Challenge for national firms as foreign players move in THE arrival in this country of Clifford Chance, like the earlier arrival of Allen & Overy, shows that developments in the marketplace are leaving some law firms -- and policymakers -- behind. Even before CC officially opens its doors, it is clear that the biggest challenge facing the legal profession is globalisation. CC and A&O are in Australia because they believe this country is one of the world's greatest winners from globalisation. That is mainly due to good luck, rather than good management. We occupy a continent that is blessed with phenomenal mineral wealth that is keenly sought by the rapidly growing economies in our neighbourhood. These global firms are wedded to very similar strategies: they seek to grab a share of the legal work associated with cross-border transactions. And they believe their business model is more likely to be attuned to the demands of the global marketplace than the model used by the big national firms that dominate this country's market for legal services. CC is so confident about its business model that it plans to compete on service, not price. These big global firms look like they are on a winner. The proportion of commercial transactions that have an international element has been steadily growing. And with Europe and North America afflicted by relatively sluggish economies, it makes sense to seek greater exposure to the more dynamic markets of this part of the world. They are gambling that corporate clients will see benefits in dealing with law firms that have strong global networks. There is nothing new in this. Leading Australian firms such as Allens Arthur Robinson and Mallesons Stephen Jaques saw globalisation coming and have been building offshore practices to capture more of this work. Those who read these pages closely would have noticed that just last week, managing partner Michael Rose described Allens Arthur Robinson -- an institution in Sydney and Melbourne -- as an international law firm. But just as the need for an international focus is becoming clear, the governments of South Australia and Western Australia have shown themselves to be blind to the demands of the new area. They cannot even agree on the need for a national approach to regulation of the profession. In South Australia, which has been bypassed by most national firms, such an approach is regrettable but it is understandable. But in booming WA, the benefits of global trade are impossible to ignore. Yet unless the state government changes its mind, the benefits of streamlined, national regulation for lawyers will disappear as soon as national and international law firms set foot in the state. A&O and CC have taken a big punt on WA. For a state government that prides itself on being aligned to the needs of business, the least it can do is reciprocate by cutting the red-tape burden. For the big national firms, WA is shaping up as the battleground state -- where the marketplace will decide which business model provides the best service to the resources sector. CC and A&O have effectively jumped the natural barrier to entry by staffing their Perth offices with some of the biggest names in the WA profession. By deciding to restrict the focus of its Australian practice to those areas where it has an edge, CC will be leaving large areas of legal work to the domestic firms. But this is hardly something that the national firms should celebrate. Unless the national firms take the fight up to CC and A&O, they will be ceding the best and most lucrative work. In the end, clients will benefit enormously from the arrival of these firms -- even if they have nothing to do with them. National firms will improve their service. The push to establish offshore networks may well accelerate. Lawyers will also benefit. There will be more demand for expertise and young lawyers will gain better career paths. If CC and A&O are able to succeed in Australia, how long will it be before other big firms follow? There are two more magic circle firms -- Linklaters and Freshfields -- that have the global reach to offer Australian clients many of the same benefits. The challenge facing the big national firms -- with their huge staff numbers and high fixed costs -- is to find a way to compete with much larger firms that, in Australia at least, look like enjoying much healthier margins.