Australia’s major law firms have long recognised the opportunities and potential for growth offered by Asia. In addition to geographic proximity, a number of factors have combined to make the provision of legal services by Australian firms to major corporations and financial institutions in Asia a logical extension of their business. In this context, China stands out as a key market for Australian business.
While trade flows are strong, absolute investment flows between Australia and the Asia Pacific still lag behind those between Australia and Europe or the US. However, the resources boom and regional demand for energy and raw materials are expected to drive further investment from North Asia into Australia, particularly as Japan, China and Korea move to secure long-term sources of supply.
At the same time, Australia’s economy is in its sixteenth successive year of economic growth, with many sectors of the economy now mature and characterised by industry consolidation. One consequence is that Australia’s business community continues to become increasingly regionally focused, looking for growth opportunities outside Australia.
This focus, coupled with the fact that Australia’s compulsory retirement savings system has produced the world’s fourth-largest national pool of investment capital, can really only be expected to increase outward investment from Australia into the region as the strong growth economies such as India and China open up to greater levels of foreign investment.
A place in Asia
The benefits to be gained in building a viable Asian practice over the medium to longer term are undeniable. The market for legal services in Australia is relatively mature and highly competitive, while Asia provides the opportunity to participate in markets with growing demand for legal services. At the same time, growth in those markets affords Australian firms an opportunity to leverage their existing client service platform in the region into markets with higher (often US dollar denominated) rates than can be realised in the domestic market. It also provides the prospect of such firms remaining relevant to clients as they themselves increasing their regional or global reach, and provides another tool in recruiting staff by providing alternative career paths for the most able lawyers.
Why Hong Kong and China?
Concentrating resources in Hong Kong and spending time building credibility there can be more valuable than the alternatives of opening a network of representative offices, entering into local affiliations or attempting to service all regional work from Australia, not only in terms of gaining work from new clients, but also in demonstrating real ‘in the market’ credibility. A majority of Australian partners working in Hong Kong and China have spent significant periods in those markets, with either major international or local firms.
Over time, dependency on staffing local offices from Australia reduces and firms will become more successful in lateral recruiting at all levels. The result is a good mix of experienced transaction lawyers with relevant language and cultural skills.
It follows that such firms will be well placed to assist clients on direct foreign investment into greater China and North Asian clients making outbound investments into Australia. There is already significant demand for these services in infrastructure, property, insurance and financial services as well as the energy, projects and resources sectors.
The proposed Australia-China free trade agreement (FTA) – negotiation of which was announced in August 2005 – also holds the prospect of higher levels of access to the China growth story for Australian businesses. While it seems unlikely at this stage that access to China’s legal services sector will immediately improve under the FTA, the services sector is a significant focus of the FTA and is set to benefit both directly via deregulation and indirectly through increased levels of trade and investment.
Tim Blue is managing partner (international) at Mallesons Stephen Jaques