Bending the 70:30 'rule'

Traditionally, the breakdown of work handled by the top domestic law firms in Japan was articulated as a clear 70:30 division: domestic work accounted for 70% of one's diet while 30% was supplemented by cross-border M&A and transactional type work with foreign law firms (FLFs) attracting the lion's share of cross-border advisory work, owing largely to their international clientele. 
However, statistics (see table on p71) suggest that this pattern is changing, with Japan's domestic firms eating into the FLF share of the market. According to Bohrer, this is part of a deliberate strategy by Japan's domestic firms to redress this imbalance. 
"There has been a general move among all domestic players to invest more attention into cross-border elements of the market and we are seeing now the fruits of this policy pay off," he says. He observes that market share of these firms in this area has increased substantially in a short period of time. 
Dixon agrees with Bohrer and notes that a confluence of domestic changes has also contributed to this trend. She says that the more hands-on approach of domestic lawyers vis-…-vis regulatory changes in addition to the changing habits of in-house legal teams are also drivers behind the shift. 
"M&A transactions are now more liberalised than in the past, so there has been naturally been more movement in the market," says Dixon. "Japanese law firms and lawyers are now more proactive in relation to how they liaise with the government. Whereas in the past they may have been more inclined to just suck it down and go along with things, now they are working with the government to push things through and this has certainly benefited the amount of cross-border work on offer for them. 
But for Dixon, the most salient reason behind the bending of the 70:30 'rule' has to do with changes in the legal departments of Japanese companies. "Historically, Japanese companies handled the majority of complex cross-border work in-house. But recent legislative changes have meant that thereis more of a need to reach out to experienced lawyers." 
According to Dixon: "It's not only that transactions are increasing, but in-house legal teams who used to do everything by themselves are now reaching out and this generates a lot of work for external lawyers." 
If more cross-border and transactional work is reaching domestic Japanese lawyers through in-house legal teams, then as much, if not more, is coming from international companies, which are becoming cognizant of Japanese domestic law firms being more cost effective than their international counterparts. 
"When an international company enters Japan for the first time, they often use a big UK or US firm because they don't know the complexion of the domestic legal market," notes Oishi. "But when they become more used to the legal market here, they discover that domestic firms are as good, if not better, than international law firms and can do the same job at half the price." This has seen, according to Dixon, international companies in Japan "gravitate a lot of their cross-border work to domestic firms". 
And while many of those that ALB spoke to agreed that this would necessarily challenge the ascendancy that FLFs enjoy in this area, Oishi and Sato note that they expect emerging areas of law such as carbon trading and emissions rights to be the terrain on which the real battle between domestic and international firms will be fought. However embryonic these areas of law may be, both believe that the Japanese firms that cement their credentials sooner rather than later stand to become market leaders in the long run. 
"Emissions rights is an area of law which is moving along nicely at the moment," says Sato. "The Japanese government has been pushing to launch legislation and we are well on the way to seeing issues such as these figure very prominently in transactions."

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