As many Am Law 200 firms look beyond mainland China to Asian markets less populated by U.S. law firms, Duane Morris is entering the country for the first time with its planned Shanghai location.
Duane Morris went about its Asian expansion strategy from the opposite end of the spectrum to most firms, opening in places like Vietnam, Singapore, and, most recently, Myanmar, through its joint venture Duane Morris & Selvam. The time was right to move into China, firm leadership has said, acknowledging that it will have to combat an increasingly competitive market that presents significant difficulties for turning a profit.
“There are certain places where it’s just really almost impossible to turn a profit and China is one of them,” Edge International Chairman Ed Wesemann said. “So you do it by being able to maintain and grow relationships with clients in other places by having that office. … The win, in large measure, has to be somewhere else.”
While China was a profitable place for the first five or so law firms that entered the market to serve as intermediaries for clients doing business there, Wesemann said there are more than 140 foreign firms in China now. He said the locally-based Chinese firms are much better than they used to be at the business of law and being responsive to clients, they are significantly cheaper than U.S. firms and they are expanding globally. Chinese firms are becoming an attractive proposition for foreign clients looking to do business in the region or elsewhere, he said.
Wesemann said one client estimated the cost of housing a lawyer in China to be around $600,000 on top of the attorney’s salary when it comes to paying for their living space, home leave and other costs.
The alternative for firms is to have an office in Hong Kong or other Asian countries, Wesemann said. Hong Kong, however, has become less attractive now that Singapore has its own stock exchange and Singapore lawyers are allowed to practice in India, which is closed to U.S. and U.K. lawyers, he said. More firms are eyeing places such as Singapore and South Korea, Wesemann said.
And for Duane Morris, the existing Singapore location is what makes opening in China a more financially secure proposition than other firms may face, Chairman John Soroko said.
“In the back of our minds all along was the possibility of doing an office in China,” Soroko said. “Candidly, how could we not somewhere out there sketch that possibility given the size of the market, the size of the opportunities and, frankly, the number of the other Am Law 100 law firms that have, in one form or another, some exposure there.”
The work the firm has done in Singapore has resulted in the firm handling matters related to Chinese investment into other areas of Southeast Asia, Soroko said.
“We don’t in any way, shape or form look at it as a loss leader, but we do look at it as an entrée for work for existing offices of the firm, including other offices in Southeast Asia and in the U.S.,” Soroko said of the Shanghai location. “And I do think, in some sense, it is viewed not incorrectly as a ticket for admission to that market. So even if the issue is representing Chinese businesses in the U.S. in things like real estate investments or transactional IP or IP litigation, having the office in China may well be viewed as an important credential to getting those kinds of assignments even when they are out of the country.”
The investment is made more manageable for Duane Morris because the Singapore legal market is made up of lawyers from places such as China, India and Indonesia. So the firm already has lawyers on staff who are native Chinese attorneys. And the Singapore operation has essentially run a “China desk” for the past few years, Soroko said.
“Whenever you go into someplace new, there’s what you know and what you don’t know,” Soroko said. “We had the advantage of having a very good observation point, if you will, on the Chinese market by operating in Singapore.”
There are few firms, if any, that can claim to have as many Asian offices as can K&L Gates. The firm has 11 offices in the region, including four in Australia. K&L Gates is also in Beijing; Hong Kong; Shanghai; Seoul; Singapore; Taipei, Taiwan; and Tokyo, where it added two partners and several associates last week.
David Tang, managing partner of K&L Gates’ Asia operations, said that, unlike many firms that enter the region solely to handle cross-border matters, K&L Gates also looks to handle local work in the markets that allow for it.
“We’ve never used an ex-pat model which a lot of firms do,” Tang said of bringing lawyers in to work in the region for a couple years’ time and cycling them out.
Tang said the firm therefore saves on the cost of that rotation. It has also been in many of the Asian markets for some time, getting a leg up on those entering more recently, he said.
“Because of our capabilities to offer local Japanese practice through our Japanese-qualified lawyers, we are able to take advantage of the rebound in activity in the Japanese economy and to serve Japanese clients in their investments outside of Japan,” Tang said. “As the economies in the U.S. and Europe strengthen, we can also provide services to growing investment by companies coming into Japan.
“With our model, we are able to balance our practice and not rely on just the cross-border work or just the indigenous work. We have a credible foot in both markets and can take advantage of both markets. We try to do that in all of the markets in the Asia-Pacific region.”
Reed Smith entered Asia in a big way in January 2008 through its merger with Richards Butler Hong Kong. Now the firm has 100 lawyers in Hong Kong along with about 10 to 12 each in the Shanghai, Beijing and Singapore locations the firm has since opened.
Michael Pollack, global head of strategy at Reed Smith, said the firm’s Hong Kong office is full-service, while the Beijing and Shanghai locations were established to handle transactional and some regulatory work for foreign clients doing business in China. He said the firm is now starting to develop work for Chinese clients both in the country and for matters outside China. The Singapore location opened in October 2012 with an eye toward the firm’s commodities, shipping, arbitration and India practices, Pollack said.
The goal is to grow the three smaller locations to double their current size. Pollack said that is a tough undertaking considering the market is “very competitive” with the demand for lawyers who can practice Western law greater than the supply.
Pollack said the firm doesn’t measure profitability at an office level—an undertaking Wesemann agreed was a “fool’s errand.” Pollack said the focus instead is on cross-selling. For 2013, he said, the cross-selling between the Shanghai, Beijing and Hong Kong offices and the other locations in the firm totaled $25 million. He said that number has been increasing over the past few years. The firm’s total gross revenue for 2013 hasn’t been reported yet. Reed Smith generated $1.01 billion in revenue in 2012.
Soroko, Tang and Pollack all suggested they were relatively content with their respective footprints in Asia, though they are open to possibilities.
Pollack said Japan and South Korea generate legal work for Reed Smith, but he said he isn’t sure the firm needs offices in those markets. Indonesia is generating work that is being handled through the firm’s Singapore office, he said.
Indonesia “is not on my list of places to go, but it’s on my list of places to watch to be on the list of places to go,” he said.
Though not technically in Asia, Pollack said the firm continues to examine the best way to enter Australia.