Throughout the next few weeks, we will be taking a closer look at certain emerging markets and their impact on the global legal industry. Yesterday, we looked at the market indicators driving law firms to Brazil. Today, we turn our attention to Asia.
Virtually every report on the world economy points eastward towards Asia as the premier region that global businesses should focus on for growth opportunities. Very often these reports treat Asia as a monolith, not the complex and diverse region that it truly is. However, there are reports and surveys that paint a much more nuanced picture of the Asian economy.
A good example is a report published in March by the McKinsey Global Institute predicting that more than 20 of the world’s top 50 cities ranked by GDP will be located in Asia by the year 2025, up from only eight in 2007. And that by 2025, 136 new cities are expected to enter McKinsey’s list of the top 600 cities ranked by global Gross Domestic Product (GDP), all of them from the developing world, including 100 cities in China. This will have profound implications for companies’ growth strategies and the “key to tapping urban wealth in Asia” notes McKinsey, is to look at second-tier cities with populations of less than ten million.
Development in that second tier is astounding. In India, for instance, Bangalore, Ahmedabad, and Pune together will have as many households earning $20,000 a year in purchasing-power-parity terms as either Delhi or Mumbai by 2025. In China, 14 cities, including Wuhan, Xiamen, and Shantou, will have more households in this income segment by 2025 than either Beijing or Shanghai do today.
Understanding opportunities in these second-tier Asian cities will not be easy for companies. McKinsey acknowledges that “what you think you know about a country from your operations in its largest city may not apply in the second tier.” Companies might need to start from scratch, but nevertheless, they will need to make these cities a central part of their strategic plan if they want to grow their businesses.
The Asia Development Bank explained the sheer magnitude of growth in Asia in a recent report, entitled Asia 2050: Realizing the Asian Century, which seeks to develop a long-term vision and strategy for Asia’s “potentially historic rise among the global community of nations between now and 2050.” The bank predicts that if Asia continues on its current growth trajectory, it could account for more than half of global GDP in 2050, nearly doubling its current share.
The rapid rise of Asia over the past 4-5 decades has been one of the most successful stories of economic development in recent times. Today, as Asia leads the world out of recession, the global economy’s center of gravity is once again shifting toward the region. The transformation underway has the potential to generate per capita income levels in Asia similar to those found in Europe today. By the middle of this century, Asia could account for half of global output, trade, and investment, while also enjoying widespread affluence.
However, the report is also quite blunt in stating that “Asia’s rise is by no means pre-ordained.” Citing the region’s complexity and diversity, it warns that “Asia will need to sustain high growth rates, address widening inequities, and mitigate environmental degradation in the race for resources.”
Finally, a new report from Allen & Overy, the first in its three-part “50 Degrees East” series, looks at opportunities and challenges of doing business in the Asia Pacific region as compared to other countries around the world, both developed and developing. The report is based on in-depth interviews with over 1,000 business leaders from large international companies across 19 countries.
To the surprise of probably no one, three-quarters of business leaders interviewed agree that Asia’s economic influence is rising, easily surpassing all other major regions and in sharp contrast to Europe’s economic influence, which more than 22% said was in decline. Based on market size and growing consumer prosperity, China was cited as the top market with the best opportunities for growth, despite the fact that it was also considered one of the most difficult markets to enter, along with the U.S. and Russia. Legal and regulatory issues were cited as the main barriers to entry in these economies.
Underlying the report is data from Allen & Overy on Foreign Direct Investment (FDI): in 2005 developed economies received two-thirds of FDI inflows, while developing economies just one-third; in 2010, the ratio was closer to 50% each. With growth weak in Europe and the U.S., it is likely that capital inflows towards developing economies will continue. When asked to name the three markets that showed the best opportunity for growth, business leaders chose three of the BRIC economies, China, India and Brazil, in their top five list; three of the other countries rounding out the top ten were in Asia Pacific: Japan, Singapore and Australia.
However, some of the survey results are surprising. In particular, the notion that the BRIC economies are thought of only as targets for investment, rather than being investors themselves, is really quite simplistic, and not entirely accurate.
The traditional view of the BRICs also appears to have been turned on its head. Once viewed as the most attractive target markets for investment, they themselves have become major investors in other markets around the world with a collective 380% increase in their FDI outflows between 2005 and 2010. Maybe these emerging economies are less risk averse than their western counterparts and therefore less conservative about investing in regions such as Africa.
The second report in the series, just published, is on funding options preferred by business leaders, while the third report which focuses on major risk and regulatory issues will be published in November. So while it might be tempting to view Asia from a high altitude, business leaders would be wise to dig below the surface to fully understand the opportunities that will drive their success in the “Asian Century.”
Later this month, the Hildebrandt Institute and West LegalEdcenter will host a panel discussion as part of the 16th Annual Law Firm Leaders Forum, on competitive opportunities for law firms in emerging markets in Asia and South America. You can learn more about the forum here.
Posted by Marianne Purzycki
Throughout the next few weeks, we will be taking a closer look at certain emerging markets and their impact on the global legal industry. Today our focus is on Brazil, but stay tuned for a discussion of why some are calling this the “Asian Century” on Friday.
The Influx of Firms
Although much of the focus in recent years has been on emerging markets in Asia, Brazil has been quietly claiming an important role in many law firm strategies. The global economic downturn has only hastened this development, as large international firms have looked to developing countries as a key source of future business in the global market.
In 2011 alone, Dewey & LeBoeuf, Jones Day, Cleary Gottlieb and Davis Polk have announced new offices in Sao Paulo. The CMS law firm network has announced interest in adding a member in Brazil (the UK member, CMS Cameron McKenna, already has an office in Rio de Janeiro focused on the oil and gas industry). European players including French firm Fidal, German firm Heuking Kuhn Luer Wojtek, and UK firms Kennedys, Taylor Wessing and Harneys have also begun expanding into Brazil. Fidal, Heuking and Kennedys are all setting up associations with local firms, while Taylor Wessing has launched a Brazil group based out of its London and Hamburg offices. And Harneys has hired a Brazilian lawyer, Maria Pia Buchi, to serve as head of business development in Sao Paulo and Rio.
These new entrants join a longer list of international firms that have focused on Brazil as a burgeoning market in recent years, including Allen & Overy, Baker & McKenzie, Chadbourne & Parke, DLA Piper, Linklaters, Mayer Brown, Macleod Dixon, Proskauer Rose, Shearman & Sterling, Skadden, White & Case, Squire Sanders, Simpson Thacher, and Gibson Dunn. Most of these firms have opened offices or created associations with firms in Sao Paulo, the country’s largest city, though both Rio and the capitol, Brasilia, have also garnered attention.
Brazil is clearly a hot spot for law firms, but what specifically does the country offer law firms and their corporate clients? Continue reading
In Part 1 of a series on women lawyers and legal secretaries on the Forbes blog “She Negotiates,” Victoria Pynchon explores how gender dynamics in large law firms have shifted over the last 30-40 years, with the introduction of female associates and partners. Pynchon first entered legal practice in the early 80s, and she describes her relationship with her secretaries as she moved from a small firm to large one:
In my earliest years as an associate attorney, I had a dynamite secretary who clearly knew far more about the practice of law than I did. She was willing to freely share her knowledge with me and our relations were friendly, particularly because we were age-mates and worked for the same partner. It was a small office, extremely informal, and very collegial.
Then I moved to a larger and more prestigious law firm. There I was told that very few of the firm’s secretaries were willing to work for a woman and that the secretary assigned to me had only reluctantly agreed to add me to her workload. No one said, “you’re lucky to have her so don’t screw it up” but that’s what they wanted me to understand.
Pynchon’s series addresses how the traditional, gendered power structure at large law firms (male lawyers and the female secretaries who catered to them) continues to have an impact on the way lawyers, in particular women lawyers, interact with the their support staff. It is an important and necessary conversation, given how often the discussion of gender at law firms focuses exclusively on attorneys while neglecting to address the sometimes challenging relationships between attorneys and staff.
Related Stories: Not One Legal Secretary Surveyed Preferred Working with Women Partners; Prof Offers Reasons Why (ABA Journal)
Update: In Part II of her series, Pynchon proposes ways for lawyers and firms to address the problems she raised in Part I. They include the suggestion that lawyers “[a]ssume that everyone is a professional, able and willing to contribute more than their job description to the enterprise.” Not a bad place to start.
Posted by Emily Fisher
This week, the Hildebrandt Institute and West LegalEdcenter are hosting the 10th Annual CFO & COO Forum in New York. We’ve previewed some of the topics for this event here, here, and here. We will be discussing the conference in greater detail in the coming weeks, but some of the highlights from Day One are worth mentioning today:
Posted by Emily Fisher
Two weeks ago we wrote about a number of energy firms that had established branch offices in western Pennsylvania to take advantage of growth opportunities in the Marcellus Shale. This week, energy news is once again at the forefront with the blockbuster announcement of Kinder Morgan’s acquisition of El Paso Corporation for $21.1 billion, one of the largest energy deals ever recorded. Tapping into the boom in natural gas drilling and production from shale, the transaction will create the largest midstream energy company in North America and will make Kinder Morgan the largest pipeline company in the United States. In another recent deal, Energy Transfer Equity and pipeline operator Southern Union Company agreed to merge in July. International players are also targeting North America. On Monday, Statoil of Norway agreed to buy Brigham Exploration Company for $4.4 billion, gaining access to the “tight” oil plays in the Williston Basin in North Dakota and Montana.
What does this mean for law firms? First of all, it means that energy transactions are dominating the deal landscape and they are therefore a top priority at many law firms. Despite the economic slowdown, investment in the energy sector shows no signs of letting up. For the first nine months of 2011, energy was the most active sector in corporate mergers and acquisitions, garnering 17.2% of announced deals worldwide, according to Thomson Reuters. In the U.S., energy deals also led in the first nine months of 2011, totalling $167.7 billion, a 20.2% share of U.S. M&A activity, and a 12.1% increase compared to last year.
Secondly, energy work is a major driver of strategic direction at law firms. A new article by Mark McAteer and Michael Northcott in the October issue of Legal Business (subscription required), illuminates how law firms are responding to trends in the industry and positioning themselves for success. For now at least, energy is king,” proclaim the authors. ””[I]t is an inescapable fact that clients of the energy practices at some of the world’s largest law firms have dictated global growth strategies.” The authors argue that firms of “any size” are now taking energy seriously and that regardless of whether or not the firm has a longstanding practice in the sector, energy is driving the strategy of law firms.
Recent examples abound, including:
But is this phenomenon for real or are firms simply “jumping aboard the energy bandwagon?” According to Penelope Warne, head of the energy practice at CMS Cameron McKenna, “Every firm seems to have a cosmetic energy practice but if some were honest, they would say that they do not actually practice energy law.” Other lawyers feel that the real threat to established players will come from firms in China, Russia, Brazil and India, many of which are becoming increasingly more sophisticated.
One thing is clear. There appears to be no slow down in sight for energy mandates. How well firms prosper (or not) will be determined not only by market conditions, but by how well they know their own practice strengths and weaknesses or in other words, how well they know themselves.
Posted by Marianne Purzycki
First-year law firm associates have a lot going for them. After all, they have jobs at a time when many of their fellow law school graduates do not. They have (hopefully) passed the bar, and now they can finally begin practicing law. Or not.
According to an article this week by Ashby Jones and Joseph Palazzolo of the Wall Street Journal, many law firm clients are now refusing to allow first- and second-year associates to work on their matters. Jones and Palazzolo term this trend, and the underlying question of training new lawyers, the “first-year dilemma.” The article really raises two separate issues related to the work of young associates. The first is a question of ethics and the relationship of trust between firm and client. According to the WSJ piece:
Traditionally, law firms have recouped the costs of young attorneys by giving them simple jobs – research, proofreading or culling important documents from boxes of paperwork – and passing the costs along to clients in the form of hours billed at $200 or $300 a pop.
To be clear, the practice described above has little to do with training new associates for legal practice. Basic research, proofreading and document sorting do not require bar membership or even three years of law school. Nor do these activities prepare associates to perform complex duties later in their careers. Billing clients for associates to perform such tasks sounds suspiciously like “padding the bill.” If the practice is common (and certainly some law firms would argue it is not), no wonder if clients are requesting that new associates be pulled off their accounts. In a rough economy, no business is going to want to pay anyone $300 an hour for proofreading.
The second issue is less clear-cut: how do firms turn new associates into skilled attorneys? To use an example cited in the article by David Brill, general counsel of American Stock Transfer & Trust Co., a recent law school graduate is not going to be able to produce an asset-purchase agreement on her own, at least not a satisfactory one. Instead, that associate will have to spend a few years looking at asset-purchase agreements, helping more experienced lawyers create them, and ultimately, drafting them herself. She will need the opportunity to fail, constructive feedback from senior associates and partners, and a chance to fix her mistakes. And all of that is going to cost money, for both the associate’s time and that of the lawyers who will supervise her work. So who pays?
Jones and Palazzolo report that at least some clients don’t want to foot the bill. In part, their refusal can be directly attributed to the economic downturn – companies are looking to cut costs, and training law firm associates seems like an unnecessary one. At the same time, less-expensive alternatives are emerging. Contract attorneys, for instance, can often perform the same work as firm associates for less than a third of the cost, without sacrificing quality. Contract attorneys, after all, often have more experience than first-year associates.
All of which serves to ease the immediate budgetary concerns of companies and their law departments. But it doesn’t solve the long-term issue of how to train a new generation of corporate lawyers. The article does raise a few possible solutions, including changes to billing practices (read: charging less for new associates’ time) and instituting internal law firm training programs. And at Above the Law, Elie Mistal astutely points out that law schools should be doing more to prepare students for the actual practice of law.
Most likely, firms, clients and law schools will all need to share the burden of solving the first-year dilemma. In the current economic environment, it’s tempting for all parties to try and shift the burden of training and education to someone else. Certainly it makes for a more attractive bottom-line. But ten years from now, the firms and law departments will need well-trained attorneys to take on the problems of the day. Unless the industry invests in training now, they may be hard to find.
Posted by Emily Fisher
Posted in Market Trends
Tagged attorney development, client relationships, legal education
India has long been protective of its legal market, opposing the entry of foreign law firms, often under pressure from domestic firms. In December of 2009, the Bombay High Court ruled against foreign firms opening offices in India and in September last year, the Bar Council of India ruled not to permit foreign lawyers in India. However, in the past few weeks, the U.K. and Indian regulators have agreed to discuss a “mutually acceptable mechanism for the entry of each other’s law firms into the two countries.” This parallels recent moves in other countries such as South Korea to open up their legal markets to foreign lawyers. The free trade agreement (FTA) between Europe and South Korea that was approved by the European Parliament in February will permit European Union-based law firms to open representative offices in South Korea to advise on foreign law. A Korea-U.S. FTA was signed in 2007 and was passed on Wednesday by the U.S. Congress.
In meetings last month between the Indian Law and Justice Minister Salman Khurshid and U.K. Justice Minister Kenneth Clarke, it was agreed to let the Bar Council of India (BCI) and the Law Society of England and Wales tackle the issue. ”We understand the UK firms want to open offices in India for non-litigation purposes-mainly drafting of business contracts, deeds, agreements and other similar works…We will negotiate with our UK counterparts to work out a principle of reciprocity, which will benefit both sides,” said BCI chair Ashok Parija.
The size of India’s legal market has been estimated at $4 billion, growing to $6.5 billion by 2016, according to a U.K. Ministry of Justice press release, and it would grow to $12.3 billion if the market was “fully liberalized.” The Law Society and BCI will meet at the International Bar Association’s annual conference in Dubai at the end of October, with the hope of concluding discussions when a Bar Council delegation is scheduled to visit the U.K. in January. Law Society president John Wotton is highly optimistic and says that he has “never been as confident,” now that the process is moving forward.
In an interview with Legally India, Wotton notes:
There is a recognition widely held that the world is changing and particularly the business world is changing and that the globalisation of businesses requires very joined up international advice. And the tremendous international success of Indian businesses – growing Indian businesses – which are becoming global enterprises means there are enormous opportunities for the Indian legal sector to develop.
Ben Lewis, writing for The Asian Lawyer, chronicles the recent history of U.K.-Indian legal industry relations, beginning with Prime Minister Gordon Brown’s visit to India in 2008. This was followed by David Cameron’s trip last July. However, in 2009, despite a pronouncement from India’s then-law minister Hansraj Bhardwaj exhorting Indian lawyers “to embrace liberalization” and in the wake of draft rules being circulated that would allow foreign firms to open in India, there was a groundswell of opposition from Indian lawyers. Liberalization appeared to be finished – until now.
Justice Minister Khurshid has vowed to fast-track legal market liberalization through India’s Parliament following the discussions between the two regulatory authorities. While liberalization efforts between the U.K. and India have been initiated in the past and died, Wotton says that this time is different. “Firstly, we have the very active investment of time in the issue from the UK Government, but most importantly this is the first time that the Indian Law Minister has said he will fast-track discussions on market liberalisation.” Other commentators, however, believe that Indian government support means little more than taking a “governmental hands-off approach.”
However the move is interpreted, it is clear that both governments are prepared to move forward, realizing that change is inevitable and will be beneficial to the legal profession in both countries. Wotton concludes: “Indian economic growth has continued with Indian companies becoming world leaders who need access to international legal advice. This development is giving India the opportunity to become a legal centre in Asia.”
Posted by Marianne Purzycki
Posted in Insights, Uncategorized
Tagged branch offices, free trade agreement, India, liberalization, South Korea
Eversheds has announced the launch of an on-demand contract lawyer service called Eversheds Agile. The pilot program has begun hiring out its contract attorneys to clients to help them deal with fluctuations in their workload. According to Legal Week, Evershed’s program will operate as part of the firm’s recently launched consultancy arm led by Graham Richardson, who sees the functions as complimentary: “Flexible lawyers in the field will be able to spot opportunities where our consultancy arm can be of service and as our consultants see a need for more resources then flexible lawyers will be a part of that too.”
Evershed’s program bears some resemblance to the Lawyers on Demand business at Berwin Leighton Paisner. BLP will be discussing their initiative at the Hildebrandt Institute’s and West LegalEdcenter’s 16th Annual Law Firm Leaders Forum next month. You may learn more about the full program here.
Posted by Emily Fisher
Posted in Elsewhere on the Web, Institute Events
In 2004, UCLA Professor of Law Richard Sander published “A Systematic Analysis of Affirmative Action in American Law Schools,” which looked at the effects of racial preferences in admissions on black applicants to law schools.
Sander, who often writes about economic and social issues, has published a new paper that once again tackles the diversity issue in law schools, but this time from the socioeconomic perspective. In “Class in American Legal Education,” Sanders points out that while nearly all law schools have diversity programs, discussions of law school diversity invariably tend to focus on race, gender and sexual orientation, but rarely on socioeconomic issues. As Richard Kahlenberg notes in his reflection on Sander’s paper, “[l]ow-income students of all races have been the invisible men and women of American legal education.”
Using data from the After the JD Study, Sander observes that the majority of American law students come from relatively elite backgrounds. And this is especially true at the top 20 law schools, where only two percent of students were from low socioeconomic status (SES) households, and more than seventy-five percent come from high SES households. Approximately half the students at these institutions come from the top tenth of the SES distribution, while about ten percent come from the bottom half. Other significant findings include:
The issue of fair access to the legal profession from a socioeconomic perspective has also been a priority in the U.K. In 2010, the Legal Services Board (the independent body responsible for overseeing the regulation of lawyers in England and Wales) issued a report that points out that there are barriers all along the way that contribute to a relatively homogenous lawyer population. A principal conclusion reached in the report was that:
At each stage of the process of entry and progression, those from higher socio-economic backgrounds are at an advantage: attending a more academic school followed by a Russell Group university [research-intensive universities, which include Oxford and Cambridge] - which supply individuals with the knowledge of and contact with law firms; gaining work experience, often through contacts; and having similar social attributes to those in the profession, making them more appealing to firms.
While Sander’s work is focused specifically on US law schools and the UK initiative is broader in scope (encompassing the education, work experience, and progression of a lawyer within a law firm), it is clear that a common thread binds them – the need to make the profession of law equally accessible to and representative of, all socioeconomic classes.
As Sander concludes:
The time is more than ripe for organized efforts to reflect on the diversity programs of legal academia, to foster better data collection and dissemination, and to develop fresh perspectives and proposals that can make diversity efforts maximize student opportunities and improve the health, and the conscience, of law schools.
Posted by Marianne Purzycki
Posted in Market Trends
Tagged law schools, legal education, Richard Sander, socioeconomic status
