Vietnam, one of the world’s fastest-growing economies, is still a small market for global law firms. In fact, only six of the world’s largest firms have a significant practice in the country, and a few that entered with high hopes have since retreated.
But don’t tell that to South Korea’s largest firms. Known as the Big Six, they all have opened offices in Vietnam in the past few years.
Kim & Chang, South Korea’s biggest firm, was the last of the group to announce the launch of an outpost in the Southeast Asian country—an office that will officially open in Ho Chi Minh City in September.
The other five firms—Bae, Kim & Lee; Lee & Ko; Shin & Kim; Yoon & Yang; and Yulchon—all have two offices in the country—one in Ho Chi Minh City, Vietnam’s largest city, and the other in Hanoi, the capital. Kim & Chang has said that a future Hanoi office is under consideration.
So why are these South Korean firms so rapidly establishing a presence in Vietnam—outpacing their Global 100 rivals?
It’s all about their clients.
“South Korea remains by far the largest foreign investor to Vietnam and will continue to be a key driver of many legal practice areas in the Southeast Asia region, especially Vietnam,” said Richard Kim, a special counsel based in Baker McKenzie’s Hanoi office and head of the firm’s Korea practice.
Korean Multinationals Discover Vietnam and Korean Firms Follow
Samsung Electronics Co. manufactures smartphones in Vietnam. LG Display Co. Ltd. makes screens for the likes of Apple Inc. and LG Electronics Inc. Vietnam has fast become a manufacturing hub for South Korea’s worldwide exports. Smaller, lesser-known Korean companies that manufacture textiles and garments, electronics and its components, as well as other consumer goods also operate in Vietnam.
About 6,000 South Korean companies currently operate in Vietnam, said Zunu Lee, the Southeast Asia practice head of Yoon & Yang who manages the firm’s Vietnam offices. Approximately 4,000 are in Ho Chi Minh City and 2,000 in Hanoi.
They have been drawn to the country, which has been called “the other Asian Tiger” in part because of its cheap labor, which helps keep prices low for all the goods South Korean companies export overseas. But they are also attracted to Vietnam for its domestic market: Vietnam has a young and expanding middle class and a strengthening economy that is estimated to have grown 7.08 percent between January and June of this year. China’s economy, in contrast, expanded 6.8 percent in the same period, according to China’s National Bureau of Statistics.
In addition, Vietnam’s relative political stability compared to other emerging economies has given risk-averse companies the confidence to invest.
In fact, South Korean investors have been the top source of foreign direct investment in Vietnam for three of the past four years. And one-third of the $108 billion of the foreign direct investment that Vietnam has received since it joined the World Trade Organization in 2007 originated in South Korea, according to The Economist. Now, Korean investors are being further encouraged to look to Southeast Asia because of South Korean president Moon Jae-in’s “New Southern Policy,” an economic plan designed to allow Korea to deepen ties with Southeast Asian countries and rely less on its traditional trading partners—China and the United States.
All this change is reflected in the legal work South Korean firms are performing in Vietnam, said Yoon & Yang’s Lee. At first, the firms handled general regulatory and licensing matters to help manufacturers get set up in the market. More recently, firms are helping clients invest in companies in Vietnam so they can tap into the country’s growing population of more than 95 million.
Earlier this year, Yoon & Yang advised South Korean bank Shinhan Financial Group on a $151 million acquisition of Prudential Vietnam Finance Co. Ltd., the first foreign consumer finance company in Vietnam. Lee, who led the team on the deal, said only about 10 percent of Vietnam’s population use credit cards, so there is potential for growth in the consumer finance sector.
And as the Vietnamese gain access to more money, companies are preparing for more consumer spending. In 2012, Yulchon represented South Korean TV home shopping company GS Home Shopping Inc. on a $3.5 million investment in ViVi Media Trading Corp., which does product sales and advertisement services, for a 30 percent stake—making the South Korean company the largest shareholder.
Su Gu Kang, a corporate and finance partner at Yulchon and head of the firm’s Ho Chi Minh office who led the team on the deal, said there is also rising interest in real estate work. In 2015, the Vietnamese government enacted legislation that eased restrictions on foreign property ownership. “It made Vietnam’s real estate business increase drastically,” he said. “Vietnam is a very large country, so there’s lots of land for construction.”
Vietnam’s legal market is also more open for foreign firms than others in Asia—especially compared to the more restrictive legal markets of India, China and South Korea, according to Frederick Burke, managing partner of Baker McKenzie’s Ho Chi Minh City and Hanoi offices.
Nevertheless, foreign law firms have not been as enthusiastic about Vietnam as South Korea’s Big Six. To be sure, more than 40 foreign law firms are registered with the Vietnamese Ministry of Justice to open offices in the country, according to Burke. “Of those, however, fewer than 10 could be said to be very active with substantial practices,” he said.
A handful of international firms, including Clifford Chance and White & Case, launched offices in Vietnam in the late 1990s. But they have since closed down their Vietnam operations. Observers say some of the firms that retreated ramped up too quickly, only to fail when the work and fees proved more elusive than anticipated.
Today, the global firms that operate in Vietnam include Baker McKenzie, Allen & Overy, Duane Morris, Freshfields Bruckhaus Deringer, Hogan Lovells and Mayer Brown JSM. In addition to the Korean firms, other Asian firms, including Japan’s Big Four, Singapore’s Rajah & Tann, and Thailand’s Tilleke & Gibbins, have a presence in the country.
But Vietnam is not an easy market to master. “The legal system is rapidly changing and it requires significant investment of sustained study to understand how to advise clients here,” Burke said.
Many global firms may not find that necessary. Two local firms, YKVN and VILAF, are actually spinoffs from the Vietnam offices closed by White & Case and Clifford Chance and have international experience.
“With these ‘local international’ law firms, the global firms can establish correspondent or network relationships without going to the trouble of assuming the risk of opening their own offices here,” Burke said.
In addition, global firms considering overseas expansion may not rank Vietnam as highly as other countries. While it is indeed growing quickly and punches well above its weight in attracting foreign investment and manufacturing exports, the economy still is not as large as some of its Association of Southeast Asian Nations (ASEAN) competitors, such as Indonesia and Thailand.
For now, Vietnam’s legal market has six international and six South Korean firms. Sometimes, they work together, Baker McKenzie’s Kim said, noting that his firm works alongside South Korean law firms on mergers and acquisitions, with Baker McKenzie representing one party and a Korean firm representing the other.
But global firms like his also compete for work. “Naturally, with Korean [direct investment] growing and more South Korean law firms coming to Vietnam, the competition for legal work from Korean multinational companies is getting stiff,” he said.