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?

Growth in Internet Advertising = Global Online Compliance Challenge

When you think "e-commerce" and "Internet advertising," erase all of your images of inflated dot.com 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 www.internatinoalcounsel.com.

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.

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.

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 HP.com, 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 HP.com’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.

Indian Lawyers Perform US Law Work - A Welcome Trend

Today's Wall Street Journal carried yet another article on the usage of Indian lawyers to perform various US legal tasks. Note that we are talking about US law matters, whether litigation support or contract matters, and not usage of Indian lawyers for advice on Indian law. We are aware of in-house legal teams pushing this trend more than law firms and recall that GE received some publicity a few years back when it kept an India-based team to handle some US law matters.

Why is this a good thing? The US corporate/commercial legal industry heavily emphasizes the buidling of large firms to carry-out the kinds of legal work that can maximize the billable productivity of partners and associates. Without substantial competition from other law firms and types of legal service providers, there is little incentive for such large firms to find ways to reduce their costs and pass-on the benefits to clients. Since many Indian lawyers have fine academic credentials and wonderful English-speaking abilities, we will likely see ever more sophisticated work being transferred to India and elsewhere (the Philippines, for example).

By the way, many refer to the transfer of legal work to India as another form of "outsourcing," though "outsourcing" has become an overused buzzword to describe a fundamental aspect of our free-market system. Having work performed by those with a competitive advantage due to pricing, performance and other factors is the nature of the beast, whether the work is limited to a single economy or includes a transfer of production across borders.

Korea as Northeast Asian Regional Hub

Korea continues to pursue its goal of becoming a significant regional hub, including as a major destination for multinational company regional headquarters. Recognizing its challenge in the face of a significant investment flow into China and the rising prominence of Shanghai as a regional headquarters, Korea argues that companies can benefit from locating their adminstrative and logistics headquarters in Korea even if manufacturing will be based elsewhere, such as in China.

Particularly for companies that plan to run part of their regional operations out of a hub based in Northeast Asia, and whose plans are not completely dominated by China, such a pitch may make sense. With such an overwhelming degree of focus on China these days amongst US companies, some pay too little attention to opportunities for collaborating with Korean companies and doing business out of and in Korea, let alone Japan (an economy showing some signs of revival).

The Multinational Law Firm - One Size Fits All?

Over dinner with a Korea-based former colleague and friend, the discussion turned to the news of law firm expansion, including the latest on DLA Piper Rudnick, and collapse, Coudert Brothers in particular. What is really driving the belief among some that they must build mammoth multi-country law firms in order to survive and prosper?

The largest companies typically have a team of experienced in-house cross-border lawyers who structure, draft and negotiate deals. Much of the work is handled by the in-house lawyers, though with on-the-ground back-up support from local lawyers in the target country. While the local office of a multinational law firm may be turned to, more often projects are executed by one or two in-house lawyers in one country working with a local lawyer in one of the many excellent local law firms in the target country.

Multinational law firms have their place, such as for the kind of very large multi-country M&A, project finance or securities projects that can benefit from some added element of coordination and control among several offices simultaneously. (An in-house colleague in a major Chicago-area company recently had just this sort of a multi-country firm need for the sale of a business unit with assets in more than a dozen countries.) Yet, what is truly added by a multi-country firm for the day-to-day joint ventures, manufacturing agreements, licenses and agancy/distribution arrangements between one country and another?

The largest law firms tend to feed the beast by seeking-out and emphasizing the largest and most expensive kinds of projects for the largest companies. While the day-to-day cross-border projects will not be turned away, these types of projects may not get the kind of senior attention and care unless they are part of a broader relationship or seen as feeders for larger and more lucrative assignments.

It is true that some companies just want to get a project done and are not particularly cost-sensitive in how a project is executed. There may be some comfort taken in having a very large firm with many offices tend to needs large and small. Some companies take such a route because they are inexperienced and do not have the internal resources for a hands-on role in cross-border legal matters, including for working with local counsel in target countries. Yet, others are simply not aware of their options and may over-value size and the existence of foreign offices. Such a perception is not discouraged by the largest firms who are investing substantial marketing resources in attempts to become the next one-stop shop for worldwide legal needs.

Private Equity and VC Firms Push Their Portfolio Companies to Internationalize

In the 1999 - 2001 period, I recall several trips to Silicon Valley to meet with emerging technology companies with an interest in expanding outside of the US. At the time, there was such perceived opportunity in the US, particularly Internet-related, that many in the venture community seemed to have little interest in opportunities in Asia and elsewhere.

Now, there is an ever-increasing interest to push into new markets, and China and India are the focus of attention. China often for perceived manufacturing opportunities to reduce costs, expand revenues and follow customers. India often for software production and back-office functions, such as call centers.

We are seeing the investors, whether private equity firms, VCs or others, taking a strong interest in enhancing the value of their portfolio companies by actively assisting them in their cross-border expansion. (As cross-border lawyers, we do our part by lending our foreign investment and transactions skills to the process.) A good example here in Chicago was the Tuesday lunch at the Sears Tower's Metropolitan Club sponsored by the Association for Corporate Growth. Some 240 bankers, private equity investors, accountants, lawyers etc. gathered to listen to the China experiences of Jordan Industries, an Ernst & Young partner and a private equity investor. The investor had been through a few manufacturing deals for portfolio companies and was a fine example of the trend - a Chicago-based investment group actively encouraging its portfolio companies to get the cross-border religion, and taking a hands-on role in implementing projects outside of the US.

Scratching the in-house international lawyering itch

Our objective - to share some of the tools, tricks and casual observations that can better enable internationalizing companies to implement their transactions and make use of foreign law and practice. Glad you can join us!



David Laverty