An uncertain future
When law firms first began pouring into Thailand nearly a decade ago, they had no idea the financial crisis of 1997 would make it one of the most lucrative markets in the region. But with much of the big-ticket finance work drying up of late, Dave Major discovers whats next

Frank Koerner is sitting at a modest wooden table in the tiny meeting room that takes up one corner of his newly opened office. His gaze wanders from your face to the bank of windows that line the room, which being on the 28th floor of a downtown office building commands sweeping views of Bangkok.

Koerner left Freshfields two years ago and decided to open his own firm. I was lucky in some respects when I left Freshfields. Some of my clients came along Daimler Chrysler for instance. What I am trying to accomplish is a liaison office for foreign law firms there

In the Minter Ellison office a few blocks away, Craig Carracher is facing a slightly different challenge. As head consultant of the firms Bangkok office, he is concerned about leveraging its native cost base and building up its brand. Listening to him talk, you get the sense he has honed his pitch. Our rack rates went up an average of 21% across the board on 1 January, he says, and they will go up another 5% on 1 July. Its useful for us to be in jurisdictions such as Thailand. On price and on quality we should do well. On brand name alone, we will have to work hard. Minter Ellison is not as well recognised as some of the other firms.

Industry in transition
As independent and regional foreign players in a market that has historically been dominated by the industry giants, Koerner and Carracher represent the furthest progression of the Thailand legal services market the fastest and most dramatically evolving in southeast Asia. Nowhere else in the region has so much energy been funneled into a country by rich and powerful law firms over the past decade.

Just a few years before speculators and investors caused a massive outflow of funds in 1997, prompting a crash in the baht, international law firms saw the civil law kingdom as the next Promised Land. Baker & McKenzie and Johnson Stokes & Master, of course, have been around since the era of Siam. Of the magic circle firms, Freshfields was first to establish a significant presence. It opened its Bangkok office in 1994, followed by Clifford Chance, Linklaters, and then Allen & Overy.

Sure, the regulatory framework was slightly rickety. But foreign money desperately wanted in, and sought out partnerships with Thai companies. The international lawyers were there just to make sure everyone was speaking the same language and knew the rules of the game. Then came the crash and almost overnight the Promised Land turned into heaven.

There was more than enough work for everyone, says Vassiliou Lampros of Siam Premier. One of the worlds foremost experts in bankruptcy and insolvency, Lampros divides his time among Washington DC (where he advises the World Bank), various developing countries (such as Pakistan, where he is helping the government with its restructuring laws), and Siam Premier, a Bangkok firm founded by a former Baker & McKenzie partner that now operates in association with Allens Arthur Robinson.

Basically from 1998 until 2002 it seemed nearly every single company was restructuring, says Lampros. To build up their numbers quickly, says another lawyer, international firms went on a poaching spree, cherry picking Thai lawyers off such firms as Baker & McKenzie and the local expat firm Chandler Thong-ek. But then the high-end finance work started to disappear.

Hard times
There was a bit of a loss of faith in the system, says Lampros. Corruption started again, investors pulled out, debtors defaulted again, repeat workouts started. Then everything went quiet for most firms. Some pulled out; others were sustained by the jobs that had been ongoing for a number of years.
There has been a huge drying up of finance work, particularly high-level work, says Alistair Henderson, an arbitration consultant at Herbert Smith. A lot of firms that were in Bangkok to do finance work have found times hard indeed, and have either overtly or covertly downsized.

He says this has resulted in some highly experienced teams doing finance work for very little money. If they can get a bit of cash through finance work then that is better than no cash.

Of course, when the high-end finance work started to drop off, many of those cherry-picked Thai lawyers were among the first to go, followed by the slightly more mobile overseas hires.

At some point, there were a lot of Hong Kong people from Freshfields in Bangkok, says Koerner. Those people arent flying in anymore. Where are they? In London.
According to Albert Chandler, who founded Chandler Thong-ek nearly 30 years ago, the layoffs by the international firms over the past two years do not slip by unnoticed. It was unusual because it had never happened, he says. They came in and hired the more attractive candidates four or five years ago. When they put them through the programs, some didnt turn out to be people that met their standards, and then came along the economic crisis.

Such an approach goes against the local philosophy, he says, of what it means to be an employer. We have kept our numbers, but you could say that is old-fashioned Thai management. We dont fire people we have attrition. When we heard during the past year about the lay-offs, that was big news.

One partner at an international firm says the flash hires and fires bred resentment among the local Thai lawyers. If you come into a place and take a slash and burn approach to the labour pool, then you also burn your bridges. I think there is a section of law firms that have done that It will be interesting to see who is left standing in a few years time.

Intense competition
So what is the current shape of the legal services market? Most partners contacted agreed that it breaks down fairly neatly. All the magic circle firms are in Thailand and do get the lions share of the multinational work and big-ticket local work that has an international component. But up against them in lucrative practice areas are the regional players or local hybrids.

Simon Makinson, a partner at Allen & Overy, explains. What you see now is a bit of a polarisation going on. You have the international firms at the top, and then a level of firms that could be just Thai firms or a mixture of Thai and international who perhaps dont have an international name but still have a substantial business like Thai International Council, Chandler Thong-ek, and Siam Premier.

And Bakers of course, he adds. They have been here for nearly 30 years and have a very substantial practice, with their fingers in all the pies of Thai business. They have a good reputation, were here early and do well. Then you have the smaller break-away firms, usually set up by people out of the top two tiers.

According to Philip Sheridan of Vovan & Assos, a Paris-based boutique firm that focuses on regional cross-border investment and corporate setups from Europe into Asia, a number of the foreign lawyers who left the international firms have gone on to set up boutique firms and are now gaining a toehold in the market.

Because it isnt so expensive to set up a boutique firm, you have a bunch of entrepreneurs, setting up aggressive and interesting boutiques. Our competition is not the pure local firms or the world-girdling firms, who have been here since the beginning. Rather it is the expat firms who started up a decade ago with a small network of offices around the region.

But the market is far from ossified. In fact, even though the stakes have come down a lot from their previously high-levels, competition remains fierce, sometimes even ugly.

Says one foreign lawyer: You have a whole bunch of firms who wear a brand name that should mean they stick to quality and have a price point that reflects their risk management and people management processes. But the way they present themselves in this market is very different from what you expect: they undercut to a price level that is extraordinary.

A colleague agrees: They wouldnt use the same strategy in other jurisdictions. I am sure if the partners in other jurisdictions knew they were selling themselves as a cheap firm, they wouldnt be too happy. A lot of these international firms have very good international networks and get very good feeder work. It is just that they are going after market share very aggressively. Some firms do it consciously; others are passive. In the boom years, nobody cared you could easily charge whatever you wanted and deliver shoddy quality. People needed lawyers.
Another strategy that is gaining notoriety in the market is to pump up staff size through hiring inexpensive local Thai lawyers ones whose skill level is directly reflected by the price they bill.

I think there are firms that employ numbers rather than talent, says one foreign lawyer. Some international firms have decided they need to have a certain sized team to get work, and they will employ people to make up the numbers. I think there are Thai lawyers working for international firms who wouldnt make the grade if they were working for other offices of the firm. They wouldnt put them in a prime market.

More than strategy, what defines the competition among Thailand firms is the work available. Sidelines and niches exist, of course. Intellectual property is keeping hybrid firm Tilleke & Gibbons busy, for example; Watson Farley & Williams has carved a profitable practice out of commodities shipping arbitration; and a number of firms have gone after the tourism development work that has sprung up in Phuket. But the firms that are making the loudest noises in the market are the ones with the skill set able to capture deals related primarily to two areas privatisation and what is left of the restructuring business.

Privatisation plays
Throwing open a monolithic sector to market forces for the first time can be a harrowing experience for many countries, and Thailand is no exception.
With the backing of the World Bank and IMF, the government announced in 1998 that it would begin a three-phased privatisation master plan for nearly 60 state-owned enterprises across the energy, telecommunications, transportation and water sectors, in the hopes of increasing competitiveness, reducing expenditure and generating money for social programs. Foreign investors immediately began queuing up, as did firms eager for the corporatisation, compliance and IPO work.
But the rollout has not gone as planned. Lawyers wont call it stalling; in fact, some believe the opposite is true. But nearly all agree that the process has fallen victim to various political agendas.

In terms of finance work, the market appears to be waiting for the privatisations of the telecoms, power and water companies, says Edward Koehler, managing partner of US firm Hunton & Williams. Were they stalled out? No. Are they extending their timelines to try to adapt to changing economic circumstances? Yes.

Koehler says that the US and European creditors, so prevalent in 1994, have all gone home. Everyone pulled out and then everyone turns around and says the IPOs have stalled in Thailand. I believe that is a bad connection, he says. You have to look at the market and allow the privatisation plan to evolve, to adapt to market conditions.

Koehler points to a shift in the governments thinking regarding liberalisation away from what he calls the big bang approach. Rather than revolutionise the entire state-owned industry in a single stroke, market conditions have made it more sensible to adopt a piecemeal approach, with a focus on cutting down the ramping-up time. Ambitious efficiency has replaced grandiose ambition.

We cant do this willy-nilly, he says. The corporate laws are well-established. It takes time to turn. The IPOs are not difficult from the legal perspective, but some of the corporate restructuring is complicated. I think the market is waiting for the 18 to 22 SOE privatisations that are expected to occur, where well see the selling off of 3040% of the stakes over the course of the next 1824 months.

When it does arrive it may not be in the shape foreign investors originally expected. The government of Prime Minister Thaksin Shinawatra has recently announced that it is considering keeping shares with voting rights off-limits from foreigners. When asked, nearly every lawyer conceded the move was politically motivated.

I would say for the last couple of years there has been a backlash against the international creditors and IMF coming in, says one lawyer. There is a strong anti-foreigner sentiment in the country generally. We have seen a backlash by the Thai nationalists over the past two or three years.

But, rather than the pendulum swinging back towards the protectionists, says another lawyer, the process is an ongoing dynamic. There is the liberalisation approach moving towards international standards and giving foreign investors confidence; then the nationalist approach that tries to restrain all that. I think there is an ongoing battle between those two elements. That battle is very real.

But that isnt the whole picture, Koehler points out. He says that market forces allow the government to be selective. There is a nationalism that has been restored domestic institutions with fairly high liquidity and no place to put it. What happens is you start looking at further restructuring of domestic concerns, saying we dont need that much foreign investment right now, we have our own liquidity, at fairly good rates. That doesnt mean the international market cant continue to be a viable player not just in exports, but also in financing and in general. It does mean that this government is not looking at international markets as a feeder for growth. It is looking to itself.

Tied up with the privatisation process is the project finance work, though there are few deals on the market. I am not sure everybody is chasing project financing deals,says A&Os Makinson. If you have one then it is very nice; if you have two then you are in clover.

Chandler agrees, pointing out that only a handful of firms are in competition for the work. There hasnt been that much project financing. The work is just starting to pick up. For all of our project work we have some competition out there. On the last project I worked on, on the other side of the table were Hunton & Williams, Norton Rose, and Bakers. A&O and Linklaters are also doing some of the work.

Still money in bankruptcy
The other significant area of practice for international firms remains bankruptcy work. Large rehabilitations and restructurings are still needed. A lot of firms are vying for that business, and there is a lot of it, says Koehler, pointing to fee pressures. He says that while the work is going to both Thai and international firms, it is the Thai elements of international firms who handle the bulk of it.

Recent bankruptcy cases have raised questions over how effectively the courts deal with bankruptcy, but, says one lawyer, the interesting point, and perhaps one of the deep truths about Thailand, is that the effect of the perceived loss of transparency and reliability is not what you would expect.

Im not sure bad experiences affect the levels of investment and exerts influences on the cost of credit, he says. Whereas in somewhere like Indonesia the huge corruption and the lack of transparency and faith in the system do have consequences, the situation with Thailand is a little different. It can sustain a level of grey.

I think maybe people accepted five years ago that the system wasnt going to work as they thought it would and the business community factored that in. They acknowledge the bad things about the system, and they are still prepared to do business on that basis.

I think Thailand is lucky. I cant fully explain it. It seems to be able to take protectionist approaches but still manages to get what it wants from the international markets. Whenever I say everyone is going to run away now, they never do.