Nearly a quarter of UK law firms with revenues over £50m derive more than half of their turnover from overseas, according to a recent survey by Barclays.
Three quarters of firms surveyed by the bank, of which 73% have a presence in more than five countries, pull in more than 10% of their revenues from outside the UK.
The research, led by Jane Galvin, managing director and head of Barclays’ professional services team, confirmed that this trend is likely to continue. Forty-two per cent of respondents stated that they expected an increase of up to 5% of their turnover to come from operations outside the UK.
Another 23% expect an increase of between 5% and 10% while no firm is predicting a leap in foreign revenues of over 10%.
‘It is clear from our research that geographical diversity is more critical now to UK law firms than ever before,’ said Galvin. ‘Firms are now proactively going where their clients want them. Revenues, promotions and expansion are all driven by the key growth markets and Asia in particular. I also believe that the Middle East and Central and Eastern Europe will be important markets for firms in the next 12 months.’
‘Geographical diversity is more critical now to UK law firms than ever before.’
Jane Galvin, Barclays
Asia has been the strongest growth market for 38% of the firms surveyed, eclipsing the Middle East (15%) and Western Europe (12%). Of the 38% that identified Asia as their biggest growth area, Singapore and Hong Kong were named equally as the key jurisdictions within the region.
In terms of predicting which areas will be the strongest for firms over the next 12 months, Asia and the Middle East are again seen as the biggest drivers of growth. Half of the firms surveyed felt that Asia will be the strongest area for them and that Hong Kong, China and Singapore will all contribute equally. Nineteen per cent said the Middle East would be their biggest market this year, with 20% of those respondents identifying Dubai in particular, showing that the region is by no means dependent on one state.
As a result, Asia remains the key jurisdiction for UK firms’ international expansion strategies, with China and Singapore the most coveted locations. China emerged as the main target in the next 12 months, while Singapore was also highly rated alongside Germany, Dubai and the US.
The research showed that 38% of firms have expanded into Asia in the last 12 months. Half of those moves were into Singapore, which is no surprise given the flurry of activity there in the last year. Up to 54% will expand into the Asia Pacific region over the next 12 months, followed by Western Europe (38%) and the Middle East (27%).
Asia aside, there were some surprise results. Notably that Western Europe is still identified as a key driver of growth both currently and for the next year, with 8% of firms saying this will be the strongest marker for them. Interestingly, these firms pointed to Germany as the growth centre, excluding all other countries in the region.
The outlook for expansion into South America is not strong, with just 8% of firms planning to extend their reach there. However, the region is considered the most attractive to 27% of UK firms. The discrepancy is perhaps a direct result of onerous Bar restrictions in Brazil, the key market in the region. South America also fell behind the US, the UK and CEE in terms of its contribution to growth.
The sources of revenue within international firms are having an inevitable effect on partnership prospects in the City. Early indications suggest that London promotions appear to be on the wane again in 2012 as international firms look to continue the trend of beefing up strength in developing markets.
Freshfields Bruckhaus Deringer laid down a marker for this as the first Magic Circle firm to announce its promotions at the end of March. Although the firm promoted the same number of associates globally to partner as last year (20), it made up far fewer in London (five, down from nine in 2011). Four promotions came in Hong Kong, while another seven were promoted from the European offices.
Allen & Overy promoted six associates in London, more than any other single office, but 74% of its 23 promotions were outside the UK, up slightly on last year (71%).
K&L Gates, one of the most expansive international firms in recent years, made up just one partner in London out of a global total of 30. While most of the firm’s new partners are in its US heartland, the fact that two partners were made up in Singapore and another two in Warsaw shows that other regions are taking precedence over London as far as promotions are concerned. But the firm is consistent: last year it promoted just one London partner out of 44 in total.
In an entirely different area of the market, Ince & Co appointed five new partners and not one was based in London. Senior partner James Wilson said the promotions, which included two in Germany and one each in Paris, China and Singapore, demonstrated ‘the continuing growth of our global network’.
However, one firm bucking the trend is Ashurst, which promoted 16 associates in total, 11 of which were in the City. Last year, three quarters of its partner promotions were outside London. There is a reason for this. In two months alone last year, eight partners either left or retired from the firm’s City office, which has been managing its equity ranks in the last couple of years with a relatively high partner churn rate. The latest batch of promotions brings younger talent in and replenishes stocks.
Clifford Chance has yet to announce its promotions. The vast majority of its promotions took place outside London last year (83%) and a radical reversal of that trend this time around is unlikely.