INDIA: THE MOST DYNAMIC LEGAL MARKET?

March 30, 2010

As Western legal markets reeled from the recession, Indian lawyers were sanguine. Their fee
levels fell half as much as those of UK and US law firms and although deal flows were more
sluggish in 2009 than the previous two years, there was little cause for concern. M&A figures
released by the Economic Times of India show that in the first 45-days of 2010, India Inc has
announced deals worth $14 billion, which is already more than the $11.9 billion total for
2009.

RSG Consulting, the UK based legal strategy consultancy has estimated that the Indian legal
market will be worth approximately $800 million in 2010. Around half this figure will be
spent on Indian firms, the rest will go on foreign law firms with Indian practices. The RSG
report says that the market is set to grow. The majority (82%) of a sample group of 60 Indian
corporates predict their legal spend will rise over the next five years. Across all clients, the
average projected change in legal spend is an increase of 69% (or 11% per annum).

At this rate, the value of the legal market will top $1 billion in just 3 years. This is not yet
comparable to UK and US markets as an aggregate value (the UK market is valued at $23
billion), but Indian clients expected their legal spend to outstrip the growth of the Indian
economy.

Although considerably smaller than law firms in the West, the range of Indian turnovers does
go up to $40 million per annum albeit from minnow levels of $500,000. The average turnover
for a top 10 Indian law firm is just under $20 million, a figure that would give them status just
outside the top 100 UK law firms.

Most Indian law firms have ambitious growth plans and some cite targets of 300-500%
growth over the next 3-5 years. A third of the firms (12) in the RSG top 40 ranking were
established in the last 10 years, and three of the ranked firms were set up in the last two
years. Virtually every week there is a break-away from an established law firm of individual
corporate partners, ready to chance their luck at growing a legal business.

India Inc is slowly transforming into global purchasers of legal services. Out of the General
Counsel surveyed by RSG in the ET 500, a majority (73%) could be classified as sophisticated
purchasers of legal services and a significant minority (39%) use the panel system to manage
their advisors.

RSG estimates the top 100 companies in the Economic Times 500 (ET500), the Indian
business paper, will spend $479 million in total on legal fees in 2010, of which half will find
itself in the coffers of foreign law firms. On average, an Indian corporate expects to spend
$2.5 million per annum on India related legal work in 2010

An important component in the transformation of India Inc, is the reduction of family

domination in company board rooms. Out of a sample group of 47 Indian clients, only a third
had a family dominated board of directors. Out of the top 25 Indian corporates in the ET 500,
just under half (11) have family dominated boards. As family members move out of the
Boardroom so will their personal ties to their chosen outside counsel, allowing purchasing
decisions to devolve to the General Counsel and become more formalised.

One of the drivers of change is the impact of the international expansionist strategies of
India plc. Companies such as TATA, Mahindra & Mahindra and Reliance, the three biggest
purchasers of legal services in India, are openly liberal and outward looking. They believe
that to protect their domestic markets, they need to have global brands. As India plc
globalises and is required to comply with foreign legislation such as the US Foreign Corrupt
Practices Act, the need for expert lawyering will grow.

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Second generation Indian lawyers are changing the rules. The rising generation of
Indian lawyers are cut from a different cloth to the known statesmen of the Indian market.
They are keen to absorb international experience and then apply it to grow a new style of
Indian legal business. (81%) of RSG’s sample group of second generation lawyers said they
wanted to be near the action, which meant staying in India. Out of the top 50 Indian law
firms, 17 have established since 2000. They are more likely than older firms to be pro-
liberalisation, have enfranchised partnership models and be open to tie-up relationships with
Western law firms.

Although Indian lawyers are often Western trained, they retain a robust Indian culture. Prem
Rajani, the founder of Rajani Associates, an RSG top 30 law firm, talks about the importance
of retaining family values as the firm grows. These family values include not poaching talent
from competitors and not charging high fees to existing clients – practices that are common
in the West. Another surprising trait to Western lawyers is the importance of spirituality to
the Indian lawyer. One foreign law firm was taken aback when the Indian lawyers across the
other side of the table insisted on prayers after the signing of documents.

Several significant Indian law firms have invented new style firms that have been looked at
closely by leading international academics. For example, Nishith Desai, a firm based in three
cities in India, Silicon Valley and Singapore is a multi-disciplinary practice arranged around
two verticals, funds and tax. Its members include doctors and artificial intelligence experts.
Although essentially a proprietorial concern, Mr Desai has incorporated a research
functionality into his advisory work, which has not only made him one of the highest paid
professionals in India but has also put his firm in the top RSG 30.

Before India can fully modernise its legal sector and take its place among the top legal
markets of the world, there are some serious hurdles it needs to overcome. India is still
chronically under-lawyered at the commercial, transactional end of the market. The key
complaint from a sample of 120 legal purchasers in the RSG report was the problem of
bandwidth. Foreign and Indian business complained of the lack of mid-level partners, both
in terms of availability and quality.

Despite this lack of depth at the top end of the profession, liberalisation of the sector is not
on the horizon. In fact, the RSG team found in 2009 it has become a non-subject in the Indian
legal fraternity. It was also dealt a further set-back when the long-running case between the
Supreme Court and three foreign firms, Ashurst, Chadbourne & Parker and White & Case was
finally resolved in December 2009 and not in the foreigners’ favour.

In the meantime, RSG finds that although the majority (70%) of Indian businesses surveyed
was in favour of the market opening to foreign law firms, as purchasers, they have yet to
make themselves heard as a lobby group for change. However, there is evidence that they
are beginning to come together to establish new forums such as the one recently set up by
Mysore Prasanna, the General Counsel of Aditya Birla Group.

RSG Consulting also investigated whether there was a dollar cost to the lack of liberalisation.
Companies were equally divided in their response. Out of a sample group of 20 major legal
purchasers, 45% said a protectionist market had had a direct cost to them, and 45% said it
hadn’t.

Foreign firms are doing their best to carry on working around the rules, and Indian firms are
doing their best to get up to speed on the so-called level playing ground. There are some
significant shifts in the dominance of certain foreign firms in India.

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Despite the UK’s historic relationship with India, corporate India’s eyes are largely turned to
the US. British-origin firms may dominate certain rankings in the RSG report, but the US wins
the most inward investment and as such the number of individual American law firms
coming into India is higher.

To compound the growing distance from the UK, many Indian law firms report preferring to
refer work to US firms over UK ones. The reasons for this are two-fold. US firms are
considered more reasonable on price but more importantly with three major UK firms in bed
with Indian firms, they are reluctant to refer clients to potential domestic rivals.

 Of the 68 foreign law firms mentioned to RSG Consulting from Indian

clients and Indian law firms as being active in India, US firms make up 53%
of the total and UK firms make up 35% although in terms of mentions
British firms receive more.
 For the time being, UK law firms still have the highest profile in India.
Linklaters is still the best known foreign brand name in India and not only
tops the table in terms of mentions, the firm also dominates the deal tables
in terms of volume and value for the past two years.
 The following lists the most mentioned firms by corporate India and Indian
law firms.

1) Linklaters – still best known

= 2) Allen & Overy
= 2) Clifford Chance
3) Baker & McKenzie – improved its India presence the most in 2009
4) Herbert Smith

Over the past year, the flow of outbound work has reduced. Although Europe (including the
UK) and the US remain the favoured shopping zones for India plc, there is evidence that its
appetite for acquisitions is expanding to more exotic locations.

Africa is an increasingly favoured jurisdiction and several General Counsel said it would be on
the agenda over the next two years. For example, one of India’s growing telcos, Bharti Airtel
is determined to expand on the continent and not to be put off by the failure with MTN, is
now talking to Zain about its African business.

Other target areas are the Middle East and the Asia Pac region. Interestingly, many General
Counsel are hesitant about Russia which is borne out by the RSG deal-flow tables of the past
two years. Trade between India and China is also not evident from the deal-flow figures and
does not currently capture the interest of Indian lawyers.

About RSG Consulting and its India research

RSG Consulting, the UK based, legal strategy consultancy has been investigating the Indian
legal market for the past two years. Our research has been extensive, involving several
ground visits, face to face interviews, telephone interviews and desk research by a team of
four full-time researchers (see methodology).

The research involved 47 personal visits to Indian law firms and feedback from over 300
individual clients.

Many of our findings are unique and reveal aspects of the Indian legal sector which have
been previously only the subject of speculation.

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 INDIA: THE MOST DYNAMIC LEGAL MARKET? March 30, 2010

Our aim was to take a 360 degree view of the market, to investigate the concerns of key
stakeholders – from Indian lawyers, Indian clients, foreign lawyers and foreign clients.

In addition, we added robustness to our qualitative interview work through collecting

empirical data on various indicators such as legal work actually done, deals flow, practice
sizes, turnovers, legal spend etc.

The result is a 300 page report containing:

o Handle on Legal India: a full, extensive overview bringing together and summarising
the key findings of all avenues in RSG’s research;
o Indian Law Firm Briefings: a section on Indian law firms, which contains consultancy
briefings on 53 Indian law firms;
o India’s Second Generation: a report on the future of Indian M&A, in terms of the
credible lawyers outside the top names and the future stars
o Inside India plc: a section on corporate India and investing foreign businesses,
which contains work-flow analyses, a paper on marketing strategies, decision
makers and prospects for legal work from individual companies.

This is a selection of a few of the findings in the 2010 report that will be available to purchase
in March 2010.

The new global hub on legal India from RSG Consulting

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