Why Are Lawyers in Asia So Cheap?

June 25, 2013

To be clear, it’s not so much the lawyers who are cheap, just legal fees, at least compared to the U.S. and EU. This is the topic of “Asia’s Low Legal Stakes,” a recent article in The Asian Lawyer. Now wait, I know what you’re thinking. During this busy time of the year (for me), I’m barely managing to bang out a post once a fortnight, and this is what I consider to be important news?

Perhaps not news, but I did find it thought-provoking. Although I have problems with some of the generalizations in the article, the discussion does tell us a lot about business in Asia and how different cross-border deals are over here.

Let’s take a look at some of the explanations thrown out there by Anthony Lin, the writer of the piece:

Historically, there has been little execution risk on big deals in Asia. (Broader market risk, of course, is another story.) In America, blown deadlines, incomplete filings, or leaks can cause a deal not to close, inviting a barrage of litigation. In Asia, the risks that lawyers’ (or bankers’) mistakes will scuttle a deal are much lower.

Absolutely true, and this is the case for quite a lot of legal activity, not just M&As and IPOs  (the article seems to be aimed in that direction). You rarely hear of litigation against lawyers, although you can be sure that us Asia-based lawyers have committed our fair share of malpractice. One explanation, and there are other reasons as well, is that the damage that lawyers can do by screwing up is simply less significant.

Lawyers say execution risk is also lower because parties to Asian deals are more likely to be linked by business, political, or family ties that constrain their appetites for disputes. And since many big Asian deals involve state-owned enterprises, the most crucial negotiations—those between the company and its political overseers—often take place before lawyers enter the picture.

OK, this is also true, but the focus on huge, high-end deals is unfortunate. The legal press often focuses on the big boys and big deals (that’s who pays the bills), but there are a lot of other lawyers out there who work on much smaller projects. What about them?

I’d say it depends. I’ve been involved in many deals where the parties had very little deal experience, which tends to magnify the contribution of the lawyer with respect to things like deal structure. If a lawyer screws up and no one is around with the knowledge or experience to steer clear of the danger, things can go wrong in a hurry. Moreover, if it’s a cross-border deal and the foreign side cannot translate potential risk into terms it understands, mental walls tend to come down (“No, no, we can’t accept that! I don’t care if it’s standard practice over there!) and deals are abandoned.

When legal risks don’t loom large, clients will sometimes still pay extra for brand-name representation. They will certainly consider the level of service they receive. But in Asia, with all the competition, clients won’t pay much more for cachet and service, so fees end up being lower than in the U.S. or Europe.

Is there more competition in Asia than in the U.S. or Europe? I don’t know any numbers here, but surely the U.S. still has more lawyers chasing each deal than is the case over here in China. That being said, the nature of the competition is different, as it is with business in general over here. Many clients over here have little experience with choosing a lawyer and will often go with a personal relationship or perhaps simply the cheapest alternative (at a given quality level). And yes, part of the answer here to Why Are Asia Lawyers Cheap? is that some countries in Asia are cheap/more competitive. A shocking conclusion.

I don’t want to drag this out, so one final point, or perhaps two. First, the assumption here (lawyers in Asia are cheap) should be looked at critically. The assertion holds for some countries, and some kinds of deals, and some kinds of lawyers/firms. Just one example: for many years of my career in China, even when I was just starting out, my hourly rate for general commercial work was usually much higher than many of the U.S. lawyers I dealt with. It’s tough to make accurate generalizations.

Second, while it’s true that bad lawyering rarely scuttles deals over here, it doesn’t really follow that the value of legal advice should therefore be discounted. Risk is an issue, certainly, but I’ve seen deals salvaged that should have been allowed to die. In other words, just because a deal goes through does not mean that it was a success. Bad lawyering can lead to a lot of negative consequences, including broken deals, but there is also a great deal of added value to good legal advice, and this goes far beyond ensuring that deals are closed on time.

3 thoughts on “Why Are Lawyers in Asia So Cheap?

  1. Chris Devonshire-Ellis

    This is a strange article Stan and I’m not quite sure where you’re coming from or the point you’re trying to make here is. You do seem to be comparing Asia with China as a base, and that’s a dangerous thing to do. You have to remember that the legal profession in China is only about 20 years old – it was liberalised in the early 1990′s only when Chinese legal reforms allowed for the first time independent law firms to set up. Before that all lawyers worked for the State. The same thing occured at the same time with the audit and accounting industries. (the consequences hadn’t been thought through – all decent professionals left government employment to ‘get rich’ from private pratice, stripping the Government itself of any decent talent, a situation which continues to dog Chinese officialdom and competence today). So in a nutshell, China lawyering is only 20 years old, and hampered by a largely incompetent judiciary together with a politically biased overseeing management body.

    Compare that with India, where lawyers and auditors have been practicing for decades and have amassed decades of competence as a result. By and large, Indian lawyers are more competent than their Chiense counterparts. Yet here too, the Indian firms are repressed as the government doesn’t currently permit Indian practices to have more than 20 partners. Consequently in India you have good strong local practices but few with national expertise. Yet you do have a competent and independent judiciary, far superior to China’s.

    Meanwhile, countries such as Singapore – long an established cnter for international trade and commerce, which like Hong Kong, has maintained high standards of legal and audit work, again with decades of experience, although there are worrying signs over Hong Kong’s continuing ability to remain unfettered by the mainland China influence.

    Malaysia and Thailand are relatively sophisticated too, whereas Indonesia – once you get out of Jakarta, becomes a weird and winderful mix of 19th century Dutch civil law, Sharia, and the whims of the local clan chief. That spells inconsistencies. The same is also true of Myanmar and Mongolia, where the legal professions are, to be frank, very new and highly inexperienced. Lawyers in these countries effectively act as a go-between between the client and the Government directly, as laws change so fast and yet so much ambiguity remains. There is no middle ground in these markets, it’s either huge big ticket stuff or rock and rock dodging bullets, with nothing inbetween. For smaller practices, getting sustainable cash-flow into these markets as a firm is hugely problematic, and in both very soon you’ll start to see some serious issues arise over curruption and failures. Companies are already pulling out of Mongolia right now (I write these comments from Ulaan Battar) until things can be straightened out and better consistencies start to emerge.

    So, as can be expected – Asia is a mixed bag of competencies. But all are completely different to China – and so much so comparisons of difficulty in my view with the PRC are not worth making. China, almost literally, is a law unto itself.
    Best regards;
    Chris

    1. Stan Post author

      Actually, one of my points here was that generalizations are difficult in Asia – perhaps I wasn’t clear with that criticism. The China references are just examples, as I mentioned at one point.

      The other criticism related to using deal closings to measure risk. I find that odd, and I think it ignores a lot of the value that lawyers bring to transactions.

  2. Chris Devonshire-Ellis

    Assessing deal closing as a measure of legal competency is missing the point. I’ve advised clients numerous times over the years not to go ahead with a particualr project – even though if they had my fees would have been far larger. At the end of the day it’s down to due diligence and good lawyering means good client advise. It shouldn’t be related to whether the deal gets done or not. I’ve had to be called in for example to un-do bad deals also on more occasions I care to thing about because the original JV or whatever should never have gone ahead in the first place, and the original legal advisors didn’t do their homework properly.
    Be it China, India, Indonesia, Vietnam or even Myanmar and Mongolia, the real issue is about understanding risk, ensuring the client understands all the pros and cons and then doing whatever is best. I’ve always found that the key to emerging markets. I’ve never compared lawyers in different countries, as they are all such different situations throughout Asia, you need to assess them individually and in accordance with the business environment in each case.
    - Chris