Tuesday, May 29, 2007 8:03 AM
In my conversations with people in all walks of life within the legal vertical, I pick up bits and pieces of information over time. Sometimes these bits and pieces begin to collect around a specific subject and suggest something of a trend.
One such recent "collection" is the subject of competition. Specifically, the location of law firms' competitors. The nascent trend I am picking up is that for mid-size to very large law firms, the competition for some clients is going global. That is, they are finding that competition is beginning to come from non-U.S. based law firms. And, not only abroad, but even on their own home turf.
I cannot say that I am surprised. While lawyers in the United States enjoy some protection from competition via the requirements for and protections of practicing law in a given State, such requirements and protections cannot do much to stave off the globalization of business (and its intended and unintended consequences).
To this point, one growing reality of globalization is that whole industries are consolidating. Look at banking. When I look at banking, I see a large number of state and regional banks being folded into massive multinational corporations. In many of these cases, the acquired bank's headquarters closes and its executives are reassigned or let go. Local law firms which may have had longstanding legal and personal relationships with the acquired bank's executives are then faced with the reality that they may not know a single executive at the acquiring bank. Not too mention that the acquiring bank probably already has its own longstanding and personal relationships with its own "local" law firm. And, "local" could be just about anywhere in the world. Sure, some residual legal work will always remain in the acquired bank's state, but is it of the same quality and quantity as before the merger? That is the million dollar question.
Other examples of industries even further globalized than banking, with rapid consolidation lead by dominate corporate parents based overseas, are cement (Cemex, LaFarge), steel (Mittal), mining (BHP Billiton, Rio Tinto)... Where is the home office of the law firm that handles the bulk of these global goliaths legal work?
Every time a U.S.-based company is acquired by a foreign entity, the U.S.-based law firm that did the bulk of that company's legal work faces a real competitive challenge. To compete for the work going forward, the U.S.-based attorneys may need to jump on a plane and head to Mexico, France, Germany, Australia, Japan, India or China to make their case. Not a simple matter.
Even more disconcerting, what if the Mexican, French, English, etcetera law firms and legal consultancies already serving these international corporations come to the U.S. and bid on work the acquired company is now re-bidding at the direction of its new parent? Not only do those foreign firms potentially have the same longstanding legal and personal relationships with the parent company executives that U.S.-based law firms have long enjoyed with the now-acquired local companies, but they may be able to leverage lower cost offshore legal resources than the U.S. firms. Most especially in transactional work.
There will always be a need for attorneys with "local" knowledge in each U.S. state and thus there will always be legal work being performed by U.S. based firms for global companies doing business in the U.S. But, will the work represent the same quality and quantity as in the past? And, will the U.S.-based firms have to adjust to competing against foreign enterprises for some of its existing work and new work?
Perhaps the trend is nascent, but increasingly my own conclusion is that many U.S. law firms are in for a prolonged competitive battle; a battle that may well include competing for work with global law firms and consultancies, not only abroad, but on their own doorstep.