For years, law firms in Australia and New Zealand have watched as their youngest and most gifted lawyers disappeared overseas, lured by the bright lights, big money and experience on offer.Now, as the forces of globalisation take hold, firms down under are watching carefully as some of their key commercial clients seem to be going the same way.For New Zealand-based companies, the draw is into the larger Australian market.

In turn, Australian companies are being taken over or moving offshore, and the decision-makers and work-givers are going with them.Peter Hay, chief executive officer at Australian firm Freehills, says the effect of globalisation on traditional domestic businesses is already being felt.

'There are an increasing number of deals, previously done by Australian firms, where foreign firms now have larger roles,' he says.David Fagan, chief executive partner of Australian firm Clayton Utz, insists it is an 'exaggeration to say that everything is moving to New York and London'.But he voices concern for firms that are dependent on a small number of clients finding new work if those clients move offshore.While all the big Australasian practices jostle for position in the international market, most are dismissive about mega-mergers with overseas firms.

For the time being, they say, they are happy to remain 'friends' with the major UK and US players.In September, Australian firm Allens Arthur Robinson took a step further than most and became 'best friends' with City firm Slaughter and May.

The two firms say they will work together in the Asia-Pacific region and take part in joint tenders for work.On the domestic front, those in Australian firms report that their near neighbour is losing the war of independence.

One Australian senior partner even went so far as to say that lawyers were less likely to return or stay working in New Zealand because of a feeling that it was becoming a branch office economy of Australia.Phil Clark, national managing partner of Australian firm Minter Ellison, agrees and say s that 'despite the rhetoric', Australia and New Zealand have become one market.

'So far as clients are concerned, we share many issues.

For example, we both face the challenge that the top end of town is moving offshore.

That process is accelerating in Australia, and we can learn from New Zealand, from where many businesses have already left.'But Rupert Wilson, national partner at New Zealand-based Chapman Tripp Sheffield Young, rejects the suggestion that New Zealand is a branch of the Australian economy.'There are two markets and they are reasonably distinct.

We are leading here and they there.

If the concept that we are a branch office was right, I think there would have been more link-ups between the large firms, and we haven't seen that happen.'So far only two New Zealand firms, Rudd Watts & Stone and Brookfields, have entered into formal alliances with Australian firms, Minter Ellison and Hunt & Hunt respectively.

Phillips Fox has offices in both countries, as do a number of the big accountancy firms.Ian Wilson, chief executive of Bell Gully in New Zealand, says he is surprised that there has been so little pressure from clients looking for a seamless trans-Tasman service.

'I am sure we are all dealing with the same clients, and they drive things.

We are not looking for mergers for the sake of it; if there was sufficient pressure from clients, we would look at it, but we haven't seen that pressure.'Partners at Australia-based practices cite the same lack of client pressure when talking about the possibility of a US or UK mega-merger with an Australian firm -- at least for the foreseeable future.Mr Hay says the general view is that the major London and New York firms will show an interest in the Australian market at some point.

But the thought of a UK or US giant merging with an Australian firm, and 'the entity becoming more powerful in the Australian market sounds a bit improbable', he says.

Earlier this year, Kennedys became the first UK firm to open an office in New Zealand; none has a formal presence in Australia.So, while trans-Tasman or other international mergers might not be on the cards, the smaller, more concentrated markets of Australia and New Zealand may offer UK firms a few interesting glimpses of the future.

The divide between the big firms and those in the second-tier is widening.

Now, the main players are waiting to see which of their own number will be the first to start slipping down the ranks.Rupert Wilson says the leading three or four firms in New Zealand are already doing 'more interesting, complex finance and corporate work'.

The others, he says, are becoming 'more domestic' and 'coming under pressure in terms of range of work areas, the clients they are servicing, and the solicitors and partners they are attracting'.Tony D'Aloisio, chief executive of Australia's Mallesons Stephen Jaques, also says he expects to see further rationalisation of the market and some reduction in the number of firms among the big players.

'If that rationalisation continues, I expect we will see some of the partners in those firms affected, and I expect to see boutique firms emerge, particularly in Sydney and Melbourne,' he says.However, what may prove to be the trump card for New Zealand and Australian firms is their geographical position and their relatively cheap charge-out rates when international exchange rates are taken into account.Mr Clark says Minters' positioning across the Tasman -- since its link-up with Rudd Watts & Stone -- and in Asia, has led to a growth in referral work from UK and US firm s.

'We are well positioned in Asia, Australia and New Zealand.

We can offer the same quality of work to UK and US firms wanting a firm to do work over here, but it is at a fraction of the cost without being a threat to their client base.'Ian Wilson points out there are already signals that more overseas firms will be looking to use their friends down under to do work in Asia because of proximity and cost.

Overseas firms would be able to use local firms' lower cost base to win work, or to keep their own costs down when tendering for work, because they could use a blended rate, he says.An unseen advantage to that arrangement could be an increase in international work being done in Australia and New Zealand, which Mr Wilson suggests might encourage more young lawyers to stay, or to return from overseas.Mr Clark is outspoken in favour of lawyers heading overseas, though this is a perennial problem for firms in both countries.

'Everyone thinks it is terrible when good, young lawyers go to [top Wall Street firm] Skadden Arps Slate Meagher & Flom or Clifford Chance and become partners.

I don't.

If that person sends work to us, that works for us.

That is why we encourage and support them.'Though the recent terrorist attacks in the US and an economic downturn worldwide may halt the brain drain of young lawyers for a while, most firms have a philosophical attitude to the problem.Mr Hay says his firm also assists people to go overseas, because they gain valuable international experience, though he says the value to the firm is when the lawyers return.While all firms see the benefit in their lawyers getting overseas experience, someone needs to stay at home and do the work.

This year, Russell McVeagh -- known in New Zealand as 'The Firm' -- Bell Gully and Chapman Tripp all took the bull by the horns and put financial incentive packages in place for third and fourth-year lawyers to try and keep them.

Rupert Wilson points out that about 80% of the relevant group at his firm has signed up.But for those UK lawyers interested in going the other way, they are still likely to find a land of opportunity where it is easier to make a mark and get noticed.Mr D'Aloisio says the opportunities are significant for those with the right skill-set.

'If someone has a skill-set of UK or US law, they will be in demand at the majority of Australian firms, particularly when we are looking at staffing overseas work.'After a stint in London, Ian Wilson says, even though the work in New Zealand might not have the same number of zeros on the end, it is just as fascinating and complex.On a personal level, Mr Wilson says he just has to compare the ten-minute drive into Auckland from the suburbs, 'which is delightful', with an half-hour or hour commute on public transport in bad weather to know where he would rather be.

'There is an issue of lifestyle, and for some people that is important,' he says.