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‘We’re all struggling with how to capitalise on changes in the global marketplace’ – Simmons’ Hoyland points to Asia for growth

 After announcing a return to form financially, with both revenue and profits up for 2013/14, Simmons & Simmons managing partner Jeremy Hoyland says that Asia, at times unprofitable ground for international firms in recent years, is critical to his firm’s strategic development.

Speaking to Legal Business, Hoyland says while the vast majority of international law firms have significant footprints in Asia, and in China specifically, there is a constant struggle to get a return on investment, particularly with the need to make expensive lateral hires keeping costs high.

‘The major business challenge is Asia and it probably will be next year and the year after as well,’ he says. ‘We’re all struggling with how to capitalise on the changes in the global marketplace. All law firms see the need to be in Asia and have serious and creditable practices but it’s an investment and law firms always struggle with investments.’

Simmons & Simmons remodeled its China practice in 2011, opening an office in Beijing to complement its existing offices in Shanghai and Hong Kong and making it the national hub.

Beijing opened with a sector-specific focus, looking to capture outbound investment in the energy, infrastructure and TMT sectors. Hoyland explains: ‘It’s not that there’s a lack of opportunities in Asia, it’s more that if you’re not careful you end up pursuing lots and lots of different things and not doing any of them very well. We have a sector strategy that narrows down that list and means our Asian offices are tightly linked into the rest of the firm.’

Further Asian investment followed last May when the firm launched in Singapore to create its fifth office in the region.

‘We’re new in Singapore. We’ve only been there a year and it’s a crowded market. The priority for us is how to build on the start we’ve made and I’m very keen that it matches our focus in north Asia.’

Simmons & Simmons had a strong financial year, with revenue rising 7% to £268.6m and profit per equity partner up 6% to £553,000. Hoyland points to two key markets that have contributed to the firm’s return to form, the UK – ‘there’s no doubt there’s been a big return to form in the UK’ and Germany, which ‘is on an upward trajectory because of the power of the industrial sector and the export-driven economy. We’re still at the stage where we’re trying to grow out the German practice’.

Asia, on the other hand, is much harder to quantify in terms of its contribution to the bottom line, particularly China. ‘A lot of work for PRC clients is outside of the PRC so it’s hard to work out exactly how much work we’re getting as a result of the PRC business overall. If you look at the Shanghai office on a standalone basis, it wouldn’t tell you the contribution it makes to the firm as a whole as they might be generating work in Europe, the Middle East or Africa. You’ve got to take a more holistic view.’

However, Hoyland points to a surge in Asian M&A work as evidence that China will come good for a lot of international firms, with deals in the first half of 2014 rising 67% on the corresponding period in 2013 to $378bn, according to data from Thomson Reuters. A lot of that growth is down to expansive Chinese tech companies and Hoyland notes how ‘the approach of Chinese companies is getting broader’ as they look to trade in more countries and make overseas acquisitions.

Unable to practise PRC law, international law firms originally focused on advising on inbound investment from existing clients elsewhere in the world. However, that model has failed to generate revenue, as a Chinese firm will typically need to be used to process documents. The focus has now shifted as Chinese money heads overseas and those companies and banks require foreign lawyers to advise them. This is starting to pay dividends, even if that revenue doesn’t necessarily show on a Chinese office’s financial results.

However, Chinese law firms are looking to follow their clients overseas, with King & Wood’s tie-ups with Mallesons and SJ Berwin in recent years the standout example. This could dent optimism from UK or US-based international firms about the level of outbound work from China.

Hoyland explains: ‘We can all see the rise of the PRC firms and there’s no doubt they’re getting better and more sophisticated and doing that very quickly. The Chinese firms benefit from having the international firms in China and at a very prosaic level, you look at what they’ve done and most of the big Chinese firms have hired senior partners, particularly those in management or leadership positions, from some very good international firms. They’re taking those people, which of course have client relationships, primarily for their skills in managing and developing integrated firms.’