What does globalisation mean for law firms which provide business law services?
In the first blog post of the announced series, I tried to show that while digitisation is indeed a phenomenon that is also relevant to law firms, I still came to the conclusion that law firm partners should place the focus of their management efforts on the development of a consistent strategy and a convincing business model. Technology is capable of supporting this, but on its own is far from being an actual strategy!
Before I make some observations about the development of a law firm strategy, I would like to shed light on some of the major trends in the legal market. They constitute the context for the partners’ strategic considerations, as it were.
Let’s first talk about the phenomenon of globalisation. It is banal: in the last few years, the fragmentation of value creation chains has become a dominant structuring factor in practically all industries. With increasing frequency, companies optimise their profitability by limiting themselves to doing what they can do really well. Car manufacturers, for instance, producers of laptops, pharmaceutical companies and manufacturers of home electronics rely on business models based on the division of labour. They acquire components for their products from countless, often small suppliers and only assemble them or even limit themselves to marketing.
What does this mean for law firms which provide business law services? Now, first of all, we note that big law firms are establishing branch offices in all sorts of countries, preferably in countries where the suppliers of companies of western economies are based. A study conducted by Legal Business in 2016 reveals that more and more big law firms are present in numerous, sometimes dozens of countries. Baker McKenzie, Dentons, DLA Piper and others have thus become global brands.
What, though, does globalisation mean for smaller and medium-sized law firms? Are they also affected by it? Let me ask you a question: whom do you think an automotive supplier with 200 employees in the region of Stuttgart will contact if he is looking for legal advice when concluding a contract with a producer in the US? A big law firm with thousands of lawyers that previously wasn’t even known to him by name, or the small 20-person law firm in the neighbourhood, which has been serving him reliably and successfully for the last twenty years? Well, there you are! Of course he’ll contact the familiar legal advisors at home. But these will be facing a challenge. Either they will have to acquire the knowledge required for the specific mandate in a network of law firms in other countries, or they will have to establish the necessary resources themselves. The former will be the rule, the latter the exception for very special niches, for instance in cases of local border traffic or recurring requests relating to selected jurisdictions.
This means nothing other than the fact that globalisation is a phenomenon that does not only affect big law firms but also numerous rather smaller law firms which cultivate client relations with companies that are links in strongly fragmented value creation chains. We may well say, then, that at present we are witnessing a trend towards the democratisation of legal advice competence in international business law. This is in keeping with the observation that in many markets, it is the big and rather small law firms that are growing, but not those in the medium-sized segment (for the US market, cf. http://legalexecutiveinstitute.com/2018-legal-market-report/).
This blog was originally published on 7 February 2018 in Vista, the online magazine of the Executive School, University of St.Gallen, Switzerland.
About the Author Prof. Dr. Leo Staub is a Titular Professor of Business Law and Legal Management at the University of St. Gallen. He also is one of the Directors of the Executive School of Management, Technology and Law of St. Gallen University where he chairs the division “Law & Management”.
Leo can be reached at leo.staub@unisg.ch