The North European region covering Sweden, Finland and the Baltic states has developed into an area with certain common features as regards its underlying market, business and infrastructure. Sweden and Finland have developed a special role as gateways to the region and the surrounding areas, such as the other Nordic countries and Russia. Today the neighbours can be considered as two closely integrated markets supported by common history, traditions and common views on the political and social regimes.
The legal markets in Sweden and Finland are also similar: both are stable, localised and difficult to access. The markets have been dominated for decades by two or three major players with deep links to the domestic client base and well-developed networks for capturing international referrals. Lately, these markets have shown signs of consolidation, breaking up the local establishment and creating room for new players.
To some extent, these developments have been influenced by the ethical rules in force in the region, whereby a law firm can only represent one bidder in a so-called “controlled auction”, allowing for mid-sized local firms and foreign firms to build a strong market position in the footsteps of the few big firms. The lack of interest of the major international law firms towards the region has also set the scene for local development.
The relevant law firms active on the markets can be divided into different categories based on their chosen strategies.
Certain Nordic firms have chosen to capitalise on their size and geographical coverage by increasing the number of lawyers and keeping the ‘full service’ flag flying. There is no obvious link to traditional key financial parameters such as profit per equity partner (PEP) or profit margins, but instead the focus has been on increased turnover. Some of these firms are even showing a drop in the latest PEP figures. At best, these firms are growing with the market and are subject to certain inherent price pressures when expanding into new areas. A new element has been to combine the strong home market position with international expansion by establishing small ‘outlets’ in emerging markets, with an ambition to guide the key clients also in other than domestic work.
While these outlets cannot be full service, the main reason for their existence is to tighten the grip on the domestic clientele. Integrated market approachCertain firms have clearly recognised the consolidation of the underlying Swedish-Finnish business markets and established a presence on both markets with an ambition of becoming a leading player on the combined market. These firms operate as fully integrated both business and culture-wise.
As an additional element, law firms being able to position themselves as leading, with critical operations in both jurisdictions, are also attractive for referral work from London, Frankfurt and other major European-based international law firms. These firms have also recognised the need to nurse and keep the ‘strategic manoeuvre space’ by not growing beyond a natural and motivated size on the market.
Such firms, with financial parameters on par with major international firms, have a tendency to be focused on transactional work in the broad sense, while also offering services in other key competence areas such as international arbitration.
The market has also seen signs of emerging niche firms – small or medium-sized firms with a strategic focus on certain practice areas or a certain client base. These firms tend to choose a focus area other than transactions (which would require a bigger critical mass and heavy investments into HR, competence development and knowledge management to attract and retain lawyers and personnel).
Niche firms often emerge as either spin-offs from mid-sized transactional firms, where litigation and arbitration boutiques have been established, or form as a result of consolidation among smaller firms focusing on insurance and litigation, for example.
As the ‘global battle’ among the magic circle firms is being fought in Asia and other emerging markets, the top-tier international players do not seem keen to establish a local presence in Scandinavia. As a rule, the larger international firms present in the region have chosen to be there either for client-specific reasons or for individual reasons (such as having partners originating from the region).
Some smaller international players have also established a presence to add these jurisdictions to their network. The region as such has not been considered an emerging market where global growth is likely to take place within the foreseeable future.
Will there be a basis for further consolidation among law firms in the Nordic region? What from an outside point of view could make sense in terms of creating a strong presence in the whole of the region does not necessarily make sense when approaching the question from the perspective of local business. The links between the rest of the Nordic countries, compared with Sweden and Finland, are not as strong – with the businesses and industrial base significantly varying between the countries.
Ulf-Henrik Kull is a partner at Roschier in Finland