Some firms might be trying to crack America – but Asia is where the action is
Access to Asia’s growing economies should be a key strategy for firms with a mature, global client base, writes WarwickPlace’s Robert Bata
The summer’s big news in the legal industry has been the prospective merger of Allen & Overy (A&O) and Shearman & Sterling. And it was certainly big news, delivered on a Sunday morning with exquisitely crafted messaging: the first potentially big break into the US by one of Britain’s Magic Circle firms, and a merger of more or less equals.
Then the speculation began: Will it actually happen? When will the vote take place (the date has moved from July to October)? Are the departures, mounting by the day, going to scuttle the whole thing? Who will be the boss? What are the financial sacrifices the Shearman partners will be asked to make to achieve genuine integration? How will geographic overlaps and duplicate practices be handled?
All very good questions, and they raise other ones. What will be the market’s reaction? Will independent firms now need to rethink their strategy? Is a wave of consolidation coming? Which Magic Circle firm will be next to make a credible move in the US, where their efforts until now have been spotty at best? What are other UK-based firms doing to execute a US strategy?
But all of this has tended to obscure what is now becoming clear to more law firm leaders: Asia is where the action is.
Let’s start with the proverbial 800-pound gorilla: Mainland China. China’s inward turn, its weakening economy, flagging foreign investment, global trade conflicts, geopolitical tensions, increasing concerns about data security and the government’s growing intrusion into business, coupled with the effects on Hong Kong of Beijing’s national security law, have made doing business in China more risky for Western operators. The just-announced Dentons divorce from Dacheng was manifestly spurred on by these disruptors, although one might question whether their combination was ever more than a very effective marketing stunt for a law firm that wants to be seen to be everywhere in the world.
That doesn’t mean Dentons has taken its eye off the People’s Republic, but rather only that it will be leery of exposing itself and its clients to the kinds of business, financial and reputational risks that could arise if it continued its presence on the mainland. The firm will not sever ties with its Hong Kong operation and will no doubt retain an opportunistic relationship – at arm’s length – with Dacheng.
A rather more positive development – but one that is just the other side of the coin – is the recent announcement by Eversheds Sutherland and Sino-Australian firm King & Wood Mallesons of an agreement to refer business to each other in selected jurisdictions, with Eversheds International sending China-related work to KWM, and KWM sending Chinese clients seeking to do business outside China to Eversheds. Here too, there is no retreat from Hong Kong by Eversheds; and for KWM the agreement means an elegant exit from the wreckage of its ill-fated combination with SJ Berwin in Europe.
These are both instructive examples of how to play the China card even as doing business there becomes more challenging. But Asia is more than China, and this is where it gets interesting.
Singapore, which has steadily attracted new law firm entrants (a half-dozen during the past year alone, Ropes & Gray being the latest), as well as relocations from Hong Kong, has been a tremendous engine of legal work for international firms, from asset management to energy, disputes, insurance, private equity, private wealth and fintech, among others.
Singapore is a hub for a good deal of Southeast and South Asia work too, but those locations have also seen new entrants and expansion of existing offices, for example KPMG scooping up regional player ZICO Law’s 275-lawyer team in 18 Southeast Asian cities, and Thailand-based regional DFDL and Japanese heavyweight Nishimura & Asahi both jumping into Malaysia.
Japanese firms also have been dipping their toes into Indonesian waters. And despite storm clouds from the mainland, Hong Kong will continue to be a vibrant locale for disputes, finance, fintech and private wealth.
Korea has had two recent entrants under newly liberalised rules (Ashurst and Watson Farley & Williams). And while the Delphic pronouncements of the Indian Bar Council about easing restrictions on foreign lawyers have not spurred a stampede into that market, India practices and ‘desks’ outside that country have been exceptionally busy. That is hardly a surprise, with India slated to be the world’s third largest economy, and someday soon perhaps even surpass China.
Nor should we forget the Middle East. Whether it is Saudi Arabia’s Vision 2030 attracting the likes of Kirkland & Ellis, Quinn Emanuel, Linklaters, Addleshaw Goddard and Greenberg Traurig; Gibson Dunn and Scottish firm Brodies setting up in Abu Dhabi for capital markets and energy work; or the Dubai International Financial Centre serving as a financial and legal hub for the Middle East, South Asia and Africa markets, there is an unprecedented level of interest in the region.
Why is this relevant when we talk about A&O/Shearman? From the A&O perspective, credible access to the world’s largest economy, which Shearman’s Wall Street cachet can help provide, is the goal. But for Shearman, in addition to shoring up its European practice, the improved access to Asia that A&O’s extensive network can provide, will be the real prize.
The message then is that for firms with a mature, global clientele, access to Asia should be a key goal. One way to achieve that is through linkage with UK firms, which have traditionally, and for historical and political reasons, been able to build deep and sustainable Asian networks. But no matter the method or approach, Asia is the name of the game.
Robert Bata is principal at legal consultancy WarwickPlace Legal.