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International Markets
Balance of power
A new global economic power map has huge implications for law firms, writes Katherine Bird
The financial crisis of the past two years has provided the catalyst for a transformation of the global economy. Developing countries were on the ascent before the global recession, and their position has been reinforced by their capacity to continue growing as developed economies struggled to stay afloat. The G7’s days of global domination are over; power has shifted to the G20, which has recently been further enlarged to the G24 to account for the rapid rise and increasing influence of the emerging markets.
Within two decades China may pass the US to become the world’s largest economy. Many estimate that the global economy will double in size by the end of the 2020s with the Emerging Seven (E7) – China, India, Brazil, Russia, Turkey, Indonesia and Mexico accounting for almost 40% of GDP.
The centre of economic gravity is shifting and will continue to shift. With the emerging economies at the centre of the new ‘economic map’ we are entering a period of realignment, rebalancing and refocusing – which means that law firms have to find fresh ways to tap into this new world of international opportunity and prepare their business models and operations to embrace this new world order of economic power.
This is not intended to be a terrifying vision of the future; what is required, however, is an acceptance of the fact that the balance of power has changed. The western economies are projected to recover from the recession and grow, albeit slowly, but there is no doubt that the real star performers over the next 10 years will be based somewhat to the south and the east of this region. If anything, law firms should be encouraged by the fact that growth – and opportunity – can now literally come from anywhere, and with the right strategy and approach all law firms should be able to benefit.
Lands of opportunity
The emerging markets are the current driving force behind the global economy, but this does not mean that this is an entirely BRIC-dominated story. There is a new-found economic multipolarity at play which the success of each of these following countries emphasises. I am grateful to the practitioners from each of these jurisdictions for adding their personal and professional insights.
Much is said about India’s awesome potential for growth. The Indian economy has recovered from its slowdown in 2008-09 (when it still continued to grow GDP by 5.7% in comparison to the -3.2% decline in GDP in the developed economies). However, there are also very real issues around poor infrastructure, corruption and weak governance. Nobody really questions that India will be great but how great and by when? These seem to be more pertinent questions.
Snapping at BRIC’s heels we have a country such as Mexico, which is predicted to become one of the largest economies in the world by 2050. Mexico has free trade agreements with more countries than almost any other in the world. It covers an area about the same size as the whole of Western Europe and occupies a strategic global position, being the natural bridge between Latin America to the south, and the US and Canada to the north. The rise of Mexico has led many to ask whether it could be the new China.
Certainly not an emerging market, Australia, like Canada, was one of the few developed economies that managed to avoid much of the worst of the recent global recession and, in fact, achieved an encouraging 1.2% growth in GDP during the recession’s darkest days. Australia is well placed to access the Asian emerging markets, and its trading day spans the closure of the markets in the US and the opening of markets in Europe. Australia is also home to citizens from some 200 countries, making it the most multilingual workforce in the Asia-Pacific region.
Small can be good
This brave new world of opportunity is also a relatively open one. Large law firms do not own the monopoly on international business development. It is no longer possible, nor necessarily desirable, to open offices in every jurisdiction in which a law firm may want or need to do business. While there will always be a need for, and an interest in, new strategic office openings, the real story of the last few years has been the growth in law firm-to-law firm network building and the different layers of relationship a law firm working internationally now manages. Networks, in all their varying guises formal tie ups, best friends, better friends are seemingly, for the moment at least, law firms’ method of choice for developing their international practices and delivering services around the globe. To a certain extent the acceptance of this model, combined with technological advancement, has meant that small and medium sized firms can bust through the geographical boundaries and resource restrictions to seize opportunities arguably in a way they couldn’t five years ago. Admittedly ‘law firm networks and relationships’ is a rich and fertile topic, one which Paul Marmor (see box, p6) is well qualified to expound upon as he himself is the founder on an international legal and accountancy network.
In a world of generalists the specialist could be king
While there are some firms who are in a position to promote themselves internationally as ‘full service law firms’, this is not an option for the majority. Rather, for many firms – whether by accident or design, a key route into various international markets is via sector specialisation.
Some of the key benefits of this approach are:
It is very focused so you can make good progress in a short space of time without exhausting your resources.
It helps with differentiation in the international market; become the natural ‘go-to firm’ for a certain sector or industry.
This is a client- and industry led approach which means you develop alongside your clients’ business and have a positive impact on their plans for growth.
l It promotes a certain amount of organic international growth within your firm; your sector work could open up opportunities for other sector specialists in your business,
l Law firms with a strong sector focus will find it is much easier to target opportunities; the world is a very large place but it is less intimidating if you can filter and process it through a ‘sector lens’.
The impact of accelerated globalisation, which is often measured and represented by graphs and percentages, is actually most striking when viewed from a much more human perspective. Globalisation has profoundly changed what we aspire to, how we spend our money, how and where we live. All of these outcomes feed directly into sectors.
For instance, the emerging markets have a young and increasingly affluent population. Among this group there is a hunger for ‘creative industries: film, TV, music, fashion, computer games and so on. This demographic is impatient; they want these products now. In order to support the creative industries in delivering these products, the expertise of intellectual property and media and entertainment lawyers will be in great demand.
In the same way that globalisation has created a new consumer market it has also contributed to the fact that there are now more rich people than ever before. The world’s population of high-net-worth individuals grew 17.1% to 10 million in 2009. The combined wealth of high-net-worth individuals in the Asia Pacific region surpassed that of their European counterparts in 2009 and wealth in this region is expected to grow 8.8% per year until 2018 (source: Capgemini). If you work in private client, property or wealth management this should be highly significant. These individuals may have complex international lives with overseas investments and they will want the best and most innovative advisers to look after their interests.
Perhaps the most striking consequence of globalisation is that of urbanisation. By 2030 it is predicted that China will have a total city population of more than one billion and will have 221 cities with more than one million residents, and eight megacities, each with a population of more than 10 million (source: McKinsey Global Institute). This trend towards mass city urbanisation will be replicated over much of the world. In many cases these cities will require extensive building/developing, which offers fantastic opportunities for PPP and infrastructure lawyers with in-depth industry know-how. Energy will also be a key component as will services such as hospitals and schools. Projects on this scale will be rare in the developed economies over the next 20 years. However, they will be a relatively regular occurrence in the emerging markets.
In short, if you have expertise in these sectors at home you really should be trying to systematically translate this into success within the booming emerging markets.
Does fortune favour the brave?
This is a huge topic, but perhaps over-complication is often the real problem when grappling with these issues. Lots of research and strategising can and will be done, and ‘thinking international’ is commendable – but the emphasis has to be on acting.
Legal professionals have much in which to take heart. The legal services industry is a global success story. According to Datamonitor, by 2013, the global legal services market is forecast to have a value of $716bn, an increase of 23.3% since 2008. The skills and expertise of lawyers are still highly valued and in demand. Despite the alarming headlines, there are still opportunities out there for those looking in the right places.
No one would deny that challenges lie ahead. Over the coming years we will see many changes to the legal landscape: Legal process outsourcing will increase, and regulatory and compliance-related issues will all play their part in reshaping and influencing the industry. However, this change will happen because of, or within the context of, the global economy.
Coming out of the depths of recession, after two years of real uncertainty, we now have a developing global future vision for the next 10-20 years. It makes absolute sense for law firms to accept this vision and develop their business to engage proactively with this ‘brave new world’.
Law firms do not need to be particularly brave to seize these international opportunities; perhaps the greatest risk lies in doing nothing while the rest of the world refuses to stand still.
Katherine Bird is the Law Society’s ­international business development ­manager
Legal Services Directory 2011
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