Coming up from down under

AT least some people at Clifford Chance are now admitting that the firm'splans for global domination will not extend down under just

yet. Theplanned merger with Mallesons Stephen Jaques may be off but other UK firmsare

eyeing up the Australian market with great interest (see news, frontpage).But it is not

all one-way traffic. Australian firms too are showing aninterest in the rest of the

world. During the 1990s, firms in Australiahave merged and formed cross-state alliances.

This has meant that themarket now has several large commercial firms, some with nearly

200partners (see box).Having weathered the accountancy firms launching their own

legalpractices, many firms are looking to establish an international presence asthe next

step in expanding their practices.Robert Henley has been a partner at Minter Ellison's

London office for twoyears. He says international expansion is essential if Australian

firms areto grow and ward off threats from western firms.”There are two reasons,” he

explains. “One is positive – things arebecoming more global. Our Australian clients are

moving around the world,so it is no longer seen as enough to have the ability to act for

a clientsolely in its home jurisdiction.”The negative reason is that the UK and US law

firms are becoming moreinternational and we want to make sure we defend our primary

practice areas- Australia and the Asia-Pacific rim. We want to make sure they do

notstart taking our clients.”But Jeremy Kriewaldt, London resident partner at Blake

Dawson Waldron,believes Australian firms practising on their home turf are ideally

placedto provide a unique service and should not lose sight of this in the raceto become

an international player.He says: “If [in Australia] a client does not chose an

Australian lawfirm, then it has got to have a very, very strong reason. The big

Londonand New York firms make money by providing quality in places where thatquality

doesn't exist but that's not the case in Melbourne and Sydney.”We cannot compete in

terms of deals that are done and we do not try to.Like the accountancy firms setting up

and competing, we shouldn't be afraidto compete. If they want to compete on price,

quality and client service,then the only way to beat them is on price, quality and

client service.”Sue-Ella Prodonovisch, national marketing manager for Baker &

McKenzie(Australia), is based in the firm's Sydney office, although the firm alsohas a

smaller office in Melbourne.Baker & McKenzie is the only major global law firm to have

a presence downunder and Prodonovisch believes more firms will have to follow its

globallead if they are to continue developing.She comments: “The next option for growth

or change is taking the horns ofglobalisation rather than cannibalising their own

market.”Some firms have taken different strategies, opening offices in Vietnamand China

and so on with varying degrees of success. Mergers could be a wayin and maybe they could

grow and develop and become the stronger partner inthat merger.”Prodonovisch says firms

have been preparing to move into a moreinternational arena for some time.”We do have

firms that are changing from a state federation/franchisearrangement and are going

towards a partnership structure. It comes down tohow big the market is here in Sydney.

We have a country that is prettyvast, but has an economic concentration in small,

specific areas.”A lot of states do have their own industries, such as Perth and

mining,but the law firms are mainly servicing the big international clients, soneed a

partnership structure that is a bit more robust. We have seen thisover the last five

years, but mainly over the last three years,” she says.Kriewaldt believes that

recruiting suitable lawyers to power thisexpansion is not a problem.”This is the best

place in the world to live – cheap, great life-style andinteresting work,” he says. “It

is a fully functioning western society andthe cost of living is far less. We recruit a

large number of UK lawyers.”But economic turmoil has cast a shadow over the sunny

Australian climate.The Asian crisis hit most people hard, and not only those operating

withinthe Pacific rim. And while most believe the Australian economy is pickingup, as

Henley points out: “The Asian downturn has obviously made people abit wary.”Australian

firms are faced with developing a strategy to protect their ownmarket but also open up

opportunities abroad. The biggest problem facingAustralian firms after this round of

national mergers is what to do next.Kriewaldt admits that, the Mallesons talks aside,

few people have startedtaking steps to ensure growth.He comments: “There are lots of

rumours but very little is happening. TheAustralian market, even when buoyant, is of

limited size and offers limitedscope for further expansion, so the large firms are all

looking for ways tooffer good job prospects and careers.”If you are one of the major

Australian law firms, you have to look atways of expanding your practice and one way

would be a greaterinternational presence. It is a live issue for the top six or seven

firms.How else do you keep growing?”Prodonovisch agrees: “Everyone's strategy is growth

or else you die. Overthe last few years we have been growing at a rate of 20 per cent

per year,so where do we go now in a market that is maturing and near saturation?”There

are many options open to firms wanting to expand their internationalpresence, ranging

from opening overseas offices to strategic alliances andfull-blown mergers.The

Mallesons/Clifford Chance proposed merger talks had, since theystarted at the beginning

of the year, faced several stumbling blocks,mainly regarding the structure of the new

firm.Stuart Popham, global head of banking, tells The Lawyer the talks haveended

“because we cannot agree on structure”.Speculation is also rife that Clifford Chance was

only interested inMallesons' banking division. The reputation of the banking division

makesthe firm a prime target for merger but firms are not as keen to take onother

divisions. If this is true of Clifford Chance, it may well be true ofother UK firms

eying possible partners.It is clearly in Mallesons' interests to keep speculation about

approachesfrom big UK (and now UK-US) firms live. It is also good for Clifford Chanceto

be seen to be aggressively targeting the market. But with Australianbusiness having

consolidated and with firms looking for the nextopportunity, the pair's rivals may be

happy to step into the breach if the merger is well and truly off.