Anglo-American law firms prepare for Indian assault

Clifford Chance‘s famous strategic review earlier this year, in which it considered the economic consequences of three hypothetical scenarios (China invades Taiwan; the US adopts an isolationist policy after being bogged down in Iraq; and a continuation of the status quo), also contained a fourth: what will happen when the Indian legal market opens up to foreign lawyers?

“India features as one of the growing economies that impacts upon Clifford Chance’s strategy,” confirms the firm’s senior partner Stuart Popham. “The work will increase and the market will become more important for us. Currently the question for us is how best to be there.”

Popham won’t say what track Clifford Chance would take if or when India opens up. He simply says that the firm is “absolutely aligned with our clients” and that “we look forward to [India] allowing greater access”.

What is certain is that the Indian market is fast rising up the agendas of a host of international firms, including Clifford Chance, Linklaters, Herbert Smith, DLA Piper Rudnick Gray Cary, The profitability of some of India’s leading firms may be one reason why there is little appetite for liberalisation. Most Indian managing partners do not share the overhead problems faced by their US and UK counterparts. There is little or no professional indemnity insurance, salaries are far lower and property costs are zero, or at least negligible, for the numerous firms whose office rents are fixed at 100 rupees (about £1) a year.

For firms in this position, total costs account for some 12 to 16 per cent of revenues. Throw in a tightly held equity, and it is no exaggeration to say that the senior partners at a handful of firms are better remunerated than any of their peers at Slaughter and May, Freshfields or Linklaters.

The market is also split between old establishment firms and more modern outfits. One of the latter is Thakker & Thakker, which has around 700 clients, all of them international, none of them Indian.

Titus & Co is another outwardly focused firm. Headed by Diljeet Titus, it has referral links stretching back eight years with Morrison & Foerster. Titus claims there are at least a dozen US and UK firms looking at India “very, very closely” and that the majority would look to set up an office on the subcontinent when conditions allow. Freshfields Bruckhaus Deringer and Baker & McKenzie. The market has shifted fundamentally in the last year. The workflow, traditionally almost exclusively focused on inward investment, has begun heading the other way. Companies such as Tata, Infosys and Reliance are on the acquisition trail in the US, UK and across Europe. The trend was accelerated this year by a relaxation of the rules on Indian companies accessing the capital markets, resulting in an increase in the amount Indian companies can raise from $100m (£58m) to $500m (£290.2m).

The change has led to a shift in the mindset of major Indian corporates, from being domestic industrials to becoming global players with the talent and resources to expand. Consequently their legal advisers are keen to reflect this in their Indian strategies.

Baker & McKenzie, for example, is actively looking to strengthen its ties with India. The firm currently has several referral relationship firms, but it is hoping to move to just one. The firm’s Asia chair David Jacobs is planning a fact-finding trip to India in February next year to finalise this. As reported by The Lawyer (21 November), Simmons & Simmons is aiming to launch in south east Asia partly as a springboard to India.

Linklaters formalised its India practice group earlier this year. All these firms, and several others, would be highly likely to consider opening in India in the future. “There has been a transition from ‘if’ to ‘when,'” says Linklaters’ Sandeep Katwala of the path to liberalisation.

But two key questions face any firm looking to set up an office in India: how and when? There is yet to be any formal indication of the model foreign participation by a law firm in India would take, and there is still no clear indication of when firms are likely to be allowed in.

Currently there is a consensus in the domestic market on 2007, linked to India’s WTO/Gaat negotiations, but the joke in India is that liberalisation is always two years away. It is a highly charged political issue that goes beyond the legal market. As Freshfields’ Pratap Amin puts it: “I think the pressure’s building up, but the Indian government may only allow it as part of the wider discussion on the liberalisation of trade and services under the WTO.”

The local view

The profitability of some of India’s leading firms may be one reason why there is little appetite for liberalisation. Most Indian managing partners do not share the overhead problems faced by their US and UK counterparts. There is little or no professional indemnity insurance, salaries are far lower and property costs are zero, or at least negligible, for the numerous firms whose office rents are fixed at 100 rupees (about £1) a year.

For firms in this position, total costs account for some 12 to 16 per cent of revenues. Throw in a tightly held equity, and it is no exaggeration to say that the senior partners at a handful of firms are better remunerated than any of their peers at Slaughter and May, Freshfields or Linklaters.

The market is also split between old establishment firms and more modern outfits. One of the latter is Thakker & Thakker, which has around 700 clients, all of them international, none of them Indian.

Titus & Co is another outwardly focused firm. Headed by Diljeet Titus, it has referral links stretching back eight years with Morrison & Foerster. Titus claims there are at least a dozen US and UK firms looking at India “very, very closely” and that the majority would look to set up an office on the subcontinent when conditions allow.