International expansion will always be an attractive option for law firms
International expansion is an attractive proposition for UK law firms looking to boost business volumes.
Entering a foreign market obviously means firms have access to a greater pool of potential clients, while they can also establish their reputation on a global scale if they are successful.
The most recent Law Firms’ Survey by PwC found that global expansion continues to be a strategic priority for firms. Among those in the Top 25, the focus is on Australia, USA and Africa, while this shifts to the Middle East, China and the Rest of Asia and the Far East for the firms ranked 26 to 50.
Moreover, 83 per cent of the Top 25 think a merger is very or fairly likely by 2016, with the possibility of a link-up with a non-UK based firm increasingly being considered.
Differing fortunes
The first quarter of 2014 underlined the differing fortunes facing law firms in the UK, as figures from Deloitte point to the fact that fee income increased by 6.1 per cent year-on-year. However, this was driven largely by merger activity.
This is reinforced by the view of the Royal Bank of Scotland (RBS), which thinks there will be an increase in both domestic and international mergers.
James Tsolakis, head of legal services within UK corporate and institutional banking at RBS, said that the mixture of a “strong international reputation and a highly qualified and professional workforce” is essential for firms considering strategic international expansion.
He points out that as organic growth in the UK legal sector seems to be limited at the moment, overseas expansion represents a “logical development” for ambitious organisations. Indeed, 60 per cent of firms questioned by RBS said they planned to target foreign markets in 2014-15 financial year.
International expansion success
Top law firms have been establishing offices in Europe, the Middle East and parts of Asia over the past few years in an effort to boost their activity in these markets.
As Mr Tsolakis pointed out, firms have also developed strategic alliances or partnerships in countries where more protectionist rules are in place in an effort to get an entry point. An example of this is Linklaters, which launched an exclusive alliance with South African law firm Webber Wentzel last year.
However, success is not guaranteed and so firms need to make sure they are prepared for the challenges associated with international expansion. As part of this, management need to carefully scrutinise any plans for global offices and look at the international legal landscape.
“Opening offices overseas and recruiting personnel is not a quick-fix solution to stave off a lack of growth domestically,” Mr Tsolakis stated.
“It takes long-term commitment – as well as deep financial resources – to establish a presence in an overseas market, particularly in emerging markets where international firms may be barred from providing some services or disadvantaged in bidding against local firms for government-backed projects.”
Whether abroad or at home, firms need to be focusing on delivering on quality, pricing and service if they want to be successful. Failure to do so will leave international expansion plans in tatters.