#Auslaw issues

Does my law firm need an Asian strategy?

I go to a lot of meetings at which the state of the Asian* legal market is discussed during the course of a year. At a lot of these meetings, it is taken as a given that the relevant/respective law firm “needs” to either be in Asia, have an Asian strategy, or both. But, as is the case with a lot of prospect mining in this industry, short consideration seems to be given to the pitfalls of getting involved, and the most important strategic question of the lot:

“Why?”

as in:

“Why do we (as a firm) even want to be involved in the cutthroat market of Asia?”

is all but glossed over.

Keep in mind that most law firms won’t make money in their first few years of involvement in the region (and I should know, I have first-hand experience helping with the success of a start-up law firm that later became part of Clifford Chance). Indeed, some firms have been active in Asia for over a decade and still haven’t made any real money (and now exist on the principal that they have “a lot invested in the region”). And with a number of firms saying they want to grow revenue by 30 or so per cent year-on-year, if you do decide to get involved in the region then your firm’s commitment can easily and quickly translate into millions of dollars.

With all of this in mind then, it is important that your strategic reasons for being involved are more than simply a partner’s desire to live somewhere a little more exotic than cold, windy [insert name of city] or because you heard on your train ride to work this morning that XYZ company may give you a job in Rangoon at some unspecified time in the future.

More specific questions your firm needs to be asking include:

does the firm have short-term, medium-term and long-term strategic goals in place that will help measure whether your foray into the market has been a success?
has the firm identified which of your existing client base is active in the region?
do any of your firm’s clients have strategic growth plans for the Asian market?
are your firm’s potential clients in the region growth prospects, or are they mature players whose account you need to keep?
is your firm pursuing an aggressive acquisition policy or more conservative rear-guard protectionist policy?
how are looking to grow in Asia – lateral hires in the markets we want to be in (preferred method for South East Asia)? Or are we relocating partners from elsewhere into the jurisdiction (favoured method in Korea for example)?
what performance related metrics has the firm put in place to encourage its partners to be actively involved in the strategy (for example, is there cross-referral profit points?)?
what local issues will the firm need to include? – For example, how many law firms send lawyers to Asia without sending them on a cultural awareness or language program (in the same way as government departments do)? Why is that I wonder?
what are your competition currently doing/likely to do in the near future in the region? Importantly, do they have a chequebook that is likely to cause me considerable pain?

These are just some of the issues your firm should be thinking through if it wants to get involved in the potentially lucrative Asian market.

And the pot of gold at the end of the rainbow?

The Asia-Pacific legal services market had total revenues of $80.4bn in 2013
The Asia-Pacific legal services market enjoyed compound annual growth rate (CAGR) of 5.9% between 2009 and 2013
The Asia-Pacific legal services market is forecast to enjoy an compound annual growth rate (CAGR) of 7% for the five-year period 2013 – 2018
The monetary value of the Asia-Pacific legal services market is forecast to be $112.9bn by the end of 2018

Unsurprisingly then, you won’t be alone. There were approximately half a million active lawyers in the Asia-Pacific legal services market 2013.

—–

* It is critical, when looking at your “Asian” strategy, that you think of the whole of Asia – Indonesia; Korea; Myanmar; Malaysia; Philippines; Singapore; Thailand; Taiwan; Vietnam; as well as China. In other words, Asia is more than just China. If China is your market strategy, that’s fine but don’t call it an “Asian” strategy, call it a “China” strategy. Likewise, if ASEAN is your target market, call it an ASEAN strategy, not Asian.

Can a falling A$ make selling Australian legal services easier overseas?

As regular readers will know, I have written a fair amount in the past (see here and here) about how a depreciating Australian Dollar (A$) is likely to be unkind to the Australia-based partners of international law firms operating here. It was, therefore, pleasing to see a post ( ‘Will international ﬁrms still call Australia home?’) on the Australasian Lawyer website yesterday that largely echoed many of the comments I had previously made.

So, with (1) the Australian legal press and a number of eminent managing partners echoing my views, and (2) an A$ hovering around the 87c on the US$ mark, a new question now comes to mind:

Can a falling A$ make selling Australian legal services easier overseas?

The answer here will depend on your law firm, its culture and client base. But, assuming that your firm actively encourages cross-border collaboration (and there is a whole different post there), the short answer should be yes.

If that’s the case, then some of things you need to be considering include:

How recently did I update my website profile/CV? Are all my deals Australian-based? Am I showing regional experience? Indeed, am I using regional keywords in my website profile or only local Australian used ones?
What sectors in Australia are likely to benefit from a falling A$ (tourism?)? Do I have expertise or a story to sell here?
A falling A$ should make assets in Australia more attractive to international purchasers (case in point: pension funds looking at real estate?). What am I and my colleagues doing about this?
What is the Australian Government’s current policy towards a falling A$ and foreign direct investment (FDI)? Is there a story to tell here (and there most likely is if you look closely enough)?
Are there regional developments that I could take advantage of (for example, development of arbitration courts in Singapore and HK?)?
Are there any free trade agreements (FTAs) in pace that make the falling A$ attractive (export markets?)?
When was the last time I talked with my clients to see how they were being affected by market/currency fluctuations and what steps they are putting in place to get the most out of this (manufacturing/FMCG?)?
Is there any way I can help my clients out with the current environment (put them in contact with clients in Asia?)? Maybe I can/should attend a regional trade or industry conference.
How often am I communicating with my colleagues in Asia, US and Europe to discuss work opportunities (including the chance to work in US$s?)? [time differences may have put this off before; but if I can bill in US$s, suddenly 2am conference calls don’t look so bad!]
What local or regional opportunities (tenders, capability statements, etc) are my business development team working on? Is there any way I can get in on this?
What regional panels are my firm on and can I look to develop these? If so, who is the relationship partner?
Should I be considering a secondment to another office in our firm network or to a client outside Australia (Asia, Europe, US) [especially if I can charge US$ for it!]?

Clearly you will need to make sure that you are meeting your clients’ expectations. You will also need to make sure you have in place a fee mechanism that is considerate of the exchange rate, while being beneficial to you and your firm, and also allowing everyone to prosper from the situation.

But, at 87c on the US$, the value proposition of an Australian lawyer active outside of Australia (such as in Asia) should have become a lot easier to communicate today than it was a year ago.

Now for a word of caution:

if you have been billing a client (especially one outside Australia) for several years in A$s, now is not the time to suddenly, and without notice, start billing that same client in US$s.

Strange as it may seem, clients will quickly see through this move. So make sure you give this issue careful consideration (as clients have also been known to talk with each other!).

Foreign exchange woes hurt Australian arm of K&L Gates

Back in March 2013 I wrote a blog post on how foreign currency fluctuations were likely going to hurt international law firms with a presence in Australia, over the following 12-18 months, unless the firms hedged against this exposure.

Not wishing to be one who says “told you so”, but a report in today’s Australian newspaper (‘Exchange movements take their toll on global law firm K & L Gates‘ [subscription required to read whole article]) affords me the luxury of being able to say exactly that.

According to the article,

“[K&L Gates] global revenue increased by 9.3 per cent last year due to the merger with Australia’s Middletons…”

but,

“…things would have been much better had the US dollar not appreciated by 6.8 per cent relative to the Australian dollar…”

As the Australian sets out, it is largely thanks to the extraordinary level of financial transparency on the part of K&L Gates that we are able to ascertain the effect that currency fluctuations have had on the firm, and the firm should be highly commended for this.

That said, it is highly unlikely that K&L Gates will be the only international law firm with a presence in Australia that will be affected by this. Even firms who have to report in British Pounds or Euros, as opposed to US dollars, will likely have felt this effect on their balance sheets. The only real question is the level of effect it has had.

And the warning I put out there to the Australian partners of international firms largely remains in tact:

in order to keep your fellow partners happy in London, New York or Chicago, your Australian-based revenue will need to increase by approximately 10 to 20 per cent over the next 12 months for you just to standstill.

So before you agree to any increased revenue target budget, keep in mind the compound effect foreign currency movement are likely to have on your commitment.

Alternatively, you could get a commitment from your offshore partners that they refer work into you on which you can charge offshore currency rates – say US dollars; in which case, you could get away with working about 10 per cent less over the next 12 months.

And who said being a law firm partner was easy!

RWS_01

Which ‘top’ Australian law firms are struggling to enter Asia?

The headline of the lead-off item in Friday’s (8/8/2014) Global Legal Post was:

“Top Australian firms struggle to enter Asia”

Pretty strong stuff, made all the more so by the first line of the post, which reads:

“BigLaw Australia has been ‘bitterly disappointed’ at its limited success in entering Asian markets, according to business consultant Dr George Beaton.”

The post left me wondering:

which ‘top’ Australian law firms are they referring to?, and
is it fair to say that “BigLaw Australia” has been ‘bitterly disappointed’ at its limited success in entering the Asian markets?

So, over the weekend I decided to take a look at this more closely. And, for the purposes of the remainder of this post I have limited my research to:

independent ‘Australian’ law firms (i.e., not international firms with an Australian presence),
with a presence on the ground in Asia (i.e., not looking at firms’ informal or formal referral arrangements – such as Advoc Asia, Lex Mundi or PRAC, which will likely be the subject of a future post).

Also, in undertaking this I have used the most recent ‘Top 10 Independent Australian Law Firms by Revenue’ list I could find – in this case, complied by the excellent Yun Kriegler (aka @TheLawyerAsia) in her 30 June 2014 analysts post for The Lawyer ‘Australia: medium pace’.

So, here goes:

Top 10 Independent Australian Law Firm by revenue	Offices in Asia
1. Clayton Utz*	None
2. Allens**	Beijing, Hanoi, Ho Chi Minh City, Hong Kong, Jakarta, Port Moresby, Singapore, Ulaanbaatar
3. Minter Ellison***	Beijing, Hong Kong, Shanghai, Ulaanbaatar
4. Corrs Chambers Westgarth	None
5. Gadens	Singapore, Port Moresby
6. Gilbert & Tobin	None
7. HWL Ebsworth	None
8. Maddocks	None
9. Sparke Helmore	None
10. McCullough Robertson	None

* Clayton Utz hit the headlines earlier this year for scratching it’s HK association with Haley & Co. but I’m not sure this one incident is enough to warrant a headline like that above.

** Given Allens tie-up with Linklaters, it’s questionable how ‘independent’ the firm remains.

*** as far as I can see, Minter Ellison’s Asian offices are not financial integrated with the Australian operations.

——-

So,

7 out of the Top 10 Independent Australian Law Firms by revenue have no on the ground presence in Asia at all,
for 2 out of the 3 that do have on the ground presence in Asia, it is questionable how financially linked their Asian offices are to the Australian operations, and
out of the 7 that currently have no on the ground presence, only Clayton Utz looks like it has attempted to create any on the ground presence in the past few years.

Which essentially leaves Gadens, listed at #5 on the list, as the only independent Australian law firm with any on the ground representation in mainland Asia itself (Singapore, where it doesn’t appear to have a local Qualifying Foreign Law Practice (QFLP) licence).

Overall then I think it is fair to say that that top Australian laws firms have not struggled to enter Asia – because they are simply not there in the first place and many of them have not even made an attempt to be there!

Is it also fair to say then that:

“BigLaw Australia has been ‘bitterly disappointed’ at its limited success in entering Asian markets”?

I’m not sure, because when you look at the published strategy of leading independent Australian law firms there appears to be three different approaches being adopted:

First, firms who are aligning with referral groups, such as Lex Mundi mentioned above,
Second, firms who are working off informal referral arrangements with firms operating in the Region, and
Third, firms who have decided to stay 100% Australian and are not looking at Asia in any great way for future development.

And so the honest answer is that this will take further analysis.

Now, if we were looking at how happy global firms with an Australian presence were with their Asian operations, then this would be a completely different post!

RWS_01

‘Mark Brandon: UK law is focusing too much on the wrong things’ – A response from Australasia

Over the last weekend I (@RWS_01) got into a tweet exchange with the author of a recent good analysis post on the thelawyer.com – ‘UK law is focusing too much on the wrong things‘ – Mark Brandon (@MotiveLegal). As part of the exchange, I promised Mark a response to his article.

First off, as it has been some time since I worked directly in UK law, my reply to Mark’s post should be read from an Australasian perspective.

Second, in my reply I have used the same numbering and headings as Mark used in his original post.

So, here goes.

1. The mega-consolidators will struggle

I partially agree with Mark on this one.

If, as I think Mark suggests, law firms are merging simply to ‘purchase’ market share, then I generally agree with him. Likewise, if by ‘conglomerate’, Mark means ‘full service’, then I would also agree.

However, as someone who lives and works in an environment (#Auslaw) where there are roughly:

30 law firms,
who earn in excess of A$50 million per year in revenue,
with a population of approximately 23 million people,

then I have to say that the trend of consolidation seen in the sector over the past two to three years here will, and needs to, continue.

Will some of these mergers/consolidations result in regional (Asia-wide) mega-firms? Yes, I believe they will [and indeed, with the likes of King & Wood Mallesons, have].

Will these firms struggle? Some yes (most likely those who, as Mark suggests, have consolidated solely to purchase market share), but those who have the right strategy and culture in place, ie where the consolidation is done in consultation with clients, resulting in a more efficient and better service to the client – rather than solely for the financial benefit of the partners of the firms involved, will likely thrive.

Finally, I have to say that I disagree with Mark’s comment that:

“When it comes to law firms, there is such a thing as ‘too big’.”

2. Vereins are over (more…)

Demand for legal services in Australia is flat – so what can I do about it?

Yesterday’s [4 July 2014] Australian newspaper Legal Affairs section published an article – “Top-tier firms axe hundreds of jobs” (subscription required if you wish to read the full article) – that opened with the following paragraph:

THE nation’s biggest law firms are in the midst of an employment shake-out with hundreds of jobs disappearing as the firms slash costs in the face of flat demand and intense competition.

The point of this post is not to opine on whether or not demand for legal services in Australia is truly flat, nor whether indeed demand among, so-called, ‘top-tier’ firms is intense, which I’ll leave for another day, but rather to comment on whether or not such flat demand, and indeed intense competition, should lead to the loss of hundred of jobs.

First off, anyone who has a memory even slightly longer than a gold fish, will recall that most (if not all) international firms (of whom most make up this so-called ‘top-tier’ level here in Australia) who entered the Australian market post the GFC cited “flat demand” in their domestic jurisdictions, and the need to grow revenue from other jurisdictions, as a strategic reason for doing such.

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