Thursday, November 30, 2006

Clifford Chance Outsources Legal Support to India

London's Legal Week reported on October 2 that Clifford Chance expects to transfer 300 support staff jobs to India - at a savings of close to US$60 million. This is in addition to the outsourcing of document production which is run by Integreon in India.

Why do we care? Major law firms are feeling ever-greater pressure to meet the budget needs of corporate clients. Our practice offers a sophisticated cross-border legal capability at costs far below our large-firm competitors. I can tell you that we will not be able to find $60 million of savings in our overhead no matter how hard we look!

Tuesday, November 28, 2006

India - A Day Out of China's Shadow

There seems to be some convergence of India developments this week in our office and in the press.

Our office is closing this week on an acquisition of convertible prefered shares on behalf of an Indian publicly-listed company. Congratulations to the parties!

Already this week, the Wall Street Journal has reported on Wal-Mart's plans to expand in India through a joint venture with Bharti Enterprises Ltd. Plans call for "several hundred" stores within the next 5 years.

Here in the Chicago area, Crain's reported that Salton Inc. is in talks to acquire a majority interest in Softel Machines Ltd., an Indian home appliance make. Softel manufactures water purifiers, ice cream makers and popcorn maker, and the venture could expand into the manufacture and distribution of other appliances.

We are all seeing endless China conferences, and China's opportunites are just too massive to treat lightly. Work for US companies entering China is important to our practice. Yet, while everyone knows India as a great location for outsourced call centers and business services, India is also an important consumer market and manufacturing base.

Wednesday, July 12, 2006

Establishing a Presence in a Foreign Market - Korea

One of the core beliefs of our InternationalCounsel practice is that a legal advisor's "toolkit" of international law skills is generally of far greater importance to the success of a project than the particularities of a target country's local law.

For example, in the typical international transaction, whether a license, franchise, agency or distribution agreement or manufacturing/sourcing arrangement, substantial legal risk balancing goes into choosing among basic types of arrangements, and a dozen or so key agreement provisions require substantial modification. Local law modifications are important, but someone needs to be asking the hard up-front questions and have a handle on the kinds of issues that cut across many markets.

The same is true when deciding on market entry vehicles in a target country. A recent client project is a good example of factors to consider in establishing an office in another country. Like many projects, this challenge began with a simple message: "we need to distribute our product in Korea and want to establish a subsidiary there to show that we are serious."

1. Is an in-country office really essential? Keep in mind that (a) a local office typcially means that revenues from the country will be taxed by that country, and such revenues will also be taxed in the US or other home country. Yes, a tax credit in the home market may offset the foreign tax, but not always; (b) the cost of setting-up and maintaining the office may not be fully offset by the potential revenues (or margins that might otherwise be taken by a local agenty/distributor); and (c) local parties operating the office will likely be employees subject to laws making them difficult and expensive to terminate. Do such factors cause you to reconsider appointing that local agent or distributor to at least test the market first?

2. If an in-country office is chosen, countries often offer 3 main choices:

(a) a liaison/representative office, if the activities can be structured as non-revenue-producing. For example, it may be possible to route revenues directly from an in-country customer to the parent company and limit the liaison to strictly exploratory/promotional activities;

(b) a branch office, which is an extension of the home office and not treated as a separate entity for liability purposes. Special-purpose US companies can act as a firewall to protect against liabilities; and

(c) a subsidiary in corporate form, which will limit liabilities but be more expensive to maintain and may prevent a company from offsetting profits and losses against parent company income. Consider forming an in-country entity that will be treated as a corporation for local purposes but will have flow-through tax treatment for US purposes.

Yes, each country has local-law nuances, though this example of a "toolkit" of issues is meant to show that the overall structuring issues and interplay between the two countries can have even greater importance.

Wednesday, May 10, 2006

More Cross-Border Lawyering But Thinning Capabilities?

Several data points have left me wondering whether corporate America is better or worse off given the growing number of lawyers who profess to offer some type of international legal services.

In the last 5 years or so, a broader number of law firms have felt compelled to market some type of international legal services for a number of reasons, including (1) a perception that China is hot and they had better jump on the bandwagon, (2) a concern that internationalizing clients will take their work elsewhere unless they are persuaded that their law firm can offer some international support, and (3) more lawyers have had some exposure to international matters, often dragged along by their expanding clients.

This may have led to a spreading of intenational work to large numbers of newcomers to the cross-border world who may not be able to offer a real depth of experience.

A few trends may support this theory. We all have noticed the continued proliferation of "world law networks" - a growing range of law firms may believe that joining a network may be a shorthand way of communicating that they are serious about international work. To the extent that membership in such a network really draws and retains clients, what is the actual depth of teaming experience among network members and is the client offered an "adult in the room" who has substantial experience in the key risk-limiting and revenue enhancing deal terms for cross-border matters?

We have also seen a tendency among some large corporate in-house law departments to shift in-house control over cross-border matters from more specialized international attorneys to generalist domestic corporate/commercial lawyers who have not focused as deeply over extended periods for multiple projects on the deal terms and issues that are key for cross-border matters. For example, two large Chicago companies have de-emphasized their parallel international teams in recent years. Will there be an experience lag as the corporate/commercial generalists catch-up to the skill levels of their former international colleagues?

Monday, April 17, 2006

Growth in Internet Advertising = Global Online Compliance Challenge

When you think "e-commerce" and "Internet advertising," erase all of your images of inflated companies headed toward doom. The largest and most successful companies are driving an ever-greater percentage of their advertising dollars to the Internet. For example, a front page article in the April 17 Wall Street Journal presented a chart showing an expected $12 billion in U.S. online advertising revenue to be generated in 2005, up from just over $9 billion in 2004 (and less than a $1 in 1997).

Whatever the source of this increase in online advertising, companies will need to pay greater attention to the cross-border implications of their online content. Particularly when advertising is in local language and products are being sold into local overseas markets, local laws will impact just what can be claimed and online terms will need to be adjusted to take into account local laws and provide for preferred means of dispute resolution.

For some added background, see some of the issues noted in my earlier blog comments on the globalization of e-commerce conference and raised in some of our publications found at

Friday, April 14, 2006

Legal Outsourcing to India - Part II

An M & A deal financed by a major UK bank has apparently outsourced legal due diligence work to an Indian law firm, as reported in the Financial Times and picked-up by a law marketing blog.

We have been hearing about an increasing range of litigation support, document review and very basic corporate work going to India, and it is no surprise that India is receiving a share of ever-more-sophisticated legal work. As noted before, this is not for India law work - it is for projects from other countries based on US, UK and other laws. Those of us who have worked on major M & A deals are well-aware of the large revenue streams flowing to law firms from due diligence work handled by junior associates.

Tuesday, April 11, 2006

US National Security Interests or "Let's Keep Out the Foreigners"?

Actions to stop non-US companies from acquiring US companies or doing business here are growing increasingly troublesome - note the blog posting from the VC world's Brad Feld on efforts to stop China's Lenovo from selling to the US government.

I'm all in favor of a secure US but we need some reasonable evidence before we do ourselves greater long-term economic harm. Other countries have used security and other "national interest" arguments in spades to block US and other companies from entering their markets. China did not invent this game - Japan had actively used national security grounds in the past, and I recall this line from my days in Korea in the late 1980's. Our own use of such reasons will only embolden protectionist measures elsewhere - though if there are real security threats, let's by all means get these out in the open for evaluation.

Wednesday, April 05, 2006

Cross-Border eCommerce Legal Issues - China and Beyond

The drive to “localize” web site content and e-commerce into multiple countries is alive and kicking. Many of the largest companies have made tremendous progress since we began working on cross-border legal compliance issues in this area 6 years ago. Examples include, which is in 67 countries and 35 languages, and eBay, which is in 14 languages. Google is itself in multiple languages and expanding into countries such as China.

My fellow presenters at the Managing Global Websites and eCommerce Conference in San Francisco on March 28 and 29 were in an ideal position to help us understand the current state of global web site penetration. These voices from the front-lines included Dennis Hwang, Google’s Webmaster (pictured at the podium here), Marcia Hutchinson, the person behind’s drive for global consistency and market penetration, and Marcel Bregman, eBay’s kingpin for international web site expansion.

My own contribution to a panel moderated by Ion Global's Wei-Tai Kwok was a presentation on key legal issues in China for online content and e-commerce strategies. I addressed three important groupings of legal issues in the PRC: (1) online compliance, outlining important licenses, registrations and “web scrubbing” issues (such as advertising, consumer protection and privacy/data protection) for informational web sites and e-commerce providers, (2) enforcement of online agreements in China, including digital contracts and clickwraps, and (3) governing law and dispute resolution – should online agreements specify Chinese or foreign law and Chinese or foreign courts or arbitration?

Cross-border online issues have fit well with our law practice’s focus on providing cross-border market entry and transactions legal advice to companies entering multiple countries. As we have been seeing from the days of our first “cross-border web compliance” white papers and advisory projects 6 years ago (we were the legal compliance partners to a few of Silicon Valley’s early entrants into the cross-border online “localization” drive), while China shares many issues in common with other countries in Asia, Europe, Latin America and elsewhere, there are surely some twists.

Yes, content is carefully controlled in China, and I would not recommend testing this through ignorance of the political, religious, social and related standards. Sites are taken down with some regularity, and we are all aware of the challenges of Microsoft, Yahoo! and other companies in China. Of even more importance to the average corporate strategy, operating licenses and approvals tend to be more significant in China than in other countries and a range of local (Beijing, Shanghai, Guangdong, etc.) and national law is often difficult to interpret with the specificity that companies may be used to in the US. (Though China has no monopoly on open-ended legal provisions and selective enforcement - welcome to the realities of international expansion!)

For example, “Internet content providers,” – most companies providing information on their web sites whether or not they engage in e-commerce – must either obtain a license for their web site or at least register the site with PRC authorities. Such a requirement surely applies if a company has obtained a local “.cn” domain name and there is some uncertainty for companies which otherwise have business activities in the PRC and are targeting mainland Chinese users through their web sites.

One of the lessons of experienced companies at this conference, which was sponsored by the Localization Institute, is that careful “localization” of web site content pays off. This is partly a matter of the enormous investment in content management tools for rolling-out thousands of pages of online content in multiple countries. When Carly Fiorina resigns from HP, how is the content of 67 country web-sites changed before the press can even react to the morning news? (Marcia from HP had a good war story on this one.) How does a company avoid too much in-country control of web content with a dilution of the corporate brand through inconsistent local versions of a web site yet build local goodwill while avoiding damaging cultural gaffs? A combination of software “content management” and machine translation is coupled with the art of human translation. Language itself must be accompanied by the critical component of “culturalizing” the web content to more fully connect with local users.

Whatever the level of enforcement risk for violating local laws, whether due to actions of local authorities or individual user actions, a company’s branding and corporate reputation is also at stake unless it takes the online legal environment as seriously as it does its more traditional joint venture, licensing, agency/distribution and other global compliance obligations. We see this as one of the important international lawyering challenges of the next several years and are privileged to be playing a part as the cross-border ground rules begin to take form.