Asian attraction

By Robert Sawhney, Managing Director, SRC Associates

It all seems to be going on in the Asian legal markets at the moment. The entrance of foreign law firms into Asia goes on unabated and even lesser-known legal markets such as Mongolia are now grabbing the attention of western law firms. This all begs the question of who is doing what and why?

Construction & arbitration boom

One area of interest seems to be the forecasted boom in construction and arbitration in the region. UK law firm Nabarro was recently granted one of the few licenses to operate as a foreign law practice in Singapore. The firm will reportedly focus on providing advice on dispute avoidance and arbitration for clients involved in offshore and onshore construction and engineering projects.

This is not dissimilar to the approach of Clayton Utz in Hong Kong. The Australian firm recently opened in Hong Kong by associating with local firm Haley & Co, which sees the firm targeting arbitration and dispute work related to construction projects in Hong Kong and elsewhere in Asia.

Alternative dispute resolution (ADR) is a semi-hot area at the moment as Hong Kong, Singapore and other Asian countries plough resources into ADR centres whilst claiming their locations offer the best value for dispute resolution. The approach of firms like Nabarro and Clayton Utz is different to many other foreign law firms in that they are focusing on a somewhat niche practice. This effort to differentiate themselves in the market through specialised knowledge and experience can be a clever way to hit the ground running and generate local work.

Capital markets lead

In Hong Kong, there has been a quadrupling of US lawyers taking the local bar exam. These US firms are building local Hong Kong law capability as the capital markets work in Hong Kong and Asia leads the world.

Firms such as Davis Polk and Shearman & Sterling recently commenced Hong Kong practice in the belief that clients are increasingly looking for a one-stop service where they can receive advice on the Hong Kong and US (or international) aspects of their fundraising activities. UK law firms have been doing this for a while now, as have some other US firms such as Skadden.

Hong Kong capital markets work has also led to a boom in secondary offerings, coming only second to Shanghai. The number of foreign law firms in Hong Kong now stands at 69 (nearly double that of a few years ago) and one can see why further US law firms are planning to build local
law capability.

Economic imperative

Why Asia? According to the United Nations Conference on Trade and Development, the region now accounts for one fifth of global FDI flows. Asia’s three largest recipients – China, Hong Kong and India – now rank second, fourth and ninth respectively in the world. New policies are easing both outward and inward FDI and intraregional FDI now accounts for as much as half of the region’s total inward FDI stock.

Emerging markets

I would imagine that many international law firms would be aware of this information in general. What might be less well known is the interest of international law firms in lesser developed Asian markets.

Hogan Lovells recently entered into a formal alliance with Mongolian law firm GTs Advocates as the countries mining and resources sectors start to take off. Mongolian mining firm Winway recently became the first BVI firm to gain approval to list on the Hong Kong stock exchange since the listing rules were modified in late 2009.

Cambodia and Laos are also markets starting to gain some recognition, as the merger of DFDL Mekong and Bangkok-based McEvily & Collins demonstrates.

Rising competition

I hear many law firm partners bemoan the fact that legal markets in Asia are becoming saturated and why, for example, would anyone open an office in Hong Kong or Singapore? This is the wrong question.

Legal markets, like many other markets, are becoming increasingly competitive in Asia, but the firms which are doing well are able to generate business insight and understanding and parlay this into client value.

Firm differences explain much more than industry factors when it comes to profitability, so perhaps it’s time to start thinking beyond legal services demand to how a firm entering Asia can create a compelling value proposition.