The clichéd view of the Asia legal market is that it is a very difficult place for international firms to make money. Recent economic underperformance in China has not helped, although the flurry of office openings, hires and deals in the region over the last 12 months would suggest otherwise. Local alliances are the current vogue in China, with the likes of Linklaters and Ashurst opting for these often-complex arrangements.
But while the Asia region is dominated by China, based on recent activity it would seem the so-called secondary markets, like Japan, Singapore, South Korea and Indonesia, could be lucrative areas of interest. As Herbert Smith Freehills (HSF) Greater China managing partner May Tai notes: ‘China remains the driver of growth and the story of our careers. However, activity in South-East Asia is just as busy, from the developed markets of Singapore and Malaysia to rapidly emerging markets, such as Laos and Cambodia.’
Belt and road
That aside, China has been the source of the most fervent global firm activity. Simon Levine, global chief executive of DLA Piper, says: ‘The strongest-performing area of business, in terms of where it was to where it is going now, is Asia-Pacific. China is a great part of it; politically and economically it drives so much of what happens in that region.’ While recognising mainland China as the most important hub in this sense, Levine notes that the firm’s Hong Kong outpost is the most important in terms of revenue.
Despite its influence, 2017 was a subdued year for Chinese M&A. The total value of public deals fell from $273.4bn in 2016 to $207.8bn. However, towards the end of last year, the rate and value of deals increased on the back of the Chinese government’s implementation of new rules to encourage foreign investment, particularly in the financial and manufacturing sectors.
The relaxation of regulation is one of the reasons for HSF’s major Chinese push, with the firm hiring a three-partner projects team from Pinsent Masons. The moves for Hew Kian Heong, Ellen Zhang and Michelle Li have been touted by the firm as taking advantage of China’s $900bn Belt and Road infrastructure initiative. When asked to compare the success of the firm’s Asian business with other areas, Tai says: ‘We had a really good financial year last year… I don’t want to make other areas feel bad!’
In May, Linklaters became the latest international firm to secure an alliance in the Shanghai Free-Trade Zone (FTZ), entering into a joint operations agreement with local outfit Zhao Sheng Law Firm. Under FTZ rules, international firms are permitted to tie up with local firms and practise local law. It was a much-anticipated partnership, with the two firms forming a ‘best friends’ alliance in April 2017. Ashurst also entered the FTZ this year, allying with Beijing Guantao Law Firm.
In addition to the greater Chinese focus on inbound work, a key characteristic of the market’s maturity is the increasing amount of outbound work being done. Bird & Bird sought to take advantage of this at the end of last year via an alliance with leading Chinese firm AllBright Law Offices.
The deal was a non-exclusive co-operation agreement that gave AllBright a London base at Bird & Bird’s Fetter Lane headquarters. In the lead up to the agreement Bird & Bird had acted on a significant amount of outbound Chinese work, notably representing Fosun International in its buyout of Championship football team Wolverhampton Wanderers in 2016 for a reported £45m.
‘The strongest-performing area of our firm, in terms of where it was to where it is going now, is Asia-Pacific.’
Simon Levine, DLA Piper
Chief executive David Kerr comments: ‘In the past, the main focus in China was inbound work for Western countries. But Chinese companies are very active internationally, particularly in Europe and South-East Asia. The China legal market is developing very quickly.’
Hong Kong operates as a market within a market in China and the region has been a hotspot of activity for a host of firms recently. Perhaps the most vivid indication came from Slaughter and May – the lateral-phobic Magic Circle firm made its third-ever partner hire in the region in April, bringing in investigations and litigation lawyer Wynne Mok to its Hong Kong base. Mok has pedigree – she joined the firm from the Hong Kong Securities and Futures Commission (SFC) where she had acted as a director of enforcement.
Peter Brien, senior partner of Slaughters’ Hong Kong office, describes it as ‘the gateway to China’. While he notes that Mok’s hire will instigate a regulatory push, he says that deal work is particularly busy: ‘Business is booming. IPOs and capital markets are very busy. Most of our clients are mainland Chinese clients. We are doing a lot of public M&A and it’s usually for a Chinese client.’
‘The China legal market is developing very quickly.’
David Kerr, Bird & Bird
Crucially, he dismisses the idea of Hong Kong being oversaturated with lawyers and insists that the quality of local practitioners has increased since international firms started entering the region: ‘We can’t be complacent. We can’t distinguish between local and international lawyers now. Truly local firms are much more similar and concern themselves with domestic-type work.’
Land of the giants
It has been a polarising year for the Japanese legal market, with overall deal value suffering a sharp decline but inbound activity having its best year since before the financial crisis. Inbound work counted for 51.3% of deal movement, at a value of $21.3bn.
The market has been dominated by the technology sector, with it accounting for over a third ($13.3bn) of deals. Tai says that Japan is defined by its ‘giant companies’ that are ‘seeking growth outside their mature markets’. HSF found itself on one of these major tech deals, advising as SoftBank Group invested $2bn in ride-hailing company, Grab. The deal is the largest single tech financing in South-East Asia to date.
Japan is clearly a lucrative market based on the competition for talent. The past year saw an increase in lateral activity for international law firms in Tokyo, with Paul Hastings securing a major team hire in the region. Norton Rose Fulbright (NRF)’s Tokyo head of corporate, M&A and securities Eiji Kobayashi made the transfer alongside two associates, one paralegal and one secretary. Kobayashi has a strong client book, including Central Japan Railway Company, Nisshin Seifun Group, Konica Minolta Business Solutions and homebuilder Daiwa House Industry.
The addition brought Paul Hastings’ team in Japan up to 13 lawyers, including four partners in the capital where it opened in 1988. For NRF, it leaves the firm with three Tokyo-based banking partners, while project finance partner Chris Viner will split his time between London and Japan.
Another key development in the market was Mayer Brown’s decision to open in Tokyo at the end of last year. Ashurst’s former Tokyo managing partner Rupert Burrows made the switch to lead the new team in Japan.
‘Professional service firms outside of Hong Kong and mainland China are playing a new game.’
Lee Ranson, Eversheds Sutherland
As for the state of the profession in Japan, Kerr notes that it is a ‘very sophisticated market’ but compares the number of lawyers in the region to that of China, stating it is proportionally sparse. He says there are very few bengoshi, the term for a Japanese-qualified lawyer.
Great potential
Other secondary markets to be looking out for include Indonesia, with Kerr pointing out: ‘Indonesia has a population of 250 million-plus. In some ways it’s an emerging market, but it has great potential.’ Economic growth in the region has been steady in 2017, but the market has historically been closed to international players. Bird & Bird signed co-operation agreements with two Indonesian law firms in 2014. Other major firms to have longstanding alliances in the country include Allen & Overy, Baker McKenzie and HSF.
Also cited areas of interest were Laos, Cambodia, South Korea and Vietnam. Taylor Wessing notably expanded its Vietnam offering in 2016 by merging its Singapore outpost, RHTLaw Taylor Wessing, with its Vietnamese alliance firm PBC Partners. The duo had teamed up in 2014, but the cross-border alliance gave the UK firm 25 additional partners across the two territories. South Korea – notwithstanding tensions with its neighbour and the posturing of the White House towards the US/Korea trade deal a few months ago – has been a popular market over the last five years that has proven lucrative for a number of US players, noticeably Paul Hastings and Cleary Gottlieb Steen & Hamilton.
Eversheds Sutherland co-chief executive Lee Ranson sees the wider Asia market as more underdeveloped: ‘It’s a relatively nascent landscape, in the sense that professional service firms outside of Hong Kong and mainland China are playing a new game.’
Firms will do well to keep a careful eye on these secondary markets, but China continues to be the main prize. Despite a fitful run of economic performance in recent memory, Global 100 firms are keen to position themselves favourably with Chinese clients gaining more transactional confidence. However, success in the region largely depends on the whims of the Chinese government, whose policies could sway the tide either way between investment and no investment.
As Tai concludes: ‘All the factors point to fortune favouring the agile. In many ways, constant change has been the story of business since the financial crisis. But with so many changes to established geopolitical orders, coupled with tech disruption in the last two years, you need to be ready to anticipate and take advantage of opportunities from all directions.’ LB
Global 100 lawyers by region
Global 100 Asia and Australia headcount
Global 100 UK headcount
Global 100 US headcount
Global 100 Europe headcount (excluding UK)