This is the second of our series of briefings on high-potential legal markets in Asia for the next five years.
Vietnam will experience substantial growth in its economy and legal market in the next five years. In our view, it already is a "must be there" location for any international firm that is seriously interested in developing a Southeast Asian practice, especially law firms based in other parts of the Asia-Pacific region. We also expect that a group of well-regarded independent Vietnamese law firms can continue to compete effectively against the local offices of foreign law firms, provided that they can clearly communicate and demonstrate competitive levels of expertise and advantages for sophisticated international clients.
As previously noted in this blog, we have identified Vietnam as one of the five most promising legal markets for at least the next five years. In our opinion, a presence in Vietnam is a "must" for any law firm that wants to have a credible Southeast Asian regional practice. Attempting to compete in the region remotely from London, Tokyo, or New York, will not be sustainable. Since the 1990s Vietnam also has developed a group of successful, highly regarded national firms, which we expect will be able to continue to compete effectively against their colleagues in the Vietnamese offices of foreign law firms.
The tiger population in Vietnam has increased.
Barring any major unforeseen economic dislocation, we expect the Vietnamese economy to continue to grow at a healthy rate, with an annual increase of 5% to 7% in GDP through the end of the decade. Moreover, this will be high-quality growth, with a significant investment in infrastructure and social development.
The World Bank's September 2016 country update for Vietnam pointed out several reasons for continued optimism about Vietnam:
- 25 years of steady economic growth and development
- one of the world's fastest sustained rates of growth, notwithstanding occasional short-term "slowdowns," such as the drop in GDP from 6.7% in 2015 to 5.5% for the first half of 2016
- a dramatic reduction (about 50%) in poverty, and significant investment in social development
- enhanced international integration to broaden economic opportunities
- government commitment to reforms to improve human resources skills development, market institutions, and infrastructure
At the same time, there remain some challenges, particularly from climate change, which is having significant effects in agriculture and appears to account for losses equal to 1% to 1.5% of GDP over the past two decades.
lingering concerns about the state-controlled sector
The EU-Vietnam Business Network recently reported a strong, but nuanced, positive outlook among domestic and foreign investors. Investors in their survey noted the investment flow away from China to Southeast Asian countries, as well as the free-trade pacts (South Korea, the European Union, Japan, and the Trans-Pacific Partnership), as positive factors.
- 69% agreed that Vietnam is an attractive destination for investments.
- 91% agreed on the positive growth prospects for Vietnam's economy.
The enthusiasm for Vietnam was dampened somewhat by remaining challenges, all of which the government appears to be addressing but has not been producing results as quickly as the international investment community might prefer. These continuing concerns include:
- slowness in restructuring state-run companies
- a high public debt rate
- a burgeoning, but still corrupt, bureaucracy
- the relatively weak competitiveness of small and mid-sized Vietnamese enterprises
Because much work remains to be done in the area of the state-run companies, only 21% of the survey respondents said that state-equitized firms currently are attractive destinations for investment.
bottom line: a very positive outlook, but there is still work to be done
At the end of August 2016, Focus Economics published an interesting interview with Jean-Pnillipe Pourcelot about the progress that the Vietnamese government needs to achieve to provide a solid foundation for recovery from what appears to be a short-term decline in GDP in 2016, as well as to continue growth at historic levels. He focused on two factors in particular:
"First of all, focusing on state-owned enterprises (SOEs), which account for the 30% of Vietnam's GDP, is imperative. SOEs are becoming increasingly inefficient and deterring investment. Restructuring and privatizing SOEs is key along with reforms that focus on areas such as improving transparency, strengthening supervisory capacity and curtailing SOEs' preferential access to credit and other resources. Liberalizing SOEs is paramount to boosting productivity and attracting FDI. Lack of SOE reform could aggravate macroeconomic imbalances in the country, reduce its export-competitiveness and deter FDI as a result.
"On top of that, reforms need to be implemented in the banking sector. Analysts argue that Vietnamese banks are currently undercapitalized and saddled with non-performing loans, which makes the banking sector highly susceptible to shocks. In addition, ample credit growth in the domestic economy without strict regulations increases risks in the real estate market. Improving transparency, implementing disclosure requirements, loosening ownership regulation and continuing consolidation efforts are examples of steps needed to be taken in order for the banking sector to better withstand economic shocks and support growth."
an essential part of a regional law firm strategy
Follow the money.
The presence of foreign firms in Vietnam, and their strong positions in banking & finance and corporate/M&A, as well as the economic prospects for the next five years, make a presence in Vietnam an imperative for foreign law firms that want to be credible long-term competitors in the Southeast Asian regional legal market. Although a successful remote practice based in Tokyo, Singapore, London, or New York, for example, will still be possible, it will become increasingly difficult to sustain one's position in the face of strengthening local competition from regional law firms and the local market leaders.
the future of independent Vietnamese law firms
Notwithstanding the increased attractiveness of Vietnam for foreign firms, especially those based elsewhere in Asia, we also expect that well-established national law firms can continue to compete credibly for high-value legal work, both cross-border and domestic. In some instances, once they demonstrate a persuasive case for themselves, they should be able to win more work directly from foreign clients, without reliance on referrals or subcontracting from foreign firms. As in most emerging and recently-emerged legal markets, the entry of foreign firms can make the competition tougher, but it can also make the national firms more better.
Increasing price sensitivity is likely, even for high-value commercial legal services. All law firms in the market, but especially the local firms, need to consider how they plan to remain competitive and profitable in the face of possible increased price competition and, in some instances, predatory pricing (i.e., accepting work at unprofitable fee levels in order to obtain market share). Sustainable profitability will be even more important in the future than perhaps ever before in the lives of local law firms, especially.
Beyond the possible pricing issues -- which, in our experience, usually can be managed -- one of the most serious challenges for any top-of-the-market Vietnamese firm, as for local market leaders in almost every fast-growing international legal market, is to present a persuasive case why a potential client should select their firm over one of the other highly qualified law firms that can deliver the same service and, in the case of foreign firms, might have greater service-delivery "mass" regionally and globally. Walker Clark has observed in emerging legal markets over the 14 years that, as a market becomes more competitive and clients become more sophisticated, one of the most important -- and usually the most challenging -- part of developing and executing a sustainable business strategy for a local or national law firm is to articulate clearly and specifically the reasons why your firm should be hired, instead of one of your excellent competitors.
This competitive case requires a clear understanding, articulation, and communication of at least four basic elements. The first two elements communicate the expertise of the firm to handle the client's matter: (1) the qualifications of the lawyers and other service providers; and (2) their individual and collective experience. The second two elements communicate the competitive advantages of the firm, consisting of: (3) the specific, relevant benefits that the firm delivers to clients; and (4) how the firm is different from its equally well-qualified competitors.
This last element, differentiation, is probably the most challenging for most law firms. What does a law firm offer that is unique or virtually unique among its best competitors? This often is expressed in terms of a level of service, specialization, or expertise that none of the competitors can match. Buzzwords and catch phrases like "quality," "technology," "innovation" or "value added," by themselves, have almost no persuasive value to sophisticated clients -- or even to unsophisticated ones. Instead a firm must be able to demonstrate how it consistently delivers the superior advantages and benefits that it proclaims.
making the best case for Vietnamese law firms
We studied the websites of eight independent Vietnamese law firms that we consider to be among the current local leaders in the Vietnamese legal market. We note that we focused entirely on the content of each website, and did not judge its design or functionality (which also can be important, although not necessarily strategic, factors in a firm's marketing communications). We evaluated the clarity, completeness, and persuasive effect of the content with respect to each of the four elements described above. This produced a combined score for effectiveness of each firm's communication in two dimensions: (1) its expertise (qualifications and experience), recorded on the vertical axis of the chart below; and (2) its competitive advantages (client benefits and differentiation), recorded on the horizontal axis. Our evaluations were based on general characteristics of effective marketing communications for law firms in other emerging markets worldwide, but they also took into account any local regulations or professional customs concerning law firm marketing.
As displayed above, most of the eight local market leaders do what we would consider a minimally adequate job of communicating expertise (as indicated by the vertical axis). Most of them fail (as indicated by a competitive advantage score below 0), however, to articulate how their expertise results in benefits to clients that are tangible, significant, and relevant, or to differentiate their firm in any significant way.
In our analyses, when a firm appears in the lower left quadrant, as one of the firms does, with negative scores for both expertise and competitive advantage, there is a good chance that the firm's website -- no matter how visually attractive -- might actually be having a negative effect on the firm's marketing efforts.
None of the current market leaders, in our opinion, present website content that we believe is competitively effective overall (i.e., with scores above +6 for expertise and +12 for competitive advantage). Even the two firms with the best scores would be, at best, in the low end of the range of effectiveness that we typically observe in major regional or global law firms with offices in Vietnam.
Why are these eight websites important?
Few, if any, sophisticated purchasers of important legal services base their selection of local counsel solely on a law firm's website. However, the content of the website can have two important roles in that decision. A website that fails to communicate expertise and competitive advantages effectively may disqualify a good, capable firm from further consideration. By contrast, a firm that clearly communicates its competitive advantages -- benefits to clients and differentiation -- can sometimes suggest a selection criterion that the prospective client had not considered, or one that could be the "tie breaker" among two equally qualified competitors.
Moreover, an effective communication of competitive advantages -- not the age of the firm or the CVs of the partners -- can allow even a small, new firm quickly to become a substantial competitive force in a growing legal market.
It is very important to emphasize that our competitive evaluation of website content produces only one set of indicators about whether a law firm has a well thought-out, relevant strategy to compete in a fast-changing legal market. However, these scores have significant diagnostic value. Relatively low scores, such as we observed in Vietnam, also suggest that some firms either lack or have not implemented well-informed business and marketing strategies, or that their marketing communications fail to make the best case for the expertise and service delivery capabilities that are already there.
asking the right questions
All of this involves more than making clever edits to one's website. The more sophisticated clients in the Vietnamese legal market now and in the next five years will not be fooled. Service, not slogans, is what matters. If a firm develops the slickest, most awe-inspiring website in the world, but fails to deliver its promises to its clients, the effort and expense of fixing up the website will have been in vain.
The value of a detailed strategic evaluation of a law firm's website -- particularly that of a current market leader -- is that it is a practical entry point into a focused and action-oriented consideration of what should be a firm's strategic priorities for the next three to five years. This involves asking some interesting, but often challenging, questions:
- Where do we appear to be weak?
- Are we making the best case for ourselves?
- Are we wasting time and effort chasing clients and work that will not produce sustainable benefits for our firm?
- What investments of partner time, management attention, and intellectual energy will produce the best return on those investments?
- Are our partners willing to make the significant investment that will be needed to manage the changes that we will need to make in our firm and in the way that we approach our changing legal market?
These questions -- not just "What do we need to do to fix our website?" -- are the ones that Vietnamese law firms should be asking as their country becomes one of the most competitive smaller legal markets in the world.
Alexander Johnson, Research Assistant