Should law firms stay on home turf?

October 17, 2011 Interesting article here about the effect of international expansion on law firm balance sheets. The article points out that of the five elite London firms belonging to the so called ‘magic circle’, four (Allen & Overy, Clifford Chance, Freshfields Bruckhaus Deringer and Linklaters) are have multiple international offices and earn more than $1.5 million a year in profits per partner. But the fifth, Slaughter & May, which sticks to home turf, saw profits per partner of $2.6m last year.

Firms looking to expand internationally tend to follow one of three strategies. First, there is the model used by Baker & McKenzie, which involves semi-independent law firms in different countries joining together in a Verein. Second, firms such as Skadden, Arps, Slate, Meagher & Flom or Cleary, Gottlieb, Steen & Hamilton move overseas with outpost firms that serve existing clients who do business around the world. They remain American and avoid some of the culture clashes that might arise from a greater degree of integration into local markets. The third strategy is the most risky, and involves entering a market from the outside to set up shop. This third strategy can go very wrong, as seen by Howery’s failed attempt to enter the market in Brussels.

According to the article, globalisation can be an expensive error, and the figures indicate that, in general, firms that expand overseas have grown more slowly in terms of profitability than their homebody counterparts.

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