In November when Winston & Strawn launched an office in both Beijing and Shanghai, its stated intention was to provide more comprehensive services to existing clients. No surprises there.

WilmerHale was also listening to existing clients – Google, Intel and CISCO – when it established a presence here. “Our clients really needed us to be in Beijing to provide advice for strategic transactions, corporate work, and regulatory and WTO related issues,” reported co-managing partner Robert Woll.

The story was similar over at fellow new arrivals Kirkland and Ellis: “The Shanghai office is a direct response to our clients’ growing activity in China,” said Thomas Tannucci, chair of Kirkland’s firm-wide management committee.

Following existing clients is, after all, just about the only model of overseas expansion that has consistently proven to be successful. Back in the late 80s and 90s, the very biggest US-based multinationals were the first to make significant moves on the latent China market, and their top-tier legal advisers were not far behind. As the China operations of those multinationals have taken root and scaled up, the hordes of epiphytic mid-cap companies that supply them or exist along side them have been arriving, and in turn their mid-tier legal advisors are not far behind.

Market opportunity

But while the follow-your-client model is the usual impetus for a foreign firm to open a China office, now more than ever that is not where the opportunity ends.

The advent of the financial crisis has in a way been beneficial down at this market level, as it is allowing mid-tier firms to poach business from price-sensitive clients with hamstrung budgets. Diaz Reus is a case in point. “Not only do we continue to service small businesses and mid-market companies, we have been successful in attracting the Fortune 1000 companies that would traditionally approach larger firms,” says partner Robert Lee.

An even larger pool of potential clients, however, is of course comprised of equally price-sensitive Chinese companies doing business on these firms’ home turf.

Outbound deals fuel foreign mid-tier growth

Many mid-cap companies that have done well domestically in China are now looking, with government blessing, to expand abroad. “With strong buying power and a vision to go global, Chinese mid-cap acquirers represent a source of opportunities for US firms advising on cross-border transactions,” said Paul Strecker, partner at Shearman & Sterling’s Hong Kong offices.

Cash-rich Chinese companies are indeed having an unprecedented impact on the global M&A market at a time when valuations of their foreign targets are being held down by jittery overseas market sentiment.

Most recently Shougang Corporation acquired Delphi Corp’s brake and suspension unit for US$100m to enter the premium auto chassis market. Earlier in July, sovereign fund CIC also invested a hefty sum of US$1.5bn into Teck Resources.

“Chinese companies are continuing to look abroad to pursue M&A and other transactions that given them greater control or ownership of overseas supply and distribution chains, as well as ownership of valuable brand names,” said Malhar Pagay, a lawyer with US firm Pachulski Stang Ziehl & Jones.

And then there is the flurry of mid-market listings on US bourses. In October this year, for example, China Real Estate Information Corporation, a leading provider of real estate information, consulting and online services, launched its US$248m IPO and listed on the NASDAQ Global Select Market; a month later, Wonder Auto Technology, a leading manufacturer of automotive electric parts, suspension products and engine components, also listed on the NASDAQ for US$742m.

Mid-tier US firms enjoyed mandates on all of these deals.

Mid-tier US lawyers are also reporting an increasing number of Chinese clients requiring legal advice about trading, distributing or settling disputes in the US as they seek to gain access to resources, build their brands and move up the value chain.

Permanent shift

Many leaders of mid-tier firms expect a shift in the marketplace will lead to permanent changes, as smaller firms gain more footing in markets previously cornered by multinationals. “Mid-tier firms can be a lot more nimble and responsive to requests for change because they’re not burdened by large and heavy structures,” agreed one in-house counsel.

Hence further office openings are expected in 2010.  According to Woll, some will specifically tackle work around PE funds and clean-technology transactions, in view of the state-owned-enterprises’ globalisation. But comfortable niches may not be limited to certain practice areas. “2010 will create more opportunities for many Chinese companies, with the New Year offering favourable valuations to expand abroad,” said Don Williams, partner at Wilson, Sonsini, Goodrich and Rosati. “The legal industry here will become more sophisticated as Chinese law continues to develop, and Chinese companies will take their trusted mid-tier advisors in search of opportunities abroad.”