Three international law firms are making a big splash in Seoul as South Korea opens up its legal service sector, but what’s in it for the local law firm elite?
South Korea has opened its legal market up to international law firms after years of planning, and the foreigners are piling in. For the moment domestic firms are confident they will do well out of the initiative, but the picture could be different in the longer term.
South Korea’s legal services sector saw an historic turn of events on 16 July this year at 11am in a large conference room at the Ministry of Justice (MoJ) in Seoul. As elated representatives from Ropes & Gray, Sheppard Mullin Richter & Hampton and Clifford Chance accepted certificates from MoJ officials, they became the first three firms to receive permission to open a foreign legal consultant office in the country. Around 20 applications have been filed by other foreign law firms and these are still being reviewed.
South Korean conglomerates such as Samsung, Hyundai and LG have been expanding and conducting business abroad for a number of years, becoming big buyers of foreign legal services. With growing demand for international legal representation among Korean companies and an increasing ability to pay high-end legal fees it is hardly surprising to see great interest among Anglo-Saxon firms to rush into a Seoul launch.
Once approvals for foreign legal consultant offices have been obtained international firms are allowed to advise on the law of their home jurisdiction and international legal issues. After five years they are permitted to enter into joint ventures with local firms and hire local talent.
In the short term things are looking relatively rosy for local firms, who think international players will have to collaborate with them on cross-border matters – at least initially. Several local lawyers believe that international firms’ offices in Seoul will make it easier for them to work with their international counterparts and also that the presence of international firms will help to push up practice standards in Korea.
But Korean firms with international aspirations may find it harder to claim a larger share of the cross-border legal services market, particularly on the transactional side.
“If foreign firms have a presence in Korea and are contacting Korean clients directly that won’t be good for Korean law firms, because clients will no longer need their local lawyers to refer cases to foreign firms,” says Eui Jong Chung, partner of Bae Kim & Lee (BKL). “We believe that if Korean clients want to manage their legal fees more effectively for the legal work done in foreign jurisdictions, it’s necessary to engage a Korean firm with international knowledge – one that knows how foreign firms work. We’ve been competing in offshore dispute resolution and arbitration cases, and we are also eager to do much more work in outbound M&A by Korean companies.”
BKL has 50 overseas-qualified lawyers, including five foreign nationals, to support its ambition and plans to grow its international capability further.
Similarly, at Shin & Kim 15 per cent of the firm’s lawyers are qualified in one or more foreign jurisdictions. To continue pursuing its international ambitions the firm has decided to focus on niche areas and markets in which foreign firms are less active.
“Although foreign firms don’t intend to compete on domestic work, to some extent they will take away some work in international arbitration or cross-border transactions that was traditionally assigned to Korean firms,” says Doo-Sik Kim, managing partner of Shin & Kim. “We will continue to grow our presence and activities in certain overseas jurisdictions, including South East Asia, China, the CIS countries and Latin America. We won’t compete with foreign firms on a global basis, but in some areas we can do better in representing Korean companies more efficiently.”
What is happening in Korea is not an isolated case in the region. The country’s local legal profession is going through the same growing pains as are those of Singapore, Japan and China – all countries that are open to international law firms to varying degrees.
“Even though we have a group of strong local law firms, nobody is safe,” says Kim. “This is a critical period. In two to five years there will be a lot of change among Korean firms,”
He expects that some will enter into formal or exclusive relationships with global firms.
“Look at King & Wood in China, which has joined forces with Australia’s Mallesons – the same may happen in Korea,” he adds.
While the opening up of the legal market will have a transformational effect on the country’s law firms, international firms are facing the perennial challenge of making profits in Asia.
“Korean companies will pay top-rate fees for important, strategic deals or cases,” says John Kim, a Lee & Ko partner who previously worked for Samsung Electronics and US firm Quinn Emanuel Urquhart & Sullivan. “But Korean managers have a reputation for demanding discounts. Almost every Korean entity has an aggressive cost control programme – it’s challenging for UK and US firms looking to maximise their profits.”
In many senses, the established players – both Korean and international – are at a new starting line.
Source: InvestChosun and Ministry of Justice of South Korea