Going global: Is a wave of international firms about to beach?

by Kathryn Crossley12 Sep 2014
It’s been an eventful couple of years for the Australian legal market, with the debut of a number of international firms on the local legal scene, headhunting partners or merging with local firms in the process.

The entry of international firms into Australia now appears to have slowed, prompting some speculation that New Zealand could be the next destination of choice for international firms.

Although crossing the Tasman would appear to be a relatively straightforward move for international firms with a presence in Australia, some New Zealand firms are sceptical about whether their international counterparts will take that step.

To Russell McVeagh CEO Gary McDiarmid, New Zealand’s highly competitive and smaller legal services market may deter international firms. “Australia is a huge market compared to New Zealand,” he says. “To put this in context, the revenue of one large Australian firm would exceed that of all of the large NZ national firms.

“It seems possible that some firms will seek to enter the market simply because it fits their particular strategy,” McDiarmid adds. “However, we do not think that any entry would ‘grow’ our market – in other words, regardless of the number of firms operating within it, it will remain a tiny, highly competitive market.”

Mark Weenink, managing partner at Minter Ellison Rudd Watts, agrees. “If you go to London and talk to firms over there, there’s amongst some of them a high degree of scepticism about how those [Australian] mergers have gone, and therefore I think the UK firms would be very unlikely to come to New Zealand, which is obviously markedly smaller.

“I’m speaking to a number of consultants who advise on the globalisation strategy … and, on that list of attractive jurisdictions to move into, New Zealand is between 20th and 25th – it’s well down the list,” Weenink says.

Webb Henderson partner Malcolm Webb is equally doubtful of international firms’ New Zealand aspirations but says prevailing market conditions would make now the best time for interested internationals to enter the market.

“I’m not aware of international firms generally being interested in the New Zealand market, but I would say entry of these firms is probably more likely now than at any other time, and I say that because of the strong foreign capital flows that are coming to New Zealand, and the New Zealand market is generally pretty active as compared to other jurisdictions. If it was ever going to happen, now seems to be the most likely time.”

Although local lawyers don’t believe international firms will be entering the New Zealand market anytime soon, that doesn’t mean international firms have not been looking at this option. Both Webb and Weenink have spoken to overseas players that have expressed an interest in NZ.

Weenink says much of that interest has been from US firms as the UK firms have more of a presence in Australia.

“I think [the UK firms] have stolen the march in some ways over US firms in terms of the relationships they have got themselves into,” he observes.

In the same way that the mining sector generated international interest in Australia, agribusiness is proving a drawcard for foreign investment into New Zealand, with much of that investment coming from Asia, and from China in particular. Weenink has also observed investor interest in acquiring property in New Zealand, such as hotels.

Despite being a smaller market than Australia, Webb says the high value of the New Zealand dollar and the relatively low cost base for firms mean that the potential returns could be attractive to international firms.

Weenink says another drawcard for internationals is that New Zealand is also a strong resource base from an HR perspective, with many local lawyers having a good cultural knowledge of working in the Asia-Pacific.

“There’s certainly a view that New Zealand lawyers work well when they’re sent into satellite offices; they are quite self-sufficient, have a more generalist approach to things, and culturally get on wellwith alot of the Asiancultures,” he says. “New Zealand lawyers are probably a good resource to use for expanding Asian US offices.”

According to Weenink, New Zealand is often used as a marketing test bed by multinational companies, and this could be another attraction for international firms. “Things that work in New Zealand are quite often rolled out into bigger jurisdictions,” he says. “I think some of the American firms would see that as a relevant factor.”

While some firms may be interested in merging with an international firm, the lawyers NZ Lawyer spoke to believe that overseas firms would be unlikely to take such an approach. Instead, they predicted that any international firm to enter the New Zealand market would likely choose a small group of partners to join the firm and set up an NZ office, similar to Allen & Overy’s entry into the Australian market.

“I expect that an international firm would be more interested in a small group of partners who were able to support them in the international deals which have a New Zealand element,” Webb says.

Although lawyers believe the arrival of international firms in NZ is unlikely, if overseas players were to enter the local market, lawyers predict a number of impacts.

In Webb’s view, recruitment would be a key area of change: “If we did see a large international firm come in, then obviously they would be a very attractive employer for young, talented graduates from New Zealand.”

Webb also believes that international connections could give any new entrants to the market an edge.

“The local firms for New Zealand, the ones which are successful are successful for a reason because they are providing a very high quality of service to their clients,” Webb says. “That’s not going to change, but I certainly think that, for some transactions, having the infrastructure, if you like, of a major international firm will put them at an advantage in the local market for some types of deals.”

In response to the increased competition, local firms would also be expected to firm up existing international referral relationships with firms overseas. 

This article appeared in New Zealand Lawyer’s latest magazine edition 6.3. Subscribe for more articles and detailed legal features.

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