ALB Insights

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Welcome to ALB Insights, a weekly, ad-free premium newsletter that provides analysis and opinions related to the important news and trends in Asia’s fast-growing legal markets. With a mix of features, Q&As with key figures, and profiles of some of the hottest firms and service providers, this is a must-read for anyone interested in gaining a deeper understanding of the region’s legal industry. ALB Insights will be sent free to our existing subscriber base during the initial six-week trial. To subscribe, please email taranjit.kaur@thomsonreuters.com.

This week’s newsletter features the following:

• Even as Myanmar’s investment star wanes, law firms remain optimistic
• As office rents in Hong Kong’s Central skyrocket, law firms look eastward
• Five years of KWM: ‘Our values are very similar’ 
• In-House Q&A - David Ho of Alibaba Group​

Even as Myanmar’s investment star wanes, law firms remain optimistic
 
Myanmar has seen its foreign direct investment drop sharply in the past year as investors adopt a wait-and-see approach following the last election. However, law firms remain undeterred about the country’s prospects after democratisation, reports Raj Gunashekar.

After a number of years of heightened investor interest, Myanmar is beginning to see this rush receding. According to Myanmar’s Directorate of Investment and Company Administration, inflows of foreign capital totaled only $3.3 billion between April and December 2016, with the figures for the fiscal year ended March likely to be lower than the $9.4 billion the country received in 2015-16.

And law firms in Myanmar are feeling the effects. “We had a drop in business starting in mid-2015 leading up to the elections in November 2015 as international investors likely wanted to make sure the elections went smoothly,” said William D. Greenlee, Jr., partner and managing director of DFDL in Myanmar. “Of course as you know, they did.  However, FDI did not immediately pick back up as I believe many international investors were likely waiting to see how the transition would go and then later waiting to see if the new National League for Democracy (NLD) government would be supportive of foreign investment.”  

One of the main reasons for the reduced FDI in 2016 is the delay in forming a new Myanmar Investment Commission (MIC) following the establishment of the new government led by Htin Kyaw, the first elected president of the country to hold the office with no ties to the military since 1962. 

Another factor is the wait-and-see response from foreign investors to the new Myanmar Investment Law. Even though this law came into force in October 2016, its implementing rules and regulations have not yet been finalised. In addition, the pending Myanmar Companies Act is currently being considered by the Parliament, but is not yet in force.

Reuters reported that foreign companies invested $380 million from April to July 2016, the first four months of Myanmar's fiscal year, plummeting from $2.6 billion in the corresponding period last year.

Takeshi Mukawa, a partner at the Yangon office of Mori Hamada & Matsumoto (MHM), said that there had “obviously” been a reduction in FDI-related work in 2016. “But work on approved projects and previously made investments continues,” he noted.

Not all firms, however, are affected badly by the slowdown. “Our strategy has always been to engage in the big-ticket work that has a long gestation period,” said Krishna Ramachandra, managing director of Duane Morris & Selvam. “As a result, we have not felt the pinch. Actually, we are currently expanding… our China-Myanmar and India-Myanmar practices are particularly busy.”

Ramachandra also observed that slowing dealflow would weed out law firms that have undertaken an entry strategy based on high-volume, low-margin commoditised legal services. “These firms will definitely feel the pinch, and will perhaps be reviewing their continued presence,” he said.

STILL GOT IT

That said, there might be light at the end of the tunnel.

In a report jointly released by Mergermarket and MHM, manufacturing and infrastructure stood out as the sectors with the brightest prospects. And according to the Reuters report, 102 projects submitted since April are awaiting approval, of which half are foreign investment projects totalling around $2.3 billion.

“In the last three to five months, we have seen a significant increase in foreign investors and projects in Myanmar. So it appears that a growing number of foreign investors are satisfied and encouraged by newly promulgated laws like the new Investment Law and updated Companies Act,” said Greenlee Jr.

He added that in mid-2015, the firm moved a number of international lawyers from Yangon to other DFDL offices in the ASEAN. “In the last couple months, we started moving some lawyers back to Yangon and have also made several new hires,” said Greenlee Jr.

Mukawa of MHM also said his firm was bullish about Myanmar’s prospects. “We actually increased the size of our team in Myanmar last year and will do so again this year,” he added.

To contact the writer, please email raj.gunashekar@tr.com.

As office rents in Hong Kong’s Central skyrocket, law firms look eastward

With record high rents and less than 2 percent office space available, international law firms in Hong Kong’s financial district, including a Magic Circle firm, have been looking further east in the city for a more affordable and modern home, finds John Kang.
 
International law firms in Hong Kong have historically been housed in Central, the city’s financial district. But in the past six months, several have relocated out of Central to Quarry Bay in eastern part of Hong Kong Island, lured by lower rents and more modern spaces.
 
Berwin Leighton Paisner was the first international law firm to make the move. At the end of September last year, BLP moved 7 kilometres away to Swire Properties’ Taikoo Place in Quarry Bay, a neighbourhood where rents can be as low as half that in Central.
 
And just two weeks ago, fellow London firm Ince & Co moved to One Island East, also owned by Swire Properties, just a block away from BLP.
 
The trend towards Quarry Bay could pick up speed with Freshfields Bruckhaus Deringer also making the move there in December this year, making it the first Magic Circle firm to set up shop outside Central.
 
Freshfields will be taking up two floors on One Island East, totalling 40,000 square feet, in addition to moving up to the 36th floor of Two Exchange Square, the firm’s existing office in Central.
 
“We are upgrading our premises in Hong Kong,” the law firm said, describing their new office in Quarry Bay as “more modern.”
 
Ince also thought One Island East was more modern, choosing Quarry Bay ahead of Admiralty, Wan Chai and Causeway Bay because it felt the buildings in those areas were too old for its purposes.
 
“We needed state-of-the-art infrastructure, like here at One Island East, to be able to implement our very modern technology and IT upgrades,” said Lionel Noronha, Ince & Co's regional director in Asia. “The older-style buildings would have made the technology upgrades challenging and costly.”
 
“We also wanted to go open-plan and agile in the way we work,” he added. “The buildings in those other areas would not have accommodated this with their small box windows, lack of raised flooring, inferior IT and cabling infrastructure.”
 
For Bob Charlton, BLP’s head of Asia, moving to Taikoo Place was not just about the office interiors but also about the exterior. “It's got a really good ambiance and there are loads of businesses here, so it's busy and you get a real buzz in the area,” says Charlton.
 
“The lunch venues around here are fantastic and they're cheaper than Central, so that keeps our people happy.” he adds. “And also you can go running, there’s good gyms here… there's everything you need.”
 
 
LOWER RENTS
 
And of course, the lower rents are helping as well. According to real estate services firm JLL, monthly Grade A office rents are currently at an average of HK$112 ($14.50) per square foot in Central, whereas it’s HK$64 per square foot in Wan Chai and Causeway Bay. Rents are even lower at HK$48 per square foot in Hong Kong East, where Quarry Bay is located.
 
“The agglomeration of industries outside of Central, such as insurance and shipping in Hong Kong East and Kowloon East, plays a role, but rental cost is probably the biggest driver,” said Denis Ma, head of research at JLL in Hong Kong.
 
Charlton said the firm surveyed Central with JLL, and found there wasn’t much space around, especially since the law firm had to consolidate three offices in Hong Kong – their previous office on Connaught Road in Central, the former Haley & Co office in the Hong Kong Club also in Central, and William KK Ho & Co’s office in Wan Chai.
 
“Central was upwards of 98 percent occupied and the space that was available wasn’t particularly great—it's a bit higgledy-piggledy,” says Charlton. “So we decided to look at other options.”
 
“While we were doing that, we conducted a survey of our best clients, and they said they didn’t really mind where we were,” he said. “All they care about is effective service delivery, and they don’t think it's essential for their law firm to be located in Central. They just want the best service at the most efficient price and value for money. So they were completely open-minded.”
 
JLL’s Ma forecasts the rental gap between Central and the city’s other major office markets is likely to widen over the near term and expects the decentralisation of the legal sector away from Central to continue.
 
“Moreover, Freshfields’ move has set the wheels in motion for many other law firms to consider moving offices away from Central,” Ma said. “This is similar to what we saw in the banking sector when Morgan Stanley opted to relocate to ICC in Kowloon, and, more recently, Citi’s commitment to Kowloon East. Once some of the bigger players move, you will often find others following.”
 
If there’s anything the Quarry Bay-based law firms miss about Central, it’s the proximity to the courts, but it doesn't pose much of a problem.

Ince says their court clerks didn’t find being further away from the courts to be a huge inconvenience. “Our more flexible working arrangements and going agile has eliminated any issue with that,” says Noronha.
 
BLP’s Charlton also isn’t concerned. “Sure, our litigators have to plan their visits to the court. When they go to Admiralty, they have to think it through, but I wouldn’t say that's a disadvantage – it's just a practicality,” he said. “To be honest, Quarry Bay has got so much going for it. I don’t miss anything about Central.”

To contact the writer, please email john.kang@tr.com.

Five years of KWM: ‘Our values are very similar’
 
Last week, a first-of-its kind law firm merger marked five years of existence. Despite the negative press that King & Wood Mallesons has received of late over its European offices, the firm has much to celebrate over the past half-decade, and is quite bullish about its future, finds Ranajit Dam.
 
On March 1, 2012, a hitherto unthinkable merger came to fruition. One of China’s Red Circle law firms merged with one of Australia’s biggest outfits, and King & Wood Mallesons (KWM) was born. The first-of-its kind combination raised eyebrows as many felt the firms were too culturally dissimilar, and a few industry watchers even wondered how long it would last.

Five years on, not only is the merged firm still around, but it also has a number of accomplishments to brag about. But it is also true that KWM had its fair share of crises, such as the financial problems that plagued its European arm in the latter half of 2016. There were also failed attempts at other tie-ups: In 2013, a merger with Singapore’s WongPartnership was called off literally days before it was supposed to be announced, according to media reports.

Overall, however, the KWM story has been a story of success. Last year, for example, it was ranked as the top legal brand in Asia by the Acritas Asia-Pacific Law Firm Brand Index. And with more than 1,000 lawyers in the region, KWM is the eighth-largest domestic law firm in Asia, according to the ALB Top 50. The firm’s accomplishments also include growth in revenue and referrals across Australia, China and Hong Kong as well as a new office in Singapore.

KWM’s push for global integration notably included cultural integration, but it wasn’t always easy. “Integration requires hard work, patience, persistence and perseverance,” said a spokesperson for the firm. “To develop genuine relationships with each other takes time and commitment.” Among the lessons learnt by the firm in its first five years was “the importance of shared values, a shared vision and clear direction.”
 
THE HK FACTOR
KWM stressed that despite the short timeline, there was “nothing unusual” in terms of the challenges it faced during the merger. “While the differences between our nations, our cultures and our legacy firms exist, as individuals we are striving for the same thing – to do great work for great clients with great people. Our values are very similar,” said the spokesperson. That said, the firm “learned some valuable lessons on multi-lingual systems that will come in handy in the future.”

A vital factor in the smooth transition was the Hong Kong office, where both the legacy firms had a presence prior to the integration. As the spokesperson pointed out, “From the outset, all staff benefits and entitlements were aligned to reflect what the best fit was for the Hong Kong market, instead of KWM simply looking at it from a legacy firm approach.”

As the firm’s network grows, the Hong Kong factor remains critical in integrating the KWM brand. At a partner level, there are regular gatherings of partners at a management, practice and social level, which has resulted in collaboration across practices and associated client engagement.

Looking ahead to the next five years, KWM says it remains focused on cementing its position as the leading international firm in Asia. “Our global strategy will be client-driven. It will be based on how we can best support our clients in Asia as they do business offshore as well as our international clients as they do business in Asia,” said the spokesperson.


To contact the writer, please email ranajit.dam@tr.com.

In-House Q&A - David Ho of Alibaba Group

David Ho, head of international dispute resolution at Alibaba Group tells Raj Gunashekar about what new trends and skill sets are emerging in his industry and why his legal strategy goes beyond resolving lawsuits and disputes. 

ALB: Tell us a bit about your career so far.
David Ho: I grew up in New Zealand and obtained my first degree there.  After graduation, I had some brief experience as a barrister in New Zealand before returning to Hong Kong.  I was trained as a solicitor with the Hong Kong firm Kao, Lee & Yip and Deacons and then worked at Deacons’ China intellectual property (IP) department for around five years before moving on to Mayer Brown.  I joined Alibaba in 2012.

ALB: What are some of the major recent trends in your industry? In what ways have you seen these change or affect your role?
Ho: As the tech industry develops, certain trends in IP infringement liability, payment processing regulations, and data privacy compliance – just to name a few – are also emerging.  The key characteristics of these trends such as uncertainties as a result of underdeveloped laws and the asymmetric legal expectations in different jurisdictions are common to businesses whose scope and speed of development are similar to ours. 
I see a growing need to learn new skill sets very quickly and an increasing need to improve coordination between internal and external stakeholders in order to ensure the scalability of legal compliance in a commercially reasonable manner.

ALB: How many lawyers does your team consist of, and how does the structure work as a whole?
Ho: My team in Hong Kong is responsible for all litigation and contentious issues outside of mainland China. Our job scope and team size necessitates a very flat and lean structure to facilitate efficient and effective communication and decision-making. Responsibilities are generally divided into active case management and internal advisory work.  Active case management consists of managing lawsuits in collaboration with external counsels and implementing litigation strategy.  Internal advisory work includes advising internal stakeholders on system improvements as a result of insights gained from our contentious works.  

ALB: How would you describe your strategy for the legal team?
Ho: The overriding goals of our team are to protect our freedom to operate by preventing or minimising adverse legal developments and to align legal obligations with business objectives.  Maintaining clear communication and immersion of business and system developments is an effective strategy in achieving our goals.  That is why apart from resolving lawsuits and disputes, it is equally important to reflect and implement learning from lawsuits and disputes into our business and systems.

ALB: What would you say has been the proudest moment of your career so far?
Ho: When I joined Alibaba in 2012, I joined the Hong Kong-listed company responsible for international B2B trades.  The team I worked for merged into the Alibaba Group’s legal department when that company was de-listed from the Hong Kong Stock Exchange.  Over the years, I was entrusted to develop an international dispute resolution team for the Group and I’m proud to have achieved that.

ALB: What is the best advice you have ever received?
Ho: Some advice from my father: Always aim to give people pleasant surprises.  In a business context, this translates to proactively anticipating the needs of others and satisfying them in advance as well as maintaining a keen sense of risks and mitigating them proactively.  

To contact the writer, please email raj.gunashekar@tr.com.