Making an entrance

If India opens its legal market, what entry strategies Will foreign law firms pursue?

George W Russell reports from Bangalore

India’s stringent regulations continue to prohibit international law firms from practicing in the country. However, a flurry of recent activity suggests a number of leading legal players are positioning themselves for a change in existing policies.

Foreign firms have a number of reasons for wanting to establish physical offices in India, including access to clients, proximity to stakeholders such as banks and regulators, and holding down costs. “The current system involves long flights, which aren’t good for our carbon footprint or for the cost to clients,” says Allen & Overy partner Alex Please, who, until recently, chaired the firm’s India practice and represented the legal profession on the India-UK Joint Economic Trade Committee.

Until they are allowed to move in, foreign firms will continue to tie up with local Indian firms, establish back-office functions in India, or form outsourcing units to handle international work. A number of such links have been forged recently, such as the “best friends” relationship announced in January by Clifford Chance and AZB & Partners. The move follows similar tie-ups between Allen & Overy and Trilegal, and Linklaters and Talwar Thakore & Associates.

For international law firms, having some physical presence in India is not new: Ashurst has a liaison office in Delhi that dates back to the mid-1990s. Allen & Overy has outsourced some non-legal back-office functions to Chennai based Office Tiger since 2003. Clifford Chance moved its IT and accounting units to Gurgaon, near Delhi, in 2007, hoping to save £30 million (US$40 million) by 2010. Linklaters and Eversheds also outsource functions to India.

However, there’s big difference between having a few office staff and an actual law practice in India. Washington firm Howrey took the idea a step further in 2008 by announcing that it would outsource document management – including litigation, intellectual property and international arbitration documentation – to a new office in Pune staffed by Indian paralegals and law graduated. However, the firm appears to have put the idea on hold for now. “Howrey does not currently have an operation in India,” concedes Amit Saluja, the firm’s deputy general counsel.

The most extreme example is probably New York media law firm SmithDehn, which has 40 Indian lawyers at an outsourcing subsidiary, SDD Global Solutions, in Mysore. SmithDehn has a roster of film and television clients such as HBO, Sony Pictures and British actor Sacha Baron Cohen. SDD Global undertakes legal research, drafts contracts, pleading and memoranda, and works on commercial transactions. The company describes its operation as “a step beyond legal process outsourcing.”

“Liberalization finally would allow our parent law firm to open its doors officially in India,” says Sanjay Bhatia, SDD Global’s Head of operations. “SmithDehn’s increased ability to handle international transactions here could only mean more business for us.”

Several other firms have outlined their embryonic India expansion plans. Most believe it’s a case of when, not if, they are allowed to operate in the country, though no one wants to bet money on the timing. “We believe that the likelihood of India liberalizing its legal services so as to enable foreign firms to open offices there is, at the very least, several years away,” says Jonathan Morris, chair of the India group at Berwin Leighton Paisner in London. “Our current strategy continues to be for us to work in conjunction with our preferred law firms in India."

At Allen & Overy, Pease also envisions an India practice built around its existing relationship. “We would have an operation linked with Trilegal, and it would depend on the clients.” Given its local firm tie-up, Pease says Allen & Overy lawyers would not need to practice Indian law. “We want to be able to practice English law in India,” he says.

Baker & McKenzie would also jump at the opportunity to enter India. “We do not support the notion of bringing in foreign lawyers who are unfamiliar with local languages and conditions,” says David Jacobs, a Sydeny-based partner who, until recently, managed the firm’s Asia practice. “If and when India permits foreign law firms to open offices there, we will invite the best and brightest Indian lawyers and an Indian law firm to join Baker & McKenzie.”

Skadden Arps Slate Meagher & Flom is a major US firm that would lean towards a local office. “Our global expansion has been driven by our desire to provide the best possible service to clients,” says Jonathan Stone, a partner in the firm’s Hong Kong office. Stone says specific client demand is a major reason to open new offices, citing the 2008 opening of its Sao Paulo branch.

Some firms believe a physical presence would provide a major edge over rivals. “Being on the ground is a huge advantage,” says Sunny Handa, a partner and co-head of the India practice group at Blake Cassels & Graydon in Montreal. “In India doesn’t open up, that’s fine, we will continue with our current business model. If India does open up, we would have to rethink our strategy. We’d give it very serious consideration.”

Others see the growth of new potential clients in India as a good reason to have a presence. “We’d want to have people on the ground,” says Crispin Rapinet, Asia regional managing partner of Lovells, based in London. “Banks and investment banks will be bulking up in India if the legal help is there,” he adds. “I would anticipate building up our team.”

American firms, in general, appear to be more guarded about opening up in India, perhaps due to cost and the fact that the US has been hit hardest by the current economic downturn. “We have a long-standing interest in India and would carefully examine any change to the current restrictions on foreign law firms,” says Glenn Gerstell, managing partner of the Washington office of Milbank Tweed Hadley & McColy. “Since we don’t intend to practice Indian law, it’s not immediately clear to us just how much work could indeed really be shifted to offices within India.”

Rohan Weerasinghe, senior partner and head of the India practice group at Shearman & Sterling in New York, is similarly cautious. “We would still continue to have a global team covering India, but we would certainly review this development.”

Milbank and Shearman are not alone in expecting such a decision would be guided by clients and the Indian firms with which it has links. Speaking of any hypothetical Indian office, Kirtee Kapoor, a partner at Davis Polk & Wardwell in Hong Kong and head of the firm’s India practice, says: “Client pull will determine timing, size of operation and resource commitment.”

Firms without a local partner expressed an interest in establishing a relationship rather than plunging solo into India. “Rather than relocate our India practice, we would explore joint venture relationships with Indian firms and synergize these operations with our India practice,” says Leena Pinsler, partner and head of the South Asia practice at Singapore firm Rajah & Tann.

England and Wales is the jurisdiction most likely to be the first in which lawyers are accorded rights to practice in India, but some lawyers doubt the UK would respond in kind to any liberalization by Delhi. “The issue will hinge on reciprocity, to which the British government will never agree,” insists Ashok Sancheti, managing partner at Morgan Walker in London. “English solicitors wish to have a piece of the Indian cake without giving an opportunity to Indian lawyers to have any part of the English market.’

Much would also depend on the extent of India’s permission. “We can service [India] as we are currently structured and while we would be interested in participating if foreign firms were permitted into India, this would depend significantly on what would be permitted versus our existing structure,” says Nipun Gupta, partner and head of the India group at Bird & Bird in London.

Lawyers have also been careful to consider the cost-benefit analysis associated with a physical move. Winston & Strawn partner Robert Nelson, a member of the joint US-India task force on trade and investment, believes the time is not yet ripe for Indian offices. “The talent pool of Indian lawyers who are well-versed in cross-border transactions is not yet deep enough to permit full staffing by the indigenous Indian firms plus all of the foreign firms that might want to set up in India,” he says. “There are various Indian firms with which one can work in an atmosphere of collaboration rather than competition.”

India’s faltering real estate market would undoubtedly welcome a rush of international law firms, which, say lawyers, would inevitably congregate in the already shingle-crowded streets of the southern colonies of Delhi and the Nariman Point area of Mumbai, with a few setting up in southern growth cities like Chennai and Bangalore.

Of course, planning, cost-cutting and the maximizing of lawyer-client relationships could well take a back seat to lifestyle choice. “As a long-distance ocean swimmer and a surfer,” Nelson muses, “I would say that if the Indian legal services market is to look for a test area to allow foreign offices to be established, Goa would represent a fine choice.”