Welcome to the Asian century, as The Lawyer provides an in-depth guide to this most exciting of legal scene
Click here to access all the information your firm needs to develop in the region.
Long gone are the days when an international firm could claim to have an Asia practice by simply planting a flag in Hong Kong or Tokyo. So much has changed in the region since Slaughter and May spearheaded UK firms’ expansion into Hong Kong in 1974, Japan first opened its door to foreign firms in 1987 and China granted the licences to the first 12 international firms for representative offices in 1992.
A series of recent mergers, new entrants and market liberalisation in Asia Pacific, along with the impact of the global crisis, has changed the pecking order and work portfolio of law firms in the region.
Baker & McKenzie, for example, has been in the region for 50 years since it expanded into Asia in 1963 by launching offices in Manila and Tokyo. It now has 14 offices across Asia Pacific, the largest footprint in the region among international firms. The firm used to be the region’s largest international player by lawyer headcount, but has been recently surpassed by the newly merged Herbert Smith Freehills.
Ashurst, which only had three offices back in 2009 in Asia, has surged to become the third largest international firm in the region with 906 lawyers, largely thanks to its tie-up with Australia’s Blake Dawson in 2012.The Lawyer’s inaugural edition of the Asia Pacific 150 reveals that the Anglo-Australian firm employs a
total of 1,130 lawyers (of whom 890 are with legacy Freehills) across its 11 offices in Asia Pacific, slightly more than Bakers’ 1,084.
As Asia Pacific becomes a critical part of the global legal services industry and its key economies and jurisdictions become more closely interlinked, the need for a holistic view of the legal landscape has never been greater.
That is the main driver for the launch of The Lawyer Asia Pacific 150, the first research report of its kind, which singles out the 50 largest global firms operating in the Asia Pacific and the 100 top independent firms headquartered there.
The report provides not only headcount figures, number of offices and the major mandates of these 150, but also a critical review on how their businesses have fared in recent years and their strategies to cope with the challenges of this
A unique and compelling part of the report is its focus on the transformation and growth of the region’s largest home-grown firms, traditionally overshadowed by their international counterparts and under-reported in the West. The Lawyer’s editorial team has gone the extra mile to obtain financial data wherever possible as well as business intelligence on their partnerships, organisation and management structures, as well as relationships with key clients and foreign law firms.
The timing of The Lawyer Asia Pacific 150 launch is particularly opportune as it places particular emphasis on the global expansion of these firms.
King & Wood Mallesons, the newly created Asia Pacific giant following the combination between an Australian firm and a Chinese firm in 2012, is a case in point. The firm has held tie-up talks with SJ Berwin and if a deal is voted through by both firms the market will soon see a groundbreaking merger between a UK firm and an Asia Pacific one.
In addition, two less internationally well-known Chinese firms, Yingke and Dacheng, together with King & Wood Mallesons, claim the top three spots on this year’s Asia Pacific 150 list. The three firms are vastly different in many respects, but they have all been expanding their global footprints, albeit in their own ways.
It is in our view that as the world enters the so-called ‘Asian century’, in which the region is predicted to account for more than half of global GDP by the mid-21th century, it is of strategic importance for the global legal services industry to come to terms with the region’s leading and fast-rising firms.
People who have spent some time in Asia will know the markets there are still in their early years and public information on the legal industry is scarce.
That, together with a lack of transparency and the highly complex regulatory environment, means collecting even the most basic data in the region can be challenging. The Lawyer has done a significant amount of research and put in a lot of hard work over the past six months on this project so our readers with a keen interest in Asia can get to grips with the region’s
diverse legal markets a little more easily.
For two main reasons The Lawyer Asia Pacific 150 decided to use lawyer headcount as the key benchmarking metric for the ranking. First, firms from the vast majority of Asia Pacific jurisdictions are not accustomed to the same level of financial disclosure as UK and US firms. Only 28 per cent of the indigenous firms that have replied to The Lawyer’s questionnaire provided a turnover figure, and they are mostly headquartered in Australia and China. Only two provided both turnover and net profit figures. However, about half of the largest 100 indigenous firms gave a rough estimate of their turnover during the interview process.
Even the international firms, which are generally open to disclosing global revenue and profit figures, in the main declined to provide a breakdown for their Asia Pacific practices.
The second reason is the region’s high degree of economic diversity. Key factors such as cost of living, legal fee rates and currency exchange rates vary greatly from one country to another. A ranking by a turnover figure in dollars is perhaps less indicative of local firms’ development across the wider region.
Using the lawyer headcount metric, firms from 13 jurisdictions across Asia Pacific made it into this year’s top 100 independent firms table, representing the rich regional diversity.
We recognise that the size of a firm reflects, to an extent, its economic scale, market presence, client demand, scope of practice and ability to deliver on large and complex projects. In addition, as these firms reach a critical mass it becomes economical for them to have a better support function and there is a stronger impetus to improve their management and organisational structure.
For example, Dacheng, the second largest firm in the region, has invested millions of dollars in recent years in an advanced IT infrastructure to support its network of 47 offices, and has recently introduced several structural changes to ensure integration between its Beijing head office and branches, many of which were established via local mergers or acquisitions and are not fully financially integrated.
However, we also know that size does not equal quality, nor does it guarantee high-end mandates. The largest law firm in the region by lawyer headcount, Yingke, is a good example. The Beijing-headquartered firm has been expanding at a staggering pace in recent years and has made quite a few headlines for its office openings overseas.
It only took the firm three years to grow to its current size. In 2010 it had 350 lawyers and seven offices, but in 2012 it rose to become the region’s largest, with 2,200 lawyers and 36 offices.
Yingke’s turnover has also increased exponentially, fuelled largely by its aggressive approach to recruitment and expansion. In 2012 its turnover reached RMB450m (£48m), making it one of the top 20 gross-earning Chinese firms. However, its average revenue per lawyer (RPL) stood at RMB202,000. This means that, although the firm has the largest number of lawyers in China, its RPL still lags behind
domestic competitors such as Dacheng (RMB721,000) and Zhong Lun (RMB1.5m).
While revenue growth is hard to come by in the UK, US and Europe, many firms in Asia Pacific continue to up their top-line figures.
Take Clifford Chance. The magic circle firm has been in Asia since 1980 when it opened an office in Hong Kong. Three decades on the firm has 375 lawyers and 83 partners in nine offices. Its turnover in the region has more than doubled, from £86.1m in 2006/07 to £185.1m in 2011/12.
In Korea, the country’s top six firms have achieved satisfactory results in the past year. They recorded a collective revenue of £657m for 2012, a whopping 20 per cent jump on last year’s effort, which was £525.6m. In light of the recent influx of foreign rivals into the market due to the country’s free trade agreement with the EU and the US, although these firms have predicted more competition ahead, they are bullish about their growth perspectives.
For Chinese firms, however, it has been a varied year, with some reporting double-digit increases and others experiencing static performance. For example, Dacheng’s 2012 turnover increased from RMB1.2bn in 2011 by 31 per cent, to RMB1.6bn, and Zhong Lun’s 2012 turnover grew by 10 per cent, to RMB950, while capital markets-focused Grandall and Guantao both had a flat year.
The Australian legal services market, which previously benefited from a mining boom and lured in a number of large global firms, has been flat in 2012/13, if not in recession. The total turnover of the top eight Australian firms is expected to decline by 5 per cent compared with the previous year. But there are still a few bright spots, such as the country’s sixth largest independent firm, Gadens, which is positioned to advise large clients on their day-to-day operations and mid-cap transactions instead of mega-IPOs and M&A deals. It is expecting a 10 per cent increase in its 2012/13 revenue.
Market in bloom
While individual results among the 150 firms may vary, collectively they paint a fuller picture of a rapidly developing Asia Pacific legal services market. As law firm consultant Alan Hodgart has predicted, Asia Pacific will be the second largest regional market in the world, with its total gross output increasing from $109bn (£70bn) in 2012 to $215bn in 2017. The region’s global market share will also increase from 13 per cent to 19 per cent, according to Hodgart, while the market share of North America and Western Europe will fall from 69 per cent during the same period.
“The importance of this is the demand that will be created in these markets as the economies develop, much of which will flow out of the regions,” says Hodgart. “A strong presence in these markets will be an essential requirement for firms seeking a strong international position.”
So with that in mind, read on.
And if you haven’t got your copy of The Lawyer Asia Pacific 150 yet, what are you waiting for?