ASEAN

Will a ‘One Asia’ strategy work for BLP?

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I spent just over a decade in Asia between the 1990s and mid-2000s. In all the time I spent there I never considered the Region as ‘One Market’ – but rather as a multitude of diverse and different markets.

By way of example, almost everything we did in Asia was “ex-Japan“. This wasn’t because we didn’t see Japan as part of “Asia” – as it very much is – but rather because the international legal market there (NB, the Japanese local legal market is a very different issue) has far more in common with the US market than the Asian. As a result, we lumped Japan in with the US when discussing strategy (and you’re free to question that thinking/strategy).

Likewise, any strategy discussions we had that involved Singapore almost always included India, the Middle East and the Philippines. Similarly, strategy discussions that involved Hong Kong included not only mainland China but also Indonesia.

Finally, SE Asia (Thailand – where I was located, Myanmar, Laos, Cambodia and Vietnam) was its own regional discussion.

All up then, when discussing “Asian” strategy we had four or five discussions – not one.

That said, I worked with (but not for) firms (notably Herbert Smith as it was then) who operated on a fly-in fly-out basis. In my day we called this the “hub and spoke” approach, where the expertise went to the client need and, I have to assume, strategic discussions were done on a Regional basis.

While not criticising firms who took this approach – some did very well out of it – I didn’t think it worked for the firms I worked with as we held the view that, probably more so than any other market in the world, Asia operates on a relationship basis. Our experience was that relationships trumped expertise, and in the very family operated business world of Asia at that time, cost.

So why the history lesson?

Last week, in the Asian Lawyer, I read Bob Charlton – Asia Managing Partner of Berwin Leighton Paisner (BLP) – comment, following the firm’s Asian retreat, that:

“…in broad terms we agreed we must have a one Asia approach.”

Interesting, I wonder what BLP could mean by “a one Asia approach“?

Fortunately the article sets out exactly what that means:

“BLP’s “one Asia” strategy means the firm is doing away with the concept of geographic and practice area distinctions, focusing instead around sector groups. These groups include aviation, construction, oil and gas, private wealth and shipping.”

Now that really is interesting because, frankly, I’m not sure it is going to work.

A sector focus in Asia is a sensible move. A sector only approach to market in Asia is gutsy to say the least.

I say this for two reasons: (1) ‘relationships still trump in Asia’, and (2) Asia is not now, nor will it be for a very long time (if ever), one economic zone. That’s the case both for inbound and outbound work. And even if you don’t want to have people on the ground (which I would strongly recommend you do), you need to consider the geo-political economic implications separately.

And I’ve said all of this without mentioning the elephant in the room: “AdventBalance”. I wonder if they take a sector approach to their strategic thinking in Asia…

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Launched today – The Asian Business Law Institute

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Today, 21 January 2016, the Asian Business Law Institute (ABLI) was formerly launched in Singapore.

According to the ABLI’s website, the:

“…Institute based in Singapore that initiates, conducts and facilitates research and produces authoritative texts with a view to providing practical guidance in the field of Asian legal development and promoting the convergence of Asian business laws.

Among ABLI’s core tasks are:

  • to evaluate and stimulate the development of Asian law, legal policy, and practice, and in particular make proposals for the further convergence of business law among Asian Countries;
  • to study Asian approaches regarding business laws and practice in drafting legal instruments, restatements of law or model rules;
  • to conduct and facilitate pan-Asian research, in particular to draft, evaluate or improve principles and rules which are common to the Asian legal systems; and
  • to provide a forum, for discussion and cooperation, between the business community and the legal fraternity including, inter alia judges, lawyers, academics and other legal professionals, who take an active interest in Asian business law development.”

With the establishment of the ASEAN Economic Community (AEC) in December 2015 and the formal launch of the  Asian Infrastructure Investment Bank (AIIB) this month, there can be little doubt that it’s exciting times with plenty of potential for the legal industry in Asia at the moment so an initiative like ABLI should be warmly applauded.

If you’re on Twitter, the ABLI handle is @ABLIasia. Should be worth a follow.

Report: ‘HSF bets growth on Asia’

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The Australian‘s weekly Legal Affairs section is reporting (subscription required) today that global law firm “Herbert Smith Freehills will seek to more closely integrate its Australia and Asia practices.

Sorry to be blunt, but what!?!

According to the Lawyers Weekly website, HSF officially merged on 1 October 2012 to open as the “largest fully integrated law firm in Asia Pacific based on number of lawyers“.

That was 3 years ago.

This begs the question: are all of the recent global law firm entrants to Australia going through the same issues?

My guess here is “yes”. Even though nearly all of them (arguable K&L Gates used US-Australia as its strategic reason for opening in Australia) made specific mention of using Australia as a springboard into Asia, pretty much none of them – to my knowledge – has a specific liaison Business Development Manger person (or higher) located in Australia who assists with joint business development activities.

As I understand it, there may be cost related issues involved in this (who pays for the resourcing – Australia or Asia). There may also be personnel issues involved.

Who knows; but the short answer is that for the life me I cannot understand how 3 years or more (in some cases) on from when the global firms arrived in Australia they still don’t seem to:

  • have dedicated Asia-wide practice and support teams
  • be able to tell you the number of referrals across jurisdictions (inbound and outbound)
  • be able to tell you which partners are referring work [championing] across jurisdictions
  • be able to tell you how many referrals are going to other firms within the jurisdiction where they have an office – particularly where there may have been a relationship prior to the merger (in Australia’s case, would you like to take a punt that Gilbert & Tobin gets referrals from international firms with an on the ground presence in Australia?)
  • know which of their clients are referring work to them across multiple jurisdictions.

To me, this says that both the back-end and front-end operations of the merged firm are still working in geographic and practice group silos (which they most certainly would appear to be from today’s article).

Don’t get me wrong, it’s great that HSFs is seeking to more closely integrate its Australia and Asia practices. I hope other firms follow suit. I’m just frustrated that this initiative is probably about 2 and half years late!

Are international law firm offices worth the trouble?

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I’ve read four news items in the last 24 hours that, frankly, would make any law firm managing partner ponder on whether there was any value in opening an international office or two.

1.  PWC’s 2015 Annual law firms’ survey

The first item I read was PWC’s 2015 Annual law firms’ survey – specifically the ‘Global operating and financial performance‘ section, which included the following doom & gloom news:

  • The UK continues to subsidise international offices and exchange rates have further accentuated the imbalance this year. UK profit per all partners is ahead of international by 74.4% (2014: 65.8%) in the Top 10 and 88.5% (2014: 66.8%) in Top 11-50 firms. Fewer chargeable hours and consequently higher fee earner staff cost ratio in international offices is the key differentiator.

  • International chargeable hours for the 1-5 years pqe grade are significantly behind UK offices (between 3% and 33% across the bandings) with the exception of Top 10 firms in the USA (no difference) and Top 11-25 firms in the Middle East (1% in excess of UK performance).

  • Top 11-50 firms continue to expand internationally, with mixed results as the range in performance widens. Average global net profit margins now range from 23.0% to 44.0%.

There’s more, but I think you get the picture:- international law firm partners are effectively being subsidized by their UK partners.

2.   Merged Firms Contend With Weak Aussie Dollar

The second item was by The Asian Lawyer over on the americanlawyer.com who published an article yesterday on an issue that I’ve blogged on no less than four times since 2013 – ‘Merged Firms Contend With Weak Aussie Dollar‘.

The article mentions the entry into the Australian legal market of Herbert Smith (Freehills), Ashurst (Blake Dawson), K&L Gates (Middletons) and King & Wood (Mallesons) and contends that each largely saw the weakening of the Australian Dollar prior to merging and were still happy to proceed with the merger.

It’s definitely an interesting read, if not a little flawed. For a start, K&L Gates are on record as saying that the fall in the Australian currency has hurt them.

If you add to that the HSF tie-up was probably more a “Freehills” driven deal than “Herbert Smith”, and add that currency fluctuations would probably have been the last thing discussed in the Swiss Verein tie-up of KWM, then you’re only left with Ashurst – and rumblings in the UK industry press would seem to suggest that they are not overly happy with the results from their Australian operations at the moment.

All in all then, despite the upbeat message in the article, not a particularly good advertisement for international operations in my opinion.

3.  China set to invest £105 billion in UK over next 10 years

The third article I read was in the China Daily no less, which stated that ‘China set to invest £105 billion in UK over next 10 years‘.

This item, based on research done by think tank the Centre for Economic and Business Research and international law firm Pinsent Masons, is on the back of a trip to the UK by President Xi Jinping.

It nevertheless provides some insight into why Pinsent Masons felt the need to open an office in Australia, even after its merger talks with Australia firm Maddocks fell through. It also makes one think that there’s a world of opportunity out there if you have the right international strategy.

  4.  Cross-border M&A surges

The last was an item I read this morning over on the Australasian Lawyer website – ‘Cross-border M&A surges‘.

This article highlights the findings of a new study by international law firm Baker & McKenzie and again touches on a topic that I’ve blogged about in the past, namely that:

“Australia is a significant destination for inbound cross-border M&A and that’s a trend that has continued in recent years and in the past 12 months, there has been a number of significant cross border M&A transactions into Australia,” Baker & McKenzie Sydney partner David Holland told Australasian Lawyer.

While the last two items undoubtedly give you cause for why a law firm would have international operations, I’m nonetheless cautioned by another my recent posts: “A bridge too far” : When international law firm mergers turn sour, which also featured a certain K&L Gates.

3 ways you can grow your book of business today

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It’s very much been a story of doom and gloom in the Australian legal marketplace of late. Demand is down. The Aussie Dollar has fallen through the floor and seems to keep going. It’s nightmare and has been for some time.

As someone who advises law firms on business growth strategies, all this doom and gloom can be down right depressing. If, that is, you let it.

As for me, I prefer to talk things up and I enjoy looking around for the opportunities rather than dwelling too long on the negative. With that in mind, here are three ways and places you could be growing your book of business today:

  1.  Thailand

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Rohini Kappasath (handle @TalkingAsia on twitter) recently tweeted that there are 180 Australian companies – large and small SMEs – operating in Thailand who are looking for growth and guidance.

When I questioned Rohini where these numbers came from, he told me (vid DM) they were provided by DFAT (Department of Foreign Affairs and Trade).

Think about that for a second: 180 Australian companies operating in Thailand who are looking for growth and guidance. I wonder how many of these companies are currently represented by Australian law firms? Having lived in Thailand for 12 years myself, I’d hazard a guess not too many.

Massive opportunity going begging here.

  2.  Malaysia

Headline in yesterday’s The Star Online:

“Domestic F&B players strive to expand into Australia”

with a lead paragraph that reads:

“The domestic food  and  beverage (F&B) sector is striving to expand into the high-value Australian market as reflected from the participation of 18 Malaysian exhibitors at the Fine Food Australia 2015.”

18 Malaysian exhibitors at the Fine Food Australia 2015 with,

“Ninety-five business meetings with over 80 potential business partners were arranged by Matrade for the Malaysian companies during the event”

and not a single law firm in sight (from what I can see).

Massive opportunity going begging here.

3. Inbound M&A

Headline from yesterday’s Australian:

“Foreign takeovers tipped to surge”

with the following graph:

inbound M&A

Other than, “massive opportunity going begging here”, not really sure I need to add anything to that!

So if you practice law in Australia and you are wondering what you can do about your ever dwindling revenue stream, all I can say is the work is out there: you just need to go looking for it.

* did you notice how I didn’t need to mention China once in this post… …quite clever that really.

Australian-based law firms are failing to sell Australia as a forum to Asian clients

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Today [29 July] the Australasian Lawyer has a post detailing a recent report by Baker & McKenzie that:

“cross border IPOs in the Asia Pacific region have increased by 75 per cent in the first half of this year.”

 Wow, Capital Markets and Corporate teams across the Region have really struggled since the GFC and seen a lot of layoffs in their teams so this must be music to their ears!

But what about Australia?

Well, it appears the news here is not so good. According to David Holland, head of Baker & McKenzie Corporate Practice in Australia:

“Australia didn’t see much activity and the regional boom is unlikely to have any significant effect on the Australian market specifically”.

Sorry but this is not acceptable.

Australia not only has a robust principal stock exchange in the ASX, but we can also offer traditionally family run Asian companies access to a very friendly IPO forum in form of the National Stock Exchange (NSX) of Australia, pitched as being:

the market of choice for SME and growth style Australian and International companies.”

Listing and reporting rules for both are pitched as being much less onerous than is the case with other stock exchanges across the region.

So, why are we missing the boat here?

To my mind the answer to this question is this:-

Australian law firms and government bodies are failing in their duty to sell Australian law as a viable forum for international business.

Yes we missed the boat on selling Australian law as the governing law for international agreements – the English and Americans (New York) beat us at to that. But in this case we have a very distinct advantage that we are simply not pursuing or pushing.

To be clear, we’ve known for some time that Asian governments (particularly China) have been advocating for their domestic companies to list overseas in order to show transparency. We’ve known for a long time that control remains a massive issue for Asian companies (particularly family run businesses) and IPOs are, as their name suggests, capital raising exercises.

And what have we done about it?

Pretty much nothing. Few, if any roadshows. The occasional newsletter. Maybe the odd seminar.

In short, nothing.

Looking for a silver lining?

Luckily for us there is one in an ABC article from February of this year “China-based companies to list on ASX to avoid Asian stock market costs and free float requirements“, which points out that:

“Smaller Chinese companies are looking to list on Australian stock market operator the ASX to avoid the cost and free float requirements of larger Asian exchanges.”

All we need to do now is get out there and spread the message!

The battle for Asia’s inbound investment

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I was interested to see that The Lawyer has an article today [27 July] by David Rennick, the head of Pinsent Masons’ relatively new Australian outlet, on the competition between English and Australian law firms for prize Chinese’s infrastructure investment work (‘Never mind the Ashes: England and Australia are battling for the Chinese investment prize‘).

When I first arrived in Asia back in the early 1990s, most of the conversations we had with governments and businesses around “investment” in the region nearly always took the path of inbound [into Asia] investment: in that investments largely moved in one direction, from West to East, and appropriately attractive and protective legislatively schemes around those investments were always being sought.

Possibly due to the GFC, although I would be more inclined to say as the likely result of a progression in time and a growth in Asian economies post the Asian Financial Crisis troubles, a shift has taken place: today when we are in conversations around “investment”, this conversation has taken on a new life and we are just as likely to be discussing outbound [from Asian] investments into the West or into other developing nations/areas (such as Africa) as we are about inbound [into Asia] foreign direct investment.

I love infographics and clear evidence (if it was ever needed) of the shift taking place in the conversation taking place here can clearly be seen in two amazing recently published infographics: one by the South China Morning Herald (‘Chinese outbound investment to rise to another record‘) and the New York Times (‘The World According to China‘).

And while both of these show a massive increase in outbound direct investment by China and Chinese companies (and people) over the past decade, decade and half, what they don’t necessarily show is the different reasons/discussions that are taking place for/around these investments.

To be clear, while Asian (including Chinese) companies and governments are investing overseas for a multitude of reasons, they largely centre around two principal reasons:

On the one hand, the governments – including State Owned Corporations – need better returns on their investments than they would otherwise be getting at home or else they need to diversify this investment. We typically see this type of investment with Singapore’s Temasek and GIC (Government of Singapore Investment Corporation). More recently we have seen foreign pension funds investing in Australian infrastructure in this way.

On the other hand, we see investments in western businesses by Asian companies and organisations looking to purchase technical knowhow in order to up-skill themselves. An example of this can be seen with today’s announcement that: “A major Chinese venture firm has launched a US$5 billion fund devoted to buying up Western technology, internet and biotech firms that are looking to enter the Chinese market.

And it is for this reason that unlike David Rennick I don’t believe English or Australian law firms should be strategically looking at the Chinese for inbound infrastructure investment work (with the caveat that this doesn’t include strategies around the Chinese-led Asian Infrastructure Investment Bank (AIIB)), because I believe that type of inbound infrastructure investment work (once Australia can work out a suitably attractive investment vehicle for foreigners to invest in infrastructure) from Asia will more likely come from Korea, Japan and Singapore (under relevant FTA provisions with these countries).

For Chinese related inbound investment work, English and Australian law firms would do far better to be courting M&A and R&D work, and in this field they will find a much hungrier and more sophisticated competitor – the US law firm.