As South Korea's legal market moves into its third stage of liberalisation, Elizabeth Broomhall looks at how the 19 international firms are faring in the market and what's next for Seoul

When the first group of foreign law firms rushed to set up shop in South Korea in 2011 and 2012, the move was met with a degree of scepticism. While some worried there wouldn't be enough work to go around, others said a successful
Korean practice could easily be manned from firms' existing Asian offices, especially since the market had only partially liberalised.

Nevertheless, international outfits have continued to take an interest in Seoul, with Skadden Arps Slate Meagher & Flom being the latest and 19th firm to open in the country in May this year and Bird & Bird entering via a partnership with local firm Hwang Mok Park in February. As it stands, most firms have been trying to tap the market for overseas litigation, outbound M&A and international capital markets work generated by Korean corporates, usually starting with between three and 10 lawyers. In line with the most recent regulations, they are also now permitted to co-bill and share profits with local firms on a project-by-project basis.

But as the flood of law firms entering the country turns into a trickle and the third and final stage of legal market liberalisation looms, the question is whether firms are making a success of their Korean ventures so far and what challenges still remain as they try to compete with other firms and potentially look towards launching local Korean practices.

It is difficult to put all 19 firms into one bracket. While Cleary Gottlieb Steen & Hamilton and Simpson Thacher & Bartlett are generally billed as the leading capital markets firms, Paul Hastings, Linklaters and Clifford Chance (CC) are also thought to be nearing the top tier for corporate work generally. DLA Piper has likewise been recognised for generating work for its other offices, partly because of low fee quotes, while Ropes & Gray is said to be profiting from an increasing number of complex and significant intellectual property litigation cases. Beyond their success in specific practice areas, firms are often spoken of as either flourishing or surviving.

Changing strategy
"It is hard to generalise on how firms are doing," says Yong Guk Lee, the chief representative for Cleary in Seoul. "We had a Korean practice based in Hong Kong for more than 20 years and are continuing in Seoul with what we've always
done. That's probably true for a handful of firms - they are carrying on doing what they used to do out of Hong Kong. There are others that have a more niche practice, and those that are either brand new players in the market or trying to expand beyond their traditional practice areas.

For the latter, it has been a tougher ride. They are good in their niche areas but my impression is that they haven't been very successful in branching out."
Other partners agree, citing M&A and capital markets as among the more difficult areas within which firms can grow a business. In many cases, they say firms have had to shift their focus to better fit with the market.

"My general sense is that firms expected an easier implementation of their strategy," comments one partner, who asks not to be named. "Some have had to change their strategy to adapt to the needs of potential clients on the ground, which has led to less revenue than expected. They have put forward practices that they initially hadn't contemplated. So instead of M&A, some US firms have pitched strongly their litigation or disputes practices."

For even more firms, there also seems to be a realisation that the Seoul branch is less of a standalone profit centre and more of a base for networking with prospective clients and bringing in new business for other offices. It is especially the case where firms are focused on US litigation work, given that much of this needs to be handled in US courts. "Instead of working on the matters they are just introducing people," the partner adds. "These are not billing centres but client relationship centres."

The downside to this model is that it caters less for firms with a merit-based remuneration scheme or Swiss verein structure. In these circumstances partners suspect firms find other ways to subsidise those on the ground who are generating revenues for the wider network but are not technically billing hours, or else they risk demotivating their Seoul-based partners.

Overcoming the hurdles
Looking specifically at the achievements of UK firms, partners say the story isn't all doom and gloom. This is despite a number of reports citing the difficulties they have had in entering the market, because of rules that require chief representatives to have practised in their home jurisdictions for a minimum of three years combined with a lack of Korean nationals living in the UK. Certainly for US litigation work the feeling is that it's hard for them to compete, but, for many in the market, not having a Korean chief representative isn't necessarily the key to a successful practice in the country.

"Of course it helps them to market better if [a Korean] is head of the office," says Stephenson Harwood's Michael Kim, a former partner at DLA and the only Korean citizen to have had the title of 'chief representative' at a UK firm in Seoul. "Korean corporates like to deal with the partner or lawyer who can make a decision. The chief representative is responsible to the MoJ for all of the firm's affairs. But it doesn't really matter. Most have recruited and stationed either a Korean national or a Korean American as head of the office or managing partner – legally they are not the chief representative but they are still heading the practice."

Indeed, at Linklaters, New York-qualified corporate partner Hyung Ahn has the title of managing partner for Korea, though project finance partner Stephen Le Vesconte is technically the chief representative. Similarly, at CC banking and finance lawyer Hyun Suk Kim, though not legally the office head, is listed as the MP and key contact.

The US advantage
Challenges still crop up, however, and are highlighted by the fact that DLA, CC and Herbert Smith Freehills (HSF) have all seen the departures of chief representatives since opening. Also problematic is finding Koreans either to run or staff offices. As a result HSF is currently without a Korean lawyer in its list of key contacts, and CC has needed to appoint former HSF lawyer and UK counsel Thomas Walsh to replace its former chief representative, Brian Cassidy.

Separately, DLA recently had to transfer its office licence from the UK to US LLP to facilitate the promotion of US-qualified Korean lawyer Daniel Lee to chief representative, following the departure of UK-qualified Korean Michael Kim, who left in February for Stephenson Harwood. The firm was forced to temporarily close its Korean office for four working days during the process.

One partner at a UK firm says the situation is unlikely to change: "The difficulty in Korea is that it will be hard to make any inroads into the market unless you've got a team of Korean-speaking lawyers. That's a particular challenge for British firms because not many Koreans want to go and study in the UK. The US firms
are almost spoilt for choice and so have a natural advantage."

Beyond recruitment problems there may be more of a level playing field. Cleary's Lee points out that in certain practice areas where the top US firms have not had a presence in Seoul, the UK outfits have moved in. "One area in which they have done well is project finance," he explains. "That's where firms like Milbank
Tweed Hadley & McCloy and Latham & Watkins have traditionally been more active. But the UK firms, by virtue of having an office here, have been able to get some of that work."

This leads on to the wider issue of whether or not there is commercial sense in firms having a base on the ground in Seoul. Though individual profits are not known, certainly an office launch is thought to cost millions of US dollars, and one partner says it may take two or three years for some firms to merely break even.
"It is a huge investment," says Kim. "Unless you have a strong Korean business it is difficult to make ends meet."

Likewise, other partners question the value of having an office there if you have a strong team of Korean lawyers based elsewhere doing regular trips to Seoul. "I don't think people outside Korea can compete," comments William Kim, the chief representative for Ropes & Gray. "This week I have three lunches and four dinners with clients. Some 20 times a year I go out with one client. Outsiders might do a couple of trips a year. To win business you need to do a lot of sales and marketing."

Firms seem to appreciate this. Those understood to be considering an office launch include Simmons & Simmons, Ashurst and Allen & Overy on the UK side, and Milbank of the US outfits, while Stephenson Harwood is expecting to get a licence in July and Linklaters has made clear its intention to significantly build out its existing Seoul team.

Going local
A local Korean offering is a different ball game. Those suspected to launch such a practice when regulations permit – which is 2016 for EU firms and 2017 for US outfits – include Sheppard Mullin Richter & Hampton, DLA, Baker & McKenzie and CC. Cleary says it is still weighing up its options; Bird & Bird said at the time of signing its partnership that the deal was with a view to a full merger. But across the board, partners warn that a slow domestic legal market, huge competition and a current lack of clarity on the rules for going local – and specifically whether a merger is necessary or not - will be among the main hurdles.

"We are not interested – we do not plan on practising Korean law," says Ropes & Gray's Kim. "We don't see the need when the competition is getting tougher and the domestic market is static. Every year there are 2,500 legal graduates coming into the local legal scene."

Cleary's Lee sums up: "It is a pretty challenging proposition to build a Korean law practice for any international law firm – including us. The Korean legal market is unique. The Korean law firms are extremely large, experienced and well-connected. They have a lot of former government officials who can help enormously with regulatory issues. It is also unclear at this point what restrictions will be imposed on foreign law firms wanting to start a local law practice."

Year licences granted/offices launched in Korea
 
2012