If further proof were needed of how the magic circle's standing in Asia has changed in the decades since they first entered the region, Linklaters yesterday (21 February) delivered it, with news of two more partner exits.

The pair – corporate partners Betty Yap (Hong Kong) and Judie Ng Shortell (Beijing) – are both set to join US rival Paul Weiss Rifkind Wharton & Garrison.

Combined with the pending retirement of high-profile Hong Kong corporate partner Teresa Ma later this month, the departures take the number of partners to leave Linklaters in Asia to 12 since January 2015, half of whom have joined US firms.

It is a world away from the situation leading UK firms would have found themselves in when they first entered the Asian market more than two decades ago.

Both Clifford Chance (CC) and Freshfields Bruckhaus Deringer celebrated their 35th and 30th anniversaries in Hong Kong recently, occasions that, on the one hand, demonstrate the firms' success but, on the other, serve as a reminder of how Asia has changed in this time.

I think that competitive advantage absolutely has been whittled away

Growing competition, primarily but not exclusively from US firms, and significant pressure on fees mean time served in the market does not automatically equate to success. 

"Magic circle firms had competitive advantages relative to the US firms in general because they were here longer and tended to have larger teams," says one Hong Kong-based partner. "I think that absolutely has been whittled away, just in terms of people moving around."

So what has changed for the magic circle and how do they plan to cope with the changed market?

State of play

Linklaters has dominated headlines in the region for the wrong reasons over recent months. In addition to this week's exits, earlier this month Hong Kong corporate partner Chris Kelly left for White & Case where he joins former Linklaters partner Peggy Wang, while in September David Irvine joined Kirkland & Ellis.

The firm has also seen Singapore partner Dean Lockhart and Hong Kong-based Jeremy Webb leave earlier in 2016, lost two partners – David Ludwick and Thomas Ng – to Freshfields last year, while James Douglass quit for King & Wood Mallesons in London and Jon Gray joined Davis Polk & Wardwell in Tokyo.

While the exits have affected multiple practices and countries, China corporate has been particularly affected, with the latest departures leaving Linklaters with three corporate partners in Hong Kong and five across China.

The firm declined to speak to Legal Week for this feature or provide up-to-date numbers but, according to its website, it now has around 50 partners in Asia.

This compares with some 94 at CC at the close of the last financial year, 35 at Freshfields and 72 at Allen & Overy (A&O), which itself has seen its Asia partner count shrink by 10 from 82 in January 2015. 

Simon Makinson, chairman of A&O's ASEAN practice, says: "We don't staff ourselves for the boom time, we staff ourselves for what we expect is the level and that makes it easier when there are downturns."

Slaughter and May, which in 2014 departed from its 126-year history by hiring US capital markets partner John Moore from Morrison & Foerster in Hong Kong, currently has 12 partners in Asia. Eleven of these are in Hong Kong, with one permanently based in Beijing. The firm recently suffered the departure of Laurence Rudge, who moved in-house to Li & Fung, while Hong Kong corporate partner Neil Hyman is due to retire from the partnership on 30 April.

Comparatively, as two of the larger US firms with a presence in Asia, Skadden Arps Slate Meagher & Flom has 43 partners across seven offices while Hogan Lovells has 63 partners in nine locations.

Rivals argue that the magic circle's conservative hiring compared with US firms in recent years and comparatively inflexible lockstep models have led to a degree of inflexibility that is now hindering their progress. "They cannot adapt as quickly," comments one market observer.Pay wars

In addition to the gulf in pay between UK and US firms making it harder for City firms to attract the big names when necessary, more rigid remuneration structures also make them more vulnerable to the poaching of star performers by US heavyweights prepared to pay for talent.

Freshfields has already made changes to allow it to break its lockstep when necessary in response to a series of raids by US firms, while A&O and CC have both reformed their partner remuneration in recent months. Linklaters, in contrast, is still in only the early stages of a review of partner pay.

US law is proving to be a particular battleground in the region, leading some to attribute the exits to a desire by defecting partners to be part of firms with stronger US platforms.

"A lot of cross border deals involve the US and you won't see the magic circle anywhere near that," says one ex-magic circle partner. "Their US practices are focused on capital markets and they are very small. They don't really have those strong ties with Wall Street and the private equity firms."

Making the case

All of the magic circle firms maintain that they are adequately resourced in US law and have no plans to build it up further in the foreseeable future.

Their supporters also argue that their more conservative recruitment approach has its advantages. With the Chinese economy stumbling and capital markets particularly hit, partners are quick to argue that they have been less exposed than US counterparts to drops in workflow. 

And their long-term commitment to the region means, according to some, that they find it easier to be flexible on pricing – an important factor in a market where fees are being pushed heavily downwards. US rivals, in contrast, are less able to justify loss-making practices to their partnerships. 

One of the things that has made the magic circle successful is that they are adaptable in jurisdictions

"One of the things that has made the magic circle successful is that they are adaptable in jurisdictions," says one Singapore office head. "They understand that they may not be getting the same rates for the same work they are getting in London but that flexibility has allowed them to build out their networks in a very positive way. That is the biggest difference between the magic circle and some of the US firms ."

Growth areas

While many US firms are focusing on specific areas of practice such as capital markets, the magic circle have largely been replicating in Asia what has worked for them in Europe, drawing on their traditional strengths. They are looking to continue building in widely recognised growth areas such as arbitration and regulation while maintaining a broadly full service offering.

Freshfields regional managing partner Robert Ashworth [pictured right] says: "We put particular emphasis on finding a balance between our practice groups. By way of example, our risk and regulatory practices have grown substantially in recent years and provide an important counterbalance to our more transactional practices."

"We are a full service law firm," comments Slaughters' Asia head, Peter Brien: "Competition will be a growth area in Hong Kong but we want to be strong in all the areas where we compete."

For A&O, which has opened a number of new bases in recent years including Australia and Korea, the emphasis now is on making sure the firm is making the most of its existing offices and resources, rather than growth.

Associates are encouraged to take larger roles on deals, and the firm is confident in its internal pipeline – looking to its junior lawyers to build out its Asia partnership in the future.

Areas identified by the firm as seeing an increased client demand include corporate, banking and project finance.

"No office is ever perfect," explains A&O's Makinson. "We are always looking for opportunities. Our strategy is to offer our clients the same level of service in all the jurisdictions where we have offices including local law where relevant."

Last year the firm launched its contract lawyer service Peer Point into Asia and it will formally introduce the initiative in Australia at the start of March, as well as building out its capabilities in Hong Kong and Singapore.

China

All five magic circle firms are targeting Chinese corporates as a significant part of their growth strategies in mainland China, but beyond this approaches to the now unsettled market differ.

Slaughters' Brien [pictured right] explains: "I think our client growth will come from corporates coming out of Asia and corporate listings in Hong Kong. Many of our multinational clients are already in Asia in a significant way so growth will come from Asian corporates doing work in Asia and overseas."

Linklaters is known to have more ambitious plans in the mainland, with the firm keen to secure a tie-up with a PRC firm in the Shanghai Free Trade Zone. Although Linklaters is understood to be close to announcing an alliance in the zone, so far Baker & McKenzie is the only international firm to take advantage of the free trade zone to offer a PRC-law capability to its clients. The global giant entered into an agreement in Shanghai with local firm FenXun Partners, last April.

The other magic circle firms have kept their cards closer to their chests, saying only that it is an area they are keeping under review in line with client needs. 

Regional approach

Taking a wider view of Asia, the way the magic circle operate their regional networks highlights key differences in their international strategies.

Whereas Slaughters steadfastly relies on its close network of domestic allies to complete work, others have chosen to enter local markets either through closer tie-ups or offices of their own.

A&O has 13 offices in the region, opening its most recent in Korea just last year. It also has offices in Thailand and Vietnam. The firm is now concentrating on building its reputation in its existing offices rather than entering new markets. Makinson describes Korea as "the last piece in the jigsaw for the time being".

Clifford Chance has nine offices around the region, most recently opening in Seoul in 2012, while both Linklaters and Freshfields have seven offices apiece, with Linklaters' haul including an associated office in Indonesia.

South East Asia is of particular interest, with a number of firms looking to grow their brand in more developing markets such as Indonesia. All of the magic circle bar Slaughters have developed bases in Singapore, which acts as a regional hub into Southeast Asia. Having had two previous attempts at the market, Freshfields re-launched in the city state in 2012.

No office is ever perfect. We are always looking for opportunities

Their strength and breadth across the wider region means that despite losses to US firms and mounting competition for work, talent and on fees, the magic circle are still holding their own in Asia.

The question is how long they will be able to continue doing so against the backdrop of nagging lockstep issues and increasing competition from US, and perhaps ultimately, Chinese firms. Will they be willing to adapt fast enough to keep up?