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South Africa has been hit by a flood of global law firms seeking lucrative new markets. In 2014 alone, Allen & Overy, Clyde & Co, and Dentons—firms that have a combined global revenue of $4.8 billion—opened offices in South Africa. In 2016, Herbert Smith Freehills and DLA Piper both entered the market, hiring big-name partners from local firms. And this year, Pinsent Masons, a global firm based in the U.K., plans to open its first African office in South Africa.

The legal market in South Africa, once made up of a small group of domestic firms isolated by apartheid, has been transformed into a legal hub, serving as a base for global firms seeking to counsel clients throughout Africa. But as these global firms continue to set up shop in Johannesburg, the well-established domestic firms are adapting so that they, too, can compete for the increasing international business and investment flowing across the continent.

The first wave

During the apartheid era, South Africa was cut off from the wider international business community. In its closed market, a handful of local law firms dominated the field. Once apartheid ended in 1994, those firms underwent unprecedented growth as South Africa began reintegrating into the wider global economy.

Today, the leading six local firms that dominate the South African market are Bowmans; Cliffe Dekker Hofmeyr; ENS­africa; Webber Wentzel; Werksmans; and the South African arm of Norton Rose Fulbright. “From the sixth firm to the seventh, there is a seismic drop in the number of lawyers,” says David Hertz, chairman of Werksmans.

The postapartheid opening of the South African economy brought risk as well as reward for the big domestic players. The firms began to do more work in other African nations. But they also started to face competition from international rivals, who were casting a covetous eye at South Africa, the continent’s largest economy.

“Here we were in South Africa all happily operating, and there was then a change,” Hertz says. “Maybe we reached, as Malcolm Gladwell said, a tipping point. I don’t know why it happened, but the reality is that international law firms started to express an interest.”

Those looking at the market early on included White & Case, which opened an office in South Africa in 1995, and the now defunct Dewey & LeBoeuf , which opened in the country in 2000. But the biggest change came with the advent of tie-ups between South Africa’s big players and leading international firms. Cliffe Dekker Hofmeyr signed an alliance with global giant DLA Piper in 2005; Deneys Reitz joined legacy Norton Rose in a verein in 2011; and Webber Wentzel signed an exclusive alliance with U.K. Magic Circle firm Linklaters in 2013.

The alliances ultimately forced the larger domestic firms to do some soul-searching. “South African firms had to decide whether they wanted to be South African, African or global,” says Donald Dinnie, who was with Deneys Reitz when it joined with Norton Rose and is now managing director of Norton Rose Fulbright South Africa. “We decided that we wanted to be a leading global firm.”

Second Wave

More recently, the international firms targeting South Africa’s market have chosen a different model: Rather than form alliances, they have opened their own fully financially integrated offices. In 2012, Baker & McKenzie, which had already been doing work in Africa for years, opened an office in Johannesburg after absorbing litigation boutique Rudolph Bernstein & Associates and the 31-lawyer Johannesburg practice of Dewey & LeBoeuf shortly after that firm went bankrupt.

Brigette Baillie of Herbert Smith

In 2014, Allen & Overy launched a finance-focused South Africa office. “For any of the London firms that take South Africa seriously, [Allen & Overy's] entry into the market must have been quite a shock,” says Brigette Baillie, a partner at Herbert Smith Freehills in South Africa. To get off the ground, the firm poached a team from the prominent local firm Bowmans, stealing its star banking partner, Lionel Shawe. It then rounded out this team by sending in partners from its international network, including former head of banking Michael Duncan.

“Our philosophy in coming down here is that we want to have a true A&O offering,” says Allen & Overy finance partner Kathleen Wong, who relocated from London to Johannesburg. “It’s not about just recruiting a team locally and putting a badge on them. We are very committed to making it a true A&O office and a true A&O experience.”

Clydes, Herbert Smith Freehills and Pinsents have all taken similar approaches. DLA Piper, which ended its alliance with Cliffe Dekker Hofmeyr in 2015, has also followed this path. They all hired big-name partners from local firms, went for full financial integration with the wider partnership and focused on a handful of high-value areas.

Integration vs. alliance

Attorneys at firms following the financially integrated model say that this approach allows a firm to work seamlessly across its entire Africa practice, with no risk of different offices competing for the same work. Such competition can make an alliance difficult. When Cliffe Dekker Hofmeyr and DLA Piper terminated their alliance, one of the issues cited by partners was competition between the two firms for the same assignments.

“Because we are financially integrated, it’s in the firm’s interest for us to be financially successful,” says Johannes Gouws, DLA Piper’s South Africa head. “It’s a completely different scenario compared to a firm which isn’t financially integrated.”

Michael Watson, Pinsent Masons’ head of finance and projects, says that his firm’s new Johannesburg office will be fully integrated into the wider partnership and will be an “equal stakeholder” in its broader Africa practice when it opens this year. “The challenge with joint ventures, franchise models or vereins is that you have single office profit centers,” he says. “So people focus on delivering profitability for one office or team.”

Not everyone agrees that the financially integrated approach is best. Andrew Jones, the head of Linklaters Africa, says that his firm’s alliance with Webber Wentzel delivers advantages that smaller offices can’t match. Any potential disadvantages, he adds, can be mitigated with careful management.

“The main advantage is the full-service angle,” he says. “If some of our competitors see their futures as being finance-driven firms, I can see that that model could suit them well. But the full-service thing is really important to us and our work and client profile on the continent.”

In addition, Jones says that an alliance insulates a firm from all sorts of issues that could arise, such as the foreign exchange volatility of the Rand and the different economic models for operating law firms. “Our model allows us to sidestep some of those integration issues and focus on client delivery,” he says.

For Webber Wentzel, the alliance with Linklaters has proved to be a huge advantage, according to co-managing partner Sally Hutton. For one thing, it allows the two firms to mix and match their respective expertise and locations for the benefit of clients. “If you don’t have an international alliance partner, you just don’t have access to that sort of global know-how,” she says.

The Independents

For the domestic firms that have chosen to remain independent, the entry of global competitors in any form has had a fundamental impact,” says Alan Keep, managing partner of Bowmans. Having overseas firms as competitors “has definitely sharpened us up,” he says, adding that Bowmans has pulled out of lower-margin areas such as residential property and commoditized employment work in order to boost its profitability.

ENSafrica chair Michael Katz says that independent domestic firms like his are attractive to clients, and they remain competitive. They also have key advantages, he adds, citing their extensive South Africa experience, lower fee scales and broad African network.

But international firms, with their generous pay scales, have been able to lure top partners away from South African firms, making retention of talent a challenge even at firms with global alliances. Recent high-profile defections include Webber Wentzel corporate partners Johannes Gouws and Peter Bradshaw, who both joined DLA Piper in 2016, and mining partner Peter Leon and projects partner Brigette Baillie, who joined Herbert Smith in late 2015. All four are highly respected in the market.

Webber Wentzel management downplays the importance of the moves. “There has been little impact because of the strength and the size of the firm,” says Hutton. “Our revenue is actually up 11 percent year-on-year.”

Nevertheless, defections are having an impact on the overall market. Bowman’s Keep says that the retention of partners is now a key focus for his firm. “We have to look after our top performers,” he says. “We need to make sure they understand what the firm stands for, that we are generating the type of profitability that will keep them happy and also be known in the market as a good place, so that people looking into the unknown at a new market entrant will understand that they have got something to lose.”

For most of these firms, South Africa is only the beginning. The global firms that are moving in and the established players are all betting on the wider Africa legal market for growth.

Herbert Smith Freehills has posted projects partner Bertrand Montembault from its Paris office and English law-qualified finance partner Edward Baring to its new Johannesburg office so that it can effectively cover both Anglophone and Francophone Africa. Similarly, Allen & Overy is planning to send two Portuguese-speaking asso­ciates from Dubai to Johannesburg to increase its capabilities in Lusophone Africa. By increasing the amount of non-South African work done from Johannesburg, law firms say that they can earn hard currency rather than rely on the softer South African rand.

Otsilie Matlou of Ensafrica

But the expansion isn’t likely to end in South Africa. Local and international firms are looking to establish physical networks of offices throughout the continent, often using South Africa as a jumping-off point. “Everyone wants a piece of the action,” says ENSafrica’s chief operating officer, Otsile Matlou. “Most of the legal sector is looking at Africa as the next frontier.”

Both Bowmans and ENSafrica have opened several fully integrated offices elsewhere in Africa, and both have further ambitions.

ENSafrica is aiming to become the first major non-Nigerian law firm to open an office in Nigeria, with plans to launch there this year. Matlou says that Nigeria is “at the heart” of the firm’s strategy. The firm is also in discussions to establish an office in Kenya, he says.

Bowmans, meanwhile, is targeting Nigeria and Tanzania. Norton Rose Fulbright is focsing on East Africa. Other global firms are also looking at the wider African map, with Clyde & Co, Baker & McKenzie and DLA Piper considering further office launches in Africa.

Will the influx of international firms to South Africa continue?

“You saw the flood last year, and no doubt others will still look,” says Norton Rose’s Dinnie.

Pinsent Mason’s Watson says that his firm decided to open an office in South Africa this year in part because of moves being made by others. “It is a defensive and offensive play, as clients from all four corners of the organization were doing more work in Africa,” he says. “We needed to make sure we had a response for them in Africa.”

Wildu du Plessis, head of Baker & McKenzie’s South Africa finance practice, is certain that even more global firms will move in. “As the big emerging market that is Africa starts attracting more investment,” he says, “you will see more and more professional services providers, lawyers included, come under pressure to render their services in Africa.”

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