India Business Law Journal – April 2009

How to emerge in better shape

“Whatever doesn’t kill me makes me stronger.” Now is the time for that ripe old adage to prove itself

This issue of India Business Law Journal speaks powerfully to the determination, resilience, ingenuity – the sheer chutzpah – of the many robust souls in the India-focused business community who will see us through this crisis. The legal sector will emerge from the whirlpool leaner and sharper, and it will look markedly different from what we’ve become accustomed to.

International law firms are keenly observing how their Indian counterparts are faring, no doubt with half an eye on which potential partners they might court for cooperation – or more – when the market recovers. Conversely, foreign firms themselves are being tested by a harsh environment that was not anticipated when their India strategies were formulated.

Many invested heavily in the country, often through the establishment of large teams of India experts in New York, London, Singapore or Hong Kong. But as our Cover story reveals (Going the distance), the financial crisis is calling the viability of such strategies into question. In the face of dwindling workloads, do foreign law firms have the stamina to stay the course in India? How will they reconcile their long-term commitment to the country with the pressing need to cut costs and remove excess capacity? The answers to these questions will play a significant part in framing the architecture of India’s future legal services market.

One of the yardsticks by which Indian and international law firms are increasingly measured is their familiarity with, and expertise in, insolvency and restructuring. This complex body of law becomes all the more challenging when embraced on a multi-jurisdictional level. One of our Spotlight features this month (Picking up the pieces) offers a specialist perspective on the insolvency regimes in India and other key markets. Alarmingly, our coverage reveals that secured creditors may be less secure than they thought. In many cases, rescue and rehabilitation –normally undertaken through corporate restructurings and distressed asset sales – may offer better prospects than insolvency proceedings for secured creditors to recover their funds.

Such rescue efforts present a wealth of opportunities, not least a chance for cash-rich corporations to secure control of otherwise-unavailable assets at attractive prices. This month’s What’s the deal? (Bargain hunting in Europe) investigates the opportunity for Indian companies to acquire distressed small and medium-sized entities in France. The country’s acquirer-friendly insolvency laws make it more attractive than many of its European counterparts as a destination for mergers and acquisitions. And with an increasing number of French companies running into financial difficulties, despite having otherwise healthy business fundamentals, opportunities may beckon for Indian corporates.

Plenty is the talk of the global economy’s centre of gravity shifting ever eastwards. An example of this trend may be found in the private equity sector, an industry that was almost decimated in India following the collapse of the country’s stock markets. India may have proved a particularly harsh market for private equity houses during the past year, but ironically, it is also among the first countries to show signs of a recovery in the sector (see Private equity returns).

“We think it is a great time to invest … We are already close to finalizing a couple of deals,” the managing director of one private equity firm tells India Business Law Journal.

India’s new-look private equity market presents a stark contrast to its earlier incarnation. Gone are the quick-fire mega-deals of yesteryear. In their place stands a new emphasis on risk mitigation.

Lawyers – the erstwhile butt of many a dealmaker’s jokes for their nitpicking and risk-averse approach – are now embraced by a resurgent industry that has woken up to the importance of due diligence and high standards of corporate governance. This refreshing attitude can be seen in a number of other sectors of the economy.

Writing in this month’s Vantage point, Rahul Shah, head of the Centre of Excellence at Infosys, argues that corporate managers must possess a thorough understanding of the risks facing their business, particularly those arising from relationships with strategic partners and suppliers. This often-neglected aspect of risk management can be addressed, says Shah, through the introduction of automated contract management systems. He argues that such systems can increase companies’ compliance rates by up to 55%, while cutting the associated administration costs by as much as 30%.

Another area in which businesses are striving to rein in expenditure is in the protection of their intellectual property. This month’s Intelligence report (Protecting hidden value) evaluates the impact of the downturn on companies’ IP strategies. Some law firms actually report an increase in IP-related work, but many others tell stories of clients cutting corners to save costs.

This may be a dangerous course of action. As our coverage forcefully illustrates, now is not the time for IP owners to let their guard down. Infringement challenges tend to increase with the onset of economic adversity. Short-term cost savings may well cause irreparable long-term damage. IP rights surrendered now may be difficult and costly to recapture later on, if they can be recovered at all.

The decisions we make in these trying times must hold their own and do us proud when the storm has cleared.