International law firms are barging through the gates to the Australian legal market. Justin Whealing looks at why they are coming, and whether local firms can compete with the global raiders.

You could forgive Australian law firms for feeling they are under siege from foreign competitors at the moment.

In just over one year, we have seen three large international firms enter the Australian market. In 2010, the merger between Norton Rose and Deacons became official in January; Allen & Overy opened in May after plundering the ranks of Clayton Utz and taking 14 partners; and DLA Piper announced in January this year that it will be in Australia officially from 1 May if, as expected, a merger with affiliated local firm DLA Phillips Fox is agreed to by both sets of partners.

But if Australian firms are worried by the prospect they will lose clients and lawyers to the new entrants, they are not letting on publicly.

"I don't think the entry of DLA Piper will change the market," Freehills CEO Gavin Bell says defiantly. "It is already a really competitive market and we face competition from really big Australian firms. DLA Piper has merged with DLA Phillips Fox, but at the end of the day, it is the same partners at DLA Phillips Fox that were there before, and with Allen & Overy, it is the 15 or so Clayton Utz partners we were competing with when they were at Clayton Utz."

Bell adds that his firm has not lost one major client to a global firm, on the proviso they can offer a seamless transition of legal services across the globe.

"I think the best gauge of [whether clients would go to a global firm] is what global clients have said to Allen & Overy, which is: 'Why would we use you in Australia, when we already use a firm that has 800 - 1000 lawyers?'" says Bell.

Mallesons Stephen Jaques chief executive partner Robert Milliner is similarly non-plussed as to the effect that the entry of global firms will have on the Australian legal landscape.

He believes that the arrival of Norton Rose, Allen & Overy and DLA Piper "will test the mettle of firms" but will not unduly impact on what is already a very mature and tough market.

"This is a very competitive market, and [if] you look at the upper echelon of firms - Freehills, Allens, ourselves and Clayton Utz - we all compete very heavily for the market," he says. "Then you have a series of firms - Minter Ellison, Blakes, Corrs, Gilbert + Tobin [and] Bakers - underneath that, also competing aggressively and wanting to be part of that market.

"So … in terms of fighting hard for clients, I don't think it has ever been a complacent market to begin with … It will make it more competitive, it will make it good for clients in terms of the choice that they have, and firms will rise and fall on their quality and service capability."

Mallesons has been linked to the British firm Clifford Chance in recent years, with the global financial crisis scuttling hopes of a planned merger in 2008/09.

Milliner says that Mallesons and Clifford Chance "were close in discussions about how to serve the market pre-GFC" but will not comment on whether discussions with Clifford Chance are continuing.

It would seem, however, that Clifford Chance is still keen to enter the Australian market sooner rather than later, with the firm having had discussions with West Australian corporate boutique Cochrane Lishman Carson Luscombe, and Sydney firm Chang, Pistilli & Simmons.

Clifford Chance has also been linked to Gilbert + Tobin, though G+T managing partner Danny Gilbert tells Lawyers Weekly that his firm is not currently in discussions with the Magic Circle giant.

Gilbert believes global firms don't see Australia as "mission critical", but instead as part of an overall strategic plan.

A global firm that provides a snapshot of how to successfully compete with local rivals in the Australian market is American firm Baker & McKenzie. It first opened an office in Sydney in 1964, with an office in Melbourne following in 1982. It is well regarded across the corporate spectrum, and is viewed as a leader in the emerging area of environmental markets and climate change.

Bakers' Australian national managing partner Chris Freeland thinks the recent spate of global firms entering Australia will have a significant impact on the domestic market.

"Clients are increasingly looking for international connectedness," he says. "Inevitably, when it comes down to a decision about which law firm to use, more will choose globally connected firms.

"If you are a national firm without those international connections, I think you are probably in a worse situation."

Freeland believes the entry of the international firms will only continue to gather momentum, and that rather than impacting on Bakers' client base - whose longevity in the Australian market he believes differentiates it from the recent international arrivals - it will be the client base of Australian firms that will be most affected.

Australia is the new black

Australia might be in vogue for foreign law firms now, but for many years it was on the nose.

With a handful of exceptions, most notably Bakers and Jones Day (which now has nine partners since opening a two-partner office in Sydney in 1998) foreign firms stayed out of Australia due to the perception that the limited volume of high-end corporate work was sewn up by the well-established national firms.

However, over the last decade, important external and internal factors have meant foreign law firms have taken a closer look at Australia.

The emergence of China and, more recently India, has meant that Australia has been in a position to benefit by virtue of its proximity to both countries.

Allen & Overy Australia managing partner Grant Fuzi says his firm was attracted to Australia because the Asian region was becoming the "heart" of the global economy.

The Australian legal, political and economic system is also very similar to those of North America and Europe, meaning that Australia is seen as a desirable destination for large foreign business interests with funds to spend in the Asia-Pacific, as it is seen as a more familiar and easier place to do business when compared with China and India.

Speaking to Lawyers Weekly late last year, Mallesons' David Friedlander said that for private equity consortiums, Australia is viewed as an ideal destination to test the waters when entering the Asian market.

"Everyone wants to do work in China, with India behind that," he said. "China can be a very hard place to do work and India, while it is fascinating and the authorities are attempting to remove barriers to foreign investment, can still be terribly turgid.

"Australia and Indonesia are well positioned to attract interest on the back of that, due to their proximity to Asia and the fact that Australia is viewed as a reasonable place to do business."

DLA Phillips Fox CEO Tony Holland, who will be the DLA Piper regional managing partner for Australia once the merger becomes official, says that part of the attraction for foreign firms entering Australia is the fact that global businesses are moving to the Asia-Pacific - and service providers have been moving with them.

"That colloquial saying that you 'follow the money' has been a real focus for business and service providers, such as the law firms," he says.

Once the merger of DLA Phillips Fox and DLA Piper becomes official, Holland says it will be "the world's largest business law firm and the largest global firm in Australia".

Asia managing director Alastair Da Costa says that by taking on Phillips Fox's five Australian offices, DLA Piper will have revenues expected to exceed $340 million in the Asia-Pacific region, including offices in China, Hong Kong, Japan, Singapore and Thailand.

Australian firms can't match the financial clout or coverage in the Asia-Pacific, or indeed the rest of the world, that global firms boast.

Holland and Da Costa are banking on the fact that DLA Piper can attract blue-chip clients in Australia on the back of such strength.

"There are many quality firms in Australia, but if we concentrate on what we are good at, which is providing a full-service capability to clients around the world in a seamless way, then we are creating more choice," Da Costa says. "It won't happen overnight [gaining clients in Australia], but it will happen."

Keeping the troops happy

In addition to safeguarding their clients, a real issue for Australian firms is how they can hang on to their lawyers given the opportunities that working in a global firm provides.

At the senior partner level, there is the ever-present threat that a foreign firm will enter the Australian market by adopting the model of Allen & Overy, which took 14 partners from Clayton Utz when starting up last year.

Norton Rose, which entered the Australian market via a merger with Deacons, has still managed to lure almost a dozen partners from top and mid-tier firms over the last 12 months.

With worldwide revenues exceeding $1 billion across its network, it has also managed to attract big corporate clients. In the recently released Thomson Reuters M&A Legal Adviser League Table for 2010, the firm jumped from 31st to seventh position in Australia.

"Global firms are able to attract clients who operate in many different countries, and also attract lawyers who have particular capabilities in cross-border transactions," the firm's Australian managing partner, Don Boyd, says.

Tony Holland says that he has already been approached by partners at mid-tier and top-tier firms interested in moving to DLA Piper.

At the junior level, a real issue for national firms is how to entice graduate lawyers from global firms who offer the possibility of stints in places like New York, London, Buenos Aires and Dubai.

"Membership of a global firm is an attractive opportunity for lawyers to move around the globe and practise internationally," Danny Gilbert says. "If you are in a global firm and have centres of excellence, the partners and lawyers in Australia that sit within that centre of excellence can move around the world and make a more diverse and interesting workplace."

Gilbert concedes that while young lawyers would "at first glance" find joining a global firm an attractive proposition, the opportunity to have secondments with alliance firms, such as King & Wood in China, and the chance to do meaningful work, would be the major selling points with their recruitment campaigns.

Milliner and Bell express similar sentiments.

In the short term at least, clients and lawyers will certainly benefit from the greater options the arrival of global firms bring.