In Focus

Increased competition from Chinese law firms imminent

Some Hong Kong firms are starting to form associations with their Chinese counterparts.

The COVID-19 pandemic brought about a season of changes for every sector of the economy and the legal sector is no exception.As we enter a new year, several law firms predict how the future will move forward in the legal industry.

In 2021, Hong Kong law firms will see a lot of competition from their Chinese counterparts, said Olga Yung, regional director of Michael Page Hong Kong.

“Many of them have become more sophisticated after entering the Hong Kong market in the past few years, the most recent firm being localised is Haiwen. Integrating into the Greater Bay Area development, these pilot measures allow Hong Kong legal practitioners to practice civil and commercial law in the nine mainland cities of the GBA, upon completing the examination and training course,” Yung said.

Hong Kong is the top place Chinese law firms have been setting up for their new overseas offices for the past two years, according to the data collected by China Business Law Journal from July 2018 to August 2020.

Some Chinese law firms have started gaining footing in the Hong Kong market by entering alliances with local law firms.

In December 2020, the Law Society of Hong Kong approved the association of independent Hong Kong law firm Yang Chan & Jamison LLP and Chinese law firm Shanghai Qin Li Law Firm.

The association is said to facilitate expansion of services to enterprises with businesses in Chinese Mainland and Hong Kong, with a focus on the Greater Bay Area. This may not be surprising as managing partner of Baker McKenzie's Hong Kong and Mainland China offices Steven Sieker said that China is set to lead the world in economic recovery.

“We anticipate an increase in investment activity and an associated increase in legal activity as businesses expand their footprint in Hong Kong and the GBA,” Sieker added.

Flexible work measures continue

The pandemic has left its mark indefinitely, so it’s not surprising that flexible work measures will continue in 2021.

“More work flexibility measures – work from home has proved to be both cost efficient and work effective at most law firms during the first three waves of COVID-19 in Hong Kong, and firms are expected to continue the work flexibility measures in 2021,” Yung said.

HFW’s Patrick Yeung has agreed with this sentiment, saying that firms will be looking to maximise their efficiency with the resources and tools available to them.

“As the market for technology solutions is maturing, law firms also need to embrace technology advances in terms of improved service delivery, new products in order to meet client demands as well as create a more efficient work environment,” Yeung added.

In Hong Kong’s Anti-Epidemic Fund the government established a LawTech Fund which aimed to assist some small and medium-sized law firms and barristers' chambers in procuring and upgrading information technology systems and arranging their staff to attend LawTech training courses.

Aside from the continued use of flexible work measures, Yung also said since 2020 saw a rise in headcount issues across financial institutions, there is a possibility of increase in hires for lawyers to move into hybrid legal and business roles where both the legal team and the business could have similar needs and therefore share resources.

Demands and drivers in 2021

Yung predicts that demand for legal services in the technology sector will increase,partially due to our proximity to Shenzhen, the city considered to be the “Silicon Valley of China” and China’s technology hub, and because of new technology companies expanding in the Greater China region.

“The growing virtual banking and fintech markets also drive the demand for technology lawyers, both within the corporate commercial and disputes sides,” she elaborated.

Yung also mentioned that because of the US-China trade war, there are tightened regulatory guidelines in place that will result in increased need across regulatory and compliance practice as regulatory lawyers are best equipped to advise on sanctions or regulatory issues.

“Across private practice, the equity capital market (ECM) continues to be active – as the US scrutinises its regulatory requirement on Chinese companies listed in the US, many Chinese companies are choosing Hong Kong stock exchange for secondary listing and IPOs,” she added.

HFW predicts that the demand for complex advice on cross border issues, both transactional and contentious, will continue to grow and increase in volume.

“Despite an unpredictable global economic outlook, the confidence in cross-border opportunities remains high. Global trade and development opportunities and issues will primarily drive this demand,” Yeung said.

Facing new challenges

With the Chinese law firms eyeing the Hong Kong market, Yung said it will create a downward pressure on pricing.

“In the competition market, foreign firms need to reinforce their capability to deal with complex across border matters with strong expertise of the Mainland market,” she added.

To avoid falling into a pure price competition, she suggested that foreign firms expand their offerings by collaborating with Chinese firms.

Aside from the threat of competition, Yung said technological advancement creates a growing demand for legal services. She emphasised that firms should prepare for development in the legal and regulatory framework as technology changes the way things operate.

Even before the pandemic, Hong Kong has indicated support for the development of an online dispute resolution and deal-making platform by an NGO called eBRAM which is an Internet-based online platform that facilitates the provision of one-stop dispute resolution services.

In the wake of COVID-19, a lot of companies see the need for more flexibility but HFW’s Yeung emphasised that firms need to focus on flexibility that incorporates what the clients need.

“There's an increased focus on the client experience, from value-added services to tailored pricing models, we see more and more firms stepping up to boost their client services,” he added.

Regulatory changes gives positive impacts

Yeung said that right now the current regulations give enough flexibility to be safe and responsible while not harming commercial viability.

Risk such as money laundering are just one of many that law firms face but Yeung believes that existing regulations allow firms to manage these risks in a comprehensive but not overbearing way.

“COVID-19 has also required us to find flexibility in how we handle and sign certain documents, since face-to-face meetings should only occur if absolutely necessary and we are fortunate that Hong Kong regulations allow for remote signing of many documents,” Yeung added.

As for changes in regulations, Yeung said Europe’s general data protection regulation may affect regulations in Hong Kong.

“We are likely to have to deal with similar rules to GDPR within one to two years. These are ultimately to the benefit of both ourselves and our clients. Clients will have more control over the type of personal data we have about them, and we will need to be more careful about how we handle their data. Privacy is important to us and our clients, so this will mainly be positive,” he said

Michael Page’s Yung said these regulation changes are essential to cope with the ever-changing needs and landscape of the legal industry.

Yung gave the enactment of the limited liability partnerships back in 2016 as an example of these positive regulatory changes. The introduction of the LLP in Hong Kong added another choice in the mode of practice for law firms in the region.

“As of 30 September 2020, there are 47 law firms registered as LLPs pursuant to the Legal Practitioners Ordinance. Consultation with its members is often conducted for any proposed changes by the law society to the current regulation,” she added.

Getting ready for the future

To be ready for any changes and challenges in 2021, HFW said they keep their business model flexible and agile to better adapt and grow to meet future demands.

“For example, our global HFW LITIGATION team regularly handle high-value, complex, multi-party, multi-jurisdictional disputes; emerging from the pandemic, HFW is introducing an initiative on Sustainability, our objective is to become a leader among law firms, drawing on our very talented and dedicated people,” Yeung said.

The pandemic is the biggest challenge 2020 has faced but despite that, Baker McKenzie said they see improvement in both the pandemic and geopolitical outlook in the year ahead and a resulting improvement in business sentiment.

“Deal activities are likely to remain busy, particularly in the financial services, technology, healthcare and real estate sectors, as companies continue with their strategic investments and capital raising activities, which in part are fueled by various policy measures and initiatives that start to take effect,” Sieker of Baker McKenzie said.

Do you know more about this story? Contact us anonymously through this link.

Click here to learn about advertising, content sponsorship, events & rountables, custom media solutions, whitepaper writing, sales leads or eDM opportunities with us.

To get a media kit and information on advertising or sponsoring click here.