When Slaughter and May cast aside 125 years of tradition to make its first lateral partner hire in Hong Kong earlier this year it said something about the market in the Asian city. But as growing numbers of firms – both UK and US – pile into the region or bolster their ranks in a bid to capture a share of the coveted market, competition for talent, work and on fees is immense.

Against this backdrop it is unsurprising that some firms are now reappraising their strategy, with it emerging this week that Milbank Tweed Hadley & McCloy is planning on winding up its local practice in the city. Having had a Hong Kong law practice for less than four years, the suggestion is that the firm is refocusing on international work and looking to adopt a similar model to the one it employs in Singapore, where it partners with top-tier local firms rather than hiring its own local lawyers. 

Given Milbank's profitability and the recent hires of two senior partners from Allen & Overy (A&O) in Hong Kong and Japan, as well as this week's capture of Stephenson Harwood aviation finance head Paul Ng in Singapore, the firm certainly seems to be evolving rather than downsizing.

The news that Milbank is giving up local law hasn't come as a surprise to market watchers. "It looks like they're not too bullish on China anymore," says one partner. "My understanding is that they are essentially refocusing on regional work."

Most believe that the decision to give up its local law licence will be unique to Milbank, which specialises in litigation, aviation and project finance, rather than the capital markets work that has typically driven international firms' presence on the ground.

That is not to say that firms that have traditionally had more of a corporate/capital markets bent have been sitting pretty with their Hong Kong strategies, with many reshaping as competition and fee pressure increases, partly because of a slowdown in capital markets work. For example, A&O realigned its China strategy to avoid an over reliance on the Hong Kong initial public offering (IPO) market.

"China has been a very tough place over the last couple of years and some firms have lost their nerve," says Matthew Bersani, Asia managing partner at Shearman & Sterling. "Unless you have a credible leader in the Hong Kong practice it makes it very hard to compete. Now there are three categories: the full-service firms that are doing a lot of IPO work; another tier that have Hong Kong capabilities for everything else and the occasional IPO; and those that don't have, or that have given up on, Hong Kong law altogether."

Some US firms, such as Paul Weiss Rifkind Wharton & Garrison, have stuck to their guns and never tried practising local law in Hong Kong, while others have made the decision to downsize in recent years. Despite this there is a conviction that firms are set to remain in Asia for the long haul, even if they reduce their presence on the ground. 

"We shifted the focus of our Asia practice away from Hong Kong capital markets as the primary practice area, as have some other firms," says Doug Freeman, Hong Kong managing partner for Fried Frank Harris Shriver & Jacobson. 

"It is still relevant, and we still do it, but it doesn't have to be the core of the practice. I personally think you'll see a lot of firms pull back on their Asia practices generally because I think a lot of firms have lost a lot of money in Asia. You may see firms decide to become more narrowly focused or niche and mould their practice to fit with what they do elsewhere."

It is a strategy that Milbank has taken to the next level by pulling out of local law altogether. The market will be watching closely to see if anyone else follows suit.

Related: