In March this year, the Korean market will see the end of the first phase of its market liberalisation, and UK and U.S. firms have already opened up offices there. In the face of a slowing economy and increasing competition, how are domestic Korean law firms adapting their strategies to keep growing their business? Ranajit Dam speaks to senior figures at three law firms – Kye Sung Chung of Kim & Chang; Sung Jin Kim of Bae, Kim & Lee; and Seung Soon Lim of Yoon & Yang – to get their perspective.
ASIAN LEGAL BUSINESS: What are some of the notable trends you have witnessed in Korea’s legal industry in the past 12 months in terms of the quantity and quality of work? What have you been doing more of, and what have you seen a drop in?
KYE SUNG CHUNG, senior partner, Kim & Chang: In the domestic M&A market, similar to 2015, we saw several trends, including an increase in the business restructuring or the sale of non-core businesses by large corporations, selective investment by private equity investors, and government-led restructuring in the shipping, shipbuilding, and construction industries. In light of domestic and overseas economic uncertainties, we anticipate these trends, including corporate governance restructurings by large corporations, to continue in the near future.
SUNG JIN KIM, managing partner, Bae, Kim & Lee: 2016 was a year in which compliance-related issues such as product liability, regulation rules, and white-collar crime had a great effect on the legal industry. Specifically, the Anti-Corruptioand Bribery Prohibition Act (also known as the Kim Young-ran law) has enforced new bans or limits on the giving of gifts and favours, and imposes fines on individuals for improper solicitation of public officials, journalists and etc. In early 2016, BKL expanded its Compliance Team, which advises corporate clients on internal control, financial management system, code of conduct and other compliance issues.
Also, we have bolstered BKL’s Tax Practice Group. This is because tax authorities are tightening restrictions and companies are faced with various legal issues, such as tax with respect to family business succession. BKL’s focus on tax is also fueled by the enhanced international cooperation against cross-border tax avoidance and the government’s implementation of voluntary reporting of foreign income and assets to foreign tax authorities in the U.S.
SEUNG SOON LIM, managing partner, Yoon & Yang: Looking back at the Korean legal market in 2016, one of the biggest challenges that Korean law firms faced was developing new sources of business. For the past few years, the Korean economy has repeatedly relapsed into recession. Furthermore, with the sharp increase of Korean lawyers and the ever-increasing competition between law firms, it has become more difficult for law firms in terms of revenue and profitability with respect to the traditional areas of practice, such as litigation, M&A, finance and capital markets. In order to overcome such crisis and challenge, law firms in Korea, including Yoon & Yang, have spent the past year thoroughly examining new areas of business and recruiting professionals who can bringing in the relevant expertise.
The major characteristic that defined 2016 would include the increase in the number of cases involving international matters for Korean companies. More specifically, international arbitration and intellectual property (IP) are the two areas which saw a remarkable increase in the number of cases. With respect to international arbitration, industries such as shipbuilding, shipping, and construction suffered greatly from the economic recession and, consequently, the number of arbitration cases involving termination of contracts with the Korean companies in such industries increased. For IP, the number of cross-border disputes increased.
The year 2016 also saw an increase in research, lectures and other advisory work associated with the Improper Solicitation and Graft Act, which came into effect in September. Furthermore, corporate restructuring, including the liquidation of Hanjin Shipping, was one of the major issues which characterized this past year.
ALB: What have been the biggest challenges Korean law firms have faced in the last 12 months? How have you as a firm looked to overcome them?
CHUNG: Slow economic recovery continues, affecting the legal industry. In 2016 alone, 2,000 young attorneys entered the Korean legal market, adding to the already competitive legal job market. That said, we believe these changes and challenges are opportunities for growth and development. In this respect, it is important for legal professionals to find ways of satisfying a client’s specific needs.
KIM: The third stage of legal market liberalisation was the biggest challenge for the Korean legal industry. Although we have not seen much of a definite effect yet, the market situation has been quite difficult in that the public tendering of projects has increased, leading to intensely competitive pricing. BKL is responding to this evolving landscape of legal services by continuously strengthening its client-centred approach. This includes organizing a comprehensive litigation support (CLS) group to monitor some of the largest and most legally significant litigations in the market.
Another client-centered approach that BKL has introduced is the government relations (GR) group that supports not only regulatory issues but also government relations work required for the new convergence business so that our clients are able to manage their business without violating the Anti-Corruption and Bribery Prohibition Act.
LIM: I believe the biggest challenge that the Korean legal industry, including major law firms, face is the rapid development of technology and how we, as lawyers, should deal with such development. As we face the so-called “Fourth Industrial Revolution,” our economy and various industries are rapidly evolving. Yet, the legal industry is busy with barely keeping up with such development. With the trends in the industries of the major clientele, conglomerates, changing rapidly, if a lawyer merely provides legal services based on the shallow logic without understanding the essence of changing trends, the lawyer is bound to lose his or her clients.
We launched teams focusing on construction and real estate, TMT and aerospace and defense. We also plan to create specialised teams related to energy and national resources, distribution, environment, innovative technology, as well as others devoted to managing risks associated with Korean and international criminal matters, such as anti-corruption, white collar crime and the Foreign Corrupt Practices Act, before and after materialisation of such risks.
ALB: Do you feel the market has gotten more competitive with the arrival of the foreign law firms? What kind of impact do you feel they’ve had on the legal services space?
CHUNG: So far, 27 U.S. and UK law firms have established their offices in Korea. Domestic and foreign law firms will also be able to establish joint ventures in the near future. So we could see foreign law firms continue to expand their presence in more segments of the domestic corporate legal services market.
KIM: Although domestic law firms continue to lead the Korean legal market, the ﬂexible and bold strategies of foreign firms must not be underestimated. In particular, foreign firms are expected to invest aggressively in the patent litigation field in anticipation of an increase in lawsuits filed by U.S. companies against Korean companies. In the same vein, we expect increased collaboration between foreign and Korean law firms in IP matters as a way maximising the scope and reach of their legal services.
LIM: Even with the foreign law firms entering into the Korean legal market, I do not believe Korean law firms are losing their competitive edge. Firstly, with respect to outbound matters, foreign law firms mainly handled such matters even before the expansion of foreign law firms into the Korean legal market. Since Korean law firms were utilizing their ties with foreign law firms to provide legal services for outbound matters, I do not believe that the arrival of foreign law firms has, or will have, a big impact in this regard.
Secondly, with respect to inbound matters – that is, Korean matters of foreign companies – in most cases, appointment of Korean law lawyers is necessary. Therefore, I do not believe that the arrival of foreign law firms has, or will have, a big impact in this regard either.
On the contrary, I believe that the cooperation with foreign law firms, rather than competition, will provide a great opportunity for us to learn from various models of advanced law firm systems. With the increase in the number of foreign law firms opening their offices in Korea, Korean lawyers naturally will have more interaction with foreign law firm lawyers, which is an opportunity to learn about their services, expertise, systems and more.
ALB: What are the keys to succeeding in Korea’s legal market? What are some of the big strategies you’ve put in place for business growth this year?
CHUNG: As businesses demand more complex legal services, law firms must be able to rise to the challenge and evolve accordingly, whether this means improving quality of services that caters to each client’s specific needs, or providing efficient yet integrated solutions. We have organised teams of professionals with extensive expertise and broad practical experience in various fields and jurisdictions. Our professionals collaborate in a ﬂexible system, so that clients can receive strategic legal services custom-tailored to their specific needs.
We will continue our efforts to enhance the quality of our services, and continue to evolve with the changing environment.
KIM: It might sound obvious but the key is client satisfaction. With its “client-centred” philosophy and the benefits ﬂowing from the newly created CLS and GR groups, BKL will be devoting its energies to supporting both foreign and domestic clients in their inbound and outbound projects. BKL’s seven overseas offices will also play a key role in this strategy.
LIM: Yoon & Yang’s main management strategy for 2017 includes strengthening our services related to tax advisory and tax investigation cases as well as the expansion of the our antitrust and IP team. Furthermore, to strengthen our Southeast Asian Team, our firm opened an office in Ho Chi Minh City, Vietnam, late last year.
ALB: A number of Korean companies are doing business overseas, particularly in countries in Southeast Asia and Korean law firms are following by opening offices. How would you describe your firm’s overseas strategies at present, as well as going into 2017?
CHUNG: We opened an office in Hong Kong, which is the legal services and financial market hub in Asia. We are closely monitoring and continuously analysing our clients’ needs in other markets. It should be noted that when our Korean corporate clients enter an overseas market or engages in a legal dispute in a foreign jurisdiction, we have been providing legal advice catered to local laws and regulations, and often do so in close collaboration with leading local law firms. So we are focused on strengthening our network with other foreign law firms, rather than opening a new foreign office.
KIM: BKL has been continuously advancing into the global market with its “frontier spirit,” a core element of BKL’s management philosophy since its establishment. BKL made significant strides by establishing five overseas offices in Dubai (the first Dubai office of a Korean firm), Hong Kong, Ho Chi Minh City, Hanoi, and Yangon in two recent years. These combined with BKL’s existing offices in Beijing (established in 2004 as the first Chinese office of a Korean firm) and Shanghai (established in 2008).
LIM: We have a well-balanced and thorough coverage for both outbound and inbound transactions. As noted earlier, in November 2016 we opened an office in Ho Chi Minh City, which is the second overseas office following our Tashkent office. Our Ho Chi Minh City office will act as a bridge for advancement into the entire Southeast Asian legal market. In 2017, we also plan to actively provide advisory services related to Korea-China investment.
ALB: Firms across Asia say that clients today are different – more cost-conscious, and more savvy and judicious when it comes to use of legal services. What are some of the changes you are seeing in Korea, and how are you as a firm looking to adapt to these changes?
CHUNG: After Korea opened its legal services market to foreign law firms, we have seen the overall service level of domestic law firms improve, and quality of service continues to be a significant factor for competitive advantage. We endeavour to provide our clients with the highest quality of service that best suits their needs in Korea and overseas. In terms of our expertise and offerings, we continue to sharpen our global competitiveness.
KIM: As mentioned previously, it is clear that the Korean legal market has been growing more difficult due to the fierce price competition. In response to this change, BKL’s strategy is to focus on our client-centered philosophy, considering clients as lifelong partners. BKL will continue to invest in labor, IP, tax, antitrust/competition and white-collar crimes, which are an integral part of every business. We also plan to establish a regulation group, combining our TMT and government policy teams to actively respond to newly growing industries such as drones, AI and biotechnology.
LIM: It is undisputed the Korean legal market has been experiencing many changes, including the rise in number of in-house lawyers and the clients’ approach of selecting law firms. In the past, Korean companies generally agreed to the fees proposed by law firms. Nowadays, however, it has become the norm for Korean companies to request fee proposals from multiple law firms and to request a fee deduction after a law firm has been selected.
Rather than blindly deploying numerous attorneys and other professionals and charging the fees, we carefully manage teams of experts based on their skills and expertise. With respect to our clients’ existing matters, we aim to provide our clients with timely legal advice in advance, thereby lowering legal fees. Our experts also provide around-the-clock service and advice enhancing the communication with our clients.
ALB: What are your predictions for 2017 when it comes to the Korean legal market?
CHUNG: Under the current business environment, companies are expected to take a more cautious attitude towards investment and this could mean more challenges to the Korean legal market. The secondary steps for the opening of the Korean legal services market will continue in 2017 and this will lead to more options available to clients for their legal service needs.
KIM: First of all, competition among law firms is expected to increase further this year, as foreign law firms will be able to hire Korean attorneys and provide legal advice based on Korean law by establishing a joint venture with a Korean law firm. Therefore, domestic law firms should not overlook the risk of losing key personnel to deep-pocketed U.S. law firms operating in Korea.
Furthermore, as Korea’s economic growth rate will remain in the 2 percent range in 2017, companies will make efforts to develop new markets. Because new or entry-level industries are accompanied by strict regulations, there will be an increase in legal demand among businesses for interpretation and application of those rules. Korean companies interested in entering foreign markets in Southeast Asia or the Middle East are also likely to seek legal advice.
LIM: The number of attorneys in Korea has increased to approximately 20,000 and major Korean law firms are continuously expanding. Consequently, competition will only become fiercer in the Korean legal market. Some of the practice areas that are expected to be very active in 2017 include antitrust, litigation, international trade and international tax. Furthermore, we anticipate increase in the number of antitrust cases in 2017.
In litigation, we expect that the number of cases related to issues in product liability, environment, international trade secrets and patent rights will increase. We also expect increase in the number of disputes between small to mid-size enterprises and large enterprises with regards to the economic democratisation.
Experts also anticipate a stronger move towards trade protectionism when the Trump administration takes over, and so we believe that the number of international trade and commerce cases will increase as well. Last but not least, I believe we should also keep a close eye on the policy changes and the inauguration of the new government following the 2017 Korean presidential election.