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How Victoria can add value in Asia

Feature Articles

Cite as: December 2013 87 (12) LIJ, p.50

There are a number of ways in which law firms in Victoria can capitalise on opportunities for legal professional services in the Asian Century. By Kelvin Tam

By Kelvin Tam

The Australian legal services market

The legal services market in Australia is very mature. With around 60,000 lawyers (approximately 18,000 of whom are registered in Victoria), the number of lawyers per capita in Australia is one of the highest in the world. By any standard Australian lawyers are highly skilled, due in no small part to the quality of our legal education and the complexity of Australian laws within a federation system.

As a result of the global financial crisis, demand for legal services in Australia has become stagnant or even shrunk. In particular, the Victorian legal services market is adversely affected by the downturn in local manufacturing. The Australian legal market has also become more competitive as a result of the arrival of a number of large foreign law firms, often by merger with local Australian firms.

In these circumstances, it is only natural that Victorian law firms should seriously look at whether and how the Asian Century may provide new opportunities for their practices.

The Asian legal services market

Last year, the Premier of Victoria led the largest ever trade missions to China and India. This year, the Premier also led a super trade mission to Indonesia, Malaysia and Singapore, and another super trade mission to China. There is no doubt that investments and trade between Australia and the rest of Asia will continue to grow. As the Asian economies continue to take off, demand for legal services in Asia will keep growing at a rapid pace. For example, with a population of over 1.3 billion, the number of lawyers in China is currently in the region of 230,000. Private legal practices in China only started in 1982, and are undergoing continuous reforms and exponential growth. China will have more than three million lawyers if it is to reach a similar number of lawyers per capita as Australia.

There are more than 1.2 million people in Australia who are of Chinese or Indian ancestry. Victoria continues to be a popular destination for migrants from China and India.

Clearly, there should be abundant opportunities for law firms with a highly skilled workforce and well established practices such as those in Victoria, both in terms of the local markets in Asia and the migrant market in Australia. China, India, Indonesia, Malaysia, Singapore, Vietnam and the Philippines and their migrants are obvious targets, just to name a few. So, what can Victorian law firms do to capture the opportunities available in the Asian Century?

The barriers

Laws are inherently country-specific, territorial and regulation driven. As a result, legal services are not very transportable cross-border. The only notable exceptions are US, English and EU laws, which are often adopted in international transactions.

Accordingly, it is very rare indeed that Australian law will be relevant in any matter where the subject is not related to Australia. This sets legal services apart from a majority of other professional services, such as architecture, information technology, accounting and project management.

In other words, legal services have far more limited exportability – you simply cannot sell Australian legal services per se to Asia no matter how superior the quality of the services may be. Provision of legal process outsourcing (LPO) services from Australia to Asia is also largely unworkable due to the very high cost of labour here.

Another major barrier to entry into the Asian market is language. The importance of being able to communicate with Asian clients in their own languages cannot be over-emphasised.

Analysing the opportunities

Analysing the opportunities for Victorian law firms and how to overcome the barriers involves a few dimensions. Generally, servicing the Asian markets can mean one or more of the following three things:

  • Servicing clients based in Asia;
  • Servicing Asian clients based in Australia; or
  • Servicing Australian clients doing business in or trading with Asia.

The choice will greatly influence your strategic allocation of resources and the capabilities your firm will need.

Target countries

Asia as a whole is far from being a homogeneous market. Even within the same country (especially the more populous ones such as China, India and Indonesia), each province, state or even city should be assessed as a separate market akin to an EU country. For example, there are more than 100 cities in China which have a population larger than Melbourne. It would not be advisable to spread your net too wide, as it will dilute the result of your efforts.

The decision as to which country (or province, state or city) to target will determine the particular language (and dialect) capability that you need to build. Of course, if you already have a foreign language capability within your firm, it would make sense to consider targeting those Asian markets to which that language is relevant.

If you already have clients or potential clients in a particular country, or if your Australian clients are intending to do business in or trade with a particular country or are already doing so, it is worth considering targeting that country. Generally, it is better to follow the clients and potential clients into the Asian market, rather than take a “build and they will come” approach. That is what most successful new market entrants have done.

Foreign offices

After you have decided on which foreign location to target, the next step is to consider whether to establish an office in that location or service clients from Australia. Having a foreign office will add convenience and demonstrate commitment to, and knowledge of, the market.

If you are setting up a foreign office, you will need to decide whether to put Australian expatriate lawyers there, and if yes, then how senior or experienced should they be.

These decisions will need to be considered in light of the local regulations and the costs involved. For example, you may find that you can hire quite a few local legal practitioners for the cost of sending an Australian lawyer.

An alternative is to set up a joint venture with a local law firm in your target country. In fact, in some Asian countries, in order to be able to practise local law, entering into a joint venture of some sort with a local law firm is the only way due to regulatory restrictions. It also has the benefit of allowing your firm to tap into your joint venture partner’s client base.

Instead of setting up your own physical presence, you may consider forming an alliance with a law firm in Asia, or joining an international legal network. The local member of the alliance or network may then act as your firm’s representative or liaison on the ground. Compared with formation of a joint venture, the costs involved are generally lower. However, as such alliances and networks are usually of a non-exclusive nature, you will need to invest time to build relationships with other members and demonstrate your capabilities to them before referrals will start flowing.

Service offerings – Australian law and foreign law

The next question is whether to practise foreign law or stick to practising Australian law – there are separation considerations for your Australian office and your foreign office.

Australian law firms have had various levels of success (and failure) in establishing offices in Asia to practise local laws, including in a market as mature and competitive as Hong Kong. Recruiting local lawyers in Asia is one way of doing it. On the other hand, some Australian expatriate lawyers have passed the local examinations and been admitted to practise in the local jurisdictions within a short timeframe, where so permitted under local regulations. Admittedly language can be a barrier. But there is a readily available pool of bilingual Australian lawyers, especially among the overseas graduates and the first and second generation migrants here, if they are prepared to work in Asia.

Great care will need to be taken to ensure that the local regulations of the foreign country on foreign owned law practices are complied with. Some countries forbid foreign law firms from practising the local laws of those countries or employing their local lawyers. Some countries may allow foreign law firms to practise local laws but only in joint ventures with local law firms. In recent years, these types of rules (and their interpretations) have changed frequently. It pays to keep a close eye in that regard.

A Victorian law firm can also consider having lawyers in its Australian office who practise the law of its target country. Your Australian clients doing business in or with that country will greatly benefit from being able to interact face-to-face with a local expert. There is no legal restriction on the giving of advice on foreign law in Victoria by a qualified Australian lawyer, who may not necessarily be admitted to practise within the Asian jurisdiction itself due to regulations or other reasons. But, it is of course necessary that the lawyer giving advice on that foreign law does not accidentally mislead the client.

Service offerings – areas of law and selling points

The areas of law included in your service offerings to the Asian market will depend on your firm’s existing capabilities, experience and resources. It will also be driven by the sources of business you aim to target (see above). Most importantly, you need to find out what areas of law are in demand in your target market. Generally, if you are targeting clients based in Asia, mergers and acquisitions will be an area of law to focus on. If you want to target Asian clients based in Australia, there may be more potential business in trade related and general commercial laws.

You also need to ask, how are my service offerings different from those currently provided by the market incumbents? In other words, what is my special selling point? Some selling points may include:

  • Having a partner in your Australian office who practises Australian law and speaks an Asian language, so that nothing is lost in translation. Generally Asian clients like to speak directly to partners rather than through junior practitioners. The vast majority of such bilingual Australian qualified partners in top-tier and mid-tier law firms are working on the ground in their offices in Asia. Having a bilingual partner in your Australian office is certainly a point of differentiation from your competitors, especially when servicing Asian migrants or Australian subsidiaries of Asian companies. It helps to build rapport immensely.
  • Your connections and experience in dealing with the government. This is often highly valued by Asian clients, given the relatively big roles played by the governments in many Asian countries.
Alternative offerings

Further, instead of purchasing LPO services from overseas, why not consider setting up your own LPO in a lower cost country in Asia to support your Australian offices and also to offer services to clients and even other law firms in Australia? Australian law firms are well known for their good management practices and effective use of technology to increase productivity and reduce costs. These capabilities and experience are essential to a LPO business.

Think outside the box in terms of your service offerings and you may gain an advantage.

Conclusion

The impact of the Asian Century, whether good or bad, is unavoidable. All Victorian law firms, no matter how small, should have an Asian Century strategy. Obviously, there is no one size fits all. Your choices may also be constrained by the local regulations on foreign law firms and the availability of your own resources and candidates in the market.

The risks may be high, but it should be well worth the effort and could potentially produce a tremendous outcome for your firm. However, be prepared to be in it for the long haul in order to reap the benefits, especially as building relationships and networks in the Asian market takes time.

On the other hand, your strategy may well be that the Asian market is not for you. However, it should be a strategy formed after careful thought and analysis, having weighed up the pros and cons. It is not too late to start reading the “Australia in the Asian Century White Paper” to find out more now.



KELVIN TAM is a corporate and commercial partner of Hunt & Hunt, a national law firm with offices around Australia, and an office in Shanghai since 1998.

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