Value proposition

As the value proposition changes in emerging markets, businesses and customers are looking for the best solution

Growth-oriented companies have quickly taken hold in emerging markets, flooding cities like Austin, Texas; Salt Lake City; Nashville, TN; Denver; Phoenix; and Miami looking for new opportunities. Launches are largely client-driven, either driven by work for existing clients in an emerging market or fueled by the lure of work from expanding industries.

But lower overheads also provide opportunities for firms and clients to maximize the value they receive from work done in emerging markets, even after the pandemic shifted norms around where lawyers work and how. which they are paid.

At Am Law 100 Akerman, which has opened offices in cities including Austin, Atlanta, Denver, Jacksonville, Florida and Winston-Salem, North Carolina, in recent years, client needs have driven expansion.

“The unifying factor behind each of them has really been customer demand. We’ve really avoided the ‘if we build it, they’ll come’ model,” says Scott Meyers, president and CEO of the Florida-based company. .

But, clearly, the economy still matters.

“The overriding consideration is client service and practice fit, but I think emerging markets present an opportunity to provide legal services at a different cost,” says Jeff Cody, managing partner of Norton Rose’s US practice. Fulbright.

In April, the global firm doubled the size of its Minneapolis office by adding a trial team of 11 attorneys, Cody said, adding that the firm is committed to expanding into smaller markets, including Denver, St. Louis and Austin.

“These are important markets. It’s just about finding the right solution from the customer’s perspective,” he says.

When Norton Rose matched the pay scale for Cravath, Swaine & Moore associates, the company said it would pay associates in Texas, California, New York and Washington, D.C. on that scale, which pays up to to $415,000 to senior partners. But associates in Minneapolis and St. Louis will be paid at a lower rate, continuing a tradition that has long given companies and customers a better value proposition in smaller markets.

Cody says the disparity has to do with the billing rates charged by lawyers in those offices, compared to the rates charged on the east and west coasts. When asked if these lower billing rates give the company an advantage in smaller markets, he said, “I always come back to customer service and I’m sensitive to customer needs, not just from a of the service, but also of the economy.”

While some firms, like Norton Rose, still pay emerging-market partners less than those in larger markets, the war for talent has led many large law firms to pay the same in all US markets. With this in mind, opening an office in an emerging market should address customer needs first and cost savings second.

Hugh Simons, a former Boston Consulting Group senior partner and chief operating officer of Ropes & Gray, who writes about business economics, says it’s actually harder than you think to make the economy work of an office in an emerging market. On the one hand, it can put a strain on the company’s compensation system, he says.

“To overpay partners in the small market, you have to underpay in the big markets. It’s not a lasting thing to do. Most corporate compensation systems cannot cope with this. This is the crucial question. That’s the one that’s wrong,” Simons says.

Another thing companies misunderstand about small offices is that they tend to have ups and downs in associate billing. It can be feast or famine, Simons says, as partners in smaller offices provide work for local associates, but lawyers elsewhere may not.

“It just kills the economy. It more than offsets any reductions you get in terms of lower associate salaries or lower overhead,” he says.

From a strategic perspective, Simons says, companies shouldn’t just follow the crowd to rush into a booming market. Instead, they should do something competitors can’t replicate.

“Your strategic pricing power, your ability to be profitable, depends on your ability to do things that others don’t offer, especially post-COVID when we’ve all gotten good at Zoom,” Simons says.

Lisa Smith, principal at Fairfax Associates in Washington, DC, says the crucial question for large law firms entering emerging markets is whether there is enough work available in the market to support office fees.

“On the talent side, of course, that can be an advantage,” she says. “You can attract top talent from existing companies.”

But the economics of lower-tier businesses may make more sense in those markets, she says, if those businesses pay less and can satisfy their customers with lower rates. This dynamic amplifies the need for companies to ensure that there will be enough labor available to support them in an emerging market.

From a financial perspective, Smith says regional companies, as opposed to top-tier companies, may be more successful in these secondary markets because they are already used to running different business models in offices.

Stanford Blanton, managing partner of Alabama-founded Balch & Bingham, says his firm delivers value to clients in emerging markets because its billing rates, even in major cities like Houston and Atlanta, are significantly lower than high-end rates. range to larger companies.

“Our value proposition is that we’ve built national-level expertise into our core practice, but we’re going to charge you 30-40% less than very large companies,” Blanton says.

The company is at the top of the rate scale in markets such as Alabama and Mississippi, but significantly below the top rates in Houston, Austin and Atlanta, he says. Partner compensation varies by market, he notes.

But like other businesses, expansion is customer-driven for Balch & Bingham. For example, the company launched in Austin and Houston not to face competition, but because the markets were already generating revenue. Nashville, however, “which you would have called an emerging market 10 years ago,” Blanton says, hasn’t offered the company any attractive opportunities despite its regional proximity.

Greenberg Traurig’s decisions in emerging markets are largely driven by their economics, according to executive chairman Richard Rosenbaum. The company, which has 43 offices worldwide, balances offices in major markets, such as New York, Chicago, Washington, D.C., Los Angeles and London, with launches in secondary markets, such as Minneapolis, Denver, Salt Lake City, Phoenix and Tampa. , Florida.

That makes strategic sense, he says, because of the talent pool of lawyers in emerging markets, which has only gotten better as the pandemic has prompted lawyers and clients alike. to move. “It’s an advantage to be in a place where the talent moves,” Rosenbaum said.

And that also makes sense from an economic point of view.

“It costs less to do business in, for example, Long Island, New Jersey and Westchester than in Manhattan, so we can offer our customers the benefit of lower costs while providing the same level of excellence. It’s a win-win,” he says.

Adapting to the local market will always be an advantage, Rosenbaum says. Companies that apply large market costs to a small market are expecting a “rude awakening”.

Greenberg Traurig associates are paid on a market-by-market scale, which is competitive in larger markets, Rosenbaum says. Over the past two years, when major law firms increased the pay scale for partners for competitive reasons, he said it took “extremely strong discipline” to maintain the firm’s pay structure, knowing that the firm was preparing for a slowdown in demand. .

“We know what’s coming. When the cycle changes, Greenberg Traurig will not be on the list of layoff companies. You will see what happens in some of these markets when the cycle changes,” he says.

It’s not just partner increases that have changed law firms’ calculations about new offices. The pandemic also played a role.

“It kind of flipped the whole equation,” says Dion Cominos, managing partner of Gordon Rees Scully Mansukhani, which has offices in 50 states.

The biggest change is in the need for space, as the acceptance of remote work allows businesses to take up less space, he says.

Now, he said, Gordon Rees goes through a “very different set of analytical questions” when considering an opportunity. The company has developed an eight-point test for office functionality, determining when people should enter and for what reasons. And, he notes, investment costs are lower because the real estate market is flexible.

“When we used to open offices, the idea was that it was the place where people came every day and did their work. Now it’s just the opposite,” he says.

Am Law 100 is opening up “second-crop markets” for three reasons, according to Cominos, including client needs, access to a talented labor pool, and the “lifestyle component,” which has leads to offices in some smaller markets due to a “big partner” wanting to live there.

“We want to transcend the arbitrary boundaries of what an office is and develop a structure that reflects the reality of the 21st century, the needs of our clients and the lifestyle of the workforce,” says Cominos.

Founded in South Carolina, Nelson Mullins Riley & Scarborough is another company that is looking to emerging markets as well as big cities for its 15-state expansion. The company recently opened an office in Cleveland, following offices in Minneapolis, San Diego, Richmond, Virginia, Orlando, Florida and Los Angeles.

James Lehman, its managing partner, says the company typically doesn’t open in a city unless directed there by a client. This was the case in Dallas, for example, where customers had been urging the business to open for years.

“We have never been a money-focused law firm, an LA, New York type firm. We have always tried to serve our middle market as well as our domestic disputes from a cost perspective,” says Lehman.

The company has more than one pay scale for associates, depending on location, but he says the pandemic has diminished the importance of geography.

“When a New York company comes to hire one of my associates and tells him he never has to come into the office, it blurs geographic boundaries,” Lehman says.

It’s a “pretty disruptive and turbulent time right now,” he says, leading lawyers to seek out different platforms. This creates challenges for businesses, but for lawyers and clients the picture is rosy.

As Simons says, now is “a great time to be a good lawyer in a second-tier market.”

E-mail: [email protected]