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13 July 2020

Section 2: Business Growth

13 July 2020

Business Growth

Clyde & Co is pleased to present Section 2 of the Looking Glass Report 2020, in collaboration with professional member network Winmark. The annual Looking Glass Report investigates trends and developments that impact senior legal leaders, both in-house and in private practice. Section 2 considers Growth, following Section 1 on the Risk Landscape, and later sections looking at Technology and Innovation, and the Role of the GC in turn.

Our research has traced how GC and Board perceptions of growth drivers, opportunities and success factors have been changing as the COVID-19 crisis has evolved and addresses how this will impact their future growth strategies and actions. 

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COVID-19 re-shapes approach to growth 

The organisations consulted to give their perspective on growth drivers, opportunities and success factors for this year’s Looking Glass have a truly global footprint, with half being headquartered outside the UK:
Asia-Pacific (16%), Europe (4%), North America (12%), Middle East (3%) with the remainder in South America and Africa.

With the COVID-19 outbreak unfolding rapidly, organisations have focussed on cash control, operational efficiency and staff wellbeing. In the short-term many organisations' growth plans have been interrupted and developing a strategy for future supply chain transparency and flexibility is becoming a priority.

Given the expected decline in globalisation, greater diversification in supply chains will be desirable and increased stockpiling of critical supplies is likely. Greater border restrictions and increased preference for local over global products and services are also possible consequences of the crisis.

Investment in our overseas market presence has been paused and there has been increased investment instead in our online capacity

Head of Legal, Technology

For many, COVID-19 will be an impetus for innovation as organisations get a better sense of what can be achieved, particularly in the digital sphere. Many are having to swiftly become adept at digital delivery and distribution and are beginning to appreciate the speed with which their organisations can move. As businesses are forced to do more with less, many are finding better, simpler, less expensive, and faster ways to operate.

As conditions return to normal, organisations will be seeking out global markets with resilient economies and the potential for growing demand. In Europe, there will be concern about how successfully the EU can establish a new working relationship with the UK against a backdrop of a global recession and recent political transitions in Germany, Italy, and Spain. The recent situation in Hong Kong and China’s potentially confrontational relationship with the US and other regional powers also threatens stability.

Organisations that already have a presence in Asia have said this helped them to be somewhat ahead of the game and better equipped to deal with the current crisis because of the experiences and lessons learned.

The current economic and geopolitical uncertainties coupled with technological disruptions, climate change, and demographic shifts make it hard to predict what the global commercial landscape will look like in five years’ time. This section of the report examines how organisations are facing this uncertainty and how legal departments are supporting long-term strategies for sustained growth particularly when navigating new and emerging markets.

About the report

Produced

13 July 2020

Location:

Global

Written by:

Peter Hirst

Peter Hirst

Senior Partner

Read time

5 mins

Topics

Looking Glass Report 2020

Download
About the report

Produced

13 July 2020

Location:

Global

Written by:

Peter Hirst

Peter Hirst

Senior Partner

Read time

5

Topics

Looking Glass Report 2020

Download

APAC has long term growth opportunity

Expanding demand is the key factor encouraging entry into new and emerging markets and Asia-Pacific presents the primary demand led opportunity for the businesses consulted for this year’s Looking Glass.

Asia-Pacific is top growth opportunity

Asia-Pacific markets are perceived to offer the best long-term growth potential because of an expanding middle class, economic growth and demand opportunity across a wide range of products and services, placing it ahead of Middle East, Russia, Africa and South America. Two thirds of General Counsel believe the region presents a growth opportunity for their organisation and a half are confident that their ability to do business in the region will improve over time. 

Political risks are a concern in the region, particularly China’s trading relationship with the rest of the world in the wake of COVID-19, and the threat the situation poses to the viability of China’s manufacturing plants. Competing on price against low-cost local competition can also be a challenge.

Respondent organisations are generally positive about the long-term prospects of the USA as a growth opportunity. Opportunities are possible even in sectors and markets where conditions are challenging if the quality of the product or service is sufficiently strong.

Spending power in Asia will increase. The market for luxury items has been increasing... there will be growth for the next 10 to 20 years in this area. The Hong Kong demonstrations introduced the threat of unrest into an area that has been historically very stable. There is also political risk in Malaysia and, in particular Indonesia.

Ronald Cheung, Legal and Risk Management, Fung Group

Influencers of new market entry

Expanding demand opportunities are the biggest driver to enter new markets, followed by the presence of a favourable regulatory and political environment

Opportunities and barriers

After establishing that a demand opportunity exists, a stable and supportive regulatory and political environment is the primary influencer of new market entry. New markets may also be targeted for more defensive reasons such as offsetting declining demand in existing markets or to compete against competitors entering into new territories.

The availability of government incentives is a relatively unimportant factor in expansion decisions – only 17% of General Counsel and 11% of Board Directors believe such incentives encourage entry into new markets.

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- General counsel perceive increasing regulation as the biggest barrier to entering new markets

46% of General Counsel identify increasing regulation, including sanctions, as the biggest barrier to entering new markets. Board Directors place concerns about local compliance procedures, terrorism and political stability at the top of their list.

Identifying and managing the risks associated with new market entry requires integrated input across the business as well as input from local experts.

Our respondents gave practical advice on how they have achieved success in new markets despite the daunting barriers they have faced.

Growth, particularly international growth, is dependent on being able to negotiate in very difficult environments with demanding procurement challenges. Success comes from the basic elements: intelligent people with good judgment making the right decisions at the right time.

Anonymous General Counsel

An intelligent, experienced legal function that understands what the business wants to achieve and makes decisions in harmony with the Board can be a key engine for growth, but this is dependent on having a skilled team in place.

Extensive networking through existing contacts and visits to regional events is recommended in order to build on-the-ground partnerships with supply businesses and political contacts. Technology has made this process quicker and cheaper to achieve at a distance, but the benefits of face-to-face interaction should not be underestimated.

Understanding cultural differences and being confident in working with different business temperaments and attitudes is a key component of success. It is also important to recognise the increased risk of data privacy and cybersecurity risk in markets where technology infrastructure is less sophisticated. Building contingency into budgets and timing is also essential as delays and overruns in planning and implementation are inevitable.

It is questionable whether most businesses see the legal function as an engine of growth. It is primarily seen as an overhead, but a well-resourced legal team can drive growth if the best quality people are placed in the right part of the organisation.

Anonymous General Counsel

Effective entry into new markets is a skill built up through experience and trial and error. The barriers and obstacles are great but the expertise built up over many years can produce substantial rewards. Documenting processes and providing guidance that can be passed on to current and future senior staff and legal, risk and compliance teams is important to ensure learnings are embedded and built upon.

The ability for legal teams to proactively identify potential problems and suggest solutions is also a key aspect of success. This changes the focus of the legal function from firefighting and dealing with the aftermath of problems, towards taking a more proactive approach that is less passive and anticipates rather than reacts to risk.

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