People’s Republic of China
Adam Li, Jun He

• Firms that branched out into emerging areas of practice (IP, AML and labour law) already started reaping rewards towards the end of a difficult 2009
• Investment in and commitment to new areas will be the keys to success for law firms in 2010

Focus in the legal services market has shifted: traditional FDI, M&A and even venture capital businesses have significantly shrunk in volumes, size and fees. However, law firms that have prepared themselves for non-traditional businesses have reaped the opportunities. These firms include those that specialised in IP, anti-monopoly law, labour law, tax and trade.  While more experience can still be transplanted into China’s legal practices, the difference between the domestic market and other markets means having different focuses. For example, while Chapter 11 for bankruptcy law could be good practice in the US, it may not be the most appealing business in China. On the other hand, China’s legal services market is diverse and ranges across many different provinces. The major challenges facing practitioners in China are institutionalisation and specialisation.  While the Chinese market is one that requires a lot of investment, the vast majority of PRC firms are not organised as true partnerships and lack support for new market penetration. Law firms should capitalise on the bounceback which will be seen in market conditions in 2010 to introduce better talent and invest in new areas. 

HONG KONG
Lindsay Esler, Deacons

•  GFC highlighted need for diversified practices and strong dispute resolution capabilities
• International law firms will have to differentiate to set themselves apart

2009 was a year of decidedly mixed fortunes for law firms in Hong Kong. The SARS outbreak five years earlier in 2003 resulted in the closure of smaller or niche practices by many international firms and a subsequent strategic focus on a narrow range of practice areas, at the time considered more profitable.

Now the GFC has demonstrated the benefits of maintaining a diverse practice – in particular the importance of maintaining strong litigation capabilities. Firms that were poorly diversified in terms of their client base and practice areas suffered disproportionately in the downturn to those who were prepared. Hong Kong is evolving into a market overflowing with foreign firms, where being a locally-based business with a broad-based practice has become an extraordinary status for a law firm.
In 2010 the challenge will be for US and UK-based firms to separate themselves from their competitors, in a market which is increasingly saturated with firms focusing on the same range of practice areas. Due to increased competition, fee pressures will naturally increase in those practice areas where foreign-based firms have clustered.

Maintaining morale and recruitment will likely prove more difficult in future for those who have let staff go. Law firms that had been reducing their client base for strategic or conflict reasons will find themselves more reliant upon (and therefore vulnerable to) a smaller base of clients.

INDIA
Amarchand & Mangaldas & Suresh A Shroff & Co

• Competition laws and merger controls to challenge practitioners
•  All large M&A deals will need approval from competition watchdog; will delay project timetables and increase transaction costs

On 16 May 2009 the Government of India made effective the substantive provisions (Ss 3 & 4) of the Competition Act 2002 (The Act). These provisions dealt with the prohibition of anti-competitive agreements (including cartels) and abuse of dominance, thus changing the way in which business was to be conducted in India. Provisions relating to Combination Regulations (sS 5 & 6) are yet to be notified, though expected soon.

Once enforced, all large M&A deals – domestic, cross-border and totally offshore – with an India nexus will be required to seek mandatory prior approval of the Competition Commission of India (CCI). The approval is based on certain asset/turnover thresholds prescribed and is subject to a suspensory waiting period of at least 210 days. The CCI may stay, reverse or modify a combination if it is seen as causing ‘appreciable adverse effect’ on competition.

The Combination Regulations are expected to include detailed provisions in relation to transactions that are exempt from per-merger filing (for example, de minimis rules, local nexus asset/turnover thresholds), fast-track approval, long and short form filing process and others.
However, some concerns have been raised that the introduction of a mandatory merger control regime in India may lead to transaction delays, inter-regulatory jurisdictional conflicts and increased transaction costs.

JAPAN
Masanori Sato, Mori Hamada & Matsumoto

• Debt finance and real estate markets are struggling yet strategic M&A is thriving
  Japan may face a second downturn
• Challenging year ahead for law firms during which new strategies and diversification will be needed

As predicted last year, debt finance and leveraged buy-outs/investments were inactive, although equity finance by blue-chip Japanese companies surged despite the economy. In contrast, bankruptcy and reorganisation matters continued to increase. Many real estate developers were unable to weather the storm, and the “Business Revitalisation ADR” procedure, a recently-enacted out-of-court reorganisation process was utilised by many struggling companies.

Strategic investment and M&A activities stabilised, and were seen in deals such as the capital and business alliance between Sanyo Electronics and Panasonic and the consolidation of Sumitomo Trust and Chuo Mitsui Trust. Many M&A transactions resulted from attempts to restructure the businesses of struggling foreign financial institutions (for example capital injections by Mitsubishi-Tokyo UFJ Group to Morgan Stanley, sales by Citigroup of Nikko Cordial and Nikko Asset Management). Japan also saw the first case of a merger between J-REITs.

While there have been some legislative and regulatory developments such as amendments to Japanese securities regulations, changes were not as notable compared to legislative and regulatory changes seen in recent years. Having said that, in the context of M&A activities involving listed companies (for example MBO, new issue of stocks to third parties), the Tokyo Stock Exchange has introduced several new rules.

KOREA

Sai Ree Yun, partner, Yulchon

• Increased competition in the domestic legal market
• Growth of client requests for alternative fee arrangements.
• Increase in domestic and cross-border corporate transactions – especially M&As and IPOs

Early in 2009, the OECD projected that Korea would recover from the financial crisis the quickest of all OECD countries. And so far, the Korean economy has emerged relatively unscathed, as has the Korean legal industry which has seen more of a change in the mix of work than a general slowdown.
In fact, the Korean legal industry as a whole continued to grow in revenue and headcount in 2009, with increases seen in anti-trust, tax, and dispute resolution work, more than making up for GFC-related decreases in finance, M&A and IPO work.

A major issue has been the successful negotiations on the EU-Korea FTA and the start of negotiations for other FTAs. The EU-Korea FTA is expected to be ratified next year, (perhaps before the US.-Korea FTA) which would trigger the opening of the Korean legal market to more foreign competition and increase the number of business transactions. Some mid-tier firms have responded to these developments by mergers, and larger firms have strengthened their position through strategic hiring, including recruiting more senior attorneys with international experience.

We expect to see an increase in domestic and cross-border corporate transactions – especially M&As and IPOs – as the global recovery continues. If the EU-FTA is ratified, it will trigger the progressive opening of the legal market to foreign firms. We also expect outbound legal work to continue to grow, as top Korean firms follow their domestic clients in overseas expansion, especially in emerging markets such as Russia/CIS, Vietnam and Southeast Asia, China, India, and the Eastern European markets. These trends will contribute to continued growth of, and competition in, the Korean legal market.  In addition, I would not be surprised to see more law firm mergers, including a merger involving one of the big firms.

The legislative pipeline seems relatively quiet, except for already-contemplated major changes to the labour laws. This compares with last year when the new administration adopted a different business policy. However, we expect relatively more activity on the regulatory front. Part of that will come from the Financial Markets Act, which took effect in 2009 and business is still adjusting to this. The Korean Fair Trade Commission is expected to continue its recent increase in investigations, especially into cartels. We also expect to see more tax audits of businesses, following a year in which audits were minimised to avoid negatively impacting the economy.

To make the most of 2010, Korean law firms must continue to upgrade and internationalise their capabilities. To some extent this is two ways of saying the same thing, because clients (including domestic clients) increasingly expect legal services that meet international standards. Any Korean firm that wants to thrive should meet those expectations.

UNITED ARAB EMIRATES

Husam Hourani, managing partner, Al Tamimi & Co

• Increased focus on bankruptcy procedures in the UAE; enforcement remains a concern
• Less focus on using foreign law for local deals a challenge for international firms
• Law firms to diversify in 2010, reduce dependence on handful of major clients and develop dispute resolution capabilities

The lowered emphasis on transactional work in 2009 affected many law firms. Local firms were less affected by the downturn as their focus remained on assisting clients in understanding the complexities of doing business in the UAE, along with the UAE legal system generally. Areas such as employment law, compliance, litigation and arbitration were particularly active – although other areas (banking & finance, IP and shipping) were also kept busy.  

There will be more emphasis on ensuring that legal obligations are enforceable in the jurisdiction where the assets are located, including choice of UAE law for purely domestic transactions and security. An increase in due diligence is expected, including a higher focus on enforcement and bankruptcy procedures in the UAE. Under UAE law, firms will take a closer interest in the proposed amendments to the Commercial Companies Law as well as changes in the interpretation of the Commercial Agencies Law. Corporate governance is coming under scrutiny: also, watch how proposed changes to the collective investment regime will be handled under DIFC laws and regulations.

Changes to the listing requirements of NASDAQ Dubai may also happen. Many law firms need to better understand how UAE law affects the advice they give to multinational clients doing business in the region. Multinational clients will be less inclined to accept heavily qualified legal opinions without a clear path to enforcement, if such action subsequently proves to be necessary.

PHILIPPINES
Jose Hofileña, partner, Sycip Salazar, Hernandez & Gatmaitan 

•  Domestic M&A keeps firms afloat in 2009
• Impending 2010 general election may see clients put projects on hold
• Competition between local law firms to increase; marketing efforts will be stepped up

Although international transactions may have slowed, the domestic M&A market saw a number of major acquisitions during 2009 that buoyed the legal services sector. The impact of the GFC was probably adversely felt by external counsel engaged in finance, securities and regulatory work, as corporate clients strove to manage their legal costs. As clients do more in-house, as well as bidding out legal work in order to procure the lowest capped fee quotes, the legal services market has had to adjust to a more competitive environment.

Looking ahead, 2010 is an election year in the Philippines. The country will have a new president and the composition of congress will also change.  Although it is not anticipated that fundamental economic and free-market policies will change, businesses typically take a wait-and-see stance with respect to the results of the elections before embarking on new business and finance projects.

Improvements in the economy are anticipated to foster an even more competitive legal environment in the country. As such, law firms must heighten their own marketing efforts.  The market may also drive firms to revisit and adjust their billing policies – given that while corporate clients will likely seek out quality firms, reasonable rates may just be as important a yardstick in selecting external counsel. Moreover, the legal services sector will move towards developing further areas of specialisation in order to keep in step with a possibly more sophisticated business environment.

SINGAPORE
Loo Choon Chiaw, partner, Loo & Partners

• Uncertainty is the only certainty as law firms enter 2010
• Expected increases in operational costs mean firms must respond prudently
• Demand for specialised legal services such as IP will increase, insolvency & restructuring work will decrease

Uncertainty would appear to be the only certainty in the ever-changing global economic and financial climate as we enter 2010. Yet barring unforeseen circumstances, including a worsening of the global financial market, Singapore should be on a steady path of recovery. The recent forecast by the Ministry of Trade and Industry indicates 3-5% economic growth. The benchmark Straits Times index has risen to 2,791 points in December, in contrast with its mere 1,800 points when 2009 predictions were penned in this column last year.

Most law firms will need time to build up their pipeline of cases and will take a cautious approach. Salary increases (even in deserving cases) and rise in office rentals will be contained and the overall business costs of operating a law firm will be manageable. There will be very little justification for law firms to increase their billing rate and recruitment drives from both the local and foreign law firms will be slow. However, specialised legal services including IPO, M&A and corporate finance and corporate governance and compliance work will pick up steadily. Arbitration work will also increase with strong support from the government. While corporate insolvency & restructuring work will dwindle, IP business will increase.

TAIWAN

Ken-Ying Tseng, partner, Lee and Li

• Taiwan economy to recover quickly with deals to return and few bankruptcies expected
• Law firms need to offer clients more specialisation and value-added services to hold on to work
• Chinese investment in Taiwan companies to take off, keeping lawyers busy

While we have seen a drop in caseloads and an increase in requests for discounts, a gradual economic recovery has been visible since Q3 2009. The size of the largest M&A deal for this year (US$1.7bn Taiwan Mobile/Eastern Multimedia) is almost twice the size of the largest deal seen in 2008 (US$862m Dragon Steel/China Steel). Bankruptcy cases did not rise at all and the anticipated redundancy cases peaked in Q2 2009.

Nonetheless, the environment remains a challenge for law practices. Clients are tightening their budgets, so law firms need to demonstrate strong skills in specialised fields and provide value-added services to maintain or attract clients. New practice areas and business focus is also developing.
In 2010, the IPOs of foreign companies on the Taiwan stock exchange and M&As and restructuring of financial institutions will continue to be a leading trend. It is expected that the Taiwan government will continue to liberalise the legal barriers on cross-Strait activities. Investment from China in leading Taiwan companies will be the next hot practice area in Taiwan.

IN-HOUSE

• International firms to ramp up local law practices and expertise
• Little progress will be made vis-à-vis legal market liberalisation in India and Korea
• Practice development and expansion could become more difficult despite improving economic conditions

 Growth of Asia as a financial centre, the global economic meltdown and Asia’s recovery and resilience has set the stage for 2010 developments. Continued growth and use of Asian-law governed documents and clients using Asian law practices will be seen in the year ahead. Expansion of international law firms into domestic markets will continue, with many setting up local law practices – although little progress will be made in opening up Korea and India to foreign law firms.

Of the firms that don’t expand by opening local law practices, some will become boutique operations and some will be unable to survive, leading to their collapse or merger with a competitor.On the other hand, for those who pick up local law practices in 2010, there will be a struggle to build and maintain profitability. Billing rates will drop due to increased competition and costs will increase, particularly for talented local practitioners with much business to process. In these challenging competitive and economic conditions, law firms will also explore alternative fee arrangements with clients and, likewise, alternative compensation arrangements with their lawyers.

Vietnam
Dang The Duc, Managing Partner, Indochine Counsel

• As the GFC spread, Vietnam was not exempt and the country’s economy suffered, with both FDI flow and portfolio investment into the country dropping.
• The economic recession also affected the volume of work for law firms in Vietnam, evidenced by a decrease in new projects and the slowing of the deal flow.
• This was especially noticeable for big FDI projects, banking & finance, capital markets, M&A / private equity, and real estate.

Vietnam was not as seriously affected by the global crisis as other countries due to the characteristics of its economy - largely agriculture-based, and the fact that it is not yet fully integrated into the global economy. The Government estimates that GDP growth will reach 5.2% this year.

In general, the volume of work decreased but there is still enough of work for most firms, though they have had to change billing structures to make legal fees more affordable and predictable for clients. For local firms with proven quality, the local fee structure seems to have been to their advantage during the recession. In fact, there remains a relative shortage of Vietnamese lawyers of international quality.
There is more work in certain sectors like healthcare, education, ICT, and especially trading and distribution /retail. (As part of its WTO commitments, from January 2009 the country allowed 100% foreign-owned companies to participate in distribution / retail activities). Also, infrastructure, mining, energy and oil and gas remain busy as investments in these sectors are still necessary for the country’s long-term development.

Vietnam is an emerging market, and the legal market must mature with it as seen in other regional countries like Singapore, Hong Kong, Japan or Korea. With the fast growth of the private sector in Vietnam, the acceleration of state-owned- enterprises equitization and the prospect of positive economic growth in the long-run, the legal services market should hopefully grow apace. Already the volume of legal work has increased from the 3rd and 4th quarters of this year.

Some important laws adopted towards the end of 2009 in the session of the National Assembly included healthcare law, telecom law, natural resources, and tax law, and amended education law
In the November session, the National Assembly also approved two mega-infrastructure projects: Son La Hydraulic Power Plant and Ninh Thuan Nuclear Power Plant. Laws to be looked at in 2010 include commercial arbitration, enforcement of criminal judgments, food safety law, amendments to credit institutions, VAT and corporate income tax, and the law on land and housing tax.

Consequently, Vietnam will need more lawyers of international calibre who can deliver quality and timely product for clients. The biggest challenge for local firms will be development of a better team of lawyers and tandem with improved practice management. Those firms who have prepared well in terms of training their lawyers and staff, and improved their management system will enjoy the benefits.

Malaysia

Brian Chia, partner, Wong & Partners

• Malaysian legal market has recovered quickly from downturn; many remain under-staffed
• Regulatory changes will provide new areas of advisory work for firms in 2010
• Onus on lawyers to service clients creatively and make use of legal technology to do so

2009 was a tough and challenging year for the Malaysian legal industry. Although Malaysia was, to a certain extent, sheltered from the full brunt of the global financial crisis, it was not spared the after-effects. By December 2008, business was sluggish and in the 1st quarter of 2009, the legal fraternity saw very low levels of activity and productivity. It was clear to all in the legal industry that the fortune of legal practice is very much tied to the national and global economy.

By the 2nd quarter of 2009, most law firms started to pick up. While productivity levels have yet to reach pre-crisis rates, there is definitely an improved sentiment. Many law firms also did not hire during those months and did not refresh natural attrition. As a result, many legal businesses are currently likely to be slightly under-staffed.

The atmosphere in most legal firms is steeped with cautious optimism and hope for the year ahead. In addition to the rosy outlook of the economy, the legal landscape for 2010 is set to be quite interesting for the industry. This is due to the influx of new laws such as the Competition Act which provides companies with a level playing field in which to operate their businesses. The Personal Data Protection Act ensures personal data is kept private and the Whistleblower Act which statutorily protects whistleblowers from direct or indirect retaliation. Added to this is also the possible imposition of a Goods and Services Tax (GST) to replace the current sales and services tax.

Introducing these new laws in Malaysia, as well as the liberalisation of controls and regulatory restrictions (such as the abolishment of the Foreign Investment Committee Guidelines as they apply to shares), will likely broaden the scope and variety of services that legal businesses will be able to provide to clients. This will translate into more business opportunities for Malaysian law legal firms.
In light of this environment, there is a need for legal practitioners to be more proactive and package solutions for their clients. Pre-empting and alerting clients to issues and the legal impact on their businesses will be increased. Legal practitioners will also be expected to capitalise on available technology to enhance the services that they can provide to their clients.