Resisting rather than pursuing the ‘bricks and mortar’ approach in Asia is the key for two Australian firms. Alex Boxsell reports
For firms Clayton Utz and Corrs Chambers Westgarth, having an office in an Asian jurisdiction is not what wins lucrative work — it’s all about the strength of relationships, the level of your expertise and consolidation in the domestic market.
Clayton Utz divisional managing partner Grant Fuzi does not believe a major, sophisticated Australian client — or international client for that matter — doing business in Hong Kong, is necessarily best served by a small Clayton Utz office in the region.
When he speaks of the options available to a firm in Asia it is from a position of experience — Fuzi was at one time a partner at Allen & Overy for several years in Hong Kong.
After five years of continual evaluation of the Asian legal market, Fuzi said that “in a nutshell, we do not see a compelling business case to support the necessary investment of time and people into opening an Asian office”.
Crucial factors that impact on that business case are the substantial competition in the region from much larger American and English firms, the opportunities for growth still available in Australia, and the realities of the investment timeframe required to secure the sort of work Clayton Utz expects to win.
According to Fuzi, the argument that a large firm has to look offshore because there are insufficient growth opportunities in the Australian domestic market simply does not apply to Clayton Utz.
“Overall, Clayton Utz is growing at roughly year-on-year 8 per cent, which is a significant growth,” he said. “And we believe as a management team that devoting both management resources and people resources to providing the training and support needed to service our clients domestically on the major transactions is the paramount importance.”
The investment required to open Asian offices in competition with the world’s largest legal players is no small matter either. “Even if we didn’t have the domestic growth, which we do, you have to look at the strategy of investing in Asia and the potential to achieve the sorts of returns and market penetration that you need to do,” Fuzi said.
The firm’s business model necessitates the hunt for top-tier work from top-tier clients, Fuzi said, but in Asia the task of “an Australian firm trying to compete in the top end of the market is extremely difficult”.
The reason for this comes down to the saturation of massive US and UK firms in the region, that can far more easily afford to set up offices.
When discussing Freehills’ Asia strategy with Lawyers Weekly last month, partner Russell Allen questioned whether “you want to be the law firm that opens the 280th office in Shanghai”.
“That is a sentiment which we agree with,” Fuzi said. “For a very, very small dollar legal spend, comparative to the Australian dollar spend, you’ve got US law firms, UK law firms, Canadian, European, Chinese, Hong Kong, Philippine, Malay, your local Singaporean and Indian firms, all competing for that slice of work.”
Corrs’ chief executive officer John Denton says the firms that are focusing on quality are the ones that are winning. “Quality, of course, does not require bricks and mortar,” he said.
“What you find in Asia is that relationships are the critical issue, not bricks and mortar, from our perspective,” he said. “We’re capable of operating with a relationship focus because of the style we bring to developing relationships, which is quite different I think to a number of our competitors.”
Corrs executes its Asia strategy through key partners focused on specific jurisdictions. “That does require us, if you are going to have a proper knowledge, to spend time in those jurisdictions,” he says. “The guys who work on India are spending time, in particular, in Mumbai and New Delhi.”
There is also a team who have spent three years dedicated to liquefied natural gas (LNG) negotiations in Korea, despite the lack of a Korean Corrs’ office to work from.
“Because we have such a deep level of expertise and excellent relationships in Seoul, we were automatically thrown into the tender group to be considered, and we won the pitch.” Denton said.
“You don’t need to be there — bricks and mortar was not going to help us get those jobs. You actually have to have the quality of lawyers, the quality of CV and the quality of relationships in the relevant capitals.”
Denton agrees with Fuzi in that there is still plenty of room to grow in the domestic market. In fact, Denton believes those with offices in Asia run the risk of losing focus “on the most important part of the business, which is the domestic Australian market”.
“We believe for a firm to truly prosper and be successful in the Australian market — which is in the end where you are judged — you actually have to be one of the most competitive,” he said. “We’ve got to be in a position where we can always continue to invest in our firm and provide people with excellent career opportunities, learning and development, and international opportunities as well. We do all that without having offices overseas.”
Clayton Utz utilises a string of relationship networks in Asia, including Pacific Rim Advisory Council, Lex Mundi and the Inter-Pacific Bar Association. Yet Corrs prefers a custom-built approach.
“Our relationships are all bespoke — we spend time working out the relationships we want to have,” Denton said. “We don’t want to be under any obligation to refer someone just because they are part of an alliance. We only want to refer people, or work with people, because they are the right people to work with for our clients.”
Asked whether Australian firms might succumb to the competition and close their Asian offices in the coming years, Fuzi said it was a very real possibility if the good times turn bad.
“Times today are as good as they get. If you’re not making a significant profit today you know that the Asian legal market is a whole lot more fickle than say the Australian legal market,” he said. “You’ve just got to look at the ups and downs it has had for different economic crises over the years. So firms that are now saying they are covering their costs would be in a pretty tenuous position if the market turns.”
Denton was a little more optimistic about the plight of his competitors. “Good luck to them — in a way I encourage them to continue to invest overseas,” he said.
“If it works for them, that’s great. I think one of the most important things is that the profession is able to deliver what our clients need and actually service them very, very well. I don’t quite understand how having two- or three-man offices in principle jurisdictions can deliver that, but perhaps in some cases it can.”