The World Bank and the International Monetary Fund (IMF) recently detailed that by 2024 – Asia will be home to 4 of the world’s top 5 economies. China, the United States, India, Japan, and Indonesia — will be those top 5 economies, in this order, by that time.
Catalysts for growth in Asia – An emerging middle class, a growing corporate and internet sector
“Asia’s burgeoning middle class is one of the reasons for the continental shift in GDP” — and “Asian multinationals, like China’s Huawei and India’s Tata, have already emerged in this century and more are expected to appear on the global scene”, as the World Economic Forum recently reported.
Notably, Indonesia is host to 29% of all South East Asia’s startups. As Nick Seddon, former Managing Partner for Asia at both DLA Piper and Eversheds detailed in 2014, Indonesia represents the most significant regional opportunity for foreign law firms as a result of its’ immense and growing middle class and affluent consumers (currently 75 million). Too, the country’s internet economy is growing at 26% annually, according to a recent report conducted jointly by Google and Singapore’s sovereign wealth fund Temasek Holdings.
These are just a few examples of how Asia’s economies are growing and impacting the global economy – and in the process – the business of law. In this article, nine prominent legal services leaders analyze, from their unique perspectives, some of the ways this economic growth is impacting legal services – both within — and outside Asia.
Legal services to increase in sophistication and complexity amid greater competition
Legal services in Asia are seen to be poised to increase in sophistication and services offer diversification, amid heightened competition for clients and expansion of foreign and domestic companies in the region.
Sue Kench, Global Chief Executive of King & Wood Mallesons explains: “Asia, and the individual economies that make up the region, play a key role in the global economy and their influence and impact is increasing exponentially, particularly as growth in other markets become more limited.
Given the Asia opportunity, businesses will look to maintain or increase their engagement – either directly or indirectly – with the region as they seek long-term sustainable growth. To meet this demand, there’s a parallel need for sophisticated legal services to help businesses navigate the challenges in these markets and we expect law firms to continue to expand in the region. To succeed, law firms will need to deliver a mix of legal expertise, commercial acumen, local knowledge and strong business relationships.”
Rob Green, CEO of GRM, which serves the Asian, African and European legal recruitment markets, explains that: “International and local law firms in the region have been building towards [the economic growth the World Bank/IMF report details] for a long time, developing… platform[s] in China, Hong Kong, Indonesia, and Japan, so many of them now have a firm client footing in each country. There will continue to be opportunities in these countries and India, as the economies continue to grow, so will the law firms. Green explained how “strong economic growth has always played a significant role in spurring legal market development, notwithstanding Asia. With an increase in the number of opportunities available for growth, it is likely that both international and local firms will focus on harnessing organic growth by capturing the increased legal work. Typically, one can expect M&A activity in the legal space to slow down, coupled with a surge in new legal startups firms. Wherever there is growth there is a lawyer.
In house legal teams are also likely to feel the pace of change and increased business activity. Law firms will need to ensure they are there to support their existing clients and focus on new business development. Competition to capture clients or deals will remain high, law firms will have to provide strategic legal advice, and continue to provide value-added services.”
Patrick Dransfield, Hong Kong-based Co-Director of In-House Community, explains that the current Covid-19 pandemic “has in many cases served as an accelerator for underlying trends in the legal industry, both generally and specifically to Asia. The mismatch between what law firms are continuing to charge and what clients perceive as real value is becoming more profound and will prove a chasm for the law firms that have not adapted well to “The New Dynamic”. As Dransfield details, a recent joint White Paper by In-House Community and Calls9 identified (via a poll of in-house counsel) what law firms in Asia need to do to improve to remain relevant. In-house counsel identified improved pricing, efficiency and technology, focused, succinct advice, culture and diversity, and trust and partnership, as key areas for improvement as a means to maintain relevance.
And Sydney-based Richard Smith, leading law firm business development professional and commentator, notes how: “As we start the second decade of the 21st century, the ‘Asian Century’ is coming to the fore. This will no doubt have a significant impact on global legal services market: on the one hand because the buying cycle in the Asian market differs significantly from the West, and on the other hand because the value placed on the service legal service providers provide in the East is by no means as great as historically been the case in the West.”
Multilingual, civil law legal services projected to grow
Mervyn Cheong, a Partner at Singapore’s Advocatus Law LLP, a member of the Alliott Group, predicts that Singapore is likely to see “increasing demand for lawyers who are fluent in, at least, 2 languages in order to be able to better communicate and understand the business requirements in overseas jurisdictions. English remains the primary business language in Singapore but law firms and clients will increasingly look out for lawyers who are also able to converse and write in at least one other language that is relevant to the country that they are doing business in.”
“Out of the 10 countries projected to have the highest GDP in 2024”, Cheong continued, “7 of them have a primarily civil law system (only India, the UK and the US have a predominantly common law legal system). As such, I also believe that for Singapore called lawyers, there will be a need to understand and better appreciate how the civil law system works and in what ways they may be similar or different to the Singapore common law system. This will be important, in particular, when it comes to advising clients during negotiations and drafting of contracts.”
China to strengthen its’ position as the world’s leading international commercial center
Nick Poynder, Partner and head of Shanghai for HFW, explained that: “If the IMF’s projections are borne out this will just reinforce China’s place as the world’s leading international commercial centre, with shipping being one of the key areas of business; seven of the top 10 ports in the world are already in China. With economic growth is likely to come an increased demand for legal services, and law firms will need to respond by ensuring they have the appropriate resources on the ground to meet this demand. New entrants seeking to benefit from this growth will face fierce competition.
China to open further to foreign investment
China’s market is seen to be poised to open further to foreign investment, and therefore more cross-border legal work for domestic and international firms alike. As Ning Zhu, Managing Partner of Chance Bridge Partners in Beijing, a member of Alliott Group, observed: “China’s becoming the world’s largest economy means that the Chinese market would be further opened up, which will bring more favourable circumstances for foreign investment in China, cross-border mergers and acquisitions and other foreign-related business development. It will also bring good opportunities to China’s legal services business, especially foreign-related legal services, including cross-border investment and financing, cross-border compliance, cross-border dispute resolution and other business areas.”
Legal services to grow in an economically liberalized India
Sourish Mohan Mitra, New Delhi-based in-house lawyer and legal commentator, explained that: “the boom in economic activity is a good indicator of growth of allied activities such as legal services. In India, a new area of legal practice emerged once the economy was liberalised in 1991 and corporate transactions gained momentum as foreign direct investment laws evolved in the next couple of decades. With the forecast of India rising to the top 3 economies in the world, it can be reasonably expected that legal services will see a corresponding rise in activity and there will be ample opportunities for expansion of the market.”
Increased Sino-US trade tensions to increase demand for trade law counsel
The services of trade-focused law firms will continue to be in demand as trade tensions between a growing Chinese economy and the world’s largest economy, the United States, increases.
Olga Torres, Managing Member of Torres Law, PLLC in Dallas and Washington, DC, an Alliott Group Member, explained that “the United States has most recently pursued a very aggressive stance regarding trade with China: it has placed limits on the export of certain U.S.-controlled technologies to China and high-profile Chinese companies, imposed tariffs on a large variety of Chinese imports, and is heavily scrutinizing foreign investment into the United States by Chinese entities. Unfortunately, we expect tensions may escalate over the next few years, leaving both U.S. and Chinese companies to contend with an ongoing trade war, additional regulations on the exchange of products and technologies, and increased constraints on investment between the two countries.”
While more legal work resulting from increased economic activity in Asia may seem a logical consequence, the complexity of changes legal services in the region and elsewhere are likely to see as a result of this tectonic shift in the global economy – is more nuanced. In this article, some astute observers of the legal services market – within and outside the region – have provided unique insight into what is happening now – and what is likely in store for the future — for legal services — as China, India, Japan and Indonesia – along with their regional partners in ASEAN and elsewhere – continue to transform the world’s economy in what is now known as – “The Asian Century”.