Asia Pacific Legal Executive Briefing: The Evolving Interaction of Indigenous and Foreign Firms

Originally published for Thomson Reuters Legal Executive Institute on March 17, 2015

HONG KONG—Thomson Reuters’ Legal Executive Institute conducted its 5th Annual Asia Pacific Legal Executive Briefing last week in Hong Kong. More than 70 law firm leaders, including representatives from leading firms in 14 Asia Pacific countries, attended. It was an outstanding gathering, from the opening reception to the closing session, with stimulating and informative panels and presentations, with ample time for the participants to make and reinforce relationships and to share views on the issues of the day.

While I have been working in Asia for 20 years, this was my first time at this event. The three days conferring with Asian law firm leaders reinforced my perspective of how the Asian legal market has evolved since I had participated in it.

The law practice of each Asian country has a foundation of well-educated and highly experienced indigenous lawyers, who understand the laws, customs, and clients of their countries and the region. These lawyers and their firms are adept at integrating legal and business issues in a professional and sensible way. Together, they form the backbone of law practice in Asia.

Over the last two decades, this backbone has been reinforced and supplemented by an enormous influx of foreign law firms. The pace of the influx has accelerated in recent years. It raises a number of interesting issues and has a number of practical implications for the Asian legal marketplace.

The influx of the foreign law firms obviously has been driven by the increase in cross-border commerce and consequent expansion of legal issues. These developments not only created a demand for more lawyers, they created a demand for lawyers expert in foreign law, predominantly U.S. and U.K. law, and familiar with the customs and practices of foreign clients.

The foreign firms have been motivated to invest in Asia for similarly obvious reasons. They sought to meet their clients’ needs, preserve client relationships, build market share in emerging industry sectors, and generally remain competitive in an increasingly global legal marketplace.

The manner and depth of their entry have varied widely across the spectrum. At one end, some firms have merely sent a small number of lawyers from the home office for a narrow purpose. At the other end, some firms have made as big a move as possible (given local economic and regulatory realities), hiring local lawyers and, in some cases, combining with large indigenous firms. Most have done something in-between these two strategic poles.

Two examples illustrate how extensive the aggregate magnitude of foreign firms has been. In Singapore, a city/state of five million people, more than 120 foreign firms have now set up shop of one sort or another. In Australia, where the market had come to recognize six dominant firms as “the Big Six,” four of those have combined with foreign firms (three from London and one from China) within the last three years.

While the reactions of local governments to these changing market conditions have varied, most have been open to some form of foreign involvement, both to facilitate economic development and to assist in developing deeper legal resources to strengthen their countries’ legal systems.

The net effect has been the emergence of a greatly expanded legal marketplace in Asia, consisting of indigenous and foreign firms that together offer a robust supply of local and cross-border expertise. While the dynamics of the market continue to evolve, some ramifications already are clear.

For one, the increased number of firms has increased the level of competition dramatically. All lawyers in Asia feel the effect of so many qualified firms in the region competing for the same pool of business.

Second, the increased supply of lawyers has substantially increased pricing pressure. The Asian market has traditionally been fee sensitive; now, it is even more so.

Third, the indigenous firms are adopting increasingly deliberate strategies to distinguish themselves from the foreign firms and make the most of the advantages of their domestic heritage. Those advantages include cultural affinity with local clients, transparent local control over service and pricing decisions, and the ability to be agile in meeting the changing needs of clients of the region. For example, several leading Japanese and Singaporean firms have recently opened offices in neighboring jurisdictions, tailored to their clients’ emerging outbound needs.

Finally, the changed landscape has put an even greater premium on genuine client relationships. This came through loud and clear in a panel I moderated on client expectations at last week’s briefing. The law department panelists were unanimous that firms who want to succeed in Asia today must invest time and resources to build bonds with clients. Now that clients have so many qualified alternatives, they are able to gravitate to the firms they know the best and trust the most.