As developed countries continue to wrestle with their recession-hit economies, most savvy international law firms are turning their attention to emerging markets, with BRIC countries (Brazil, Russia, India and China), receiving particular interest.

Since the acronym BRIC was coined by Goldman Sachs in 2001, these ‘Big Four’ have gone from strength to strength: in the last quarter, China overtook Japan to become the world’s second-biggest economy; Brazil is the world’s tenth-largest economy and is projected to move into the top five by 2050; India emerged from the economic crisis relatively unscathed and is now booming; and although Russia took a hit in the downturn, a strong economic picture is emerging there with 4.25% GDP growth forecast by the International Monetary Fund for 2010/11.

Recent Goldman Sachs research found the BRICs contributed 36.3% of world GDP growth in purchasing power parity (PPP) terms since 2000 and currently make up about a quarter of the global economy (in PPP). The report, Is this the ‘BRICs Decade’, projects that by 2020, BRIC will account for a third of the global economy (in PPP) and contribute 49% of global GDP growth.

As Baker & McKenzie chairman John Conroy says: ‘It used to be an exercise of "connecting the dots" between the developed and emerging markets. It is now much more about "connecting the dots" between emerging markets. Growth rates in Brazil, China and India are the envy of any economy, developed or developing. Capital markets activity surged in late 2009 in Asia-Pacific and in Brazil. In Russia, the economy is picking up the pace as it recovers from the downturn.’

From our own correspondentIn the last few years, observes Conroy, several international firms have awoken to opportunities in the BRIC markets. Meanwhile, there are established and increasingly competitive indigenous law firms in these jurisdictions that are building their capabilities in areas that compete with global firms.

In Russia there are no curbs on foreign law firm operations (apart from in the criminal courts), but in the remaining BRIC countries, such restrictions present more of a challenge.

In China, foreign lawyers are not allowed to advise on Chinese law or appear in Chinese courts. But most international firms have circumvented this hurdle by forming alliances or entering non-exclusive referral arrangements with domestic players when the need arises.

In India, however, all foreign law firms are prohibited from practising all law following a Bombay High Court ruling in February. A new case, backed by the Association of Indian Lawyers, is set to hit the courts this month which seeks to restrict the activities of foreign lawyers in India even further.

A writ has been served on 31 international firms which claims that foreign lawyers are entering the country on tourist visas but conducting legal business, thus breaching immigration laws; that foreign law firms are using back offices in India – which should only deal with billing and IT – to provide legal services; and that they are breaching the rules by using websites to advertise legal services in India. The firms are contesting this.

John Partridge, Herbert Smith’s India relationship manager, says: ‘If this goes through we might not be able to visit India for business development purposes at all. We’re canvassing to liberalise the legal market there – the government seems more inclined to, but the bar council is against liberalising the legal market. Law is considered a noble profession over there and we’re just seen as money-grabbing.’

Liberalisation looked increasingly unlikely though, after September’s announcement by the local justice ministry that the Bar Council of India had ‘decided not to permit foreign lawyers into India’.

Further restrictions could scupper the way firms like Herbert Smith work in India. Although its Indian operations are based in London, some lawyers spend at least one week a month out there, visiting clients and law firms with whom they are ‘friendly’. ‘It’s like having an office there, without having an office,’ says Partridge.

The Indian legal market is not one foreign law firms would want to be excluded from. As Partridge explains, India came through the global recession relatively strongly and, although Indian companies stepped back to consolidate their domestic affairs at the height of the crisis, this year has seen big-money deals back on the table – not least Bharti Airtel’s $10.7bn acquisition of Zain Africa BV, on which Herbert Smith advised.

Blame it on RioBrazil’s ban on non-Brazilian firms practising local law is also problematic, with one international law firm litigation head claiming that, with some exceptions, the local litigation system is ‘absolutely hopeless’.

The partner, who asked not to be named, says: ‘It’s impossible for us to make substantial progress as there seems to be no culture among local law firms to try to sort out disputes. ‘It’s a fundamental problem for Brazil and will hold the country back, as without a swift and efficient local dispute resolution mechanism, it will make people think twice about investing there.

‘Litigation in Brazil is viewed as a pension plan for lawyers; they take the work but seem to have no interest in settling the disputes. There are some good firms who I would work with if a client became involved in litigation in the region, but they are in the minority.’

Although clients doing business in Brazil are advised to use UK or US law, he says, some aspects of running a business in Brazil just cannot be dealt with like that.

‘For example, employment issues or investment in property are likely to have to be dealt with under local laws. We’ve had cases where a transaction is largely governed by US law, but certain key documents are governed by local law which has allowed the local courts to hijack the whole thing.’

Brazil is clearly considered a legal market worth persevering with. As David Sonter, Freshfields’ corporate country partner for Brazil, says, compared to the developed economies of the world, Brazil’s economy is racing along, with annual GDP growth rates of at least 4% expected over the coming years.

'A number of international law firms have set up offices in Brazil to tap into local equity and debt capital markets, project finance, oil and gas, and insurance law demand,’ he says.

‘Infrastructure spending is booming to support the growth of a large, mobile and young population, to develop the country’s huge new oil and gas reserves and to support the 2014 World Cup and 2016 Olympics. At present, it's all good news in Brazil, but growth needs to be carefully managed to ensure the economy does not overheat,’ he adds.

David Childs, Clifford Chance’s managing partner, says a good indicator of what has been happening in the market in Brazil is the steady expansion of his firm’s workload, which includes the recent $5bn Banco do Brasil equity issue.

‘For example, even with the large number of recent deals we’ve worked on, we still have a lot in the pipeline and remain very busy. That speaks to the health of the market in Brazil, and we see that continuing.’

Enter the dragonChanging attitudes to litigation, increased competition from local firms and a shift in the landscape of legal work in The People’s Republic of China (PRC) have meant that foreign law firms have had to adapt their focus to keep up.

Norton Rose partner Peter Burrows says that in the PRC, most activity originally was foreign direct investment (FDI) work, but recent years have seen increasing activity in advising Chinese banks as they lend internationally, and Chinese corporates as they invest outside China.

Competition is fierce between the foreign law firms which have a presence there, but more and more sophisticated work is increasingly being snapped up by local firms.

Burrows adds: ‘The better local firms are taking increasing amounts of the FDI work originally handled only by the foreign law firms. Many US firms have entered the market recently with little knowledge of the local picture and possibly unrealistic expectations. A US managing partner recently commented that English law is more commonly used than New York law on international deals.’

Pinsent Masons partner John Bishop says many international firms have opened in PRC because they feel they have to, which has seen a lot coming and going away again, or downsizing.

‘The PRC offices of international firms have to adapt to the local marketplace in terms of matters such as the role of local lawyers, methods of pricing, availability, cash collection, and the time it takes between the start of an opportunity and the receipt of instructions. These issues are so different that management and support staff in the home and other offices sometimes have difficulty in understanding and adapting systems to meet them.’

A long track record and experience in China are essentials for attracting work from Chinese clients, he says.‘Many of our Chinese clients have little experience of working with international law firms and so there is an inevitable learning process in terms of how to get the best from their advisers. Chinese state-owned enterprises do not have great experience of hourly rates and almost all work is undertaken on a fixed price or retainer basis.’

Although Chinese businesses are generally reluctant to litigate, says Burrows, this attitude may be changing. Matthew Laight, Bird & Bird’s China managing partner, agrees. He says: ‘It is increasingly becoming mainstream to use the courts to resolve disputes. There is much greater trust in the court system and Chinese judges are proving to be impartial and sophisticated in their approach.’

Bishop says: ‘Chinese companies have traditionally resolved disputes by negotiation and, although this is still their instinctive way of resolving disputes, they are both now more willing to contemplate formal steps to secure their rights, and are becoming familiar with disputes occurring during the normal course of their international business.’

Alastair Da Costa, DLA’s managing director for Asia, believes the areas of contentious investigations and product liability will continue to grow in the Greater China market, as China pushes for greater corporate compliance and tackles problems with product quality and food safety issues (following the Sanlu milk powder case, the introduction of the Food Safety Law and Tort Liability Law).

He says: ‘On the PEVC [private equity venture capital] side, the market is slowly coming back after the global economic crisis. We have seen a large number of inbound China private equity investments in the last 12 months. Many Chinese companies are also exploring opportunities in acquisitions overseas, especially in energy-related areas.’

Asia is a highly diversified market, he adds, and an international law firm needs to be sensitive to different legislative boundaries in different jurisdictions. ‘Since we handled a large number of cross-border matters, we need to be fully aware of the legal and regulatory issues in China and also overseas.’

From RussiaOxana Balayan, Hogan Lovells’ managing partner in Moscow, says Russia is one of the most rapidly growing and competitive markets, with dispute resolution being one of the most dynamic and busy areas for lawyers there.

She says: ‘Despite several reforms undertaken by the government, the legal framework for solving disputes in Russia remains ambiguous. Key problems are known as lack of recognised court practice and unreliable enforcement procedures.’

Although the firm’s litigators have been busy with shareholder, property and contractual disputes, she says, insolvency instructions were rare, partly because of government bailouts but also because creditors were trying to get round challenges of Russia’s infamously unreliable judicial system.

Nick Dingemans, a partner at Norton Rose (Central Europe), says the uncertainty of the Russian legal system continues to create issues for structuring transactions in Russia. ‘That said, progress has been made in a variety of areas of the law in Russia and legal certainty is increasing in some areas, particularly with respect to corporate law. For example, the amendments to the Joint Companies Law and the Limited Liability Companies Law and the introduction of Russian shareholders agreement law.’

Other laws, however, have introduced further uncertainty, he says, including the Strategic Investment Law enacted in April 2008.

Guy Pendell, head of CMS’s dispute resolution group, says there has been a significant increase in disputes in Russia – many regarding transactions entered into before the recession which are not yet completed.

He says: ‘You’re seeing many parties trying to get out of agreements, and many of these are now proceeding to full-scale arbitration or litigation. This, of course, has generated an increase in work.’

Russian parties, he says, particularly in large transactions, have often chosen English law and London arbitration to resolve disputes. Indeed, of the total number of cases filed at the London Court of International Arbitration in 2009, 19.49% involved a Russian party.

Pendell adds: ‘It’s important for international firms to have a London and a Moscow presence because, although disputes are often governed by English law, issues of Russian law ancillary to the issues often arise as well.’

As BRIC-origin firms grow in confidence and improve expertise needed for the large transactions that have led international firms to their country, the fact that traditional global firms have a London office will be a very competitive advantage.

Lucy Trevelyan is a freelance journalist