Year in Review: Asia 2009

Posted on May 14, 2010 at 7:05 PM

The Rise of Asia

Winston Churchill once said, "The longer you can look back, the farther you can look forward." According to a recent issue of The Economist, the new economic order is in fact a resurgence of a very old one.  For 18 of the last 20 centuries Asia has accounted for over half of the world's economic output.  Whether or not you're interested in Asia's capital spending, consumption, or PPP (GDP measured at purchase-power parity), the importance of the Asian financial and legal markets in 2009 and beyond is undeniable.  The "Rise of Asia" is not a myth, and we have seen Asia rebound from the global recession faster than the Western world, due in part to the strength of their banking systems and debt dynamics.  In 2009, China became the world's largest exporter and continued economic growth in several countries in the region, namely Australia and India, contributed to Asia's attraction and the anticipation of further growth in 2010.  The region has become increasingly important to bankers, lawyers, senior executives, and businessmen.  As a result, the landscape of private practice in Asia has been forever altered. We have outlined below some of the major trends of 2009 related to Hiring, Investment Strategies/Deal Flow, Diversification, Localization and Office Openings.  For information on last year's unprecedented partner movement, please visit our website's Partner Watch page.

Hiring Trends

No region has been immune to the economic downturn and, following the last two years of salary freezes and reduced bonus structures, hiring needs and expat packages in China and Japan have become a hot topic among American lawyers living abroad.  Many firms have remained committed in terms of hiring in the region and have been investing resources into their foreign offices and hiring or promoting partners.  That said, it was certainly a buyer's market, and firms have been more selective than ever.  Our candidates continued to receive offers and competitive remuneration packages, especially the most marketable candidates-partners with sustainable books of business over $2.5 million and on-the-ground experience, as well as bilingual associates with outstanding academic pedigrees and capital markets and/or finance experience at large international law firms.  This year we saw particularly high demand for associates with Hong Kong qualifications and/or capital markets/US securities experience, and bilingual language skills (Mandarin, Cantonese, Japanese and/or Korean) remain a strict requirement. More recently, we have seen an increasing need for transactional attorneys with Korean language capabilities in Hong Kong and Hindi-speaking private equity, capital markets and finance attorneys in Singapore as firms prepare for the India and South Korea markets to open up.

Expat packages, especially in more mature legal markets like Tokyo and Hong Kong, are still comparatively weak historically when compared to what they had been, though there remains a willingness to negotiate.  Firms continue to lower their benefits and cut extra perks such as club memberships and school tuition, and we have seen more inconsistencies than ever between firms within a given city and even within some firms' own offices.  In 2009, our candidates received over 50 offers and, so far in 2010, our candidates have received over 15 offers, many of which were heavily negotiated as firms tended to make lower initial offers leaving room for the addition of certain perks or an increase in allowances.  We have also noticed that formal offers are taking longer to be extended and interview schedules are drawn out as firms are more hesitant and often foreign offices must first gain approval from their home offices.  As the market continues to recover, most of the US and UK law firms are seeking candidates with the same profile, which is slowly forcing salaries and expat benefits to stabilize as firms compete over a select group of candidates.  Some firms, especially newer firms to the market, have even intentionally set their packages higher to lure attorneys from their more established competitors.

Hong Kong was the single busiest Asian market in 2009 and remains so to this day, but it seems that since the third quarter of 2009, nearly a quarter of these openings are Hong Kong capital markets positions that call for a HK or PRC-qualified attorney.  Overall, there is still a demand for US and UK attorneys, although it is biased toward securities and then, to a lesser extent, banking and project finance, M&A, and PE work.  The only recent exception seems to be the recent increase in funds work, which has evolved into several opportunities in Hong Kong and onshore, especially as local regulations that promote such activity change (see below).  In Shanghai and Beijing, the markets are still soft and they are both just beginning to show increased growth and a need for truly outstanding bilingual transactional attorneys.  The Beijing and Shanghai offices were hit the hardest by the downturn as they had gone on a hiring spree in 2006, 2007, and the first quarter of 2008.  Junior attorneys suffered the most, many being laid off in droves.  Now, Beijing and Shanghai offices are focused on building their core of mid-senior-level attorneys; people who are ambitious, will go out to gain new clients and seek deals and who are looking to make a name for themselves.  Because business hasn't yet completely reversed course in these offices--though we think it will--their needs for juniors are still few and far between.  Those firms looking for first- and second-year attorneys are more apt to pull people from their own offices, shorten a deferment, or get them right out of school, thereby looking over the second- and third-year candidates on the market.

As a general rule for most of 2009 and even into 2010, the urgent needs are for US‑educated attorneys who are originally from the PRC and have been working in the PRC or US for the past few years. There is particular demand for highly credentialed, Western‑born US JDs with excellent technical legal skills, bilingual language capabilities and ties to the region.  To turn a profit in China, firms can't solely rely on US business interests investing or buying in China--the economy is weak in the US.  Firms are starting to see more outbound investment by Chinese companies and inter-Asia transactions and, therefore, have returned to their strict language requirements.  US and UK firms are also looking for attorneys who are familiar with the PRC legal system and accustomed to working in a Western-style law firm.  This makes it difficult for non‑Mandarin speakers and even PRC-born attorneys who have never worked in China to obtain a position at an international law firm.

While Japan has certainly been one of the slowest markets over the past few years, the dollar‑to‑yen rates have become much more favorable for investing back into the market. Three years ago, the exchange rate was about 125 yen/$1.00 USD and now it is closer to 90 yen/$1.00 USD.  With this 30 percent decrease, we have begun to see increased activity at firms.  New firms have entered the market and others are growing.  Overall, it remains highly competitive, but there is activity once again. General corporate practices are picking up and we have also seen an increase in dispute resolution.  For the first time in several years, IP work has begun to increase and seasoned practitioners with native‑level Japanese language skills remain highly desirable candidates.  While the cross-border work has been fluctuant in Japan, the firms who have Japanese law capabilities have remained busy on that front.  Many firms continue to look for mid-level bengoshi to support their overall practice.

Interestingly, in the past few months we have seen a sharp increase in associate and partner movement and interest, and both firms and attorneys are looking to best position themselves for recovery.  This means that practice groups and individual partners are on the move, and firms are looking for that perfect partner to complement their current practices.  The market remains extremely competitive as many firms experienced recent hiring freezes and the number of attorneys looking to Asia for relief from the US and Western legal markets continues to grow.  In the second half of February, we were retained by three firms planning to open multiple new offices in China: one is looking for private equity and fund attorneys, one for capital markets associates and partners, and the last for native Mandarin-speaking transactional attorneys with US JDs at all levels. The timing of these firms' renewed interest is not surprising given that the Chinese New Year has recently been celebrated and firms are back to work. Investment Strategies and Deal Flow

M&A and Private Equity

During the robust years of 2007 and 2008, most US and UK firms were eagerly building their capital markets and/or M&A practices.  The transactional corporate practice, the mainstay of most US firms in Asia, changed shape in 2009 as it adapted to the changing economic climate and client demands.  It was a relatively busy year in terms of M&A activity but was certainly slowed by the global recession.  According to Thomson Reuters, the Asia-Pacific region contributed to approximately 20 percent of global M&A activity during 2009 and was the only global region to see a year-on-year upturn in volume, referring to the percentage change in the US dollar.  The region was also the most resilient and, excluding Japan, the Asia-Pacific region dropped 37% in completed M&A volume for H1 2009 when the US and European Union encountered a 45% decrease according to Dealogic, a financial-data provider.  The total value of 2009 Greater China M&A deals was US$421.4 billion, an increase of 5 percent from the previous year.  Six out of the top ten deals were in the renewable energy and resources sectors.   Japanese M&A activity bucked the global trend, with deal volumes rising in Q1 2009 and shrinking modestly in the second quarter of the year, adding credence to the thought that the Japanese economy was beginning to bottom out.  Notably, of the 235 M&A transactions during the first 6 months of 2009, all but 13 were domestic plays.

One of the most notable trends of 2009 was the inversion of Chinese outbound investment exceeding inbound US investment in China for the first time.  Chinese outbound M&A activity was at an all-time high in 2009; however, the amount invested was a distant third to the US.  While American M&A activity within China remains diverse, the motivation for a good portion of China's outbound investment revolves around China's desire to have tangible ownership of particularly critical raw materials and oil.  Overall, in 2009, the largest international deals completed by Chinese companies were to expand access to oil fields and raw materials such as the acquisition of UK company Emerald Energy and Singapore Petroleum, as well as the acquisition of Felix resources and OZ Minerals.

Despite the aforementioned M&A activity in China, by Q1 of 2009, it was evident that the need for M&A attorneys was dwindling as firms struggled to keep the new hires from the boom in 2007 and 2008 busy.  However, we did see an increasing demand for private equity and fund formation associates towards the middle of 2009 and the need continues to increase in Hong Kong and onshore as top fund firms like Debevoise, Simpson, Ropes & Gray and Clifford Chance continue to bring in fund attorneys.  Newcomers Kirkland & Ellis and Dechert have made great strides in the fund area and have also expressed an interest in making additional hires this year.  One of the more significant trends in the funds arena is the desire to establish Renminbi denominated funds in China.  Late in 2009, Blackstone went to Shanghai to sign a deal with the municipal government and create the first Blackstone fund denominated entirely in Chinese currency.  This is a clear sign that global burgeoning funds, like Blackstone and Carlyle, are scrambling to compete with the emerging Chinese private equity funds emerging in big cities as China promulgates new regulations aimed at creating a homegrown private equity industry.  People suspect that the new National Foreign Invested Partnership Law may also be a potential vehicle for RMB funds.

Capital Markets/Finance

The greatest need we saw last year was for capital markets associates, particularly in Hong Kong.  In terms of IPO activity, the region encountered a difficult start to 2009 but, fortunately, lawyers' prayers were answered during Q3 when there was exponential growth with Hong Kong and mainland China leading the global IPO recovery.  Asian firms launched eight of the ten largest initial public offerings (IPOs) in 2009 and more than twice as much capital was raised through IPOs in China and Hong Kong last year then in the US.  US and UK law firms were eagerly seeking both Hong Kong qualified associates and bilingual US-qualified associates with significant US securities experience to work on Rule 144A equity and debt offerings.

So far in 2010, we have already seen Bank of Communications recently announce a 42 billion yuan ($6.15 billion USD) rights offering, the largest fund-raising effort by a mainland company since the heady days of 2007.  With the economy and capital markets becoming more stable, coupled with a strong IPO pipeline and market liquidity, Terence Ho of Ernst & Young predicts 2010 IPO onshore activities will continue to be strong and the IPO value will at least double on the Shanghai Stock Exchange.  IPO activity in Hong Kong should also remain strong as Chinese and Western companies continue to seek listings.  Edwin Luk, a partner in Orrick Herrington's Hong Kong office, argues that the level of IPO activity should continue and that "we do a lot of the work leading up to the deal going to market so generally lawyers are expected to be very busy in capital markets work in the first-half of the year."  David Roberts of O'Melveny Myer's Beijing office is a bit more cautious but adds that 2010 does look very promising and that his firm is starting to work with clients, issuers, and underwriters that are preparing for IPOs in 2010.

In the last two months, we have also been asked by several firms to locate capital markets attorneys with an India focus for growing practices in Singapore as firms gear up for a significant amount of pre-IPO work. Diversification

While transactional corporate and finance practices mature and strengthen throughout Asia, ancillary practices are also surfacing throughout the region.  In 2009 and even today, we witnessed firms diversify their platforms as additional practice areas surface like litigation, dispute resolution, energy/projects, private equity, fund formation and restructuring.  US and UK law firms want to compete for new business and take advantage of cross selling opportunities and meet the growing demands of their existing or prospective clients.  To that end, firms are diversifying their services to clients by making lateral hires and internal transfers.  In the fall of 2009, Linklaters brought in a new leader for its Asia investment management practice and relocated London partner Edward Smith to Hong Kong.  Similarly, over the summer, Skadden announced the launch of their new Asia Pacific International Arbitration and Litigation practice and relocated UK‑based partner Paul Mitchard to Hong Kong to head the practice.  US and UK firms are also gearing up for the possible opening of the India and South Korea markets, as well as building region-specific capital markets, M&A and finance practices in Hong Kong and Singapore.

Already in 2010, we have seen White & Case expand its Singapore office by launching an international arbitration practice with two partners and two associates. Aloke Ray, a partner from the firm's London office, will head the new practice and has transferred to the Singapore office.  Across the Asia region as a whole, arbitration continues to be the preferred approach to resolve cross-border disputes. Localization

Recently, there has been a trend towards localization in the Hong Kong and Singapore legal markets. In the Hong Kong legal market, the international firms have realized that to be a true competitor in the market, they will have to advise on both local and foreign law issues. US and UK law firms must have at least a 1:1 ratio of Hong Kong admitted attorneys, the minimum ratio required to seek admission to practice Hong Kong law instead of solely foreign law.  This requirement prompted two remarkable trends to surface last year.  First, the unprecedented demand for native HK qualified attorneys with large law firm experience in capital markets, finance, and/or international arbitration experience.  Second, a record number of US and UK qualified attorneys took the Hong Kong Law Society's qualification exam to become admitted as a foreign qualified attorney in Hong Kong.  According to Paul Kent, a HK law examiner and consultant to major international law firms in Hong Kong, "there are considerable advantages for law firms who take an active role in enabling lawyers to qualify as Hong Kong solicitors" and "the advantage of Hong Kong as the gateway to China cannot be overestimated, especially with the increased opportunities for law firms in the PRC under the Closer Economic Partnership Arrangement (CEPA)."  For more details on the Hong Kong qualification exam, click here.

Singapore has long been referred to as the up-and-coming hot new Asian market with its close relationship to South East Asia and the Middle East.  In previous years, regulations required that a law firm wishing to practice local law in Singapore do so through either a representative office, a foreign law practice, a formal law alliance or a joint law venture. This changed in 2009 as the Singapore government awarded Qualifying Foreign Law Practice (QFLP) licenses to six international firms, including Allen & Overy, Clifford Chance, Herbert Smith, Latham & Watkins, Norton Rose, and White & Case.  All of the firms who were granted licenses had already been operating in Singapore in some fashion for some amount of time.  After obtaining their own license, White & Case ended its formal alliance with Venture Law Group and grew organically.  Allen & Overy acquired Venture Law and used its acquisition of the ten attorneys from Venture Law to grow and ended its joint law venture with Shook, Lin & Bok.  The remaining four firms all continue some form of alliance; however, they now have the ability to operate independently given they are able to attract and retain Singapore-qualified lawyers.  Over the past several weeks we have seen substantially increased activity in Singapore with several new job orders coming in.  Generally, most firms are looking to hire Singapore-qualified attorneys who have the capability to handle local law.  This is remarkably similar to the joint ventures that have existed in Japan for many years, where only locally qualified bengoshi can advise on local law. Office Openings

In 2009, we saw a record number of office openings with a total of over 66 openings in Asia, Oceania, and the Middle East, one office in Tokyo, 9 in Hong Kong, 19 on mainland China, 5 in Singapore, 2 in Sydney, and 25 in the Middle East.  Through internal transfers and local hires, firms expanded their existing Asian presence (47) or entered the region for the first time (19).  The year began with the opening of Goodwin Procter's first Asian office in Hong Kong in January 2009.  The firm moved several key partners to the office, including Yash Ran and Brian McDaniel.  Early last year, Henry Liu, a former partner at Heller with years of on-ground experience, move to Nixon Peabody to chair their China practice.  While things looked promising for the Middle East at the beginning of 2009, office openings came to a halt by Q4 and have remained relatively quiet ever since.

In the past several months, we have been contacted by four firms planning to open multiple new offices in China. Two of these firms were looking for a capital markets partner, one looking for a bank finance partner, and the other for a project finance partner.  So far this year, we have already seen 8 law firms open in China, 1 in Tokyo, 2 in Singapore, and 5 in the Middle East.

What will 2010 bring in?  According to a recent New York Times article, while companies and countries in the West and Japan have been humbled by debt and fear, a new enthusiasm for deals has emerged the first quarter of this year in China, India and other emerging markets.  Cypress has seen more opportunities for bilingual associates and partners throughout Asia than we have seen since Q3 2008, particularly in the capital markets, private equity, energy, and fund formation areas.  Just very recently, we have even seen a slight increase in the need for M&A and FDI attorneys as some firms prepare for a recovery later this year.

While waiting for the India and South Korea legal markets to open to Western law firms, we have already witnessed some interesting developments this year. Allen & Overy has aggressively entered the Australian legal market and analysts predict that the Chinese currency will soon become the currency of choice for private equity firms operating in China. There has also been a slight rebound in the Japan and Singapore job markets.  This year we have already seen the biggest fund-raising effort by a mainland company since 2007. Furthermore, China's continued need for oil and other raw materials and investors focusing on China's state-owned-enterprises will only add to their growth.  Despite fears that China will begin monetary tightening, there has already been more IPO activity in Hong Kong and China than this time last year.

While it's still a buyer's market, financial markers indicate an increase in market activity and even more job opportunities in the Year of the Tiger.  The real challenge for any candidate in today's market is determining exactly where the real opportunities exist.  It is important to work with an experienced, responsive and honest staffing agent, especially as the market becomes flooded with recruiters trying to break into these unique and complex legal markets given the downturn in the US economy.  Work exclusively with an expert--Cypress is the oldest US-based recruiting firm focusing solely on the Asian markets and we have built unparalleled relationships throughout the region.  If you are interested in finding out how the market looks for you, please let us know by emailing us at or calling 212.979.5900.

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