Hong Kong’s legal sector faces tougher competition from Chinese law firms

With Chinese law firms gaining ground in the Hong Kong market, what does this spell for Hong Kong law firms?

Mainland firms have been establishing themselves in the HK market over the past few years

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 in Hong Kong 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 of law firms is said to facilitate expansion of services to enterprises with businesses in Mainland China 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 as well as in 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 Patric 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

Law firms need to embrace technology to meet client demands and create a more efficient work environment

Hong Kong has been the Number One choice for Chinese law firms in the past two years

Source: Robert Walters Salary Survey 2017 Source: China Business Law Journal

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.

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, and because of new technology companies expanding in the Greater China region. The growing virtual banking and fintech markets also drive the demand for lawyers, both within the corporate commercial and disputes sides,” she added.

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,” according to Yung.

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,” according to Yung.

Facing new challenges

With the Chinese law firms eyeing the Hong Kong market, Yung said it will result in 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 many adapt digital transformations.

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 onestop 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 and more firms step up to boost their client services, he 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’s Sieker sees 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, he added.

Olga Yung

Demand for legal services in the technology sector will increase