Battle lines drawn for law firms in the Asian Century

Conquering Asian markets has never been easy, but with the growing presence of multinationals it has never been more important for law firms in the region to pursue the right strategies for success, writes Eric Chin.

“Water shapes its course according to the nature of the ground over which it flows. Therefore, just as water retains no constant shape, so in warfare there are no constant conditions.”
– Sun Tzu, The Art of War

The Asia-Pacific legal services industry is a fertile battleground for international and domestic law firms scrimmaging for a share of the spoils. As we move to an ever-greater integration of the region, led by the 2015 ASEAN Economic Community, the region’s US$91 billion legal services market is poised for further growth and to become even more competitive.

Three strategies for success
The region’s domestic law firms face rapid evolution as macro-environmental forces and industry life-cycle factors increase the pace of change. Law firm leaders are being forced to quickly professionalise the management of their firms to compete against international law firms that are further down this evolutionary journey. To compete in a diverse and increasingly hypercompetitive environment, law firms in the region will need a strategic paradigm shift. Here is Beaton Capital’s prescription for managing partners to build law firms of the Asian Century.

1. Cultivate regional teams
As companies look offshore for investment and operational opportunities, their needs will increasingly be regional. The demand for a consolidated and integrated law firm for this group of clients will continue to grow. This trend points to the need for cross-functional and cross-jurisdictional client teams.

2. Think sectors, not countries
Our research reveals the importance of demonstrating professional service firms’ understanding of their clients’ businesses and industries in both retaining and winning new clients. In other words, law firms would do better by establishing sector specialisation at the regional level than to approach the markets at a country level.

3. Act locally, think globally
While localisation is important in building a thriving local practice, the region’s move towards a more integrated market requires law firms of the future to be ‘heterogeneously homogenous’. That means they must position themselves for local successes without diluting the international corporate strategic agenda and cross-border opportunities.

The Asian Century economic drivers
In considering the growth of the Asia-Pacific region’s legal services sector, it is important to assess the forces at play. The region is home to a heterogeneous group of countries galvanised by different economic drivers. It is bound together by shared geography, history, culture and politics, making it the perfect backdrop for growth in Asia. Beaton research reveals five major reasons why we are now in the Asian Century.

1. Asia-Pacific economies on the rise
The United Nations Conference for Trade and Development (UNCTAD) reveals the region is a US$17 trillion economy, with countries at different stages of development. Some are members of the OECD, while others are emerging economies boasting double-digit growth rates.

2. Trade blocs growing in power
The need for a closer integration of these economies is illustrated by the rise of ASEAN, which has been instrumental in the creation and conceptualisation of the Trans Pacific Partnership and the Regional Comprehensive Economic Partnership.

3. Wealth club has strong membership
Forbes’ annual billionaire list reveals the combined wealth in the region totalled US$1.145 trillion in 2013. Some of this wealth is in generational transition as the empires are being handed over to the largely western-educated children.

4. Stock exchanges flush with funds
Our research of the stock exchanges in the region reveals a combined 2013 market capitalisation of US$19.95 trillion across 23,955 listed companies. It is also home to two of the largest initial public offerings in history; in the form of the Agricultural Bank of China (US$22.1 billion in 2010) and Industrial and Commercial Bank of China (US$ 21.9 billion in 2006).

5. Multinationals on the move
The centre of corporate gravity is shifting as the rise of the region’s multinationals in the annual Fortune Global 500 list shows. In 2011, the region contributed the most number of Fortune multinationals.

The top 10 law firms
To understand the competitive dynamics and the main contenders in the Asian Century, Beaton assessed the 10 largest law firm partnerships in key Asia-Pacific countries.

Our analysis of the major international and domestic firms reveals:

• The shape and size of the firms’ practices reflect the local business and economic environment
  • The extent of globalisation of each economy is reflected by the presence of international players in the top 10
  • Wall Street’s Charmed Circle and London’s Magic Circle firms are benefiting from their near monopolistic positions in the financial centres of the world
  • The creation of King & Wood Mallesons marks the rise of Asia-Pacific law firms as viable competitors to the international firms originating in the United States, the United Kingdom and elsewhere
  • Some international firms, such as Baker & McKenzie, have successfully localised in most of the jurisdictions of the region
  • Some local firms, such as Singapore’s Big Five (Allen & Gledhill, Drew & Napier, Rajah & Tann, Rodyk & Davidson, and Wong Partnership) are regionalising to compete against the influx of international law firms for regionalising clients.

The scene is set for an intense battle between Asia-Pacific law firms in years to come. As Sun Tzu sets out, there are no constant conditions, therefore the ability to shape according to these changing conditions will differentiate winners and losers in the Asian Century.

Eric Chin is a senior analyst at Beaton Capital and Beaton Research + Consulting, a leading corporate advisory firm based in Australia and Hong Kong which provides strategic, corporate finance, transaction and debt advice to clients.
www.beatonglobal.com

Note: The insights from this article are based on an excerpt of Chapter 6, Asian law firms face the challenge of rapid evolution, contributed by Dr George Beaton and Eric Chin in A Comprehensive Guide to the Asia-Pacific Legal Markets, authored by John Grimley, published by Ark Group.