When Allen & Overy decided in 2004 that it wanted to
hand over its office in Albania, it could have expected a long
wait for takers. Not so: Austrian firm Wolf Theiss snapped up
the chance, and has since acquired offices in Bucharest and
Sarajevo. The irony is that six years ago a firm such as Wolf
Theiss would have been a merger target for Allen & Overy,
but now that Anglo-Saxon firms are retreating from
jurisdictions that do not meet their profit needs, firms such
as Wolf Theiss are undertaking their own international
expansion thanks to lower cost bases.
|Reasons to open an office
Shanghai: Chinese centre for
private listings, as well as the country's trade hub.
Rapid growth, plenty of opportunities in finance and
Beijing: Still the place to be in
China for restructurings, energy or infrastructure
Dubai: A new financial centre and
stock exchange, booming real estate sector, good
logistical base for international energy transactions
in Gulf Region
Munich: The private equity hub of
Germany, thriving technology sectors, IP centre, easy
to recruit young lawyers
Taipei: Transit point for
multinationals entering Asia, IP counsel needed for
Taiwanese technology companies, potential opportunities
in antitrust and M&A work
This is just one trend that emerges in IFLR's survey of
office openings, which reveals that over the last two years,
some 74 new offices were opened in 32 countries, from China to
the Cayman Islands. There is little overall consistency: while
Slaughter and May has closed two international offices in this
period and opened none, Orrick Herrington & Sutcliffe has
branched into Italy, Russia and Taiwan. The disparities say
much about the contrasting strategies of firms' managing
Despite the variations, four cities in particular stand out
as today's hotspots: Shanghai, with at least eight new offices
in the past two years, Dubai, with seven, Munich, with six and
Taipei, with four. Each has a different reason for its
popularity, based on specific areas of economic growth and new
Shanghai's appeal, for example, stems from its rapid
expansion as a financial and commercial centre in one of the
fastest-growing economies in the world. The city's estimated
growth rate, at 10.8%, outstrips that of China overall, where
GDP is expected to rise by 9.3% in 2005. The Shanghai
authorities' encouragement of Western investment has spurred
growth, as has the Chinese government's efforts to transform
Shanghai into China's financial hub and trading centre.
So far the results have been spectacular. Shanghai has less
than 2% of China's population, but now contributes more than
11% of China's total income. Its service trades (such as
finance, insurance and real estate) account for over half of
the city's gross output, while the Shanghai Stock Exchange,
established in 1990, is now mainland China's most important in
terms of shares listed and total market value, with over 37
million investor accounts. The city also has the busiest ports
in the world, with over a quarter of all commodities in China
passing through them. Three railways and two airports also
serve the city. Multinationals and investment banks, aware of
the growing prospects for business in Shanghai, are moving in.
Among law firms, Latham & Watkins and Vinson & Elkins
have opened offices this year, with Weil Gotshal having opened
for business in 2004.
The combination of an expanding client base, plus Shanghai's
position as the Chinese centre for private listings, has lured
corporate and commercial law firms to the city en masse. This
is in sharp contrast to a decade ago, when the Chinese Ministry
of Justice only permitted a single office licence for foreign
firms, and Shanghai was virtually ignored in favour of Beijing.
Since most of the initial work concerned the restructuring of
state-owned companies, it made sense to be where those
companies – and the government, who authorized the
approvals – were located.
Some of those firms might now regret that decision. Beijing
is still the sensible location for a firm specializing in
energy or infrastructure counsel, but the capital city has
experienced a slowdown in investment structure because of the
government's new macroeconomic reforms. A lot of foreign
investment is moving out of Beijing and into Shanghai as a
consequence. Nevertheless, Cleary Gottlieb Steen & Hamilton
has picked Beijing to open its office, due to begin advising
clients by early 2006.
"We decided on Beijing because of the type of work Cleary
Gottlieb does and because we asked our clients where they would
like to see us," says Mark Walker, the firm's managing
A hotspot in more ways than one
The only other city in the world that can rival Shanghai's
popularity at the moment is Dubai. This year alone, five firms
have opened a new office there: Baker Botts, Maples and Calder,
Simmons & Simmons, Ashurst and Freshfields Bruckhaus
Deringer. Considering that Dubai's oil reserves are
considerably lower than in other areas of the Gulf Region, this
might seem illogical. But firms are being drawn by two sectors
Dubai is promoting to provide alternatives to its oil economy:
property development and finance.
Real estate investment has soared after Arab capital (as
much as $200 billion) was drawn out of the US and reinvested in
the Gulf Region in the wake of the 9/11 terrorist attacks. This
influx of capital has led to a growth in real estate projects
– the most celebrated being the Burj Dubai, which will
be the world's tallest building when completed in 2009 at an
estimated cost of $8 billion. Burj Dubai will be a mixed-use
development that will include commercial, residential and
For investment banks and firms advising on financial law,
the big draw of Dubai is the Dubai International Financial
Centre (DIFC), an onshore capital market focused on banking
services, capital markets, asset management, reinsurance,
Islamic finance and back-office operations. The DIFC offers
benefits to financial institutions such as zero tax on income
and profits, complete foreign ownership and no restrictions on
foreign exchange or capital repatriation.
The DIFC also contains the Dubai International Finance
Exchange (DIFX), a new regional stock exchange that began
trading securities using the US dollar on September 26 this
year. The DFIX will not feature the stock purchase or listing
restrictions investors face on the local stock exchange in
Dubai. Partly because of this, the Dubai financial market has
more than tripled its value in the past 12 months.
But Jennifer Bibbings, corporate partner at Trowers &
Hamlins, which has been in Dubai since 1991 and the Middle East
for 25 years, says that Dubai's popularity is as a regional
centre rather than a city. "The DFIC is a piece in the jigsaw,
but not the sole reason firms are coming to Dubai," she says.
Indeed, Dubai's financial centre is not unique. The Qatar
Financial Centre, which deals in all currencies rather than
just the US dollar, opened on May 1, and the first phase of the
construction of Bahrain's Financial Harbour should be completed
by the end of 2006.
Another part of Dubai's attraction is its excellent
logistical connections with the rest of the Gulf Region, which
makes it an obvious base for those firms moving into the region
for the first time. In particular, firms specializing in
international energy transactions are putting teams on the
ground in Dubai to give them the capacity to advise on the
largest projects in the region, many of which are in Qatar.
Since Qatar has the world's second-largest proven gas reserves
in the world (after Russia) at over 900 trillion cubic feet,
firms are eager to participate in the upcoming gas projects in
the country. Perhaps the best known of these is the Dolphin
Project, the first phase of which, valued at $3.5 billion,
involves piping gas exports at the rate of two billion cubic
feet of gas each day.
The market in Dubai for law firms is far from saturated,
given the diverse economic growth in the region. But certain
factors might limit the rush of firms over the next few years.
International firms that have had a base in Dubai for many
years warn newcomers to do a thorough feasibility assessment,
identify their market and develop their contacts and local
business understanding patiently. And Dubai is not getting any
cheaper: fuel prices rose by a third in the first week of
September and rents are increasing. These factors might
restrict opportunistic ventures into the city.
Munich, on the other hand, is reaching a saturation point.
The firm has experienced two waves of office openings: European
firms started arriving in the 1990s, while most US firms have
established themselves in the city since 2000. In the last two
years, new entrants have been almost exclusively US firms:
Kirkland & Ellis, Reed Smith, Skadden Arps Slate Meagher
& Flom, Hogan & Hartson and Weil Gotshal & Manges
The main reason these firms are coming to Munich is because
the city is the private equity hub of Germany, and Europe's
second-biggest market for equity investment after the UK.
Several private equity companies have bases in Munich - such as
Bain Capital, Apex, Barclays Capital and EQT - and private
equity firms like to have their lawyers in the same city.
The German government has also tried to encourage the growth
of various technology sectors in Bavaria to stimulate the
economy. The growth of the aerospace, IT and biotech industries
has been so successful that the Bavarian economy is now
outperforming that of northern Germany. In addition, Munich is
home to the European Patent Office, the German Patent and
Trademark Office and the German Federal Patent Court, which
makes it the only realistic choice for intellectual property
(IP) firms opening a German office.
There is also the issue of quality of life. Munich-based law
firms say that it is much easier to bring young lawyers into a
Munich office than one in Frankfurt or Dusseldorf, as the city
is more attractive and dynamic. The Munich Intellectual
Property Law Center also provides a pool of international IP
graduates who are already based in the city.
US firms have tended to enter Munich cautiously, with small
offices of between five and 20 lawyers. As an example, Kirkland
& Ellis opened a Munich office with eight lawyers in
January 2005, plans to expand to 15 lawyers by the end of the
year, and is aiming for 25-30 lawyers by the end of 2007,
according to lead partners Volker Kullmann and Thomas
|Bernd Mayer: US
firms are right to expand cautiously in Munich
Bernd Mayer, a partner in Skadden Arps's Munich office, sees
the conservative approach of the US firms as a sensible policy.
"It's an investment, so of course you do it carefully," he
Restructuring work might also become a growth area for law
firms in Munich. At present it is still a new field in a market
dominated by receivership, but some firms are looking to form
restructuring teams to manage the anticipated volume of work.
Middle-market European firms might look to partner with their
German peers to advise on the high-end, high-margin side of
The other China
Taiwan has become a popular destination for US firms who
provide IP litigation counsel to Taiwanese clients in the
booming high-tech industry, a sector that accounts for over 70%
of the country's export trade. Taiwan's location at the
commercial heart of south-east Asia, plus its skilled research
and development personnel and advanced manufacturing
techniques, make it one of the most dynamic technology centres.
The capital, Taipei, is a hub of corporate activity and has
many semiconductor manufacturers, which are increasingly
involved in IP-based litigation suits all over the world.
With Taiwanese technology firms prepared to pay top rates in
order to protect their trademarks, international firms are
discovering that there is a considerable amount of profitable
IP work to do in Taiwan. Pillsbury Winthrop even describes
Taiwan as "the latest and most significant intellectual
Two new arrivals in Taiwan – Orrick Herrington
& Sutcliffe and Finnegan Henderson Farabow Garrett &
Dunner – were drawn to Taiwan by Taiwanese clients
seeking US IP legal services including litigation, portfolio
management, licensing and prosecution of US trademarks.
According to Kai Tseng, a partner in Orrick's Taipei and
Silicon Valley offices, Orrick needed a base in Taipei "to show
commitment to our clients and to expand our practice. Other
firms were going in to Taiwan, and we needed to stay
Both firms provide counsel to a similar base of clients.
Finnegan Henderson advises companies involved in semiconductor
manufacturing, electronics and biotechnology. Orrick advises
clients from two particular technology sectors: computer
products, including subcomponents and notebooks; and
semi-conductors and associated products, such as controller
chips and memory devices.
The number of US-based IP firms opening in Taiwan is likely
to level off over the next few years, however, for several
reasons. Firstly, it is becoming difficult for firms without
experience of the Taiwanese market to broach the market, and so
many would-be entrants are shifting their attention to mainland
China, where IP cases are set to skyrocket. Second, many of the
Taiwanese technology companies are now facing more lawsuits in
Japan and Korea than the US, so there is less demand for US
firms to open in Taiwan.
But Taiwan's high-technology industry will provide plenty of
opportunities for firms providing advice in sectors other than
IP. Antitrust, equity capital markets, M&A and general
commercial work all look like fertile practice areas for the
future. Asked if any international firms are likely to start
corporate practices in Taiwan in the next few years, one US
lawyer based in Taipei says: "I know lots of firms are looking
at it. But they'll need to consider carefully the history of
those US firms who tried it before to assess whether they can
make it long-term."
|New offices of leading firms in
Europe and Asia*
|* Data is based on IFLR research
and do not purport to be exhaustive