When foreign law firms in Japan were finally allowed to directly hire locally qualified lawyers, or bengoshi, in 2005, many leaped at the chance.

“I think a lot of the firms, particularly United Kingdom firms, had a model to be as local as possible,” says Piyasena Perera, a former Allen & Overy partner who worked in the firm’s Tokyo office between 2004 and 2011. “It’s a big asset for saying you’re a one-stop shop.”

Perera, who is now a senior foreign counsel at Japanese firm Anderson Mori & Tomotsune, was on hand when Allen & Overy launched its bengoshi practice in 2006. Linklaters plucked two of the name partners in Japanese firm Mitsui, Yasuda, Wani & Maeda to start its own a year before.

At its height four years ago, Allen & Overy’s Tokyo office counted around 30 bengoshi; now it has five. Linklaters’s office in the Japanese capital is now down to 40 lawyers, from 60 in 2005. U.S. firms Skadden, Arps, Slate, Meagher & Flom and Paul Hastings have also substantially reduced their bengoshi practices.

“I think a lot [of bengoshi practices] have withered,” says Simon Black, Allen & Overy’s Tokyo managing partner.

The global financial crisis and the weakness of the Japanese economy get much of the blame for that. But lawyers in the market say cultural differences and an inability to attract the best local talent also hurt many international firms’ efforts to build their Japanese law practice and compete with the top local firms, particularly Tokyo’s Big Four of Mori Hamada & Matsumoto, Anderson Mori & Tomotsune, Nagashima Ohno & Tsunematsu, and Nishimura & Asahi.

Many firms will likely keep their Japan experiences in mind as they weigh whether to launch local practices in other liberalizing markets in Asia, particularly Korea.

Black notes that inbound investment in Japan plummeted in the wake of the 2008 Lehman Brothers collapse. “So firms have had to reevaluate their need for Japanese law,” he says. “There’s been a big shift of focus in the past five years to the outbound. The role of our office has changed to adapt to that.”

But Perera notes that other international firms, notably Morrison & Foerster, have managed to achieve a measure of success with bengoshi practice. He says the U.S. firm’s top bengoshi, Fuyuo Mitomi, was the rare big-name Japanese lawyer willing to move to a foreign firm.

“Other places haven’t been able to attract that caliber of person,” he says.

Nishimura & Asahi partner Yoshinobu Fujimoto says Japanese lawyers are generally very loyal to their firms. Many are also worried about facing cultural or language barriers at large international firms.

“Even if you’re offered a much higher salary, good partners stay at the Big Four because of the culture of the firm or loyalty of staying with the one firm,” says Fujimoto. “So I don’t think it was easy for international firms to recruit Japanese lawyers who had really strong clients.”

Some partners who do make the move later regret it. Linklaters partner Akihiro Wani moved to the U.K. firm in 2005 with Mitsuhiro Yasuda, a fellow name partner at Mitsui, Yasuda, Wani & Maeda. But Yasuda left two years later for Nishimura & Asahi.

Wani says his fellow bengoshi couldn’t adjust to the international firm’s culture, especially its emphasis on revenue generation. “Some partners have had difficulties getting integrated,” says Wani.

Bingham McCutchen Tokyo partner Steve Lewis says international firms put a greater emphasis on billable hours and other performance metrics than their Japanese counterparts, whose cultures are somewhat more “academic.”

“International firms are more money-focused,” he says. “[At a Japanese firm] your billing hours are not scrutinized to the extent that they would be in an international firm.”

The emphasis on money has also been difficult for foreign firms because, by all accounts, they cost more than the Big Four, and Japanese clients often don’t see the point of paying more for the same kind of work.

“They’re very cost-conscious,” Perera says.

Tony Grundy, a former Tokyo partner at Linklaters and Morrison & Foerster who now serves as Singapore senior of counsel for Mori Hamada, says that the presence of several strong local firms made Japan a very different market from Hong Kong, where more international firms, especially those from the United States, have expanded into local practice in recent years.

“You can’t find the equivalent of the Big Four Japanese firms in Hong Kong,” he says.

Lewis, who headed Herbert Smith Freehills’s Tokyo office before moving to Bingham last year, says many firms decided it wasn’t worth trying to compete with the Big Four, so they never launched a local practice in Japan. He recalls that Herbert Smith Freehills decided against launching a bengoshi practice after watching other British firms struggle.

“We saw a number of issues,” says Lewis. “We looked around the market at other British firms who were doing it and saw that the Japanese partners were not integrating well, and a number moved on after joining.”

Instead, Lewis says Herbert Smith Freehills decided to benefit from a referral boom from local firms.

“Actually, that was massive for us,” he says. “Why would [Japanese firms] refer work to Linklaters, Allen & Overy, and Clifford Chance when they were now competitors?”

Lewis’s current firm, Bingham, does have a bengoshi practice, albeit one built mainly around market-leading restructuring lawyer Hideyuki Sakai.

Despite the difficulties, some international firms maintain say they have been able to make their bengoshi practices work.

White & Case Tokyo executive partner Brian Strawn says that his firm slightly reduced its Japan staff following the financial crisis but it remains committed to practicing local law in the market. Rather than focusing on only inbound work, and the outbound work that is contributing to the Japanese economy, White & Case made a concerted effort to capture domestic business as well.

“That’s really what’s kept us strong. We don’t just rely on inbound clients,” he says. “We have Japanese clients and can help them with their local work.”

Peter Kilner, former managing partner of Clifford Chance's Tokyo office, likewise says his firm has been able to attract a significant number of Japanese clients. “They really see our practice as a Japan law practice,” he says.

Kilner says Japan is far from an easy market, but he thinks any international firm committed to having local capability around the world has to have it in Japan.

“It is a tough market, with low margins, but it’s still the third-biggest economy in the world,” he says. “It would be ridiculous not to have a significant practice in Japan.”

Email: tbrennan@alm.com.