In a recent article in Legal Week I questioned the strategies of US law firms seeking to enter the London market. UK firms likewise need to look hard at their approach to the rest of Europe if they are to avoid very costly mistakes.
We hear every week of yet another UK law firm, outside of the ‘magic circle’ firms, which has consummated yet another merger/alliance with a law firm somewhere in Europe.
Why are so many firms running around Europe intent on constructing networks, alliances or associations and how firm are the foundations of these edifices?
The strategic rationale for a UK law firm to expand into other European countries has to be to gain competitive advantage by being able to better service its clients in those countries and add value to the clients. By ‘value’ in this context I mean value which the clients perceive as valuable, not what the law firm thinks is valuable, which may not necessarily be the same thing at all.
However, gaining competitive advantage in this way can only be relevant to those firms which have a sufficiently strong domestic client base which needs servicing in other countries on a regular basis. That is why I would exclude the magic circle firms and perhaps a handful of others from the comments I make here. They do have the very strong client bases made up of the highest quality clients, who on a daily basis are doing business on a Europe-wide basis and increasingly on a more global scale. I would mirror these comments with regard to a handful of US firms who have successfully followed their clients around the world.
But what about the rest? Do any of the other firms which are forging alliances around Europe really have the domestic client base to justify the effort and cost?
The starting point for any firm thinking of going into Europe must be for it to examine its client base and to find out whether any of its clients have the regular need of legal services in other countries. Only that analysis of the clients and the extent of their overseas needs will show the firm whether it is worth making a foray into Europe. UK firms need to analyse very carefully what work they have referred abroad, how regular that work has been and to which countries it has been sent.
Reviewing overseas strategy
Speaking to clients on the basis that a firm is reviewing its international strategy and would like to know where they are actively doing business is a good starting point. It is an opportunity to talk to clients about their business, to be seen to be taking an interest in them and seeking additional ways to help them. It is good client relationship management as well as a way to help firms establish if there really is a client-driven need for the firm to internationalise.
At the same time, within the firm steps should be taken to ascertain what work has been referred out and what work has been referred to the firm from abroad, as a means of establishing a strategy and priorities.
This process will not necessarily be easy because even though accounting records may help, ultimately it will be for the partners to provide the information and that will be easier said than done in many firms. How many firms have ever carried out such an analysis?
Without that client-driven regular overseas work to fuel European expansion, any branch office or alliance with a foreign law firm is likely to ultimately shrivel and die, as so many have done in the past.
Experience has shown that most lawyers in other European countries when approached by a UK firm will ask ‘how much work will you send us?’ because an exclusive arrangement is likely to cut off other UK sources of work to them. After a few years of very little referred work, the parties go their separate ways.
So why are so many UK firms, that do not have the client bases to justify overseas expansion, doing it? How do law firm managements persuade their partners to expand overseas, given the lack of a client driven need to do so?
It is always possible to put up arguments to justify any actions, but that is not the same as saying the proposed course of action is a good one which has a reasonable prospect of success.
