RenRen, the Chinese company behind the social networking website of the same name, listed American depositary receipts in New York at the beginning of May. The ADRs were sold at US$14 each, raising US$743 million and valuing the company at 72 times its previous year’s revenue. At the end of the first day of trading, the price per ADR had risen to over US$18.
A multiple of 72 times revenue is an unusual achievement for a company that made no profit in either of its previous two years. RenRen’s net revenue did increase by around 50% in 2010, but that doesn’t explain investors’ enthusiasm for throwing money at the company. Clearly, they were buying into RenRen’s China dream – the promise of unlimited growth in the world’s largest emerging economy.
RenRen replicates Facebook, but it is Chinese. In much the same way, Chinese law firms, by replicating the appearance and sometimes even the form of their international counterparts, have also enjoyed considerable success. That success has deprived many international law firms of some of the China work that traditionally came their way.
Indeed, the story of RenRen and Facebook has many parallels with China’s legal market.
First, new brands can seem to emerge from nowhere and rapidly challenge existing ones. It is only in the last few years that some of China’s leading law firms have become internationally recognizable brands. And with so few firms commanding a high level of brand awareness, new entrants be they local or foreign have a better chance of carving a niche for themselves.
Second, having a good brand internationally is no guarantee of success. Many international law firms have discovered to their cost that a strong market position in New York, London or Frankfurt does not automatically translate into a good reputation, or business, in the PRC.
This month, China Business Law Journal investigates the art and science of law firm branding and compares the experiences of domestic and foreign firms (see Brand new). Our coverage offers insights for managing partners and may also raise an eyebrow or two among their clients.
As law firms brush up on their branding and hone their competitiveness, many will hope to increase their share of capital markets work. For, as our special coverage reveals (The difficulties of staying afloat), China’s capital markets are red hot. (Next month, we will look closely at the fierce competition among law firms for this work.)
Valuations on the Shanghai and Shenzhen stock exchanges are far exceeding those usually seen in other countries. Unless, of course, the stock concerned is a “China play”.