After the first flush of enthusiasm, international firms are reassessing their position in Asia Pacific, while the locals go for growth
Welcome to The Lawyer Asia Pacific 150 2014. This is the second annual ranking of the largest law firms by lawyer numbers across Asia Pacific, including a comprehensive overview of the important developments in these dynamic legal markets.
For the first time a year-on-year comparison is possible. The figures provide an intriguing picture of the progress of the legal profession in the region.
An overarching theme in this edition is the rise of the independent firms. This year’s top 100 independent firms are from 12 jurisdictions. Together they housed a total of 37,575 lawyers at the end of 2013 – a 12 per cent growth in headcount over 2012.
Our research also shows that Asian firms are growing at a faster pace than their international rivals in the region. Last year, the 50 largest international firms collectively had 9,584 lawyers, up only 4 per cent on 2012.
Locals: varying fortunes
Each firm’s business is different and each jurisdiction has its own set of opportunities and challenges. However, by analysing the year-on-year comparison figures of firms from a certain country, trends can be seen.
In Australia and New Zealand, the markets remain flat and as a result some of their largest firms have reduced lawyer headcount – and revenues have followed suit.
Allens, similar to its peer group, has found the 2012/13 financial year challenging in terms of growing revenue due to the slow market for large M&A and banking and finance work. Its revenue for the financial year ending 30 June 2013 reportedly dropped by 2 per cent. Responding to the difficult conditions it resorted to cost-cutting measures such as using natural attrition, internal relocation and redundancies.
Consequently, the firm’s lawyer headcount at the end of 2013 decreased by 8 per cent compared with the previous year. Allens’ shrinking Asia presence following its alliance with Linklaters also contributed to the headcount dip.
The mid-tier firms in Australia, by contrast, have shown resilience. Some have seen strong revenue growth following significant lateral hires – HWL Ebsworth is one. Its 2013 lawyer headcount jumped 21 per cent to 480 on the previous year. Revenues also increased 7 per cent.
Firms in New Zealand suffered even more than their neighbours across the Tasman Sea. Four of the six firms on this year’s Top 100 list reported a considerable size reduction. Russell McVeagh and Chapman Tripp felt the biggest crunch; both firms saw their lawyer headcount fall by 21 per cent.
In the Northern hemisphere the mood is slightly more upbeat. China remains the largest country in the table. This year, 35 Chinese firms made it into the league, and together they had 18,092 lawyers, accounting for almost half of the total at all the 100 independent firms. The majority of these are still growing. It is a story of the big getting bigger.
Dacheng, the largest firm in China and Asia Pacific, grew its lawyer headcount by a further 48 per cent last year. Its turnover in the same year increased by 11 per cent to RMB1.78bn (£168m) from the previous year’s RMB1.6bn.
Other Chinese firms that had a spectacular year include Global Law Office and Fangda Partners. Both are considered elite in capital markets, private equity and M&A. The former was the fastest growing firm in the country in terms of lawyer numbers, with a 50 per cent increase in 2013, while the latter pushed up its revenue by 50 per cent to more than RMB400m despite slowing economic growth.
For more mature markets such as Japan and Korea, the change in size at big firms is less noticeable, on average within the 5 per cent range. However, there are exceptional performers that have taken an unconventional strategy and approach.
Japan’s TMI Associates, for example, has been a pioneer in Japanese expansion into South-East Asia. Since 2012 the firm has opened in Yangon, Singapore and Vietnam. Most recently, it became the first Japanese firm to launch an office in Silicon Valley. At home, it established four joint ventures with international firms including Simmons & Simmons and Morgan Lewis. In 2013 it recruited significantly and took over Anderson Mori & Tomotsune as the fourth largest Japanese firm by lawyer numbers.
While China dominates the Top 100, the region with the most eye-catching development and expansion of local and international firms is the Association of South-East Asian Nations (ASEAN).
The surge in interest in the ASEAN legal markets is mainly driven by increasing foreign investment and the region’s plan to integrate into an EU-style single economic community.
In 2013, foreign direct investment (FDI) into Indonesia, Malaysia, the Philippines, Singapore and Thailand, known as the ASEAN-5, outstripped that into China for the first time. According to research by Bank of America Merrill Lynch, the ASEAN-5 countries received $128.4bn (£78bn) in FDI, 9 per cent higher than the amount invested in China, which stood at $117.6bn.
Asian countries including China, Japan and Korea are among the investors in ASEAN. Growing intra-regional trade and investment has created opportunities for indigenous firms and triggered many to capitalise on this new demand by enhancing their regional offerings.
Two of the fastest expanding firms are Singapore-based Rajah & Tann and Malaysia’s ZICOlaw. Both achieved stellar results while growing regional footprint and capability.
Rajah & Tann, with a 55 per cent rise in lawyer headcount, takes the top spot as the fastest growing independent firm. Its pan-Asia ambitions were announced in 2010 when it only had offices in Singapore and China, but now its network covers nine countries in Asia.
Most of its expansion in the region has been done through local tie-ups. For example, it recently strengthened its Vietnamese practice by entering partnerships with local firm LCT Lawyers, creating a 25-lawyer national practice with three offices. It has also been on a recruitment drive in a bid to build up its international capability. In March it added a 14-lawyer team from US firm Hunton & Williams and recruited the former IndoChina head of Linklaters’ Australian ally Allens in Singapore.
Rajah & Tann managing partner Lee Eng Beng points out that his firm has seen a surge in intra-Asian investments and transactions, but clients in some of the emerging parts of Asia are underserved by international firms. Asian firms with a regional offering can carve a niche in these markets and compete with international firms.
ZICOlaw is another strong contender in the ASEAN region. Its lawyer headcount rose by 45 per cent, to 245 from the previous year’s 175. It now has offices in eight of the 10 ASEAN countries.
Apart from Singaporean and Malaysian firms flexing their muscles, a number of Japanese and South Korean firms have ventured in, following their domestic clients.
Take Myanmar, for example. All five of the largest Japanese firms now have an office in Yangon, while two South Korean firms, Jipyong and Yulchon, have entered the market too.
Internationals: change of heart
Like their Asian counterparts, many international firms are focusing on enlarging their presence and regional footprint, particularly in the ASEAN region.
However, this year’s Asia Pacific 150 research reveals that although internationals are extending the breadth of their coverage they are trimming headcount. The data shows that almost half of this year’s largest 50 international firms saw a reduction in lawyer numbers.
Baker & McKenzie, the largest international firm in the region by both lawyer headcount and geographic coverage, opened its 15th and 16th Asia Pacific offices in Seoul and Yangon this year. Even so, headcount still dipped 2 per cent.
Ashurst, DLA Piper, Norton Rose Fulbright and Herbert Smith Freehills, held steady in the top 10 group, but they too shed numbers. As A&O Asia head Thomas Brown puts it, “It’s the sign of a maturing market”.
He acknowledges that global law firms are bedding down in Asia Pacific and starting to focus on their specific business plans, a process that translates in many cases to reining in numbers.
“Anyone who’s going to come to the region is probably already here,” he says. “And the firms that are here are going through a period of slight consolidation, as they’ve stepped back and assessed their regional headcount needs.”
With China becoming a tougher market for international firms, some have adjusted their strategies. The most high-profile shift was at Vinson & Elkins, which closed its Shanghai office in July 2013 to focus on its Hong Kong and Beijing offerings. The move resulted in two partners and a small team of associates leaving to join rivals, as well as a couple of partner relocations.
Another notable trend in international firms’ development is the growing popularity of expansion via ‘buddying up’.
Firms including Bird & Bird, Berwin Leighton Paisner, Taylor Wessing and Stephenson Harwood have embarked on a push to build an Asia network of local alliances. The buddying-up approach is another reason behind the slower growth of headcount among international firms.
There is clearly a mood among many global firms in the Asia Pacific – fewer boots on the ground covering a bigger geographical footprint.
As international firms react to the changing markets by coming up with new strategies, the big local players are facing their own challenges and some are going through internal transformation.
Singaporean firms, increasingly competing against internationals at home and across the ASEAN region, are under pressure to up their game in retaining talent. Wong Partnership, for example, increased its associate salaries in January this year. For newly qualified lawyers, the starting salary has been raised from S$5,200 (£2,500) to S$6,000 per month.
For firms with a big network of offices and association firms, such as Rajah & Tann, how to integrate these offices has been the question. In essence, its model means each firm in its network has signed a strategic alliance or co-operation agreement with Rajah & Tann in Singapore. The firm’s top priority now is to enhance network firms’ quality and services rather than scale up more.
“We need to evolve to create a strong platform by which the whole group can operate together and make sure all members’ interest are aligned,” says Lee. “Some organisational restructuring is expected in the next few months.”
One possible solution for the cross-jurisdiction integration, Lee notes, is to set up an international partnership, which could be an umbrella entity under a Singapore holding entity or a Swiss Verein.
China’s Dacheng, with 50 offices, is facing the same integration issue as Rajah & Tann. But the firm has other matters to deal with first, such as improving specialisation and the quality of work among its 3,000-plus lawyers.
China’s elite firms, on the other hand, are seeking ways to improve their profitability, given the intensifying pressure from clients on fees, soaring HR costs and a more stringent tax regime for law firm partnership.
Last but not least, many large Asian firms are still managed and led by their founders. Succession planning, management transition and the development of an organisational culture are among the issues that can determine firms’ long-term success. These are also the big questions on the minds of first-generation leaders.
Growing firms in a complicated and competitive region is not an easy job, and it only gets harder to keep a big organisation working well and maintaining a leading position. For all the firms that have made it onto The Lawyer Asia Pacific 150 list this year, it is an achievement worth celebrating.
In March 2014, The Lawyer sent questionnaires to more than 200 independent firms headquartered in the Asia Pacific region requesting information on headcount, offices, financial results, partnership structure, clients and key mandates. At the same time, separate questionnaires were sent out to more than 100 international firms headquartered outside the region asking for the same set of information for their Asia Pacific offices.
Lawyer headcount is used as the key benchmark for the main ranking tables. For the purpose of this research, the number of lawyers includes partners and practitioners who currently hold a licence to practise law. Headcount figures are as of the end of the 2013 calendar year.
The year-on-year headcount percentage change statistics are indicative only. Some of last year’s top 150 firms provided full-time equivalent averages for the 2012 calendar year. Where firms did not provide figures, an estimate was made on the basis of The Lawyer’s research and given to the firms for comment.
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