By Park Si-soo
Can big domestic law firms withstand the onslaught of foreign giants?
Kim & Chang, the largest in Korea, has some 600 lawyers, whereas British law firm Clifford Chance, which offers a range of consulting services, has more than 3,400 at home and abroad. Furthermore, the latter has an extensive global information network using 35 offices in 25 nations, while Kim & Chang has only one liaison office in Hong Kong.
Including Clifford Chance, a total of 13 foreign law firms operate in Korea — Sheppard Mullin, Ropes & Gray, Cohen & Gresser, McDermott Will & Emery, Paul Hastings, Cleary Gottlieb, Squire Sanders, Covington & Burling, O’Melveny & Myers, K&L Gates, Simpson Thatcher & Bartlett and DLA Piper. With more newcomers expected to take advantage of free trade agreements, local law firms will face even fiercer competition for a bigger slice of the two trillion won ($1.84 billion) market.
Sales data of Korean law firms were not immediately available. However, The Bank of Korea (BOK) recently released a report suggesting that foreign law firms are already strong enough to dent the profitability of their Korean rivals.
According to the BOK, the country’s legal services account deficit is snowballing, which means domestic clients are spending more with law firms headquartered overseas. At 118.1 billion won ($108.3 million) in the first quarter of last year, the deficit expanded to 157.2 billion won in the second quarter and 243.2 billion won in the third quarter from latest data available. The combined legal services account deficit for 2010 was 508 billion won, but it surged to 539 billion in 2011, the BOK said.
The monthly deficit stood at 45.8 billion won on average during the first half of last year, but it surged to 69 billion won in August, the same month that American law firm Sheppard Mullin opened its Seoul office. The deficit significantly increased to 86.3 billion won in October, according to the BOK.
Many insiders at domestic law firms say they feel increasingly threatened by the rapid expansion of their foreign rivals. “It’s obviously true that the number of cases being handled by foreign law firms is increasing,” said a law firm official who requested anonymity. “Thankfully our bottom line was hardly affected. But there are many domestic firms suffering from declining profits.”
Against this backdrop, a growing number of domestic players have started offering services at cheaper prices. However, critics say this is a short-sighted tactic that will eventually hurt their bottom line.
“It’s hard to predict how the ecosystem of the industry will be transformed in the future,” the official said. “One thing clear is that Korean law firms will face an increasingly tough battle with foreign rivals.”
He said some domestic players are considering forming strategic alliances with overseas law firms currently without a Korean presence as part of their survival plan.