The international offices of the top 10 global law firms contributed more to revenue and profit growth than their U.K. operations for the first time last year, according to PwC’s latest annual law firm survey.
PwC’s research, which is based on a survey of the U.K.’s 100 largest law firms, found that during 2017-18, the top 10′s international offices accounted for an average of 83 percent of total global fee income growth, compared to 50 percent in 2017.
Offices in western Europe provided 57 percent of this growth, while Chinese offices accounted for 12 percent.
“The bigger firms have for a long time been investing in their international reach, and they have a more established geographical footprint, and they’re now starting to reap the return on those investments, both in Europe, but also in China. The larger firms have been investing in their Chinese practices for a while and now have significant presences in Hong Kong, as well as in Beijing and Shanghai,” said PwC partner David Snell, who leads the advisory group. “But in the mid-tier, international work is less developed and so they tend to have a less developed footprint.”
Among firms in the 11-25 bracket, growth was more evenly spread, with U.K. offices responsible for 55 percent and international offices 45 percent.
Among the U.K.’s top firms, mergers continue to figure high on the list of priorities, with 40 percent of the top 10 and 27 percent in the 11-25 bracket saying they would consider a combination to help deliver profit growth.
According to the report, what type of merger each firm seeks depends chiefly on firm size, with the top 10 by and large more interested in an international merger—with the U.S. marked as a key target market—whereas mid-tier firms “are focused on smaller U.K. mergers.”
“We’ve said for some time consolidation in the sector is likely because there are a lot of law firms and limited demand for provision of services,” Snell said. “And we will continue to see this, both U.K.-to-U.K. and U.K.-to-international.”
The research also shows that, among the respondents, technology and Brexit are the most significant challenges facing the legal profession from now until 2020, with all top 10 respondents regarding technology as the bigger challenge of the two.
“So far the market has held up pretty well, and we’ve seen a good year,” Snell said. “But is there less optimism about 2019? Yes. And rightly so.”
“But if you think about it, looking at top 10 growth, it’s broadly international, and so they’re agile enough to adapt. So future-proofing and tech investment have been the bigger concerns,” Snell continued. “But for smaller firms, it’s about Brexit because they’re less diversified.”
The report also found more evidence of law firms moving away from the traditional lockstep model toward more performance-oriented models, as firms look to “incentivize the right behaviors.”