Chapter 11
■Law bulletin
Text 3 – the Asian legal market
Read the following text then complete the exercises which follow.
Meanwhile, Freshfields Bruckhaus Deringer is also poised to close its three-partner Bangkok office, which has a total staff of 81. It has already downsized its operations in Singapore, not replacing staff when they leave.
Mr Kelly says that DWS’s withdrawal from Asia was on the cards, with numerous CVs from DWS lawyers flying around before the announcement. However, he finds Freshfields’ retreat from Bangkok more puzzling.
‘It’s a strange time to be pulling out of Asia. It’s been very tough over the last three years, but recently we have seen definite signs of improvement. Firms that have been here throughout the hard period will have spent a lot of time, money and effort, and now is the time they may be seeing some return on that investment.’
Most agree though that south-east Asia is a hard market to crack. As Ashurst’s Japan- ese group head, Alan Kitchin, says: ‘South-east Asia is very difficult. It’s very competi- tive on fees. You tend to be acting more for the [local] law firms than for the banks in that region, so it’s hard to keep the rates up. Firms in there are really struggling.’
Wong Kien Keong, Baker & McKenzie’s Asia-Pacific chairman, adds: ‘Well-known firms have folded up their operations in some major money-centre jurisdictions like Hong Kong and Singapore, while larger domestic firms are getting some cross-border work which eats into the pie of the international firms.
The quality of domestic firms is also improving, particularly in Hong Kong, China, Bangkok and Singapore.
‘The least lucrative market continues to be Manila among the countries which re- ceive significant foreign direct investment. Other countries on the fringe in Asia will continue to suffer, like Myanmar, Laos and Cambodia,’ he predicts. These are all coun- tries where no UK firm has set up.
Perry Noble, Freshfields’ managing partner in Asia, says: ‘The economic conditions in south-east Asia have been pretty tough. There was the economic crisis at the end of the 1990s, then the technology boom died out and there has been a lot of political unrest.
‘We have taken the decision to withdraw from the Bangkok market, or we are at least considering it in principle. From my point of view, no one makes any money in that part of Asia and I have a responsibility to the partners to get the best return on their in- vestment.’
He says the economic conditions recently have made the decision about where to invest more difficult. ‘It’s not necessarily that I believe there will be no growth in south-east Asia – it probably is improving – but the prospects don’t justify that level of investment.’
Since 1997, Lovells has had an office in Singapore which acts as a hub, handling work throughout south-east Asia.
Mr Kelly says his firm is considering a series of strategic alliances in the regions, which should open up the local markets without the financial risk of opening offices in jurisdictions such as Thailand and Indonesia.
‘It may well be that we will be looking to do more with local firms. We would like to have more presence there but short of opening a new office. It remains difficult around there,’ he says.
Lovells’ director of international projects, Marc Bartel, adds: ‘There is a buzz about some parts of the region, but you might have a flavour of the month with people look- ing to revive deals in one place, then, because of a bit of political instability, the focus changes. We are keeping our ears to the ground on this one.’
Ashurst, which has offices in Singapore and Tokyo, has no intention of pulling out of Asia.
Mr Kitchin explains that, as the Asian market generates an enormous amount of
He says: ‘We are looking at China. We have never merged; we like to do things our- selves and every year we open a new office. We don’t want to compromise our quality by being all over the place for the sake of it, but China is a difficult market not to be in because so many clients want to do business there.’
Since its 2001 entry to the World Trade Organisation, China has become one of the world’s fastest-moving economies, with year-on-year growth of gross domestic prod- uct at 8%, foreign direct investment (FDI) at 57%, foreign trade at 40% and industrial output at 17%. Law firms not yet established there want to be, and those already there are looking to expand – with the obvious exception of DWS.
With the opening up of international trade, and massive inward investment, foreign investors are attracted to what they see as a largely untapped market and a low manu- facturing cost base.
The Chinese government’s push to transform the energy markets has rejuvenated the sector, while the liberalisation of the Chinese banking system allows foreign banks to provide local currency business to Chinese clients. And since the business and regula- tory environment is not as developed as in more sophisticated markets, there is also a need for lawyers to advise not just on expansion and investment but also on restructur- ing and reorganisation.
Mr Keong says: ‘The most lucrative Asian legal market remains China. It has the highest amount of FDI in the world. The Chinese legal market is possibly one of the largest in the world, because it requires a great deal of financial and legal skills to lift its economic standard to a level closer to the developed world.’
Michael Liu, head of Allen & Overy’s Asian corporate group, says that to gain a firm foothold in the Chinese market, one must not look at China as being independent from Hong Kong – sovereignty of which was handed back to the Chinese by the British seven years ago.
‘We need to think of our Chinese practice as one team in three locations. Beijing is the government seat, and Shanghai and Hong Kong are the major commercial centres. You need full service capability in all three cities to cover the Chinese market effectively.
‘Hong Kong remains a key world financial and business centre, but it is now just one piece of a bigger jigsaw.’
The firm’s head of Asia practice, Brian Harrison, says: ‘As our clients are stepping up their presence in the Chinese mainland market, we will follow suit and further expand our presence there. On the other hand, there are also business opportunities to serve the needs of Chinese companies which are revitalising in preparation for further mar- ket competition. So the timing is ripe for us.’
Freshfields has had offices in Beijing and Shanghai since 1993, and Mr Noble says China is an important part of the firm’s plans.
He says that 75% of the work done by the firm’s 18-partner Hong Kong office has a Chinese connection.
‘China has been important for all businesses in Hong Kong. SARS didn’t help and Hong Kong has been dire for a long time, but the work coming from China has been a real relief for everybody.
‘Hong Kong is a small market and ever since its return to China, the economic condi- tions have been poor. Combine that with the fact the area is massively over-lawyered and you get everyone cutting each other’s throats on the price of work. It has been very tough.’
What could escalate the Asian legal market’s revival are plans by the Japanese and South Korean governments to allow foreign law firms to form full partnerships with – and also employ – local lawyers. It is expected that the restrictions will be lifted next year, says Mr Browne.
‘Deregulation will improve things. We have a joint venture with a big Japanese law firm and to them the prospect of deregulation is an exciting one because they are very
Chapter 11
■Law bulletin
international in their outlook. At the moment though, we are not considering a full partnership. We are very happy with the model we have got,’ he says.
Mr Kelly says rumours are rife of plans by English law firms to merge with Japanese firms – although he declines to name names.
For Lovells though, a full merger is not on the cards, with the firm preferring to in- troduce local talent on a lateral-hire basis.
‘We want Japanese law capability but cherry-picking individuals is certainly where we would like to start. Then we will see how it goes.’
In south-east Asia, the cautious approach of retreating firms like DWS has yet to be weighed against the go-getting strategies of others. But given the speed of develop- ments in the region, it should not be too long before the winning strategy reveals itself.
Lucy Hickman, freelance journalist: Gazette, Vol. 101, No. 20, 20 May 2004, pp. 24 – 7.
1. Which areas of legal practice have been most adversely affected throughout Asia as a re- sult of recession?
2. Which country has the second largest economy?
3. In which country is demand for legal work ‘booming’?
4. Name an Asian country in which no UK law firm has set up.
5. What does ‘FDI’ stand for?
6. What are foreign law firms likely to be able to do in the near future which could assist in reviving the Asian legal market?
Exercise 5 – comprehension
Find alternative words or phrases from the text meaning the same as the following.
1. transitory basis (para. 3) 2. thriving (para. 4) 3. plan (para. 6) 4. retreat (para. 8)
Exercise 6 – vocabulary
Chapter 11
■Law bulletin
Complete the following sentences by putting the verbs in brackets into the correct tense forms.
1. Since 2001 China’s economy [1] (develop) fast.
2. The partners [2] (meet) at 3.00 pm last Friday.
3. Several law firms have [3] (open) offices in Beijing recently.
4. At least one law firm has recently [4] (closing) an office in Singapore.
5. Demand for legal work in Hong Kong is [5] (show) signs of improvement.
6. The Chinese legal market is [6] (provide) increasing work for foreign law firms.
Exercise 7 – tenses
Written and spoken English commonly includes expressions (idioms) which are intended to convey a meaning other than the literal interpretation. There are a number of examples of id- ioms within the text. For example: ‘... the SARS virus provided the poisoned icing on the cake’. The words ‘poisoned icing’ are in fact used to relate to the reader that the SARS virus was a further factor contributing to recession in Asian markets rather than having anything to do with actual icing on a cake!
TASK 1
Match each of the expressions in the first column below with its corresponding meaning in the second column. By way of illustration the first one is done for you.
Exercise 8 – idioms
weather the storm reduced
hit rock bottom difficult market to enter
on the cards monitor events
downsized survive a difficult situation
hard market to crack currently popular
ear to the ground likely to happen
flavour of the month to be at the lowest point
TASK 2
Now complete the following sentences by filling each of the gaps with an appropriate idiom from the panel below.
bury the hatchet on the grapevine redtape
Scot free raining cats and dogs eager beaver ▼
1. I have heard that he has been appointed as a Judge.
2. It became cloudy and started .
3. The Defendant got off .
4. The new lawyer works very hard, he’s an .
5. They stopped arguing and agreed to .
6. The civil service is sometimes said to be full of .
There are a number of examples of comparatives and superlatives in the text. The following are examples of superlatives:
‘... the worst-struckpractice areas ...’ and ‘We do the bestwe can’.
TASK 1
Use the superlatives from the box below to complete the following phrases.
Exercise 9 – comparatives and superlatives
fastest highest most least
1. China has the amount of foreign domestic investment (FDI) in the world.
2. The lucrative market is Manila.
3. The lucrative market is China.
4. China has become one of the world’s moving economies.
The following is an example of a comparative:
‘Resources should be directed to areas with strongerclient demand.’
TASK 2
Use the comparatives from the box below to complete the following sentences. (Note that some words in the box may be required more than once whereas others may not be required.)
more bigger stronger closer
1. Hong Kong is part of a jigsaw.
2. Economic conditions have made decisions about where to invest difficult.
3. The business and regulatory environment is developed within sophisticated markets.
4. Some law firms are directing resources to areas with client demand.