this product is unavailable for purchase using a firm account, please log in with a personal account to make this purchase.

Going global: The Australian Legal Profession in the Asian Century

Feature Articles

Cite as: December 2013 87 (12) LIJ, p.42

Countries around the world have opened their legal services markets to the provision of legal services by foreign lawyers and foreign law firms. Globalisation and the liberalisation of legal services in Asia have impacted the Australian legal profession. By Andrew Godwin 

By Andrew Godwin

The landscape for the provision of commercial legal services has experienced significant change over the past decade or so. At the global level, the markets have thrown up a number of considerable challenges for international legal practice. These challenges include relatively stagnant growth in the developed markets, a shift in the balance of power away from law firms towards their clients, and increased competition with the resulting pressure on fees due to innovation in the way in which legal services are procured and provided. To a large extent, the international firms have endeavoured to meet these challenges by focusing their attention on growth markets and by pursuing a truly global agenda, under which the capacity to practise local law in the various jurisdictions is sometimes as important as the capacity to practise the traditional doyens of international legal practice, namely English law, New York law and US securities law.

At the regional level, the influx of foreign investment and increasing economic integration have prised open many jurisdictions that were traditionally closed to the provision of legal services by foreign law firms and foreign lawyers. This is particularly true in Asia, where it has become easier for foreign lawyers and foreign law firms to access markets and significant reforms have occurred in recent years.

Inevitably, developments at the global and regional level have had an impact on the provision of legal services at the national level. This has certainly been the case in Australia as the trickle of international firms entering the market has turned into a steady stream and an Australian presence is increasingly viewed as a crucial piece in the global and regional jigsaw puzzle. This article examines the liberalisation of legal services in Asia and the impact of globalisation on the Australian legal profession.

Liberalisation of legal services

In the context of legal services, liberalisation is about opening up markets to the provision of services by foreign lawyers. To draw an analogy with the trade in goods, it involves the import and export of legal services from one country to another country. Liberalisation does not automatically mean that foreign lawyers should be permitted to practise local law. At the least however, liberalisation means that a jurisdiction should permit foreign lawyers to advise on foreign law to clients in that jurisdiction, either by means of establishing a presence in the jurisdiction or on a fly-in fly-out basis.

Liberalisation has generated a lot of momentum in recent years. Consequently, countries that have not opened their markets to the import of legal services are coming under increasing pressure to do so. One of the main engines driving liberalisation is the General Agreement on Trade in Services (GATS), which was one of the agreements signed in April 1994 when the World Trade Organisation was created. It was the first multilateral trade agreement to govern the trade in services, as distinct from the General Agreement on Trade and Tariffs (GATT) which governs the trade in goods.

If countries included legal services in their schedule of commitments when they signed up to GATS, then they must comply with some basic principles, including non-discriminatory treatment between member states. They must also observe the most-favoured nation principle, under which any concessions agreed with one member state must be extended to other member states. For countries that did not commit to opening up their legal services markets under GATS, liberalisation has been driven by other factors. These include commitments made under free trade agreements, such as those that South Korea has entered into with the US and the EU.

The current landscape in Asia

The table below contains information on some key jurisdictions in Asia. It identifies whether the jurisdiction is closed or liberalised. It also identifies whether integration is possible between local and foreign lawyers or law firms. In this context, “liberalised” refers to the ability for foreign law firms to establish a presence in their own right, and “integration” refers to the ability for local and foreign lawyers and law firms to provide legal services on a joint basis, whether through a loose association or through employing, or entering into partnership with, local lawyers.

Liberlised chart

The impact on the Australian legal profession

The table highlights two trends: a trend towards liberalisation and a trend towards allowing greater integration between local law firms and foreign law firms. Over the past two decades, this has augured well for the large international law firms as they have followed their clients into new jurisdictions, particularly emerging markets where the local profession has initially not been very strong and the legal system has been very different from the clients’ home jurisdictions. However, as the economies in Asian markets like China have grown and the local legal profession has become stronger, the competition between international law firms and also between international law firms and local law firms has become fiercer. As a result, the focus of the large international law firms has shifted towards the top-end highly structured cross-border transactions and, increasingly, towards servicing clients from those jurisdictions with their outbound investments.

This shift in focus has been a major driver in the recent push towards globalisation of the Australian legal profession. It should be acknowledged that a few foreign law firms had previously been operating in Australia for many years, particularly US firms practising US securities law. In addition, some Australian firms had joined international law firm networks and adopted global branding accordingly. However, it is only in recent years that there has been a wave of arrangements involving joint management, financial integration and profit-sharing, all of which constitute key elements of a global practice. A number of different models have been adopted for this purpose. These include the establishment of greenfield practices by foreign law firms who have recruited lawyers from Australian firms, mergers between foreign law firms and Australian law firms (both specialist and full-service), and also structured alliances.

Many factors have contributed to the shift in the perception of the Australian legal market from being an essentially domestic market to becoming part of the global market for legal services. These include Australia’s increasing importance as a destination for foreign investment, particularly in the mining and resources sector, its proximity to key Asian markets, its sophisticated legal services market, and also the appreciating currency which has created greater parity in terms of financial performance. Another significant factor is the shift in the balance of power from law firms to clients in the wake of the global financial crisis and the trend towards procuring legal services on a global basis, involving the appointment of law firms to panels for the provision of legal services according to the relevant practice areas and jurisdictions. These global procurement arrangements represent an important source of work for the large international law firms that have established a presence in Australia and have weakened the traditional sources on which Australian law firms have relied, namely, domestic procurement and referrals from overseas law firms.

In the face of the changing legal landscape, Australian law firms have to consider some fairly momentous questions about their future directions. Should they become part of a global network? If so, what impact might this have in terms of the shape, structure and culture of the firm? On the other hand, if they remain unaligned, what impact might this have in terms of maintaining their position in the highly competitive market for cross-border legal services?

These questions all feed into the related question of how Australian firms should best position themselves to take advantage of the opportunities in Asia. The answer will depend on a number of factors including:

  • the firm’s focus and whether it is limited to servicing investment into Australia or also embraces investment into Asia;
  • the specific jurisdiction in which the firm would like to maintain a presence and related issues (for example, the permitted business scope of foreign law firms, the costs associated with operating in that jurisdiction and the extent of competitive pressure from other foreign law firms); and
  • the availability of personnel who are Asia-literate in terms of language skills and cultural adaptability and who are prepared to make a long-term commitment to building a practice in Asia.

For some firms, the answer will lie in merging with, or becoming part of, an international firm or network. This would appear particularly attractive from a client-alignment perspective, namely, the prospect that by becoming part of an international firm or network, the firm can expand the work that it does for its existing clients, both in the Australian market and in Asia. It would also appear attractive from a practice-alignment perspective, whereby the depth and breadth of a certain practice area (for example competition law) can be strengthened through obtaining cross-border, multi-jurisdictional expertise in the Asia-Pacific region.

For other firms however, the choice to remain independent will be more attractive. There are a number of factors that might underpin this choice, including the wish to remain unaligned and thereby obtain referrals from a wide range of law firms in other jurisdictions, concerns over the suitability of potential merger partners and the impact of a merger on the firm’s culture and, of course, concerns relating to control and profitability.

Irrespective of what the landscape looks like after the dust has settled, there is no doubt about the globalisation of the Australian legal profession in the Asian Century.

ANDREW GODWIN is director of transactional law at Melbourne Law School and associate director (Asian commercial law) of its Asian Law Centre.


Leave message

 Security code
LIV Social