Market view

Commercial law firms in Scotland are already in a period of rapid change

In 1997, Scotland's then largest firm, Dundas & Wilson, shocked the market by joining the Andersen Legal network. This was followed in May 2000 by the entry of DLA into Scotland. Until now, managing partners of other firms in Scotland were able to persuade themselves that these were one-offs. But on 4 February, KLegal, part of the legal network of KPMG, will ratify its merger with Scottish legal giant McGrigor Donald.
This is one too many for all but the most blinkered. A wave of recognition that things will never be the same again is sweeping the Scottish commercial legal market, along with intensive speculation that 2002 will see a spate of further changes as Scottish firms position themselves to compete in an altered landscape.
For the first time, traditional Scottish firms are having to compete on their home patch with serious players in the UK, European and global market – organisations with genuine international capability and with the financial muscle to make huge investments in critical areas such as IT and knowledge management, recruitment and training, client relationship management and focused business development.
How, then, can domestic Scottish firms compete with these new competitive forces? For a small number there may be an opportunity to jump on board if they move quickly enough. Now that Andersens and KPMG have moved in, it would be surprising if the remainder of the accountancy big five were not looking seriously at the Scottish market. For those that don't manage such a tie-up, difficult questions have to be asked. Do they embrace a strategy to develop a global capability themselves?
One solution is to seek to form their own strategic alliances internationally, but evidence suggests that having attempted to go down this route, McGrigors has recognised the insuperable difficulties it presents. And why would any other Scottish firm fare better?
What about international clubs? As a method of competing with an integrated international network of alliance firms like those of KPMG and Andersen Legal, clubs are a waste of time and money. If your ambition is to travel and meet people, go ahead, but the difficulties in agreeing and enforcing common standards across international boundaries mean that they fail in the principal objective. They cannot offer a cohesive joined-up service with the benefits that clients expect.
But does globalisation of the legal market really affect Scottish commercial firms if a significant amount of their existing business comes from referrals from English firms? Such business is already diminishing rapidly, as English firms seek to retain as much of the business as they can for themselves. In any event, risking your commercial future on your ability to live off 'crumbs from the rich man's table' is not a particularly attractive option for most. What firms at the top of the market in Scotland need to focus on is the highest-level deals emanating from Scotland, which are often poached from under the noses of Scottish lawyers by City firms.
The future commercial legal market in Scotland will consist of a handful of forward-thinking law firms at the top which are members of integrated international networks, have the financial capability to invest in the best people, and can compete effectively with any organisation for the highest quality legal work in the Scottish marketplace. The Scottish corporate marketplace deserves nothing less. Below them will be a second tier of mid-sized firms with no credible international capability to match the increasing needs of the FTSE marketplace and with little ability to commit to the substantial investment required to compete in all service areas. For them, the choice is stark – go niche or go nowhere. Adoption of the niche route requires very strong management in order to achieve the streamlining of partners required to align their business. The courage to make this choice will be unthinkable for most and the consequences will be that they are left competing with other second-tier firms on price and on commodity work. For those firms and their people, bad times are just around the corner, but for those with the vision and commitment to be different, things are looking good.