The U.K.'s top law firms are "reaping the rewards" of investing in their international offices as they respond to the challenges posed by Brexit, according to new research from PwC.

PwC's law firms' survey 2019 has found that firms that have established and invested in their international offices are excelling as revenues and profit growth in their bases overseas start to exceed that of their U.K. headquarters.

Collectively, the top ten law firms – which PwC defines as U.K.-headquartered firms with international revenues exceeding 20% of total revenue – sourced 74% of their fee income growth and 85% of their profit growth from international offices, with bases in western Europe  (excluding U.K.) generating approximately half of all fee income growth.

The report details that, among the top 10 firms, international offices grew profit "by 9.5% before accounting for exchange rate movements" in the past year. Moreover, the Big Four accounting giant expects larger firms to continue investing in international markets as they arm themselves against possible Brexit fallout.

Twenty percent of the top 10 and 61% of top 11-25 firms view Brexit as the most significant challenge facing the legal profession, contrasting with last year's survey, which found that none among the top 25 reported the U.K.'s withdrawal from the EU as a significant challenge.

Nevertheless, as an increasing number of mid-tier U.K. law firms view Brexit as a major obstacle to hitting financial performance targets, most among the top 10 believe technological change is the primary challenge to growth.

Despite these concerns, PwC found that 89% of the top 100 law firms achieved growth in 2019 – up 5% on 2018.

Resilience

PwC's law firms advisory group suggests that, in order to remain resilient in the run-up to Brexit, firms should consider whether their EU offices will require a change in structure, whether they can react quickly to the conclusion of the Brexit negotiations, and whether they are ready to respond to opportunities that Brexit will bring.

Kate Wolstenholme, leader of PwC's law firms advisory group and editor of the survey report, said in a statement: "Firms in the top 25 are battling an ongoing erosion in margin, but this is in part due to strategic investment as opposed to increasing staff costs, which have hit margin in recent years.

"Although this is undoubtedly a drag at the moment, investing in system updates and innovation will enable firms to grow a more sustainable business in the long term and build market share."

Other findings

The survey also found that, among the top 10, minority representation at partner level stands at 7%, with just under one fifth of top 10 and top 11-25 firms having black, Asian or Middle Eastern partner representation targets in place. The authors of the report advise firms to base targets on "realistic internal expectations of what success in this area would look like".

Meanwhile, during the last seven years, female representation at partner level has risen steadily among the top 10 – up nearly 5% to 20.4%.

However, top 11-25 firms have seen a decline in female partner numbers, from 19.3% in 2018 to just over 18%.