Japan's legal industry has opened the doors to foreign competition. Powered by an M&A boom, regulatory changes and a government push for more lawyers, Keio Law School's Professor Jerry McAlinn says the industry is seeing unprecedented growth.

The legal services industry in Japan is very interesting. When you talk about Japan you really have to talk about two Japans. There is Tokyo and Osaka, which are major metropolitan markets - sophisticated, commercial and capital fund-oriented types of places.

And then there’s the rest of Japan. The rest of Japan, of course, tends to be very rural. There are many areas in Japan which are so called ‘zero-one regions’ that have either no lawyers or only one lawyer for the entire region.

In all of Japan today there are approximately 21,000 licensed lawyers for a population of about 126 million people, so there is still very much a critical shortage of lawyers in Japan.

I think there is recognition in Japan that lawyers are an important element of infrastructure. They are necessary if Japan wants to change, if it wants to modernise, if it wants to become truly a [financial] centre - Japan has always had this dream of becoming the third leg of a global capital market with London, New York and Tokyo.

I think there’s recognition that if they don’t have more lawyers, if they don’t have people who are able to facilitate those transactions, then sophisticated global investors will not feel confident investing in Japan.

You could see that in a sense in China. There’s a lot of money going into China as it’s a very hot economy, but a lot of people are very nervous about whether or not the rule of law really prevails.

I think in Japan the overall issue has been how do we increase the number of lawyers but yet at the same time maintain Japanese society, which has historically been a non-legalistic, non-litigious environment.

There has been a recent boom in the M&A business here in Japan, I’d say probably over the last 10 years. The bursting of the economic bubble [in the early 1990s] revealed a lot of fundamental trouble in Japanese companies.

For many years, instead of doing out-and-out mergers and acquisitions they did disguised mergers and acquisitions. They would form a joint venture where everybody understood that after five or six or seven years the Japanese company would gradually withdraw from that venture and the foreign company would end up with the substantial business. But it would be a very nice face-saving device.

That is becoming more rough-and-tumble today. I think people are more willing to make tender offer bids. That’s been a major development in both practice and in law.

There are now Japanese companies bidding against Japanese companies, it’s not just foreign companies.

In the post-bubble era, Japan has set upon a course of essentially looking at every aspect of Japanese society and reforming laws. We have a new company law, we have this new triangular merger provision under the company law, and in 2004 we created a professional law school system.

All of this is intended to modernise Japanese society, to make the rules and regulations transparent, to make Japan look very much like a London or a New York in terms of open and transparent, free and fair global markets.

I think the increase in the number of lawyers and the competition between the international law firms and domestic law firms makes Japan a very interesting market.

The changes in the law I think are all being made in the right direction so I guess my forecast for the future is very bullish on Japan. I think Japan is a great place to do business and I think it’s a spectacular place to be practicing law right now.