Law firms alter scale of practice
Lawyers are doing what they have always done, now they are doing it everywhere: following the money means going global. Financial giants with cross-border agendas - and deep pockets - need one-stop, multi-jurisdictional legal services. Enter lawyers without frontiers.
Clifford Chance, once a union of two modest London law firms, has become the first - in its own words - to go 'truly global'.
A merger with New York's Rogers & Wells and Germany's Puender, Volhard, Weber & Axster is set to make it the world's largest law firm, with an army of 2,700 lawyers and 30 offices across the globe.
Turnover is anticipated to be in the region of US$1 billion.
It is not alone in its expansion binge. Another of Britain's top five firms, Linklaters, joined forces last summer with smaller counterparts in Europe, while Freshfields last year entered into an alliance with a German firm.
It may be early days but the consensus appears to be 10 to 20 legal giants - British and US-spawned - will dominate the top end of the global market during the next decade.
Clifford Chance has simply followed its clients. One of the main catalysts for the tie-up with Rogers & Wells was the increasing amount of business driven by US investment banks, according to its Asia managing partner John East.
'The amount of business we have been getting in Hong Kong, US-related, has already increased quite significantly in the two weeks since the merger was announced,' he said.
Wider access to the US domestic market - securities, banking, tax, for example - was also a significant attraction. The bottom line, however, has been cross-border capability.
'Everything we see out here is cross-border in a major way,' Mr East said.
'I think it's attractive to these large firms to have a firm that can match that expectation.' Such firms have their eyes on the largest deals. In terms of price, 'the major firms have and are competing very much with each other for the same deals and pricing is affected', Mr East said.
So, it would seem, is the SAR market. In terms of competing for the cream of the crop, firms such as Deacons Graham & James and Johnson Stokes & Master - two of the largest Hong Kong-based practices - will presumably have to consider their global options.
'If, at the end of the day, major multinationals want a globalised law firm with a capability to cover other jurisdictions around the world, then law firms are going to have to respond to this,' said Deacons managing partner Mark Roberts.
Mr Roberts expects to see 15 global players within the next five to 10 years.
'I think this is a trend which is going to escalate rather than diminish,' he said.
In terms of its own expansion plans, Mr Roberts said Deacons was reviewing its strategy. It has a significant Asian presence - the mainland, Vietnam, Singapore, Indonesia and Japan - and two associations, including one with a US firm.
Where the local firms cross over with the international giants - for example, in areas such as litigation - price competition becomes quite fierce.
At the end of the day, however, firms such as Deacons do not necessarily compete in the same areas as the global firms.
This could not be more true for the smaller players.
Herbert Tsoi runs his own practice, complete with five solicitors. Smaller firms hit by the economic downturn in particular have been forced to 'diversify', and more importantly, find a niche.
'We must accept the world is getting much smaller now, things are getting very internationalised, globalised,' Mr Tsoi said.
'There's obviously a market for the mega-sized firms, they will be holding a lot of big clients.' Being small fosters 'the agility to suit the market', he said.
The Hong Kong market, however, has been hit hard recently by the property slump, a sector traditionally responsible for many firms' bread-and-butter work.
Anecdotal evidence points to conveyancing firms desperately wooing clients - in extreme cases offering to charge only for photocopying, or not at all.
The past two years have also seen a diminishing market for initial public offerings, listings, and mergers and acquisitions.
'So we are losing a lot of business,' Mr Tsoi said.
A harsh new economic situation has also spawned what some dub a 'mini-meltdown' in firms' charging policies.
'The times of running client accounts into the ground has gone,' one observer said.
That is good news for those in favour of a more streamlined approach to legal charges. Rest assured, though, they are probably still 20 per cent higher than everywhere else.
At the top end, competition is going to be tough. While the small and medium-sized players contemplate their economies of scale, the giants are going to hog the world stage.
They may even consider a multi-disciplinary approach as the next step: merging with accountancy firms. For now, however, giants such as Clifford Chance are snubbing the idea.
'We have taken the view it's something we're not interested in following,' Mr East said.