As India booms, foreign law firms wait impatiently for a share of the spoils. Prohibited from entering the market, they stalk from afar. How will they pounce when the prey is in range?
By George W Russell in Bangalore
With faint echoes of China’s opening up to the world in the 1980s, international businesses are rushing to devise strategies to access the market in India, an emerging economy of more than 1 billion people. Multinational corporations in Asia, Europe and North America are turning to global law firms to unravel the bureaucratic knots and ensure they can successfully enter, operate, grow and profit.
China’s opening meant an entirely new legal landscape had to be constructed. Despite Beijing’s authoritarian rule and a lack of a legal framework, China’s startling economic growth prompted an influx of international law firms.
Not all survived, but a substantial number of them continue to operate profitably today alongside newer expansionary local firms with growing global reputations, such as Fangda Partners, Jun He Law Offices and King & Wood.
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While these Chinese law firms are building their reputations around the world, even the largest Indian firms, such as FoxMandal Little and Amarchand Mangaldas & Suresh A Shroff & Co, evoke little emotion outside the country.
India’s corporate reputation is growing but its legal industry operates in a bubble of restrictions and protectionism.
Where China saw an opportunity to speed up its development, a large segment of India’s legal establishment sees only threat. According to conventional wisdom, while China soared, India stagnated. As a result, the increased participation of foreign law firms and the ever-more-likely possibility that they will eventually be allowed full access has generated much controversy.
In 1994 “there were only very basic joint venture or manufacturing opportunities and there were concerns about the structure of Indian companies,” recalled Alice Young, partner and chair of the Asia-Pacific practice at Kaye Scholer in New York.
“Bhopal was still on everyone’s minds,” Young added, referring to the Madhya Pradesh city where a cyanide leak from a Union Carbide plant in 1984 killed thousands and destroyed what little respect Indians had for Western capitalism and its associated legal system.
Riding the growth
Two decades later, India is finally on the global economic map. Multinational corporations such as Vodafone, Posco and Holcim are making massive investments alongside real estate funds and private equity giants. Meanwhile, Indian companies are flexing their global muscle abroad, such as Tata Steel’s high-profile purchase of Anglo-Dutch rival Corus for US$12.2 billion.
“There are many more avenues of opportunity as the Indian middle class expands and India becomes a target market, not just a lower-cost supplier,” said Young.
Mumbai is already a major capital markets centre. Multinational corporations have sprouted offices all over Delhi. United Arab Emirates and Saudi Arabian petrodollars fuel real estate booms in Kolkata and other cities. Chennai, Bangalore and Hyderabad host massive outsourcing, financial and consumer services, research and development and information technology industries.
What’s missing, however, are the familiar shingles of multinational law firms widely seen in Beijing and Shanghai, or for that matter London, New York, Hong Kong or Singapore.
Unique characteristics
From a market perspective, there are important distinctions between China and India.
“The Indian market is more likely to focus on capital markets, infrastructure development, infrastructure finance, private equity, venture capital, and technology-based business,” said J Ross Docksey, a Chicago-based corporate and securities group partner with Sonnenschein Nath & Rosenthal. “The China market is focused more on manufacturing.”
However, a more crucial stumbling block is that – barring a couple of historical exceptions – foreign law firms cannot keep offices in India. Certainly, none can practise or advise on Indian law.
Just as many companies have lowered costs by moving production and development to India, global law firms may be close to fulfilling their 15-year-old dreams of trading their high-priced international lawyers housed in expensive London or New York real estate for Indian lawyers in corporate offices in Delhi and Mumbai.
This despite the fact that many firms have built substantial Indian businesses without boots on the ground.
“We have developed a very large India practice without a physical presence,” said Charlene Barshefsky, United States Trade Representative (USTR) in former US president Bill Clinton’s Cabinet and now senior international partner at WilmerHale in Washington. The firm opened its first Asia office in Beijing in 2004.
“The practice has continued to grow since,” she said.
International firms make no secret of the advantages of having an in-country office.
“Many of our clients view India as a strategic priority and are expanding their existing businesses in India or developing strategies for entry into India,” Salans chairman Stephen J Finch said from London. “We would certainly give serious consideration to having our own presence in India.”
Other UK-based firms would inevitably follow suit.
US firms would also consider an Indian presence if given the chance.
“If India opened and allowed foreign firms to freely open offices we would feel pressure to do so,” said Anthony Root, the Hong Kong-based head of Milbank Tweed Hadley & McCloy’s Asian corporate practice.
Firms in other countries would also be keen to enter. Lawyers in Australia, Canada and Singapore, for example, are all looking at expanding their India practices because the size of their domestic markets limits their growth.
“Canada is much smaller than the US or Britain. Size constraints really started to hit,” said Sunny Handa, a partner at Blake Cassels & Graydon in Montreal, a firm that is hoping to do in India what it did in China.
“We were part of the rush to Beijing,” Handa said. “We were the happy beneficiaries of an exploding economy.”
Firms in Singapore are already employing India-qualified lawyers while some in Australia have similar ambitions but may be more careful. Mallesons Stephen Jaques and Minter Ellison are two Australian firms with India experience, but they are cautious.
“I have no doubt there will be further opportunities for our firm to assist Indian and Australian companies in inbound and outbound investment matters,” said Minter chairman Guy Templeton in Sydney.
“At this time, however, Minter Ellison does not have any plans to open an office in India.”
Quiet whispers
The liberalization of India’s legal market has been the subject of whispers for more than a decade, ever since the World Trade Organization’s General Agreement on Trade in Services committed the country to liberalizing its services sector by 2005.
India has made no commitment on the legal industry specifically but developments over the past few months indicate that real change may happen soon.
Officials from India, the UK and the US have stepped up contacts and bar associations from the three countries have held a series of meetings.
“The chatter has increased in recent weeks,” said Rohit Chaudhry, a partner with Chadbourne & Parke in Washington.
The general consensus is that, after years of empty talk, India and the UK may be ready to phase in a liberalization process from 2009 to 2012 or 2015. Enough time to minimize disruption to local firms and give them a chance to gear up for competition.
A UK-India Joint Economic and Trade Committee – which includes top firms Allen & Overy, Ashurst, Clifford Chance and Pinsent Masons – has been holding talks on liberalization since 2004.
The US has also been considering the issue. It established a Trade Policy Forum in 2005 to discuss access to India’s legal and accounting services markets, among others.
“It was not met with wild enthusiasm,” recalled E Ashley Wills, a former deputy chief of mission at the US Embassy in Delhi and now a Washington-based consultant to WilmerHale. “In the intervening year or so there has been some willingness on the part of the Indian Bar Association to discuss how this might happen some day.”
In practical terms, India is unlikely to liberalize the sector in the absence of reciprocal rights for Indian lawyers.
Among foreign jurisdictions, only England and Wales has given Indian lawyers the right to advise on Indian law and, subject to qualification, most areas of English law.
Lack of support
Many Indian firms – particularly new ones – are publicly welcoming of foreign law firms.
“As far as we are concerned, we welcome the entry of foreign law firms into India,” said Hemant Singh, managing partner of Delhi IP specialist Inttl Advocare. “We believe that it would institutionalize [the legal profession] and bring in professional management.”
While a few commercial firms oppose liberalization, the most vocal opposition comes from single-member advocates that don’t want to give foreign firms any access to the Indian market. Single-member advocates make up the bulk of the Indian legal community.
“There is no need or requirement for foreign law firms to enter India,” said Lalit Bhasin, of Bhasin & Co, a corporate law firm in Delhi, and president of the Society of Indian Law Firms. “There already exists close cooperation, understanding and referral arrangements between foreign law firms and Indian law firms.”
Foreign lawyers are generally aware of how delicate the issue is.
“What struck me is the acute sensitivity in India to foreign lawyers coming into the market,” said Alex Pease of Allen & Overy. “About 900,000 lawyers – 90% of the total – find the idea a threat. It’s an extremely emotive issue with neocolonial overtones. After all, lawyers were at the forefront of the independence movement.”
“We don’t want to do the work that those 90% undertake.”
One of the major concerns is that foreign firms will try to compete with Indian lawyers.
“There is a perception that foreign law firms will displace local lawyers from the courts, eat into their work and take control of both the domestic and international work,” said Sumant Batra, a partner with Kesar Dass B & Associates in Delhi.
Some international lawyers say this is unlikely. For example, Indian advocates’ excellence in courtroom argument illustrates how Indian and foreign lawyers could work together.
Murali Neelakantan, a London-based partner with Arnold & Porter, is comfortable drawing up the most complex international structured finance transaction but “wouldn’t want to stand up in court against KK Venugopal or Fali S Nariman,” two of India’s most eminent courtroom litigators.
Some Indian lawyers are even blunter.
“How could an English lawyer appear in an Indian court? He wouldn’t know the language or the culture. He would lose the case,” said Rakesh Taneja, of Taneja Law Office in Delhi.
Although the prospect of foreign firms undertaking advocacy in Indian courtrooms is a “huge misperception”, according to Crispin Rapinet, regional managing partner for Asia at Lovells in London, the resistance may be inevitable.
“Lawyers everywhere are innately conservative,” says Fiona Woolf, a London partner with CMS Cameron McKenna who is also president of the Law Society of England and Wales, “but the experience of every other country that has opened up its legal sector is that the local lawyers have benefited significantly.
“There are always challenges in new markets. In particular it is difficult to convince the local legal community that the advent of foreign firms will potentially bring great benefits for them.”
Some Indian lawyers acknowledge that a lot of the criticism is unfounded—and that international law firms could raise local standards.
“Foreign law firms will no doubt need Indian professionals to develop their India related capabilities,” said Diljeet Titus, managing partner of Titus & Co in Delhi. “One can see a significant opportunity in store.”
Titus advocates Indian law firms positioning themselves as strategic partners to foreign law firms.
“The strengths of Indian law firms lie in their experience and knowledge of India’s market conditions, government and regulatory authorities and of course in their longstanding expertise in Indian law,” he said. “Such a relationship will be beneficial to both parties and may be particularly beneficial to Indian law firms as they will be able to gain high-quality work and increase their reputation abroad.”
Niche boutiques could benefit most.
“The smaller firms that specialize in certain fields and have a good infrastructure will attract foreign firms to work with them,” said Som Mandal, Delhi-based managing partner of FoxMandal Little, India’s largest law firm by number of practitioners.
But to many Indian lawyers, “strategic partnership” is a euphemism for being swallowed up, a prospect that appals opponents such as Bhasin.
“They would never be taken on as strategic partners,” he said. “Foreign law firms, having huge resources at their command, would virtually buy out Indian firms and the legal profession in India would be emasculated.”
Getting ready
Anticipating competition, some Indian firms have tried to modernize by improving internal systems, hiring foreign consultants, forging ties with international firms and trying to extend their reach in and out of India.
“In the past two years our firm has been rapidly expanding,” said Sumes Dewan, a partner at Delhi commercial firm KR Chawla & Co. “We have offices in Bangalore, Chennai and a representative office in Singapore and the firm has moved from being a family-owned firm to a fully-fledged partnership firm.”
Salary distortions are another concern. Deep-pocketed international firms such as Clifford Chance and Ashurst are already hiring top graduates from Indian law schools and picking up key lawyers from established firms.
Conversely, international firms will face competition from their more versatile Indian counterparts.
“I would expect international law firms to have difficulties in matching Indian law firms in competitiveness and pricing,” said Anand Prasad, a partner at Trilegal in Delhi.
And Indian law firms may have the upper hand in dealing with local clients.
“I think that the small and medium enterprises in India would continue to have more comfort with Indian lawyers,” said Amarjit Singh, managing partner of Delhi intellectual property house Amarjit & Associates.
Instead of fearing a foreign inrush, some Indian lawyers look to the success of Chinese lawyers despite the increased competition.
“I see India as a bigger legal market, at least for the present, than China,” says Jidesh Kumar, a partner at King Stubb & Kasiva in Delhi. “If you see the number of foreign law firms that have expressed interest in starting an India office, the numbers are quite startling. This is even more relevant when you compare it to the total number of law firms already set up in China, which is already open for entry of foreign law firms.”
To alleviate the shock, some Indian firms see a need for domestic reform to level the playing field.
Since 2003, the Bar Council of India has considered proposals to allow local firms to expand to up to 50 partners from the current limit of 20, although the recommendations have not yet resulted in proposed legislation.
“The restriction of the number of partners by the Indian Partnership Act 1932 will act as a severe impediment in the growth of Indian law firms,” said Kumar. “I think we must have an amendment to the Partnership Act or a limited liability partnership law in place before we permit foreign law firms so that we have a level playing field.”
As the debate continues, international law firms will continue to look for ways to service their clients in relation to India transactions. White & Case and Ashurst have low-key liaison offices that opened when the Indian government had a controversial and short-lived fling with liberalization in 1994.
Some law firms have strong referral and affiliation agreements with local firms, such as the January 2007 deal between Linklaters and Mumbai-based Thawar Thakore & Associates. In February Boston-based Brown Rudnick Berlack Israels signed a similar deal with Bangalore’s Poovayya & Co. This type of formal arrangement represents a break with tradition.
“Referral arrangements were always considered informal, a private matter, so as not to raise the attention of the Bar Council [of India],” said one Mumbai lawyer.
Meanwhile, Kelley Drye & Warren, a New York firm very active in India, has links with Wakhariya & Wakhariya in Mumbai. In April, in another groundbreaking announcement, the former appointed Rahul Mahajan, a partner at the Indian firm, as its special Indian counsel.
These high-profile announcements may only be the tip of the iceberg.
Jones Day and P&A Law Offices (founded by Jones Day partner Jai Pathak) in Delhi work together on many transactions, and London-based Kennedys is associated with Delhi insurance specialist Tuli & Co.
Long-distance law
Many large law firms conduct their India practice from major centres outside the country, especially London and New York. Milbank Tweed Hadley & McCloy’s India practice is based in Hong Kong, although London, Singapore and New York pitch in. Denton Wilde Sapte and Ince & Co eye India from their Dubai offices. Latham & Watkins runs its India practice from Singapore.
The rarefied atmospheres of London, New York, Hong Kong, Singapore or Dubai are not the only places where India has created interest. Hundreds of kilometres from Manhattan, Richard D Rogovin chairs the India Consulting Group at Frost Brown Todd from Columbus, Ohio, a nondescript city of 2 million in the US Midwest.
“As the leading law firm in Ohio, Kentucky, Indiana and Tennessee, our goal is to serve Indian companies interested in developing US facilities and markets… while counselling our many clients that trade with India but with the assistance of Indian colleagues.”
The increasingly broad reach of Indian multinationals may generate more changes in the legal market than foreign lawyers may like.
“An India Inc that is increasingly going global would have the advantage of accessing the skills of foreign lawyers while sitting on home turf,” says Priti Suri, founder of PSA, a law firm in Delhi.
Despite the prevalence of common law, widespread use of English and a putative democracy, many companies find India fraught with obstructions and dangers, in the form of excessive red tape, entrenched corruption, cultural misunderstandings and a lack of awareness of political realities and regional rivalries.
“US firms move in aggressively to India, often without genuinely knowing how business is done,” said Barshefsky, the former US Trade Representative. “Then we’re called in to fix the problems… This can hurt either the venture or even the company’s reputation in a broader way.”
For the present, working with Indian firms may be the wisest course of action.
“It is unlikely that foreign firms will be able to acquire local knowledge to take on the big Indian firms, even in the medium term,” said John Taylor, director of international strategy at Berwin Leighton Paisner in London. “The only way that this can be achieved is if India allows wholesale mergers and/or takeovers of existing leading Indian law firms and this seems unlikely.”
And, as some lawyers acknowledge, awareness of the local environment cannot be changed by legislation or by opening an Indian office.
“We believe the acquisition of local knowledge is not a matter of months but rather a lifetime of living and working in the local community and culture, which cannot be easily or rapidly transferred to others,” said Rogovin from Columbus. “As we respect our colleagues in Europe and China, so will we respect our colleagues in [India]… for the local knowledge they possess and which we cannot hope to acquire for ourselves.”
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