13 January 2011Print This Post

Looking to 2020: growth of global law firms “is just beginning”, says report

Global trends: changes in population, and increased protectionism and isolationism will change law firms

International law firms face growing threats to their share of the global legal market over the next decade, with likely challenges from Chinese firms, future market crashes and protectionism high on the agenda.

According to a report by legal consultants Jomati, headed by Tony Williams, the former managing partner of Clifford Chance, a range of factors will drive changes to client needs and the legal environment. They include a growing global population, rapid economic development in the BRIC countries (Brazil, Russia, India and China), a surge in IPO work in Asia and a decline in the significance of New York and London as world deal centres.

The accelerating globalisation of business will increase pressure on law firms to follow suit, the report – New Frontiers: Law Firms in 2020 – argues. Firms that think they have already ‘done’ globalisation should realise that “the growth of global law firms is just beginning”.

Jomati expects a surge in the number of multi-billion dollar law firms, up from about 20 currently. The risks to firms of expansion will correspondingly rise, it says, but they have little choice.

“There is no way to ‘dodge the bullet’ on this one. Clients that 10 years ago operated in half a dozen countries are now seeking to operate in dozens of countries. They need legal advice wherever they are,” says Mr Williams. UK and US firms that do not wish to continue expanding face competition, for instance from quality Chinese firms, he adds: “There are plenty of new candidates waiting in the wings… The battle for the global legal market has just begun.”

Risks involved in expansion are significant, especially since the experience of the past decade suggests a market crash is likely in the next 10 years, the report predicts. To deal with unpredictable staffing in a boom-bust environment, firms should consider moving towards variable costs, possibly including developing their own offshoring businesses.

But the report recommends that as US and UK deal centres are increasingly bypassed by new ‘trade routes’ between the emerging economies, global firms will need to have a significant presence overseas to be involved: “Global firms then may become more multi-polar – for example having a Perth office to service Asia which is as large as their Frankfurt or London office.”

The dominance of global law firms in the cross-border transaction market is under threat, warns Jomati, citing more than 20 senior hires of foreign lawyers by Chinese firms during 2010 as an indication of their ambitions. It also highlights the fact that one Chinese firm, Zhonglun W&D, broke new ground when it advised on Chinese and English matters for the UK-based AIM listing of a China-based company, Global Lock Safety.

The world’s population is not just growing but also ageing, the report says. This will have impacts on such things as the pension fund industry, medicine and national infrastructure, along with probable legal and regulatory changes. Within law firms, the retirement of the ‘baby boomer’ generation will also have consequences.

The expected sharp rise in the GDP of the BRIC countries over the next 10 years means “global law firms have no choice but to build up inbound and outbound capability for BRICs and other developing markets”, the report says. But protectionism in legal markets is likely to persist, with China, Brazil and India, along with South Korea, operating bans on offering local legal advice.

On possible long-term trends that could affect global development, the report highlights protectionism, which if not resolved can lead to a national policy of isolationism and even trade wars. A shortage of finance and the resultant uncertainty it brings is another possible future constraint on global economic activity and so legal business. Law firms should attempt to plan for the future based on an assessment of where their clients are heading and where the firm should position itself as a result, it concludes.


By Legal Futures



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