16 March 2012 at 17:21 BST

Looking up, Down Under

The lure of vast amounts of Asian business is encouraging international law firms to sniff around Australia with more keenness than ever before. Peter Bartlett assesses their chance of success

Chinese investors are competing with Australian industry heavyweights such as Metro Property Development, Meriton and Mirvac

Global firms are turning their ambitious gaze towards Australia. Management teams in the major domestic firms are receiving visit after visit from big brand names headquartered in Europe and North America.
It is not difficult to see what is motivating that interest – markets in Asia are booming at a time when Europe and North America have reached a plateau. Australian law firms are taking advantage of the quality legal work available to the country’s north. Exports to China in 2010 exceeded
$66 billion, and Australian lawyers have benefitted considerably from China’s interest in Australia and Australia’s interest in China and Asia generally.
Global law firms want a piece of that Asian pie. But the conundrum for Australian firms is that they must decide whether they want an exclusive relationship with a particular firm. If the answer is yes, they must then decide which firm is best for them and just what type of arrangement they will enter into.

Too large

It is a difficult decision. The Australian firms are doing very well by international standards. At one stage, the major practices took the view that they were too large to be attractive to an international suitor. They assumed they were so strong and powerful in the
Australian market that it would be difficult for a global player to enter in a meaningful way. Those views have changed.
A magic circle partner commented some years ago that the firm had looked at every possible business model for entering the Australian market and none of them justified entry. Since then we have seen Allen & Overy open offices in Sydney and Perth by poaching partners from other firms; and Clifford Chance acquire boutique firms in those same Australian cities.
More have come. Norton Rose linked with Deacons and DLA Piper with Phillips Fox.
US firms have also got in on the Australian action – Sidley Austin, Skadden Arps Slate Meagher & Flom and Sullivan & Cromwell all have a small presence. Baker & McKenzie has been established in Melbourne and Sydney for many years. Another US firm, Jones Day, and UK practices Ashurst, Kennedys and Holman Fenwick Willan also have Aussie outposts.
Perhaps one of the most important developments has just taken place. At the beginning of this month, Mallesons changed its name to King & Wood Mallesons to reflect its link with the China-based firm. (King & Wood Mallesons uses a Swiss Verein structure with three financially independent partnerships.)
This arrangement will be keenly watched in Australia. It is thought that part of the strategy is to follow Chinese state-owned enterprises into Asia, South America and Africa, a business plan that raises interesting and, as yet unexplored, cultural issues.
Added to these associations, there are rumours that two big London-based players – Herbert Smith and Linklaters – are talking to leading Australian firms, Freehills and Allens Arthur Robinson, respectively. The quality of general counsel at top Australian companies is high, but as with their GC counterparts around the world, they are working to tight legal budgets.
They are unlikely to pay more simply for a global brand name. The global firms that want to be really successful in the Australian market will need to offer more to entice general counsel to break long established relationships.
Law firms are good at spin. There is a lot of talk among partners in Australia that some of the international law firms are not doing as well in Australia as their well-oiled publicity machines suggest.
The major Australian firms have been more focused on profit in recent years. They have been targeting the higher end corporate, finance and minerals and energy work. Some have slimmed down with the aim of driving up profits and making themselves more attractive to international firms. This strategy has made them more vulnerable to harsh economic winds.
Others have retained large and profitable insurance, employment, construction, real estate and insolvency practices.

Increasing profits

Can Australian firms generate profits per partner that we hear the magic circle firms achieve? Certainly the level of Australian law firm profit has increased significantly over recent years. The country’s strengthening currency has assisted in lifting domestic firm profits when compared with partners in the UK and the US. It is not so long ago that the Australian dollar equalled 33 UK pence.
It is now 67 pence. We were worth 47 US cents; we are now worth $1.07.
While recent increases in profits per partner have been impressive – and while we hear that the level of profit in many firms in the UK and the US have levelled or fallen – it is still difficult to see Australian firms generating the high profits seen in London and New York.
There will be some huge success stories in the global firms entering the Australian market – and, I fear, there will also be disappointment at the difficulties faced. Globalisation of law firms is here to stay. The six major Australian firms made the right decisions in the 1980s to amalgamate with interstate firms. Other firms that did not choose the right firm have either been absorbed by others or are in the shadow of the big six.
Time will tell whether the six Australian powerhouse law firms of the past 20 years will be the powerhouses of the next 20 years. That will depend on whether they have chosen the right global partner. Whatever happens, clients will benefit from increased competition and quality of legal services.

Peter Bartlett is the former chairman of leading Australian firm Minter Ellison

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