Opinion
Is there a formula for law firm success in Asia?
15/09/2014
International expansion is the Holy Grail for the majority of larger law firms, with many clearly understanding the benefits of building an international practice. However, in recent times Asia has presented a difficult win for some. In this article Nick Robertson explains where firms are going wrong and outlines what others have done to succeed. 
 
As the European and North American economies continue to recover from the effects of the 2008 downturn and law firm profits rebound, it seems strange that many international firms continue to look towards the Asia-Pacific region for future growth rather than concentrate on building their practices closer to home. 
 
After all, Asia is not an inherently easy place to do business, particularly for Western law firms (and their lawyers). The question that always arises is “How does any firm begin to develop a ‘regional’ strategy for a region as large and diverse as Asia, which includes the highly developed markets of Hong Kong, Singapore and Japan; emerging markets such as Indonesia, Myanmar and Vietnam; and China, a market with a unique range of cultural, linguistic, regulatory and economic challenges. What is it then that makes some firms successful, while others barely make it out of the starting blocks?
 
In short, there is no easy answer, but it seems that the most successful firms are those which have a fundamental strategic reason for being in Asia. Many firms opens their doors in Beijing, Singapore or Hong Kong with a lateral hire (or hires) from one or more of their competitors with no clear vision, internally or externally, for what they aim to achieve from their presence in the region. These firms are usually the ones that struggle to gain traction.
 
First and foremost it is essential for firms to seriously consider the synergies between their existing business and the region in order to leverage client relationships in Asia. Every firm considering a presence there should have done its due diligence on whether it is legitimately losing revenue to its competitors by not having a physical presence, and whether such revenue is in fact recoverable or indeed scalable; and whether the cost involved in doing so is justifiable.
 
In this respect, it appears that there are two routes which provide firms with a reasonable chance of success. The first is to develop a comprehensive and well-resourced pan-Asian practice with operations in multiple jurisdictions. This is the most expensive, time intensive and difficult route, but history has showed that this investment can pay off. Firms such as Allen & Overy and Baker & McKenzie have spent close to fifty years developing their Asian practices such that they now have twenty-eight offices between them in the region and a significant portion of global revenues emanating from the Asia-Pacific region. An operation of this scale is not realistically achievable for a new market entrant.
 
By contrast, the platform which appears to offer the most realistic chance of success for most new market entrants is to focus on developing a highly disciplined, strategically aligned operation which clearly leverages the firm’s core capabilities in its home market. King & Spalding, for example, which opened its Singapore office in 2010, made the decision to leverage the firm’s highly regarded global energy practice. The firm has focused on developing a South-East Asia offering which builds upon the firm’s brand and global client base, and focuses almost exclusively on energy related project development, finance and arbitration work in the region. By all accounts, this disciplined approach has paid dividends for the firm with consistent growth in revenue, and the appointment of a number of highly regarded lateral partners. 
 
While it is tempting for any firm to hire a “rainmaking” lateral corporate or general finance partner to establish a presence in Asia, unless his or her practice and client base is closely aligned with (and indeed directly reflects) the firm’s home market capabilities and clients, there is little, if anything, to be gained beyond a potential short term revenue boost. As soon as that lateral hire realises he or she will be able to achieve greater “synergy” elsewhere, the unlucky firm will be left with nothing but its name on the door of some very expensive, empty, office space in Central, Marina Bay or Chaoyang.
 
So, is now a good time to be opening an office in Asia?
 
With the doomsayers suggesting China’s growth is stalling (or at best, slowing significantly) and the recent election of a new Indonesian government on a platform of promoting domestic rather than foreign investment in key industries, some would say no. 
 
On the other hand, the reality remains that Asia is a large and incredibly diverse region with a growing consumer base and significant natural resources. Provided the formula is right and a disciplined, revenue focused, cost sensitive approach is maintained, establishing a physical presence in many Asian jurisdictions can be a very profitable exercise. 
 
For more information on the current Asia market or for more in-depth analysis of operating in the region please contact Nick Robertson in Singapore, Robert Rooney in Hong Kong or Shawn Chen in China.  
 
 
Nick Robertson, 15th September 2014

 

 
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