Shibuya Crossing, Tokyo. Photo by ESB Professional/Shutterstock.com

After a hiatus of three decades, Tokyo is back on the global law firm radar.

Several international firms have opened offices in Japan in the past few years—most recently Mayer Brown, which launched its office earlier this year. Debevoise & Plimpton’s Tokyo office opened in 2016, and King & Spalding, Withers and offshore firm Harneys all opened Tokyo offices in 2015.

They are coming to Japan, home to some of the world’s largest companies and industry leaders, because there is an increasing amount of work. And in a country where personal relationships still carry a lot of weight—even in business—global law firms need to be near their Japanese clients, lawyers say.

The first-ever batch of global firms to enter the Japanese market came during the economic boom of the late 1980s, after the Japanese government enacted a law in 1987 that for the first time allowed foreign firms and their lawyers to establish offices in Japan. But when the good times soured in the 1990s, those firms sharply cut back or exited the country entirely.

Now, international firms are making a comeback, riding a recent wave of outbound projects and M&A work emanating from Japan. Japanese clients want their law firms near them—they want an on-the-ground presence, both in the country where the work is going and in Japan. And firms have complied.

“In order to capture that work, you really need to be here,” said Rupert Burrows, who this year launched Mayer Brown’s Tokyo office, which he heads. “A lot of the clients will ask: ‘Before we give you a request for proposal, do you have an office in that country?’”

Law firms working with Japanese companies must have global coverage, Burrows said. But the missing piece for many of them has been Tokyo. “[That is where] all the head offices are, and where a lot of the big investment decisions are made,” he said, noting that having a base in Japan is all about servicing existing client relationships and expanding the work the firm does for them.

Indeed, Debevoise’s Tokyo office, which focuses on corporate matters, opened primarily to be near its biggest Japanese client—trading giant Mitsui & Co Ltd. M&A specialist Ezra Borut has been advising Mitsui for a long time—from its joint venture with the Dow Chemical Co. in 2010 to its $435 million stake in Penske Truck Leasing Co. last September. Borut relocated from New York and is the sole partner in the Tokyo office.

Borut said he wouldn’t be surprised if more firms start to open offices in Tokyo. “Japanese companies are increasingly looking abroad to invest, and being on the ground in Tokyo is an important factor in winning and maintaining their work,” he said.

Japanese companies have for years been particularly active in building infrastructure overseas. Energy and infrastructure specialist John McClenahan, who helped launch the King & Spalding Tokyo office, which he now heads, continues to see a flow of outbound projects work. “There’s been a move away from the fossil fuels, such as coal, and so when you’ve got a shift … there are opportunities for people getting into the sector,” he said.

In 2015, members of the Organization for Economic Cooperation and Development, which includes Japan, agreed to end export credits for inefficient coal plant technology, the most polluting of fossil fuels. The deal took effect at the start of last year.

From the Tokyo base, firms do projects work across the globe, including in Southeast Asia, where Japan has been investing in infrastructure projects since the early 1990s. “Because of its geographic location, there will be a very strong nexus with Southeast Asia and the investments that Japanese clients are making there,” said Mayer Brown’s Burrows, who also specializes in energy and infrastructure.

While Southeast Asia is a major focus because of the close proximity and time zones, a lot of  Japanese investment is going elsewhere, such as the Americas, Europe and the Middle East, Burrows said.

In addition to building and investing in power plants, facilities, mines and rail systems abroad, Japanese companies are looking for acquisitions overseas—encouraged by Japanese Prime Minister Shinzo Abe’s “Abenomics”—economic policies that support outbound deals by providing low-cost financing.

“Gordon Palmquist, one of my partners, is in mainstream corporate M&A and there’s a lot going on there, for example, in the insurance space, food and agriculture, even in health care, and it’s on a global basis, which is why the global platform is just so important,” Burrows said.

So far this year, Japan has already been involved in deals worth approximately $115.9 billion, according to Thomson Reuters. This includes SoftBank-led consortium’s $7 billion investment in Uber, which closed in January, and Japanese drugmaker Takeda Pharmaceutical Co Ltd.’s $62 billion bid for London-listed Shire last month.

“The M&A market is certainly promising, both outbound and inbound,” said Debevoise’s Borut.  Japanese companies are seeking to expand into overseas markets against the backdrop of a shrinking domestic economy, government support for outbound investment, as well as governance reforms that have put pressure on Japanese CEOs to improve returns on equity, he said.

But there is inbound M&A work as well, he added. “[This] is being driven in part by Japanese conglomerates seeking to rationalize their business portfolios or otherwise sell assets in distress situations, including to foreign buyers—notably private equity funds,” he said.

In 2017, Japan saw $29.5 billion worth of inbound M&A from 621 deals—almost triple the amount of the previous year, according to Thomson Reuters data. The biggest deal was the Bain Capital-led consortium’s $18 billion acquisition of Toshiba’s semiconductor business.

With all these deals and projects, global law firms may be tempted to aggressively expand in Tokyo. But with a few exceptions, such as Baker McKenzie and Morrison & Foerster, the Tokyo offices of most firms are relatively small.

Borut warns that it would be wrong for international firms to plow into Japan wholesale. “Japan is a highly competitive legal market, both from a quality and pricing perspective,” he said. “Developing new client relationships in Japan takes considerable time, so firms need to be prepared to make a long-term investment.”

While Borut, who has been advising Mitsui for years, relocated to Debevoise’s Tokyo office, other firms, such as Mayer Brown and King & Spalding, recruited established teams already well-known in the market.

Both Mayer Brown and King & Spalding poached lawyers from Ashurst’s Tokyo office, including the then-Tokyo heads—Burrows and McClenahan, respectively. Mayer Brown also hired former Ashurst banking counsel Shri Maski and former Shearman & Sterling corporate associate Gordon Palmquist as partners. And this week, it expanded its Japan practice with two respected former Morgan, Lewis & Bockius partners, Satoru Murase and Yoshihide Ito, in its U.S. offices. Both are well-known by Japanese companies for their expertise in doing business in the U.S.

When McClenahan, who helped launch Ashurst’s Tokyo office in 1990, jumped to King & Spalding, he brought with him projects partner Mark Davies and disputes partner Chris Bailey, who worked with him in Ashurst’s Tokyo office. “There’s a very high entry barrier to get into Japan, so you need to entice a team away from one of the established firms to help you get established in Japan,” McClenahan said. “Otherwise, you’ve got a long lead time ahead of you.”