellent relationship with Qingdao’s biggest (and I think best) law firm for nearly a decade, and that firm was instrumental in helping us establish ourselves in China. But probably the driving factor in our choosing to locate in Qingdao is that Steve loves the place and loves that he can easily afford to live in a luxury apartment with twelve-foot-high windows overlooking the East China Sea at about half the price (and the pollution) of Shanghai or Beijing. The fact that at least 80 percent of our China work is 2-3 hours from Qingdao by plane only adds to its attraction. Steve is completely fluent in Chinese (as is our other attorney stationed there), and so Qingdao’s small expat community and dearth of people who speak English is no deterrent…
For every 100 Wholly Foreign Owned Entities (WFOEs) and Joint Ventures (combined) my firm helps set up in China, it only sets up one Representative Office. Why so few, when Rep Offices are the easiest entity for foreigners to form in China? Because their inherent limitations mean they seldom make sense.
Representative Offices are aptly named — they are the China representative of the foreign company. A Rep Office is not considered a separate legal entity in China, and it is limited by law to performing “liaison” activities. It cannot sign contracts or bill customers. It cannot supply parts or perform after-sales services for a fee. It cannot earn any money in China or take any payments from a Chinese person or business for any reason.
Rep Offices are pretty much limited to engaging in the following…
American companies make a lot of mistakes in China. And even when they don’t make mistakes, they get frustrated.
I view both of these results as healthy, because mistakes and frustration are par for the course in China, and the sooner companies realize that the better. That said, they could avoid at least some of their heartbreak by following these five principles…
* As I noted yesterday over at Redline, the defense in the NCAA trial is putting up some terrible witnesses. Here’s another example. The NCAA’s expert wrote a textbook. The NCAA might have wanted to check it out before bringing him on to help defend themselves IN AN ANTITRUST CASE. [Twitter / Stewart Mandel]
* Hong Kong lawyers protesting what they see as China meddling. Honestly can you blame China? Ever since Hong Kong let Batman just swoop in and grab that guy, you can’t really trust the Hong Kong legal system. [Reuters]
When it comes to negotiating, Chinese companies view American companies as easy marks: impatient, unfocused and too willing to compromise to avoid losing out. Accordingly, Chinese companies often employ the following three negotiating techniques:
1. Wear down the American side down with endless issues. This tactic actually has two variants. In the first variant, the Chinese side raises a series of issues. Once these initial issues are resolved, the Chinese side then raises a series of unrelated new issues. This process never stops, because the list of issues is endless. The second variant is for the Chinese side to make several unreasonable demands and then refuse to address the American company’s concerns at all. Both variants are designed to induce the American side to concede on all major points out of a desire to keep the deal moving forward….
Ed. note: The Asia Chronicles column is authored by Kinney Recruiting. Kinney has made more placements of U.S. associates, counsels and partners in Asia than any other recruiting firm in each of the past six years. You can reach them by email: firstname.lastname@example.org.
Our advice to any Mandarin speaking 2L summer associate who is interested in a future transfer or lateral US associate move to Hong Kong / China: It’s not just about corporate and other transactional practices any more. If you are more interested in litigation than transactional, don’t hesitate to choose litigation or a litigation-related practice area. There is a sharply growing need at top US firms in Hong Kong / China for laterals and transfers in US litigation (mostly FCPA / White Collar work), Anti-Trust, and Disputes / Arbitration. This is not just a trend, it’s a permanent change on the landscape. We find it exciting that Mandarin speaking JDs now have more options to choose from in positioning themselves for a future Hong Kong / China move. Feel free to contact us at email@example.com if you are a summer associate interested in Asia and have any questions about choosing a practice. It can be one of the biggest decisions you make in your career and yet one usually made without much analysis. Also, feel free to contact us if you are an associate interested in joining an FCPA / White Collar practice or Disputes practice in Asia. We have made numerous such placements in the past few years and a number of our candidates are interviewing for FCPA / White Collar positions at present in Asia.
At least once a month, one of the China lawyers at my firm will get a call from someone asking us to form a “China company” for them before they start doing business in China “next month.” The problem with this is that forming a China company typically takes at least four months and after you finish this post you will understand why.
American lawyers often take on domestic company formations as a loss leader because the work tends to be fast and easy and they expect that the firm will get additional legal work once the company is formed. With China company formation, I often joke that the process is so onerous that our client never wants to speak with us again after we finish…
I estimate that 90 percent of U.S. companies doing business in or with China have intellectual property requiring protection from China. Therefore, it is always a surprise to me how many of these companies seem to treat their intellectual property in China as an optional or secondary matter when it really should be one of the first issues they consider when approaching the China market.
Let’s first get clear what I am talking about when I use the term “intellectual property.” IP is not patents, trademarks, copyrights, etc. These are simply tools for protecting intangible assets.
A few weeks ago, China’s police accused GlaxoSmithKline’s former head of China operations of making illegal payments to Chinese doctors to boost GSK drug sales. Last fall witnessed the high-profile trial, conviction, and life sentence of Bo Xilai, the former head of the Chongqing Communist Party, on bribery charges. These two cases send a clear warning: Beijing is cracking down on corruption. Hard.
The GSK case shows that China will not tolerate corrupt activities by foreigners in sensitive industries, especially when such activities result in higher consumer prices. Beijing going after a foreign company for allegedly increasing health care prices is a smart political move, especially since the Chinese web is rife with complaints about exactly that.
But at the same time, it has become clear that Beijing is serious about rooting out corruption. The Party leaders in Beijing know that widespread corruption weakens their legitimacy and they are looking for ways to combat it. The important link between the Bo Xilai and the GSK cases is that they both involve defendants — a political elite and a foreign entity — whose arrests have engendered widespread discussion and sent a strong signal that no one in China is safe from prosecution. While Westerners are mostly complaining about the GSK arrests (multiple GSK employees have been arrested in addition to its former head of China operations), the Chinese internet is mostly loving it.
As a foreign company doing business in China, how should you react to the recent corruption crackdown?
We’ve been talking about officially-sanctioned Chinese hacking for years. Whether the narrative involved offensive attacks on U.S. systems or industrial espionage, the “China threat” was a reliable talking point when discussing cybersecurity. Was the extent of the threat a little overblown? Sure. Hey, the Pentagon needed to spook some legislators into opening the pocketbook. But the idea that the Chinese government was trying diligently to hack into American systems was accurate.
And now the U.S. is doing something about it. It may not be much, but the Department of Justice is filing charges against five Chinese officials in the People’s Liberation Army (known as Unit 61398) for industrial espionage….
Ed. note: The Asia Chronicles column is authored by Kinney Recruiting. Kinney has made more placements of U.S. associates, counsels and partners in Asia than any other recruiting firm in each of the past seven years. You can reach them by email: firstname.lastname@example.org.
It’s that time of year again when JDs are starting to apply for 2L summer jobs and 2L summers are deciding which practice area to focus on.
For those JDs with an interest in potentially lateraling to or transferring to Asia in the future, please feel free to reach out to Kinney for advice on firm choices, interviewing and practice choices, relating to future marketability in Asia, or for a general discussion on your particular Asia markets of interest. This is of course a free of cost service for those who some years in the future may be our future industry contacts or perhaps even clients.
For some years now Kinney’s Asia head, Evan Jowers, has been formally advising Harvard Law students with such questions, as the Asia expert in Harvard Law’s “Ask The Experts Market Program” each summer and fall, with podcasts and scheduled phone calls. This has been an enjoyable and productive experience for all involved.
Whether you’re fresh off the bar exam or hitting your stride after hanging a shingle a few years ago, one thing’s for certain: independent attorneys who start a solo or small-law practice live with a certain amount of stress.
Non-attorneys would think the stress comes from preparing for a big trial, deposing a hostile witness, or crafting the perfect contract for a picky client.
But that’s nothing compared to the constant, nagging, real-life kind, the kind you get from the day-to-day grind of being a law-abiding attorney.
Connecticut plaintiffs-side boutique litigation firm (12 lawyers) seeks full-time associate with 2-4 years litigation experience, top tier undergraduate and law school education. Journal or clerkship experience a plus; highest ethical standards and strong work ethic required. Familiarity with Connecticut state court legal practice is preferred, but not required.
The firm handles sophisticated, high-end cases for plaintiffs, including individuals and businesses with significant claims in a wide array of matters. Our cases often have important public policy implications, and are litigated in state and federal courts throughout Connecticut. Representative areas of practice include medical malpractice, catastrophic personal injury, business torts, deceptive trade practices and other complex commercial litigation, and products liability.
Additional information can be located on our website, at www.sgtlaw.com.