The Colombian economy grew 4.6% in 2013 and 4.7% in 2014 (World Bank,) so international firms found it an increasingly attractive market. According to ALM Intelligence, Colombia’s big law market (using lawyer growth in largest firms as a proxy) grew 16% from 2013 to 2016. This is consistent with trends in Latin America for that period. NLJ 500 data shows the region was the fastest growing emerging market for AmLaw 200 firms between 2014 and 2015, outpacing Asia. The number of lawyers of AmLaw 200 firms in Latin America more than doubled between 2010 and 2015 (ALM Intelligence.)
Based on our own research, there are about 105 international firms with a Latin American practice (a dedicated team, with experience in the region. Not, “we’ve got a senior associate who speaks Spanish and some Portuguese.”) About 40 of those firms have offices in the region (mainly in Brazil and Mexico.) 14 have offices in Bogotá. To give you a sense of how dynamic this market is, this is less than Mexico (23,) but more than Peru (11,) Chile (10,) and Argentina (8.)
Part of the “anxiety and uncertainty” may be rooted in many firms’ having adopted a two-tier partnership during the good years of the oil bonanza (again, 4.6%-4.7% growth in 2013, 2014) and now finding themselves with a heavier payroll burden in an inhospitable economic landscape of: slower growth (1.7% in 2017 and 2.7% in 2018,) decreased foreign direct investment (down 14.1% in 2018, according to Banco de la República,) and increased competition.
This chart speaks for itself:
As a result of this, many firms may be struggling to meet revenue targets and, therefore, meet their promises to new non-equity partners or young equity partners.
This adds pressure to the talent cooker. How long does it take for dissatisfied younger partners to say “yes” to an attractive lateral offer or decide to open their own shop?And, if you try to match your competitors – paying generous sums to your associates and younger partners – what effect does that have on profitability? How will older partners react to lower numbers on their annual checks?
A final point: based on our research with Latin American clients, one of their concerns about international firms is that they may not have the right talent. International firms in Bogotá seem to be aware of that concern and have focused on hiring from competitors to build type-A teams to either strengthen specific practices or expand their services offering.
Our “key takeaways” from all this are classic good news/bad news:
- “New entrants destabilize local talent markets.” How could it be otherwise, really? New entrants have to find lawyers from somewhere, after all, and where do you suppose they are going to look other than at incumbent firms? Incumbents, in turn, who may have lost talent are not going to sit idly by: They will recruit on their own to restore capability and/or revenue, and the chain reaction has begun.
- “Local firms often lose from increased competition”–shrinking in headcount and market share. This may be unwelcome news, if you’re a Local Hero firm, but simple market logic would dictate that unless all the newcomers give up and flee with their unexpired office leases in tow, they will take some non-negligible market share. But here comes the good news:
- Local firms forced to up their game in the face of heightened competition sometimes “rethink and refine their strategy and enhance their day-to-day management practices.” Just as Detroit-based US carmakers eventually, and after great pain and sturm und drang, reacted to the Japanese invasion by improving the quality and market appeal of their offerings, so too local firms may find shelter in offering more distinctive, operationally efficient, services.
- And lastly, there are actually strategies to handle tougher competitors.
Which leads us to our final observation.
One of the classic modes of going wrong in a market analysis or projection is to fall prey to the “static fallacy:” To unconsciously assume that if X happens, there will be certain predictable direct ramifications of X, but terminate the analysis there. So, in this case, the “static fallacy” might look something like this: “If new and capable firms enter the market, local firms will (as an almost arithmetic truism) lose some partners, some revenue, and some market share.”
Contrast this to a more dynamic analytic view of how markets operate: Yes, let’s stipulate for purposes of discussion that some newcomers will successfully acquire some partners from some local firms: Now the question is, What happens next? In other words, what do those local firms do in turn? And how do the newcomers respond to that? And what are clients doing all along in this dance? You get the picture.
Local firms are not without resources, in other words. But the increased urgency of “rethinking and refining strategy” and “enhancing management practices” often benefits from a dispassionate outside perspective. The optimal goals and objectives may not form a straight-line extrapolation from the familiar.
