Export of legal services now earns more than $120 million a year for Australia.
What chance do our smaller practices have of benefiting from exporting legal services? Joe Parkes investigates.
Exporting legal services can be a highly profitable professional pursuit, especially if you have one of the handful of legal practices that control a significant part of the industry’s domestic business.
And there’s a new shining star rising on the legal community’s horizon: the export of legal services. In global terms, services exports are now the fastest growing category of trade, and Australia’s legal service providers are making a respectable contribution to its growth.
The Federal Government’s International Legal Services Advisory Council (ILSAC) says that, in 2004–05, Australia’s exports of legal services were valued at $121.4 million with the four major markets being Britain, the United States, North Asia and Southeast Asia. In the previous year it was the US, Britain, New Zealand, France and Hong Kong.
At the last count, according to the Australian Bureau of Statistics (ABS), there were around 10,900 legal services practices in Australia employing 76,300 people, generating some $7.4 billion from the sale of services. About two thirds of them are solicitors’ practices (88 percent of employment and 76 percent pre-tax operating profits) and one third are barristers. Only about one percent of solicitors’ practices employ more than 100 people, while reaping 45 percent of the entire profession’s operating profit.
Practices with less than five people attract only nine percent of the sector’s operating profit, so how can Australia’s smaller law firms hope to cut themselves a slice of the global services action?
Cautiously, seems to be the answer. Very cautiously.
Complexities of Exporting
ILSAC director, John Tucker, warns that for law firms, exporting is a complex process, with plenty of potential to lose money.
The president of the Law Council of Australia, John North, is a bit more positive. He says Australian lawyers are highly prized overseas for the quality of their training and work. The council’s very active international law section gives priority to the opening of overseas markets. "Our exports are bound to increase as Free Trade Agreements (FTAs) negotiated by Australia begin to cut in and the nature of international work grows," he explains. "Business is very global now and, in due course, clients will demand that restrictions in cross-border legal representation be whittled down and removed."
Dr Richard Gould, whose Melbourne-based International Market Selection company helps law firms determine which countries to target for export activity, says one example of a restricted market is Hong Kong, where English-speaking lawyers can practice but the local legal cartel restricts entry by competitors from other countries. Barriers can keep them waiting for up to two years before obtaining qualifications.
North says these restrictions can make life difficult for small practices that can only justify operating overseas on a ‘fly in–fly out’ basis for no longer than a few months at a time.
Access can also be a problem in other Asian markets of growing significance to Australia’s exporters, including Indonesia, Singapore, Malaysia and Thailand. It is also tough getting to practice in the United States, despite the promise of better things to come from the FTA.
Alan Oxley, managing director of ITS, a Melbourne-based trade consultancy, is sceptical about the value of Australia’s FTAs to the legal services industry, saying there is "more noise than activity" from government agencies about the true value to law firms of any FTA. He especially doubts the potential they offer to small practices.
A former ambassador to the General Agreement on Tariffs and Trade, Oxley was closely involved in negotiations for the agreement between Australia and the US. "Had the Australian legal professional been interested in pushing access under, say, the FTA with America, where control of the profession is on a state-by-state basis, we should have seen the NSW or Victorian bars asking bodies like the New York bar to get together with them for talks with the big law firms actively involved," he says.
John North accepts the criticism as legitimate, but says the Law Council attended a high level meeting in Washington in May to pursue improved access for legal services, along with DFAT and other services industries. "We are working closely with the American Bar Association, DFAT and ILSAC, to try to get a consistent policy regarding the practice of law in both Australia and America," he says.
Export Opportunities
So, where should smaller law firms not look for business? Gould assesses conditions in around 200 countries when helping legal firms consider their prime options for operating overseas. The United States, he says, should rank as only of medium significance because it is so competitive. Statistical analysis of other markets like China and Russia—and all the Central Asia ‘-stan’ countries, like Kazakhstan—puts them right at the bottom of the list for most Australian exporters. "Only the most experienced exporters should consider them or regions like the Middle East," he warns. "It may be asking too much of a small, inexperienced company to go to Saudi Arabia."
Equally cautious is Austrade’s Global Team Leader for Service Exports, Lloyd Downey, who regards opportunities for SMEs in legal services exports as "quite limited".
"A buyer of legal services in China once told me one of the most important things buyers look for in their suppliers is the ability to provide a wide range of services," Downey says. "One day they could need an expert in telecommunications law and the next day it could be family law. He didn’t want suppliers who relied on making flying visits to the market; he needed an established presence and the ability to react promptly and effectively at short notice."
Not every company involved in the export of legal services is actually engaged in practising law. Sydney’s Copernican Securities, for example, offers specialist advice to overseas governments on matters like legal input for draft legislation and policy development. The company is involved in the US, Europe, and Asia, as well as with the international development banks and AusAid, but does not, itself, offer any practising legal skills.
There are opportunities for Australian law firms in areas like commercial dispute resolution, legal education and training, and technical assistance and loan/financial projects by international development and financial institutions. The Asian Development Bank and World Bank both offer these assistance programs and Australian law practices have won work in Vietnam, China, Indonesia, Pakistan, and the Central Asian republics.
Copernican managing director, Kerry Adby, says it’s vital to determine what an Australian firm can offer in a particular market that makes it stand out. "What are you offering?" she asks. "What issues are you targeting; what skills or expertise do you have on offer?"
Do not, she counsels, just turn up and knock on doors. Rather, look for special openings: a conference you attend, the ethnic background of someone in your firm or via a friend or acquaintance who can help identify potential clients. "When we first went to Malaysia, I was around so much people thought I lived there," Adby recalls. "You must establish a continuing and regular presence, no matter how small your firm is."
Setting Export Rates
Gould says that for those small or medium-size practices that do get the export process right, the additional income can often be greater than their Australian turnover, with peripheral benefits like increased efficiency and boosted productivity. So, how do you determine what kind of rates to charge? "The same fees as your competitors in each market," he says. "Consider maintaining two price-lists: a ‘rack rate’ plus a discounted schedule for high volume business and special interest issues."
Gould has reservations about engaging in partnerships with local firms in foreign markets, but supports the concept for practices starting off in the export trade following important clients into overseas markets. What does leave him perplexed are law firms—the majority, he laments—that go into export without doing any proper research. "Some locate overseas based on unsolicited offers, others act on gut feelings or personal preferences," he says. "You should examine all potential markets and identify your top three preferences, then let someone like Austrade undertake in-depth research and base your decision on those results."
There is not yet any kind of stampede by legal firms to head offshore. ABS data—a little dated now but regarded as valid—shows only 1.3 percent of Australian law practices are engaged overseas. Tucker believes this could rise to five percent, and although the statistics suggest our legal services exports are growing slower than our imports, he is "cautiously optimistic" Australia’s offshore business will grow.
ILSAC has prepared a ‘critical thinking guide’ to help achieve improved market access to overseas markets. Part of its strategy has been to have three negotiating proposals tabled at the World Trade Organisation, aimed at promoting liberalised transnational trade in legal services.
"Some medium-size law firms have developed fairly significant business offshore approaching 10 percent of their billings," he says. "Several have achieved this by becoming part of a multi-national referral network of firms that refer business between themselves. It’s not a bad way of developing your foreign business and seems to be working well in the Pacific Rim and in Asia."
So, what’s the ideal way for smaller Australian legal services firms to approach exporting? Tucker suggests starting out by talking to firms already engaged in offshore trade. "People involved in export are usually more than happy to talk about their experiences, what works and why," he says. "Exporting is not a simple process."
He recommends new exporters adopt a mentor—an experienced friend or colleague—to help avoid the pitfalls.
"Small law-based organisations can come close to collapse by investing too much of their time, money, and people on new endeavours," he says. "A sensible level of risk aversion would encourage no more than about 20 percent of a business’s value, at best, being invested in this kind of pursuit."
Methods for exporting services
Cross boarder: your service is delivered to an overseas customer without you having to leave Australia
Consumption abroad: an overseas customer comes to Australia to either receive or use the services you provide
Commercial presence: your business establishes an office, appoints a representative or develops a partnership overseas
Movement of natural persons: you or your staff travel to another country to provide a service
*Source: Austrade’s From Contacts to Contracts: A guide to successful exporting for the Australian professional services sector.
Ten steps to successful service exporting
1. Understanding your core business: why are you successful at home and what can you offer international clients?
2. Developing communication platform: create material that highlights your business’s capabilities, capacity and know-how, and builds brand awareness
3. Supporting your export service: do you have the resources (financial, staff, time) to create and develop contacts?
4. Developing export skills: the AIEX and government bodies provide a range of programs to improve export skills
5. Your operational choice: work out the best delivery system for your service. Considering the provision of resources and the amount of control you want in the new market
6. Selecting target markets: try to identify accessible markets (where there is a gap) close to Australia for initial export
7. Developing industry and company contacts: get information from online sources, association contacts, trade show lists and special reports
8. Final preparation for market entry: conduct market research to understand how the market operates, how firms are contacted and how much is known about Australian service providers
9. Your client contact program: plan how to approach contacts, structure interviews and arrange follow-up meetings
10. Market visit and follow up: be prepared for at least three visits to your market in the first two years.
* Source: Edited excerpts from NSW Department of State and Regional Development’s Services Exports Toolkit. Access your copy from www.smallbiz.nsw.gov.au
