Opinion: Why Asian markets are not necessarily the best option

8 March 2010

This is especially so since both Norton Rose and A&O have proclaimed Australia to be an integral part of their Asia strategy.

Numerous other smaller firms have entered Asia either alone or through some type of alliance. Asia will continue to be an attractive market for Western firms and it would be wise for their leaders to be ­cognisant of the entry strategies available to them.

For UK firms that are interested in Asia, prior to deciding upon an entry strategy and country, they should ask themselves some key questions:

• Will creating an Asian presence boost strategic capability (gain new clients, build reputation, create or enhance ­competencies)?
• What are the key practice areas, ­industries and trade patterns, and how do they differ between various South East Asian countries?
• What is the level of competition?
• Is there the relative expertise and ­intellectual capital to be successful, and if not, can it be acquired?
• Is the necessary talent readily available?
• What time frame would we expect to be profitable and do we have the resources to persevere?
• What is the local regulatory environment and how will that affect key decisions?

Once these issues are clear, firms ­essentially have two choices of entry. Go it alone (A&O) or form an alliance (Norton Rose and Deacons). Going it alone can be expensive and time-consuming. ­In ­addition, the practice of local law is restricted to local firms in many South East Asian countries.

Alliances are common and vary from loosely based best friends’ agreements (such as Slaughter and May) to full-scale mergers. The inhibiting factor in alliances is the chance of failure. Research suggests that up to 50 per cent of alliances fail. Hence leadership and the management of alliances become problematic.

There is not always a need to set up an on-the-ground presence in Asian legal markets where one wishes to work. Many firms use Hong Kong or Singapore as a hub and serve other South East Asian countries from that base. Also, firms will build their capability in serving a ­particular market by hiring lawyers with both the language and cultural skills of a certain locale.

The key attractions of Australia seem to be its proximity to South East Asia ­(overstated in my opinion), the quality of lawyers at lower cost than the UK, Hong Kong or the US, the growing natural resources, energy and mining sectors, as well as the ever-increasing trade between Australia and burgeoning markets such as China.

However, the domestic legal market is relatively small and highly competitive. Sending Australian lawyers to different Asian markets, as Norton Rose is doing, is not necessarily certain to succeed. ­Different cultures and the importance of relationships in the Asian context will have a big influence on the success of such a strategy. For foreign firms with more ­limited resources than A&O or those that are not focused on the big-ticket ­transactional or cross-border work in the key sectors mentioned, using Australia as an entry point to Asia seems less attractive.

Asian markets are attractive, but ­success is not guaranteed. A number of foreign firms have struggled to gain footholds and hence it is crucial to adopt a strategy that suits you. Don’t follow the herd: choose a strategy that best suits your ­context and needs.