As firms jostle for supremacy in booming Asia, Alex Boxsell explores the differing approaches of Australia’s major players
FOR ALLENS Arthur Robinson, the only way to enter Singapore on a fully competitive basis is to undertake a joint law venture (JLV). For Freehills, relationships with other firms — supported by its own Singapore office — is preferable. Over at Blake Dawson Waldron, the thinking is that you wouldn’t want to be a firm trying to enter China now — the dragon boat has sailed.
Far from being a new battleground, Australian firms have been jostling for position in Asia with the big internationals for years, even decades. But considering eight major firms have established bases in Asia, and one top-tier rival, in Clayton Utz, is deliberately absent, what is the best strategy to conquer the Asian legal market?
ALLENS ARTHUR ROBINSON
According to Jim Dunstan, executive partner in charge of Asia, Allens has the clear objective of being the best regional firm in Asia, a goal the firm has been working towards for 26 years.
“We have never shut an office and have a clear strategy to reach our objective,” he said. “Using this strategy we can have real experts with cultural affinity bolted onto the core local teams to get them to the necessary size and skill. We move the lawyers to where the job is around South-East Asia in the same way we do within Australia.”
This strategy has seen the spread of seven offices in Asia along with three alliances — the most of any Australian firm.
“We are simply in a different league to any of our competitors,” Dunstan said. “The fly-in fly-out model is dead in Asia, basically because we and other Australian firms are on the ground, the fly-in lawyer can’t compete [using] the fly-in model.”
An Australian firm opening an office in China now would find it very difficult if it lacked the right client base. As Dunstan said, “entering China now to set up an office is significantly harder than it would have been when we entered the market 15 years ago, and built a dominant position”.
“It would take a long lead time and a lot of investment to build an office up from scratch if you didn’t have a solid China practice,” he said.
Dunstan likens the task of entering today’s China market to getting a foothold in New York 80 to 100 years ago.
“This is a massive market in its early infancy,” he said. “You’re in at the beginning, and you make of it what you can. Not all firms will survive; not all firms will have the appetite. For some firms, it just won’t make any sense because their domestic practices won’t sustain it.
“You have to have sufficient, blue-chip, Australian-based work to at least give you a baseline of work to move from. The difficulty is that the Australian economy produces a very small number of those sorts of clients, so you have to be able access international clients. To do that you have to have credibility from work done in the market. So it’s hard, but not impossible,” Dunstan said.
BLAKE DAWSON WALDRON
Blake’s Asian practice team leader, Justin Shmith, agrees it would be a Herculean effort for a firm to enter China either now or in the near future.
Speaking to Lawyers Weekly from Shanghai, Shmith said the firm was offered a practicing licence in China about ten years ago, which lead to the Shanghai office, from which it also services Bangkok and Hong Kong. But anyone without a long history in China should think twice about making a move there, Shmith said.
“There are a lot of foreign law firms in China now, and it certainly helps to have been in China for some time. You wouldn’t want to be arriving in China and trying to establish a practice now, because it would be that much more difficult,” he said. “We don’t see it likely that any other Australian firms will open in China.”
Blake’s Asia strategy is divided between targeting Japan and Korea, China, South-East Asia, and India. The firm also has an association with Soebagjo, Jatim and Djarot in Jakarta, to which it contributes two partners and a secondee. But according to Shmith the firm’s main competition in China is from local and other international firms.
“It’s very competitive for people, and also it’s the sort of market where you only acquire the knowledge that you need over time, and the relationships you need over time,” he said.
“Particularly with the Chinese companies, you find that you need to have known them and the relevant people for some time before they’ll use you regularly. It’s very much relationship-based, rather than transaction-based.”
Preferring the on-the-ground approach, Shmith said Blakes has not been drawn to any of the “pretty broad affiliated networks” that exist, “mainly because they are only very loose affiliations, and we feel that we get a better knowledge of the capabilities of different firms by actually being on the ground, [and] being in a position to assess their abilities”.
Don Boyd, Deacons’ chief executive partner and past chief executive officer in Asia, says the firm is driven to offer a strong cross-regional general counsel coverage that necessitates many Asian bases.
Deacons’ strategy is to always “have a significant geographical footprint, where we can be what we call a ‘safe pair of hands’ to international corporates doing business in Asia,” he said.
“And one of the reasons for all of that is that we strived not to be solely dependent on Australian-sourced revenue and clients, so that a reasonably significant proportion of our work comes from multi-jurisdictional clients.”
Deacons is the only Australian firm that runs an office in Guangzhou, which is about as far from Hong Kong as Sydney is from Canberra. Boyd said that office is essential to gaining access to the “greater Pearl River delta area, which is one of the most significant, if not the most significant economy in China”.
Through Deacons’ network of alliances with other firms, it is able to gain strong cultural commitment and local capacity without “the high cost of expat involvement”. Expats tend only to be utilised in areas of specific expertise or for management reasons, Boyd said.
And in terms of future growth in the region, Deacons is looking not only to China, but increasingly to India.
“As we cover the region for either multinational firms or other law firms, we are increasingly requested to include India as part of that management package,” he said. “So we think that it will be critical for every firm that is serious about Asia, and probably serious about international work, to cover their clients’ needs in India.
“We’re [also] keeping an eye on Korea, although it’s a harder market for non-American law firms. But there is a whole lot of investor interest developing in Korea, and they are opening their markets to new forms of collaboration with international law firms.”
On announcing a joint law venture (JLV) with Singapore firm TSMP Law Corporation a fortnight ago, Dunstan from Allens said he didn’t expect any other Australian firms to follow suit, though “it’s a very logical thing to do, in the sense that it is the only way of being able to enter the market on a fully competitive basis”.
Deacons has also looked at the option of a JLV in Singapore, but does not view it as a necessary move at this stage.
“We certainly monitor the situation, but we’re comfortable with our current team and our approach. Singapore is a pretty important centre for us. It’s a strong office, it’s critical to the hub of South-East Asia, if not a much bigger Asia regional approach. So whether there will be a [JV] between us and someone else in the future, we’ll just have to wait and see,” Boyd said.
Russell Allen, Freehills’ leader of the employee relations practice that is launching in Asia in June, also disagrees with Dunstan.
“You can say ‘fully competitive’, [but] it’s like everything,” he said. “Who brings what aspect to the table in a JV? What strengths do you build? I can understand that would provide the ability to go to one of those JV firms and deal with both the international and local aspects, but where there are close working relationships with lawyers, like we have, that can occur just as seamlessly.”
Freehills had a JV with a Singaporean firm in the past, but eventually decided against the arrangement.
“When the ability to operate as a [JV] came up, we started off that way, but decided after a number years that it was tending to naturally fall into the Singapore [JV] company doing a lot of the local law, and our involvement was really the international law aspects of it, the more commercial side of the transaction,” he said.
“We worked out that [having] relationships with local law firms was a more than adequate way of dealing with that, rather than being in a [JV]. It’s a different model. Different firms might feel more comfortable with that, but we didn’t see that that was necessary for the way we operate in Singapore.”
Freehills has had an office in Singapore since 1984, which it uses as a base to service the whole region. But with alliances in Hanoi, Ho Chi Minh and Jakarta, it is the extent of their on-the-ground presence in Asia.
Allen believes China to be a very crowded market, and says Freehills has little interest in opening an office there soon.
“Obviously there are opportunities there with the phenomenal growth that is occurring in the region, but do you want to be the law firm that opens the 280th office in Shanghai?,” he asked. “I think you’ve got to look sensibly at the investment cost that is going to be involved.
“Some of our competitors believe that by actually having an office up there is the way to convince their clients that they know how to operate in China,” he said. “Well, I think it’s not having the office there that is the key issue. The issue is whether you understand local conditions and the experience you’ve had in operating in that area — they are the key drivers for success for your clients.”
GILBERT + TOBIN
Managing partner Danny Gilbert of Sydney-based firm Gilbert + Tobin says he is more than happy using the fly-in fly-out model to service Asia through an alliance with Hong Kong firm, Arculli & Associates. He certainly does not share Dunstan’s view that the model is dead.
“I don’t think that’s true. We’re getting a lot of work on the fly-in fly-out basis,” he said. “I don’t know what rates the other firms are charging, but it is still significantly less than the London or US firms. The fly-in fly-out model I think will always be there for some firms, but I can understand the strategy of some of the others wanting to establish a more permanent and scaled operation.”
After being introduced to the region through work done for Hong Kong Telecom in the early- to mid-1990s, G+T has kept a few partners on secondment.
In 2000, the firm formed an association with lawyer and businessman Ronald Arculli in Hong Kong, which persisted through a merger with Fong & Ng, affiliate of Chinese firm King & Wood. G+T has two partners in the Hong Kong office at present, one full time and the other splitting his time between the city and Sydney.
“Through the affiliation we have with that firm we are continuing to do work in Asia, in Hong Kong, and it is starting to pick up in China as well. Otherwise we would have, at any one time, three or four partners who are working in the Asian market, mainly in telecommunications, some in information technology, but basically they are fly-in fly-out strategies.”
Although he would not rule out the possibility in the future, Gilbert said the firm had no plans to open an office in Asia, considering the substantial investment it would require. But for a firm of G+T’s size, Gilbert said things were progressing well.
“We often get measured against all the national firms in the country, and we do well against them, but most commentators ignore the fact that we are only Sydney-based, he said. We are only half the size of our major competitors in Sydney.”
HUNT & HUNT
According to Hunt & Hunt’s chief legal representative in Shanghai, Jim Harrowell, it isn’t only the top-tier who can enjoy a healthy practice in Asia.
The firm has had an office in Shanghai since 1998, in which it does not presently have permanent Australian staff, but rather lawyers going backwards and forwards on a regular, needs basis.
According to Harrowell, Hunt & Hunt is mindful of avoiding the high costs that foreign firms incur by entrenching expat lawyers in their Asian offices. This allows his firm to be competitive on fees, though it remains very important to have a permanent Asia base at its disposal, he said.
“We made the strategic decision a long time ago that Shanghai should be our focus, because it is a very vibrant and progressive city economically,” Harrowell said.
“It’s geographically very central — it’s a bit like Sydney relative to the other cities in Australia — so it’s easy to get around to other Chinese cities,” he said. “You don’t have to be in Beijing because the government is there; the central government is not required to approve a huge number of projects up there now. You don’t need to be in Beijing any more than you would need to be in Canberra.”
Harrowell acknowledges that many Australian firms offer competitive services in Asia, which has garnered them plenty of respect and popularity in the region.
And as the immediate past chairman of Interlaw, a 25-year-old network of 67 member firms around the world, Harrowell is well-place to speak of the benefits of Hunt & Hunt’s membership.
“Interlaw gives us a virtual legal network — a virtual firm if you like. There is serious work referred around the world. It’s not exclusive, but it’s more than a ‘best friends’ relationship.”
MALLESONS STEPHEN JAQUES
Tim Blue, managing partner, international, at Mallesons, says the firm is more interested in building a strong capability and reputation in Hong Kong than opening a number of different offices around Asia.
“We’ve actually taken a slightly different approach of trying to make sure that we have a very credible presence in Hong Kong, and increasingly in mainland China, as a base for our Asian practice,” he said. “And there is also a significant amount of regional work that is done from our offices in Australia supporting our clients who are looking at Asia.”
For Mallesons, servicing Asia is a matter of quality not quantity of offices.
“We’ve taken the view that these offices really only gain credibility in these markets once you reach a certain critical mass. If you look at the size of our office now in Hong Kong, for example, we’ve got over 70 lawyers, and we’re among the 10 largest international firms,” Blue said.
“I think if you take the alternative strategy of having two or three partner offices in five or six different locations, the risk is that you don’t really get access to the level of work that we believe we can now access and service capably in Hong Kong.”
Mallesons has had an alliance with Kwok & Yih in Shanghai since 2004. According to Blue, regulations in China have only recently allowed for a foreign firm to have more than one office in China, but once Ministry of Justice approval is gained in a matter of months, the Shanghai firm will officially operate under the Mallesons banner, as it has effectively been doing since the alliance was established.
Blue said Mallesons also has a definite interest in Singapore, but the firm sees no need to either open an office or enter a JLV.
“If our clients were to be demanding that we have a presence in Singapore, that would be the way that we would need to go, and it is something that we do keep under review,” he said. “But at the moment, we feel that we can adequately fulfil the needs of our clients in Singapore through Hong Kong, and getting involved through Australia.
“We find, particularly the kind of clients that we act for in those markets — particularly the investment banks, UBS and others — they already have their preferred firms, so we work alongside the local firm with the appropriate local expertise.”
Chief executive Guy Templeton says Minters has succeeded in Asia with a primary office in Hong Kong, and another in Shanghai, by focusing on its major practice areas of infrastructure, major projects, and energy and resources.
“Our strategy in Asia is primarily focussed on greater China. It is to focus on areas of practice that are generally regarded as strengths for Australians. We don’t see much point in trying to compete against, say, magic circle firms in their areas of strengths,” he said.
Along with Hong Kong as a centre, and plans to grow Shanghai, Templeton said Minters is watching Beijing closely, where an increasing amount of work is coming from. The firm also has an alliance with Makarim & Taira S. in Jakarta that is working well, along with a number of “stable” relationships with firms in Singapore.
Despite Dunstan’s high regard for JLVs in Singapore, Templeton said Minters does not currently see a need to enter into one.
“We do deal primarily with several firms there, but there is no formality to the alliance, and we think that works quite well,” he said. “We did help Las Vegas Sands on their bid for their casino licence there, which they were successful with, and that was a fantastic project for us and for the client, but it didn’t necessitate having an office. So we just don’t see the need at this stage.”
For Templeton, Minters’ strategy in Asia is less about differentiating the firm from Australian rivals, and more about focusing on what it does best.
“There’s always a degree of risk operating offshore, and the way to minimise that is to really leverage the areas you know. So for us, we’re really focussing on infrastructure, major projects, energy and resources, and we’re starting now to expand into looking at private equity,” he said.
“There are excellent opportunities around energy and resources in China, and that’s in two directions. One is facilitating their import of resources from Australia, or helping Australians with those contracts. But the other is that we are seeing an increasing amount of foreign direct investment coming out of China.”
But after living in Hong Kong for eight years, and doing consultancy work for 15, Templeton said firms have “always got to be cautious that [they] don’t just get swept up in the dream”.
“I’ve lost count of the number of organisations that I’ve seen that get stars in their eyes around a potential growth. And then you see them much more quietly pack up their bags and go home three to five years later carrying some heavy losses,” he said.