As an increasing number of Japanese companies move production out of China in order to protect their supply chains, hefty investments made by Japan’s Big 4 law firms into Southeast Asia are paying off.

All four of the firms—Mori, Hamada & Matsumoto; Nishimura & Asahi; Anderson Mori & Tomotsune; and Nagashima Ohno & Tsunematsu—have established offices in Southeast Asia and are well-positioned in the region, where their clients, assisted by the Japanese government, are now actively relocating factories from China. In July, the Japanese government announced subsidies of up to US$114 million for 30 companies that were transferring their factories from China to Southeast Asia.

The moves have accelerated as Japanese companies seek to avoid getting caught up in increased U.S.-China trade tensions, political turmoil in Hong Kong and country lockdowns prompted by the COVID-19 pandemic. But for the Japanese firms, moving into Southeast Asia is not new. Mori Hamada was one of the first Japanese firms to make its foray into the region, opening an office in Singapore back in 2012. Since then, it has established offices in Yangon, Ho Chi Minch City and Bangkok.*

In a sense, Southeast Asia was a fallback for the firms. Before 2012, they had assessed global markets for expansion opportunities but decided against Hong Kong because there was too much foreign firm competition there, all chasing after major Chinese state-owned enterprise M&As. They also concluded it would be too costly to set up offices in the U.S. and the U.K., where there was already a deep pool of well-entrenched competitors, lawyers say.

So all four firms followed their clients, which included major trading houses such as Mitsubishi Corp., Mitsui & Co., Sumitomo Corp., Itochu and Marubeni, into the greenfield that was Southeast Asia.

Now, their investments are reaping rewards. Over the past decade, Japanese companies have invested US$139 billion into Indonesia, Malaysia, Vietnam, Thailand and the Philippines. The pace of total investment over 10 years is double that of Japanese investment into China.

Nishimura & Asahi partner Masato Yamanaka, the Singapore office co-representative, said Japanese clients are investing in a much broader range of sectors in Southeast Asia. Traditional sectors included infrastructure projects and manufacturing, but technology and real estate have taken over in a big way. While the bulk of the firm’s work was traditionally dominated by banks and construction companies, it is increasingly adding tech companies to its list.

“We are also starting to see more funds, startups and financial services companies moving their operations to Singapore as a result of Hong Kong’s political challenges,” Yamanaka said.

But law firms and their clients are not just benefiting from their presence in Singapore. Indonesia, for example, Southeast Asia’s largest economy, has seen a surge in Japanese investment as companies look to protect supply chains and avoid repercussions of the U.S.-China conflict and Hong Kong political turmoil. In June, the Indonesian government announced that three Japanese companies, including Denso Corp. and Panasonic Corp., have relocated their plants from China to Indonesia.

And the work in Southeast Asia is not limited to Japanese law firms. Earlier this year, U.S.-based Morrison & Foerster, one of the largest international law firms in Japan, advised three entities within the Mitsubishi UFJ Financial Group—MUFG Bank, MUFG Innovation Partners and Krungsri Finnovate—on a US$706 million investment into Grab Holdings, Southeast Asia’s biggest ride-hailing company. Grab had separately received a US$3 billion investment from the Japanese conglomerate Softbank in 2019.

Law firms are also benefiting as Japanese industry makes moves into Vietnam, Myanmar and the Philippines. Last year, Sumitomo bought a 19 percent stake in the Light Rail Manila Corp., the operator of the Manila Light Rail Transit System Line 1—the only privately-operated rail system in the Philippines, for US$60 million. Morrison Foerster advised on the deal.

In 2019, Japan became the second-largest foreign investor in Vietnam, with over 4,300 projects totaling more than US$59 billion. Japanese investors see great opportunity in the country’s infrastructure sector, with pending projects worth over US$200 billion.

With such a positive outlook, lawyers predict more competitors will scurry into the region.

“I don’t think the traditional, smaller but long-standing Japanese firms will expand much internationally, but there is a new group of young lawyers that have trained in big local and international firms that are setting up their own firms,” said Nishimura & Asahi’s Yamanaka. “These lawyers will see and understand the opportunities outside of Japan; they have experience in advising startups. So we should see more of those [coming in].”

In June, Nishimura & Asahi became the first Japanese legal practice to establish a Formal Law Alliance (FLA) with a local Singapore firm. Nishimura & Asahi-Bayfront Law Alliance focuses on corporate M&A and arbitration matters. “The alliance is still new but we believe there will be an increase in ASEAN clients wanting to invest in real estate in Japan as a result of our alliance.”

Just weeks after Nishimura & Asahi’s formal law alliance announcement, Anderson Mori & Tomotsune announced it had formed an alliance with seven-lawyer DOP Law Corp.

However, Mori Hamada has not announced plans for a tie-up, despite it being among the first Japanese firms to break into the region. Nor has Nagashima Ohno.*

“It is not easy. We have spent years trying to look for the right partner,” said one Big 4 Japanese law firm partner who did not wish to be named. “Bigger firms don’t want to link up and smaller firms have not been the right fit.”