Do You Need an International Footprint?

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By Giles Rubens and Lisa Smith

Thinking about international strategy is no longer the preserve of a small minority of firms. More than 200 law firms now have international offices, including 119 of the largest US firms (as reported by the National Law Journal). The approaches adopted by these firms vary dramatically. The most global have 20-40 overseas offices and 75+  percent of their lawyers working outside their home jurisdiction. Others have just a single international office staffed by a handful of lawyers. Over the last 20 years, we have seen a massive increase in the number of international offices and lawyers in those offices: In 1992 the US firms with international offices had 273 international offices with around 4,000 lawyers practicing in them—today those firms have 766 offices with more than 20,000 lawyers in residence.

Firms with a successful international strategy find that their international offices help service existing clients more effectively and/or win new clients and work that otherwise they could not attract. Whether Americans in Paris or Norwegians in Shanghai, firms have recognised that an international presence can be a powerful source of interesting and rewarding work and clients.

While some observers are skeptical about the need for, and viability of, some of these international players, there is no question that leading corporations and banks continue to build their businesses around the world. In parallel, the global economic balance of countries is shifting and will continue to shift, with the expectation that emerging market economies will overtake many western market economies over the next several decades. This dynamic creates a demand for law firms with international capabilities, and a need for some firms to think beyond their historic geographic boundaries.

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Changing Purchasing

Both in our work with law firms and in talking to their clients, we see a shift in buying patterns when clients have legal matters with an international dimension. In the past, clients, particularly those with episodic rather than regular international needs, would go to their established outside counsel with international matters. If the firm did not have capabilities in the right places, they would rely on a ‘best friends’ relationship, or membership in a network, or referral relationships, to get the work done. Because most competitor firms had similarly limited international capabilities, clients did not base their buying decision on differences in the geographic footprint of firms and tended to focus instead on historic relationships. But, with the emergence of increasing numbers of firms with multi-jurisdictional reach, clients are increasingly choosing firms with an international footprint rather than relying on their domestic counsel when their work has an international dimension.

Remaining Domestic

Of course, many firms have few clients with international legal requirements. For these firms, to the extent they have an international strategy, it is essentially focused on attracting clients and work from overseas. Such primarily domestic firms may be able to continue to compete for and undertake the periodic international work that comes to them through best friends, networks and referral relationships. But as true international firms become more entrenched and more integrated, the proportion of work with an international dimension that goes to the primarily domestic firms with ‘best friends’ compared to that going to the international firms will inevitability decline.

Despite many domestic firms likely wishing otherwise—and particularly if demand in their own market is stagnant or in decline and they are looking for emerging markets to offset this – they should in our judgment expect and plan for a decline rather than increase in the level of international work. A few domestic firms will be able to avert this, and by being prepared to invest significantly, take advantage of the opportunities that will continue to exist. For most firms, this will not be the case, and they will be better off focusing on strengthening their domestic platform rather than getting distracted with expensive international investments.

Client-Driven Strategies

For those firms actively pursuing a strategy that anticipates an international footprint, client needs must be at the heart of their strategy. The days of opening an international office in the hopes that clients would follow are behind us. To be successful, firms must have a clear sense of purpose, and need to define their ambitions and plans in each jurisdiction in terms of:

  • the clients, and their specific needs, the firm is seeking to serve in each jurisdiction;
  • the role of each office in supporting the whole firm’s strategy;
  • the balance of each office’s priorities between selling, managing, and undertaking legal work;
  • the size and mix of professional capabilities, both domestic and foreign,  required in each office;
  • the structure and governance of each office and the approach to connecting its clients, practices and people to the wider firm; and,
  • the financial performance of each office given the economics of the market in which it operates, and the investment the firm intends to make in its establishment and operation.

Too often firms have launched into new, and expensive, markets without this clear sense of purpose, and the result is either a significant investment with no real return, a need to completely rethink the strategy, or an eventual shut-down of the office.

Client Expectations

A sophisticated understanding of clients’ expectations is a t the core of developing and implementing a successful strategy. As the international legal market evolves, these expectations are changing. For many years clients, have segmented their work and selected outside counsel primarily based on the perceived complexity and value of the work. This categorization differentiates work between:

  • crucial/bet-the-company (matters might include major M&A or business-critical litigation);
  • integral/operational (typically the bulk of a company’s legal work, from contracts to routine transactions, to most litigation matters);
  • efficient/routine (sometimes referred to as commodity work and generally the most price sensitive).

This categorization applies to both domestic and international work. For international work, however, a second dimension comes into play. This second dimension concerns the geographic demands of the work and differentiates between:

  • local, single jurisdictional (the matter is confined to a single jurisdiction, such as a local real estate transaction);
  • multi-local (when similar matters occur in a number of jurisdictions and a client desires to undertake the work in a similar way or achieve similar outcomes in multiple jurisdictions but there is not necessarily a cross-border element, such as supplier contracts, much IP work, etc.);
  • multi-jurisdictional (a single matter occurring across multiple jurisdictions and where the legal framework of more than one jurisdiction applies, such as a cross-border transaction)

This creates a matrix of work types, with very differing client expectations and outside counsel selection criteria in each cell.

A Matrix of Work Types

This matrix can guide firms on the capabilities they need to build, depending on where they seek to compete in terms of:

  • office locations required;
  • approach to management, internal organisation and operations;
  • level of consistency required between offices;
  • role of client partners and client management;
  • approach to service delivery;
  • breadth and depth of professional capabilities required in each office;
  • required reputation, credibility and market profile

For example for multi-jurisdictional crucial work, client expectations are extraordinarily demanding, and the premier global firms are likely to be short-listed for consideration, as has been true for some time—some working with their own offices in other jurisdictions, some with independent firms if they don’t have a local office. More competition exists in this segment now from some of the emerging newer generation of international firms. For multi-local operational matters, which in the past might have been undertaken by a series of independent firms in the markets in question, multi-office international firms are increasingly likely to be considered for that work today.

While some firms are highly successful in establishing where they wish to compete in this matrix and building the requisite competitive capabilities, and also adapting as client buying preferences change, other firms are more challenged by this. They either struggle to define where they are seeking to compete, and/or then fail to build the capabilities so as to be regarded as a credible competitor. Alternatively, they do not recognise that the development of strong capabilities by other firms may undermine what was previously a competitive international offering, but may no longer be as compelling.

Relative Competitiveness

Above all, clients need to be convinced how a firm’s international strategy will deliver a better service than they would receive otherwise. Clients with international legal needs will have typically had these needs met in the past by using foreign firms or other international firms with foreign offices. To attract them as clients, they need to understand and be persuaded that the service and capability of the firm challenging for the work will be significantly better than the service they have experienced to date.

The strategy must address this issue of relative competitiveness. ‘We have an office in Brussels’ is unlikely to be sufficiently compelling to persuade a client to use the firm—it may have been once, when no other firms had such a capability, but not today. What is required is a message that explains why a firm’s new Brussels capability can offer the client identified benefits over and above their existing arrangements and the service provided by other firms.

Predictions

Against this backdrop and driven by the development of powerful new economies and on-going globalisation we predict continuing growth in opportunities for international firms. This will stimulate the existence of a multitude of international firms – of all shapes, sizes and strategies—and including both established firms developing further and new competitors.

The major challenge for firms at an early stage in considering their international strategy is that the most advanced firms are developing their competitive capabilities at a considerable pace—not just in terms of presence and the scale of their offices but also in terms of service integration. Against this back drop we believe some of the newer international firms will struggle to develop the capabilities needed to compete effectively across multiple jurisdictions and have limited success in attracting clients who have true international requirements. Ultimately we see a small group of dominant firms emerging in each segment, likely fiercely competitive with one another but not necessarily competitive across other segments.

This will not occur overnight—the winners and losers will take time to emerge not least because of the inherent inertia in the market and a level of understandable caution among sophisticated clients. And, of course, this provides something of a window for firms committed to entering this market.

Conclusions

While international law firms are developing at a rapid pace, the market is still relatively immature, with few players who are truly operating on a global basis. In our view, today’s market offers room for additional international firms. That being said, there is neither room nor need for all law firms to develop broad international platforms. For many firms, the development of international offices is a costly distraction from building a powerful and successful practice at home.

While no single path or answer emerges from this competitive dynamic, firms must recognize that the landscape is changing and the ability to compete effectively for international work is changing with it. If a firm’s international work is episodic and not core to its practice, such changes may not be particularly problematic. If, however, this work is critical to the firm’s key clients, then the strategic implications will be more significant . As the market continues to evolve, firms that operate primarily in a single jurisdiction will find it increasingly difficult to be considered for work with a multi-local or multi-jurisdictional dimension.

About the Authors

Giles Rubens and Lisa Smith are principals at Fairfax Associates, a law firm strategy and management consulting firm.

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