Returning from nearly a full week in Prague–delivering the keynote at the second annual 2017 Innovation Legal Services Forum and meeting with firms there–a few reflections.
A very few cities in the world are truly global centers: You can count them on the fingers of one hand. By “global center,” I mean not just for law and finance but most importantly for intellect, culture, the performing arts, and higher education. These cities typically also display genuine and rather artless sophistication in everything from fashion, media, food, and architecture, to diversity of streetscapes and street life. This necessarily entails openness to newcomers, new blood, diversity in national origin, and creed.
Be that as it may.
A substantially greater number of cities are prominent in the next tier: Critical centers of commerce and culture in a national or regional context but not so consequential on the world stage. What this tier of cities may have in common, at least when they’re located within the span of a region viewed as somewhat coherent (“Benelux,” Central America, the Mideast) or certainly when within the same country, is that they can more or less imperfectly “substitute” for each other.
I anticipate objections to this bald and facially reductionist statement, and so that you understand, I’m not positing that Dallas and Houston, San Diego and Phoenix, or Singapore and Hong Kong are interchangeable; I’m suggesting that if you understand one you already are well along towards understanding the other, and–more to the point–from an economic and commercial perspective you may be able to do business from one or the other without needing bricks and mortar in both.
I offer this slightly speculative observation to, I hope, put what we learned about Prague’s legal industry on the ground there in some context.
The key issues facing firms in the market are similar in conception if not execution to those facing firms in comparable markets in regional markets in the US, in Latin America, and in Canada. In a nutshell
- Global and/or extraterritorial/non-indigenous firms are entering the market; this poses the question for the local heros of how to respond;
- Typically there are one or two “kings of the hill” in the local market (although there can be several if you subdivide by specialty–tax, project finance, litigation) and for them the question is whether to stick to their knitting or try to diversify and expand;
- A question on everyone’s mind is whether to ally with one or a tiny handul of carefully selected firms (“best friends”) or to join a regional alliance of firms (LexMundi or a host of others);
- And then you can always decide that “tomorrow is another day,” as Scarlett O’Hara indeliblly recited in Gone with the Wind, and kick the can down the road until it’s someone else’s problem or you decide to pack your bags and leave.. This is a popular option. Best avoided.
The next big question for markets like Prague is how many law firms, and of what type, it takes to saturate the market.
In every market, there’s always room for smallish firms that cater to small private companies and high net worth individuals. Firms that in the truest sense serve as consiglieres to each of their clients. Clients in longish-term relationships with these firms tend to eschew substituters, are not rate-sensitive, and are change-averse. This is rational on their part. If your firm is in this niche, our best counsel is “Don’t mess it up.”
The question, I suspect, of greater interest to our readers is, How many global players can such a market support?
We met with the office managing partners of three such firms, two London-based and one New York-based, and to venture a guess three (three to five, max) global players with a presence in a market like Prague is about the limit. What do they offer and why isn’t there room for more?
Start with economics; we always try to do. The Czech Republic’s economy is beyond healthy, growing in the high single digits in the last few years, but it’s still tiny in the context of the rest of the globe. (2015 GDP about $185-billion, $32,500 GDP/capita at purchasing power parity, which is indisputably “First World” territory. But US GDP is currently running around $18,000 billion, or 100X that of the CZ.)
There’s only so much outbound and inbound financial investment. That said, when you’re one of the handfiul of local-office-presence firms that can service that work wtih your network of deeply connected and collaborative offices from London to New York to Silicon Valley, you have no indigenous substitutes. You’re on the short list for deals with material extraterritorial reach.
But the lesson of Prague, and many other cities we’re familiar with, is that more global player firms have been there or thought about being there than are there now. This is a good thing. If it means that law firms are becoming more selective about where they set up and keep shop we applaud it.
The fallacy of sunk costs seems to infect Managing Partners’ and more caustically law firm partners’ “strategic” thinking more than in any other industry we’ve seen. Beware.
So yes, some Magic Circle and a couple of US-based global players need to be in Prague or its adjacent centers of commerce. Not everyone; not now and not for the foreseeable future.
Old Town Square with the twin-steepled Church of Our Lady Before Tyn