Developing Markets In a Shrinking World
Walt Disney didn't know what he started. Long before the era of faxes, on-line bulletin board systems and the Concorde, an attraction at his theme park had dolls dressed in costumes from many lands singing "It's a Small World." With the advent of new technologies and changes in the global market, a more timely phrase can now be coined:It's an even smaller business world.
What were once new markets to only consumer-goods manufacturers like Coca Cola and Ford, are opening to professional services. In this new global economy, law firms are marketing more and more to international companies at home and abroad. However, as with any new venture, many risks and unknowns await on the international horizon.
Before a firm dives into expansion, it must analyze its business objectives. According to Stephen Mayson, Hildebrandt professor of legal practice and director of the Centre for Law Firm Management, Nottingham Law School in England, there are many ways to establish a firm internationally. It's not necessary to actually open new offices to take the firm to the international market -- it can be done from domestic locations, says Mayson, who spoke on this topic at ALA's 1994 Educational Conference and Exposition in San Francisco.
"For some firms, there will be no foreign offices or alliances, but there will be a firm commitment to developing international work from the home office," Mayson says. "In fact, for many firms, strengthening their home base will be the most successful strategy for international practice."
Developing existing offices is the most cost-effective way to enter the market -- firms can do so with little expenditure and minimal risk, he notes. However, there are no guarantees to developing an international practice. What works for one firm may be a disaster for another.
Joel Henning of Hildebrandt's Chicago office, who spoke at the same session, concurs."One of the problems in international practice is that people don't even have a very good idea of what they're talking about," he says. "Because of this many firms start out with great enthusiasm and expectations, then they hit reality and frustrations when their international practice doesn't immediately live up."
If a firm is able to analyze its needs and goals in the international market, it can find a way to succeed. In essence, Mayson says, international practice strategies are either competitive or cooperative. Firms can build their practices without entering into arrangements or partnerships with others overseas (competitive). Or, they can work with lawyers in other countries to achieve strategic objectives (cooperative).
These two approaches can be applied through the three types of international practices:domestic, international and multinational.
"A domestically based firm can enter the international market by practicing from a home office or through a cooperative with other firms," Henning says.
He cites many ways to do this, including joining established international networking groups of law firms. These allow firms to be exclusive contacts in their geographical area for many overseas firms.
"Groups like Lex Mundi offer successful networking operations for referrals,"Henning adds. "These networks and alliances are affiliations of law firms. They identify major legal markets -- exempting some international cities like New York and Tokyo -- and establish joint marketing programs for member firms in those areas."
A second firm type is one Henning dubs "international." These firms practice home law; that is, U.S. lawyers practice U.S. law in London, Canada or wherever. Some firms do this because they establish overseas offices knowing that the host country may not allow foreign attorneys to practice anything but home law. If established through cooperation with and existing firm, native attorneys are already in place in and affiliated U.S. attorneys only need to practice home law.
Yet, some firms may decide to open an overseas office even if their attorney will practice no law.
"Some firms will set up a branch 'sales office,'" Henning says. "They'll send one associate, or maybe even a partner, who's a good schmoozer to open an office in London or Rome. He or she will get to know the local firms and get referrals to send back to the United States -- that is called inbound work. They'll also establish relationships with the appropriate local governing bodies."
The third form of international practice, Henning says, is when a firm's overseas office truly practices both home law and the indigenous law.
"This is turning out to be the most profitable and the most successful approach to practicing international law," Henning says. "[Firms] must transcend 'being the U.S. lawyers' and hire other local lawyers to practice with the transplanted attorneys." "For all sorts of reasons, the costs of practicing law abroad are higher and the opportunities to generate fees lower," Mayson says. "If you open your own office, remember it is the most expensive international strategy. It's difficult for a small office to be profitable: A few lawyers cannot cover the fixed overhead costs,and the level of work may be too busy or not busy enough.
"However, the emerging trend seems to be that foreign offices practicing both home law and local law are more likely to be profitable, or more profitable, than those that practice only home law," Mayson continues. "The successful offices also tend to have been established for a number of years and have become an integral part of the local legal scene."
The motivation for becoming an international firm must be clear before any strategies are developed. A U.S. firm cannot expect success as a domestic, international or multinational presence if it is just perusing the market for the market's sake. It also cannot succeed if its only motivation is the wishes of its partners to have an international presence.
"Long-term success will be based on serving the interests of clients," Mayson says. "The legal 'global village' is nearly complete: Competing in the international marketplace will mean meeting the expectations of clients who are themselves sophisticated operators in various parts of the world."
Simply knowing how the different types of international practices develop is not enough of a foundation to begin the venture. A analysis of your firm's needs and current international status is necessary.
"Most international legal practice is indeed the result of unplanned opportunities," Henning says. "That's not necessarily bad in an industry which doesn't do much planning. But if you want to profitably expand your presence, planning is a must."
Mayson suggests that firms study several areas that will affect international activity before formulating a formal program:
- Inbound or Outbound Work : Are you already advising foreign clients on the home law implications of their activities (inbound)? Are you advising domestic clients on legal issues arising from their actions abroad (outbound)?
- Volume : Are you measuring the volume of inbound and outbound work?
- Sources : Do you know the sources of your international work? Is it coming from existing clients? Referred by foreign lawyers? What geographical location is producing the most activity?
- Markets : Are you analyzing your client base to reveal certain patterns in the overseas businesses or industries you serve? Do you examine the international trends for these industries?
- Conflicts : As your firm would grow internationally, would more conflicts of interest arise? Would there be legal and business conflicts among clients?
- Resource : Are your resources sufficient to match the likely needs of your clients and the perceived opportunities in new markets?
It is an increasingly small business world, and law firms hungry for expanded markets and increased billing may be anxious to develop in this global economy. But what may appear to be greener grass overseas may turn out to be a mirage if the proper steps are not taken.
"There is no sure way to make a profit out of your international practice,"Mayson concludes. "All strategies have the potential to succeed or fail. A good understanding of the factors involved, clear and agreed expectations, investment,commitment and patience will pay off. Do not underestimate the direct or indirect costs.Do not overestimate the returns. Most failures in international practice are not so much failures to perform as failures to meet unrealistic expectations."