For much of its history, Australia has been preoccupied by the distance separating it from the world's great business and financial capitals. This tyranny of distance has done much to shape the Australian character and the national perception of its place in the world. It has even affected its business institutions.
But that is all changing.
The preoccupation, in itself, denotes a Eurocentricity and cultural timidity which no longer applies to Australian business. The country is rapidly becoming more comfortable and confident in its position as an important business centre in the Asia-Pacific time zones, although it is a long way from fulfilling its true potential.
Accelerating the changed focus has been the communications technology revolution and the dynamic growth of the economies of Asia. In this wired world, while time zones remain important, geographical location becomes less so. Instead, factors such as high-speed telecommunications, an educated workforce and political and economic stability assume a much greater importance – and they are all areas in which Australia excels.
Politicians have been eager to take credit for the advances Australia has made towards becoming a regional financial centre. But in many cases they have been followers, rather than leaders. Economic realities have driven the changes of attitude much faster than government initiatives.
Nevertheless, the federal government's recent conversion to the cause of marketing Australia, and Sydney in particular, as a regional, financial and business centre is welcome, if only because it has focused on changing the negatives – perceived or actual – which hold Australia back from this role.
It is significant, for example, that on a recent roadshow to New York, led by the Prime Minister John Howard and Minister for Financial Services and Regulation, Joe Hockey, Howard announced the liberalisation of Australia's onerous capital gains tax regime.
While this does not go so far as to address the real underlying issues (personal income tax rates are arguably a much more significant factor in stopping executives relocating from Hong Kong to Sydney), it is a sign the authorities are prepared to accommodate international business in a way that was unthinkable even a decade ago.
Other initiatives have been to scrap a witholding tax on interest payments to foreign investors holding locally issued corporate debt securities and to expand tax concessions available to offshore banking units. It is a start.
Australia has had some notable successes. Merrill Lynch, the St Paul Group, Charles Schwab, Morgan Capital, Goldman Sachs, Morgan Stanley Dean Witter and Royal Bank of Canada have all expanded their Australian operations in the past year – although much of this has probably been driven by domestic M&A activity as much as a desire for greater access to the region.
Having said that, Merrill Lynch and Alliance Capital Management, which recently launched mutual fund products in Australia, would have been unlikely to take the step had it not been for the relaxation of the rules affecting foreign investment funds.
However, it was expertise that persuaded two global asset management groups – Deutsche Asset Management (DAM) and HSBC asset management – to choose Australia, ahead of Japan and Singapore, as a base for their regional operations. DAM chose Sydney while HSBC's regional headquarters is in Melbourne, but both said it was the country's growing reputation in fund management which proved most attractive.
Inevitably, international and domestic attention has been on Australia's largest city and main capital markets centre – Sydney. The attention has grown with the appointment of Les Hosking, the former chief executive of the Sydney Futures Exchange, as chief executive of Axiss, the main government body promoting Australia as an Asian gateway.
But Hosking might disappoint his fellow Sydneysiders. His focus has been on how Australia's skills, its world-class yet economical professional services, its telecommunications and IT infrastructure make the country an ideal location for regional back-offices as information technology unlocks the link between front office and transaction processing.
That may be true, but Sydney will not necessarily be the winner. For example, BT Australia recently chose Adelaide as the site for its regional back-office functions. Skill levels were as high as the rest of Australia, but the cost of office space was much lower. But despite the lower costs of rent and labour, Australia may still have some significant hurdles to overcome.
A recent survey of 22 banks in Sydney, Hong Kong, Singapore and Tokyo by Cap Gemini Consulting revealed it is cheaper to process foreign exchange and money market transactions in Hong Kong and Singapore than in Sydney.
This was due to lower productivity in Sydney which, despite lower rents and labour costs, increased the overall cost of a deal. According to the survey, it was 23% cheaper to process a foreign exchange transaction in Hong Kong than in Sydney.
Another barrier to Australian dreams may be the dreams of Australians themselves. For some years now there has been a brain drain of some of its best young people to Singapore, Tokyo, Hong Kong, London and New York, lured by higher pay, lower taxes and a sense of being where the action is. This loss of talent has been most significant in the fields of equities, debt and derivatives.
Westpac, one of the Big Four Australian banks, recently introduced a programme to try to stop this outflow. It now provides for 200 of its financial markets dealers to spend time working offshore.
But the big gap between Australian wages and those overseas – ironically one of the big drawcards for Australia to overseas' firms – is unlikely to be closed anytime soon.
The truth is that the region is large enough to accommodate everyone. Australia's major competitors – Hong Kong and Singapore – each have their own specific strengths. Hong Kong's long-established position as a free trade, low-tax regime with special access to the potential markets of China will not be eclipsed.
Nor will Singapore's dominant role in Southeast Asian commerce and capital markets disappear overnight. But there will always be some aspects of financial and business operations for which Australia's mix of English, IT skills, lower-cost rentals, competitive wages and executive-lifestyle opportunities will be ideally suited.
Perhaps the most important benefit that has come from the glimpse of the glittering prizes available to a major regional financial centre is the political will which it has engendered. There is nothing like the promise of riches just over the horizon to concentrate political minds to the importance of maintaining the reform momentum. If that means vigorous competition with the Asian Tigers of Singapore and Hong Kong, then so be it. That is, after all, what the free market is all about.
Robert Hanley is London resident partner and a member of the Asia-Pacific group at Minter Ellison.