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The Professional Development Group, looks at the impact which the world financial crisis may have on how international law firms view the future for their businesses in Hong Kong and China.

There can be little doubt that we are all living in very uncertain times. Many commentators are of the view that the world financial crisis will have a significant impact not only on the way banks, corporates and service providers operate in the future but also on where geographically they will prioritise their businesses. The legal profession will not be immune to such impact and this will have a direct effect on how firms develop their international strategies.

There is a credible argument to be put forward that economic influence and power on the world stage is shifting and whilst there may not be an actual decoupling of the US from other major economies in Europe and Asia, China is now a world superpower. In addition to strong economic fundamentals, it has also been less exposed to the issues which have brought the US financial system to its knees. Having successfully completed the 2008 Olympics and significantly enhanced its brand worldwide, China is seen by many as the obvious place in which to invest for the future.

For law firms in the United States and Europe there are certainly tough times ahead. Already we have seen lay offs in the US and UK with a number of firms significantly revising their budgets for 2009. There has also been a growing trend amongst some firms to relocate under utilized partners from their home jurisdictions to offices in China. The fact that a China strategy is increasingly important to many law firms is also reflected by the growing number of firms from the States and elsewhere seeking to set up in Hong Kong, China or, in some cases, both markets.

The Director of Professional Development Asia, a specialist legal consultancy which provides strategic advice and merger and acquisition services to law firms seeking to enter the China market, commented:

"We have acted for several international firms who have set up offices in Hong Kong over the last year and are currently advising a number of other potential entrants to the market. Without exception all such clients see the establishment of offices in Hong Kong and the PRC as an extremely important part of their international strategy. In many cases the need to establish a presence here is led by their clients who are expanding operations in this part of the world and expect their law firms to be able to service them on the ground. For others it is the ability to provide niche practice area services not previously available in the local markets."

For new entrants to the Hong Kong market the opportunity to springboard into the PRC is extremely important. No longer can firms simply move into Hong Kong without a clearly defined plan to cover China. Options include becoming licenced in the PRC or developing a relationship with a local PRC law firm. The latter option is becoming increasingly looked at by both firms entering the Hong Kong market for the first time and by firms already established here who have identified the need to develop their mainland network and connections. Whilst formal associations between foreign firms and local PRC firms are not allowed (with the exception of CEPA qualified firms) there is nothing to prevent "best friend" relationships being formed. It is anticipated that such relationships will become increasingly common as China attracts significantly more interest from foreign firms wishing to take advantage of the huge opportunities in China.

Like everything in recessionary times there will be winners and losers - amongst the winners will be those who have the commitment and staying power to enter the Chinese market and take advantage of China's new position on the world stage.