Survey: Chinese investment in Australia falls to second lowest level since 2006

Earlier today (8/4/2024), The University of Sydney Business School and KPMG published their ‘Demystifying Chinese Investment in Australia (April 2024) report‘ (Report) into Chinese investment into Australian businesses. If you are a lawyer with a practice focus on inbound Chinese investment, the Report makes for very sobering reading:

  • Chinese investment in Australia fell 36 percent to AU$1.34 billion in 2023
  • This represents the second lowest year in investment value since 2006
  • Only 11 corporate transactions between the two countries were recorded in this period

The Report covers the period January to December 2023, only relates to corporate (not individuals) and excludes Hong Kong and Macau investment in Australia (i.e. Mainland China only).

Nonetheless, the Report reads bleak – particularly given how many law firm practices here in Australia rely on this type of work to survive.

Any positives?

So, are there any positives in the Report to write home about?

  • Healthcare was a big winner – accounting 42 percent of the total Chinese investment into Australia – although it should also be said, their accounted for two transactions totaling AU$562 million.
  • Agribusiness had a big bounce – representing a 21 percent increase in value through to A$283 million. Again though, this was through two deals!
  • Mining was the big loser with a significant decrease from A$1.8 billion in 2022 to A$34 million in 2023!

Anything else?

  • With a whopping 82 percent of total investment into Australia, NSW is the home of the largest share of Chinese investment – A$1.01 billion. Victoria accounted for 16 percent followed by WA with a mere 2 percent. Have to wonder what that means for Queensland

As I said at the start, all in all not a great read if you are an Australian lawyer looking for new business out of China. One ray of hope is that investment from privately owned enterprise saw a slight uptick in 2023 – up from A$641 million in 2022 to A$878 million. I suspect a large part of this would have been in property related transactions, because if it wasn’t the Australian-based property lawyers out there with Chinese clients seriously need to think about pivoting their practice!

As always, get in touch if you want to talk through any of the above.

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Do American law firms in Southeast Asia have a brand problem?

If you missed it, Jessica Seah published an article on law.com this past weekend (Letter from Asia: In Singapore, The Americans Have a Brand Issue) that contains lots of thought provoking – and relevant – points for law firms looking to set up in Southeast Asia to consider.

For someone like me, who was at the forefront of the early development of international firms expanding into Southeast Asia from 1996 (remember when Dewey & LeBoeuf had a Bangkok office, or DLA Piper Bangkok was a shipping insurance firm?), some of the top level take-outs – that apply as much today as they did then – were:

🎯 “The problem we have in this part of the world is that our brand isn’t as known,”
🎯 firm brands simply do not supersede interpersonal relationships,
🎯 American law firm brands have not penetrated the Southeast Asian market in the same way that American consumerism has.
🎯 The stark truth is that no homegrown Southeast Asian company is more likely to approach any of the elite American firms over British firms such as Clifford Chance, Allen & Overy, and Linklaters, all of which have been entrenched in Southeast Asia for decades [my comment: although CC has closed its Bangkok office]
🎯 While in the U.S. and even in the U.K., it may be obvious which firms are competing for which types of clients, the target clientele in Southeast Asia is ambiguous and unclear.

But the Big 2 take-aways for me were:
🎯 Every jurisdiction within Southeast Asia is different [My comment: So, so true!].
🎯 Clients want firms that can show what they can bring to the table, how they can add value, and can tell them clearly how much their services cost.

It’s a great article and well worth a read if you are looking to expand into Southeast Asia in the near future.

And if you are, feel free to contact the team at GSJ Consulting , we know what many of the pitfalls are…

AFR: Top law firms eye big growth in South-East Asia strategy

Having spent more than a decade of my working life in South East Asia as a lawyer (at least for the most part), and with lots and lots of good friends still there, I found this article in the AFR today interesting.

It is my sincere hope that Australian law firms give it a real go, but track record suggests (see this blog post of mine from 2014!) the journey will not be an easy one.

And if you are a law firm looking to move into South East Asia, feel free to give me a call – after all, I was there pre Linklaters, Clifford Chance (both of whom I worked with), A&O, NRF, DLA and all the others (apart from Bakers who were there, oddly under an Australian Managing Partner 😂).

As always, get in touch if you want to talk through any of the above.

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Thomson Reuters Institute: Australian Law Firm Midyear Market Update

Last week (22 February 2024) Thomson Reuters Institute published its midyear market update on Australian law firm’s financial performance. Overall the sector remains robust, posting year-on-year “growth” of 7.2%. “Growth” here being defined as:

A measure of total billable hours worked by the average law firm

Leaving aside the flaws in that definition, if we are to use it as a yardstick for year-on-year growth and a like-for-like comparison globally, then the Australian legal sector looks positively healthy – particularly so for those practising Dispute Resolution (9.5% growth year-on-year, although I question the low starting bar here as DR has suffered a number of negative years as a result of COVID) and “General” Commercial (7.5% growth year-on-year; and while no definition of “general” is provided it clearly doesn’t include M&A, which sits in a different bucket).

Black clouds?
If there is a black cloud around the numbers it’s leverage and expenses.

As the chart above indicates, leverage between partners, senior associates, associates and lawyers still looks out of shape when compared against firms in other jurisdictions.

What this chart indicates to me is that partners (in particular, equity partners) are still doing way too much of the billable work and not pushing the work down to more junior lawyers (which might be understandable if it was salary partners looking to make equity; but kind of suggests it is equity partners looking to retain equity points – maybe a post for another day!).

Having said this, it might also be a trait of the Australian legal market. We often don’t follow the 10-20-30-40 leverage model here in Australia.

A potential second black cloud is on the expense-side: lawyer renumeration.

While this appears to have cooled – down from 13% growth in 2023 to 7.3% growth in the first half of 2024, for those of us who work in this market day-in, day-out, there is an acknowledgement and acceptance that mid-level lawyers (those between 4 and 8 years PQE) are rare as hen’s teeth.

And the reason for that is simple – most see Australia as a small fish bowl and want to spread their wings in Asia, London or New York.

Who could blame them!

Some come back, many don’t.

But what it does mean is this: we pay a premium for mid-level [good] lawyers here in Australia!

The last black cloud has to be lateral partner movement.

The Thomson Reuters midyear market update doesn’t include a section on lateral partner movement, but it should. Not only because it would make for interesting reading, but also because it’s a good indicator figure.

As always, get in touch if you want to talk through any of the above.

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5 Reasons why your business development team should be working on your business strategy and not just putting out fires!

A recent article in the Global Legal Post by Ben Edwards: ‘Law firm marketing and business development teams spend more time firefighting than on strategy‘ threw up some very interesting – if not predictable – stats:

  • Two thirds (65%) of marketing and business development teams [in law firms] are spending more time firefighting then developing strategy
  • 80% of that 65% spend at least 2/3rds of their working year extinguishing fires, over providing strategic thinking
  • Just over half (57%) have a seat at the head table [when it comes to strategy input]
  • 69% of respondents said they spent most of their time on addressing short-term issues rather than focusing on long-term initiatives.

And the number #1 reason given for why law firm marketing and business development teams were running from one fire to another – a lack of investment in resources.

All of which leads me to ask this question:

Do law firm partners value the service they get from their business development and marketing teams?

Another way of putting that question is this:

Do law firm partners understand the strategic value that their business development and marketing teams can provide?

Because the evidence would suggest that they don’t.

By putting – let’s be frank – high paid personnel on firefighting tasks, your firm will not be getting good value for money.

So here are my 5 reasons why your business development team should be working with you on your firm’s strategy and not just putting fires out:

1. Industry focused

    Most business development professionals are laser-focused on industry expertise. They understand a particular industry sector – such as energy, resources, financial services, FMCG, property – and by and large stay in their lanes. As such, many have a deeper understanding of what is happening in that industry sector than the partners they work with.

    2. Market knowledge

    Really good business developers are on top of market trends and competitor intelligence. They should be able to tell you what your competitors are up to, how your competitors are ranked in the market, which clients your competitors are acting for and the relevant lateral movement in your sector.

    3. Relationship Building

    A critical skill of good business development professionals is building relationships. They should be able to not only tell you who the General Counsel at client and target clients are, but also who the lead procurement team will be on a pursuit or tender opportunity.

    4. Data analysts

    A good business developer should be able to look at a set of data and provide you insights. For example: should you be worried if the number of instructions you are receiving is on the decrease, but the value per file is significantly increasing?

    5. Results driven

    Every good business development professional will tell you they are only as good as their last result! By nature, they are very results driven and don’t rest on their laurels.

    So there you go, my 5 reasons why you need your business development team working with you on your next strategy day rather than just putting out fires!

    Also, get in touch if you need help with any of the above.

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    Passed the Association of Proposal Management Professionals Foundation Course!

    Super happy to say that I passed the Association of Proposal Management Professionals (APMP) Foundation Course test and so the team at GSJ Consulting are now accredited tender specialists – a rare feat for a tender provider focused on the professional services sector!

    APMP is the peak industry body for proposal managers more broadly than professional services – like those tender writers doing submissions for multi-billion dollar construction tenders, so it really is a great honor to be in this esteem company.

    Get in touch if you need help resourcing your next tender.

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    10 Key Findings from the ACC CLO Survey 2024

    The Association of Corporate Council (ACC) – the worldwide association that promotes the interests of in-house counsel – recently published its ‘10 Key Findings from the ACC CLO Survey 2024‘.

    While I have not read the full report, there are some very interesting take-outs from the Executive Summary, including:

    • 58 percent of [in-house] departments have been impacted by law firm rate hikes
    • 42 percent of CLOs say their legal department received a cost cutting mandate over the past year
    • 23 percent of in-house say that rate increases have been difficult to manage
    • only 9 percent are “very confident” in their organization’s ability to mitigate emerging data risks
    • The top 3 issues that keep CLOs up at night are not what you would think [well, maybe one of them!]
    • The importance of ESG would appear to be a little over cooked – but…
    • …I’ll leave you with this one: 63 percent of CLOs say they are seeking to develop greater business acumen among the lawyers in their department – Good luck with that one!

    Check out the link above to read more and as always if need any help feel free to get in touch.

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    Are the days of Service Trusts limited in Australia?

    Quote of the Week this week is actually a slightly serious issue for any law firms operating a Service Trust structure here in Australia.

    During a recent session of the Commission inquiry into Consultant services to the Commonwealth Government, Labor senator Deborah O’Neill, who is leading the Senate’s inquiry, told The Australian Financial Review:

    that “schemes designed to take advantage of partnership structures” were “not only in poor faith, they are an active affront to the vast majority of Australians … who are paying their fair share of tax”.

    Hold my beer! Because the AFR then goes on to comment:

    “The most common arrangement in law firms involves using a service trust, controlled by the partners of the firm, to provide labour, recruitment and other services to the partnership at a marked-up price, which results in reducing taxable partnership income.”

    Maxim Shanahan

    Now I’m not qualified to say whether the above is right or wrong [‘Transfer Pricing’ was what it was called in my days], but what I can say is that a LOT of law firms here in Australia employ their ‘non-lawyers’ (aka ‘allied professionals’) via a service trust structure.

    Which will now be interesting when you consider that those employees are now chargeable assets in their own rights with profit targets. And are now squarely in the focus of the ATO!

    If you need help looking at your firm’s strategy, get in touch!

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    Survey: The cost of replacing that departing associate…

    If you’ve wondered how much replacing that associate or senior associate who just left you is going to cost, then a recent report from Big Hand provides the answer: circa $500k.

    That’s right, a cool half a million dollars!

    Those costs won’t always be upfront and apparent, they will include:

    • a possible increase in salary for your replacement associate over your previous associate’s salary (due to market pressure) – which is somewhat ironic as salary may well be the reason the old associate left you!
    • commissions to talent agents to find you said new associate
    • increasingly – signing on bonuses
    • training costs over the first 12 – 18 months to bring the new associate up to scratch on your firm’s systems and business development strategy.

    The list of actual and hidden costs here is almost limitless, and so the overall cost to your firm of replacing that departing associate/senior associate could actually be a lot more than $500k. Which begs the question:

    with 49% of surveyed firms having said they had experienced an increase in associate attrition, you have to wonder why this isn’t an area where more firms are focusing their attention?

    You also have to ask: Does asking someone to work 2,000 billable hours a year have something to do with these attrition rates among associates?

    And with 75% of surveyed firms having said they have seen a drop in demand for legal services, is this a cost you really want to be incurring right now?

    If you need help looking at your firm’s strategy, how to retain associates and differentiating your practice from the crowd, get in touch!

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