Business of Law in Asia: One Size Does Not Fit All

I’ve spent quite a bit of time over the past two weeks reconnecting with some Asian regional heads of UK law firms. Many of these conversations will feature in future articles, so there will be no spoilers here.

These dialogues come at a good time, as many UK companies have published – or are starting to publish – their annual revenue and profit reports. As it should be, my main interest is how much their Asian practices contribute to their global pots? Some of the executives I spoke to were willing to provide percentage breakdowns for Asia, but unsurprisingly most were not. (Again, no spoilers here, so just watch for our coverage next week.)

Back to the numbers.

Clifford Chance’s revenue in Asia Pacific for the financial year 2022 was £344 million, up £301 million from the previous year. The company’s global revenue increased 8% and APAC contributed 17% of its total revenue. I think it’s safe to say that most of that APAC revenue would come from its five Asian offices. (Clifford Chance closed its Seoul office mid-last year and the firm has 18 partners in its two Australian offices – lean compared to rivals Magic Circle, but it’s never been so much about scale. and number of people, at least not in this part of the world.

Allen & Overy, Herbert Smith Freehills and Ashurst also released their financial statements this month. All three companies increased their overall revenue, earnings and earnings by financial partner, although none provided an immediate percentage breakdown for Asia.

Notably though, Allen & Overy’s press announcement pointed to particular growth and “strong financial performance” in the US, UK, Europe and the Middle East, as did Ashurst, although Australia took the place of the Middle East and the United States. For both companies there is a curious absence of mention of Asia, although Ashurst did separately told International in an interview that he saw double-digit growth in continental Europe and Asia, noting in particular that his growth in Singapore was around 20%.

Initially, I thought that the modest growth or lack of growth in Asia could be attributed to the fact that these companies are dependent on the Chinese market, which suffered a severe blow earlier this year due to a complete shutdown caused by Covid . But I can’t say with certainty that Clifford Chance, compared to the other three, has been less dependent on China, or that it is more successful elsewhere in Asia than its counterparts. Indeed, Clifford Chance has nine partners in Beijing and Shanghai. Just like Allen & Overy. Ashurst has four.

Additionally, the four aforementioned companies have suffered some pretty painful partner departures over the past fiscal year, although it’s important to note that this can also lower costs and increase PEP. So how did Clifford Chance manage to manage 17% growth in the region? How does its strategy differ from its competitors?

I have given a lot of thought to the strategies of firms in Asia. My recent discussions with Asian law firm executives have reminded me that many of them still suffer from the same chronic frustrations they have endured over the past decade. Many still laboriously justify their Asian practices and desperately explain the market potential to their Western headquarters. Every time there’s a jolt (think Hong Kong’s national security law or the zero-Covid strategy), this creaking vindication process is triggered.

All of this is even harder to do when the market is in a lull. How do you convince the powers that be that it’s time to establish a digital asset supply, hire more restructuring lawyers, invest more in ESG training, or inject cash into creating tech add-ons when Asian practices fail to deliver quick and handsome profits? Not to mention that companies are almost always forced to act (or react) quickly, because the pool of talent is shallow and the market is ultra-competitive.

Implementation is also tricky. Asia is not a region where you can apply a wholesale strategy. A company’s value proposition to its customers in Japan, for example, would be totally different in Hong Kong or Singapore. Try explaining this to people in the US or UK, the biggest legal markets in the world, where client expectations spanning states and cities are still pretty consistent.

A regional managing partner of Magic Circle told me that life was much simpler ten years ago, when the market was filled with Chinese state-owned enterprises making massive acquisitions overseas – part of the country. To go abroad strategy. All the international companies burst into the area with enthusiasm and all were aiming for the same type of work. At that time, the industry, target customers and regions were the same and there was a lot of work to be done.

Vinson & Elkins of Texas, for example, flourished in Greater China at this time. The company has acted on some of the largest overseas energy acquisitions in China. But when the market went through its many transitions, the company failed to pivot and closed in 2019.

The pivot, I think, is that British companies tend to do better than American companies in Asia. Their investments in a wider offer and their commitment to the region are often longer term. and apparent. It also means that as the market fluctuates, its contentious and non-contentious practices can hedge against each other to weather stormy days.

US companies, on the other hand, tend to be more focused, whether representing financial sponsors, institutional relationships with private equity giants, or having specific sector expertise in life sciences. or technology. American companies will burst into Asia with a big bang, lured by dry powder and billion dollar deals. But they will just as easily reduce their numbers dramatically or withdraw altogether to cut their losses. It is clear that it annoys the British. Over the past year, dozens of senior and junior lawyers have defected to US firms for higher salaries. But these lawyers do not question the longevity of their careers, say the British firms.

This week, the managing partner of a law firm in Asia told me that American law firms have a culture of “throwing a lot of money at avocados, eating them whole, and then spitting them out.” We don’t do that,” he said.

He of course runs a British company.

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