Will international firms still call Australia home?

With the weakening of the Australian dollar and the mining sector slowdown, what once made us a popular choice for international firms has diminished. We investigate

Tight competition and sometimes challenging market conditions mean it hasn’t always been an easy journey for some of the international entrants to Australia’s legal market.

Recent years have seen numerous international legal brands make their Australian debut. With a number of overseas firms merging with local players and others opening their own offices, the Australian legal market has shifted significantly.

Yet it hasn’t been smooth sailing for all international firms. With the weakening of the Australian dollar and a slowdown in the mining sector, some of the factors that made Australia a popular destination for international firms are starting to ease.

“It is important to remember that when a lot of these European or UK-based law firms came into the Australian market, the Australian dollar was much stronger. That has changed now. I’d be surprised if there’s many more [international firms] to enter the Australian market. I think there might be a few firms that exit the Australian market or which have a presence in the Australian market in a different form,” predicts Lander & Rogers partner Jackie Solakovski.

While market conditions have changed somewhat since many international firms opened their doors in Australia, K&L Gates chairman and global managing partner Peter Kalis says his firm approached the Australian market strategically and as a long-term commitment, and that short-term movements in the market would not sway the firm.

“Markets always move in cycle, and the destination has to make great strategic sense against the backdrop that today’s bull market is tomorrow’s bear market,” he explains.

“Even in my darkest moments I can’t work myself up to be gloomy about the Australian legal market. I think it is a bunch of firms who are getting spooked because of relatively normal cyclical movements in the market, and frankly you shouldn’t get spooked over that... If you get spooked over that, you shouldn’t have come in the first place.”

For Kalis, the quality and professionalism of Australia’s lawyers, and the fact that it’s an English-speaking nation with a strong rule of law culture, were some of the things that drew his firm to the market.
“That allows us in the Asia-Pacific market to put lawyers on the field that share our perspectives and values,” he says.

Although the local talent pool has also been a draw card for international firms, staffing is another area where some firms have experienced pressure.

“While you can always recruit people, the real question is can you recruit really high-quality people that are going to move your brand up the food chain in a particular market,” says Kalis, noting that some merged firms have experienced a number of partner departures in recent times.

Mills Oakley CEO John Nerurker says international firms are also facing pressure on another front: clients.

Despite their prominence, in Nerurker’s view international legal brands aren’t always going to be the first choice of local clients.

“The issue is how many Australian clients need cross-border capability from week to week or month to month. Many don’t, so national legal brands are a logical choice for day-to-day legal requirements and clients are increasingly making that choice,” he says. “We offer better-value pricing, the majority of our partners have top-tier experience, and we aren’t distracted by having to report back to head office in a distant jurisdiction.”

Another attraction for international firms has been the major transactional work, but “some of the headline-grabbing deals you see with less regularity these days,” Kalis observes.

That a number of international firms have moved to Australia to chase mega deals has also significantly increased the competition for work in that space.

“International brands focused on cross-border work are competing in a tight niche, so it’s likely that only the very best will survive in each market. Over the longer term, we may well see some of these brands choose to exit Australia because the share of high-end work that they can secure isn’t sufficient to justify maintaining a presence here,” Nerurker says.

However, Kalis does not believe all international firms will be equally impacted by the difficult deals market.

“Firms, especially the UK firms, are so predominantly deal driven in their perspectives that I think they may have concluded that Australia doesn’t have the juice for them that they thought it would.”

Despite the dip in deal volume sand the fierce competition for major transactional work, Kalis believes it’s unlikely that international firms will leave the Australian market: “I think that would be an embarrassment of global proportions,” he says.

But Herbert Smith Freehills CEO Mark Rigotti believes international firms’ futures in Australia are dependent upon how they initially entered the market.

“I think for firms that have ‘scrambled the egg’ like us, they’re not going to leave. They might change strategy. Will some firms who’ve dipped in dip out again? I think that’s probably right,” he says. “If you look at other markets, that tends to be what happens.”

He also predicts that some firms may restructure their Australian presence to better align with their strategy.

Despite the mixed fortunes of international firms in Australia, Rigotti believes conditions overseas could also be a determining factor in whether some firms stay down under.

Even if a firm’s foreign office enjoys moderate to good success, Rigotti says the status of a firm in its home market often features in the decision- making: “I could see some [firms] going back not because what they’re doing here is wrong or bad, but because the mothership requires that.”

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