“Berlin is closer to Beijing than Brisbane is”

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“Berlin is closer to Beijing than Brisbane is. And it will always be so.”

– Andrea Myles, CEO China Australia Millennial Project (CHAMP)

I recently had the great fortune and pleasure to attend the opening ceremony of the inaugural CHAMP. Unlike many other events I attend, this one was driven by a group of young adults looking for ways to improve cooperation between China and Australia, principally from what I can tell in the areas of research and development (R&D).

Leaving aside the fascinating work being done under the CHAMP banner, two comments that Andrea Myles, CEO of CHAMP, said in her opening remarks really resonated with me.

The first was the opening quote to this post: “Berlin is closer to Beijing then Brisbane is.”

The second was this:

“China is Australia’s largest trading partner, but also the largest trading partner of 124 other nations.”

Yep, 124 other nations can claim that China is their largest trading partner.

So if Australia isn’t geographically closer to “Asia” than Europe is (and flying time from the UK to Thailand is roughly the same as Sydney to Bangkok), and if economically (from both a trade and investment perspective) Australia isn’t streets ahead of the rest of the world in the eyes of those conducting business in Asia, why in the world would so many law firms be “Driven here by the lure of Asia” – as the Australian reported last Friday (3 July) [“International legal firms see Australia as a hub for Asia” NB: subscription may be required to read this]?

Personally I’m not 100 per cent sure I understand the need for global firms to be in Australia if the only reason they are doing this is to create a hub for entry into the Asian market more broadly. I rather suspect better cases to that type of strategy could be made for Singapore (which historically it has been) and even Hong Kong.

Nonetheless, Patrick Sherrington, Hogan Lovells’ regional managing partner for Asia and the Middle East and author of the said article in last Friday’s Australian sets out his case for why he thinks this might be so.

These include:

“The Australian legal services market is characterised by its ­concentration, innovation and sophistication. Although globally the sector is generally characterised by low concentration, the market shares of the major players in ­Australia have been and remain particularly high, especially compared with the US, where no law firm accounts for more than 1 per cent of the industry.

This concentration yielded high levels of competition between those leading firms, which spurred innovation and sophistication throughout the market.”

Sorry, but having worked in the English, Asian and Australian legal markets during the course of my working life I can categorically say that the Australian legal market is no more innovative nor sophisticated than any other. While this might have been the case in the 1990s, I would venture that the US market is probably more innovative than the Australian market is at the moment and the stuff that the likes of A&O, Lawyers on Demand, Eversheds, and Riverview Law – to name but a few – are doing in the UK is streets ahead of where the Australian market currently is.

Sherrington then goes on to write:

“More critically, it [the GFC – my comment] affected the faith many leading national firms had in their business models. The hitherto boundless belief in the limitless growth of legal services in a country accounting for nearly 40 per cent of the Asia-Pacific legal services market was lost to the ­existential and strategic dilemma of how and where Australian law firms should operate in an increasingly global market.

Suddenly, market entry became a practical proposition for the major international firms. Since then we have seen the large national firms scramble for Asian and global exposure through ­alliances and combinations of varying intimacy.”

I’m of the view that flat, depressed markets in the UK and Europe more widely made the bigger English firms look up and think of other markets where they could still get growth. The mining boom that was going on in Australia at the time, plus historic highs of almost parity in exchange rates between the Australian and US dollars, meant that the Australian market looked very attractive at the time.

Ironically, a shift in the sands have now made these much less favourable reasons to be in Australia (the Australian dollar has fallen off to somewhere in the region of 75 cents now) and one has to wonder if the internationals would still be clambering to get here if the current market existed then.

Sherrington also notes that:

“We [Hogan Lovells] concluded that not having a focused high-end legal practice in Australia would be strategically detrimental to the ambitions of our long established practice in Asia and would have an impact on our ability to service global clients.

Australia is uniquely positioned to assist international law firms achieve growth in Asia. With the third largest pool of investment funds under management in the world, the largest stockmarket in Asia (ex-Japan) and the fourth largest economy in Asia, as well as being the single largest beneficiary of Chinese foreign direct investment since 2005, Australia is an ­integral part of the Asia region and also a global player.”

I think there is a lot to be said for the second part of this quote. Much less so for the first part. Having an Australian practice is one thing; having an Australian presence as a hub to Asia is a completely different issue.

If you have an Australian practice for all the reasons Sherrington sets out in the second part of the quote above, and you have a core client-base operating in Australia, then I commend you and wish you well.

But if what you are saying is this [Australia] is your hub for Asia, then I ask: “where does your senior Asian management sit?” Because one firm aside, nearly all of the senior “Asian” management teams I’ve seen sit offshore (ie, outside Australia).

A final comment of Sherrington’s is that:

“While the manner and mode of market entry will continue to ­differ between international law firms, it is a trend that will not be reversed.

The regional and global economic case for an Australian presence is too strong. It remains to be seen whether the flood of international entrants will reduce the concentration of the Australian legal service market.”

Sherrington and I will have to disagree on this one. I think it is a trend that could very easily be reversed – and to some extent already is.

And we should always remember that law is a very fickly business – who knows what might happen if you had a downturn in the Chinese economy and a European nation that was refusing to pay its debts.

Oh wait…

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