Moving in on new territory

Patrick Stewart examines the battle raging between UK and US lawyers to establish ascendancy in Eastern Europe

Answering Eastern Europe's desperate call for help to rebuild viable legal systems from the rubble of communism, US law firms have grabbed the initiative from other international firms by swiftly moving to set up offices in the region.

Rich in mineral wealth but short on law, Central Asia is emerging as the latest target. Baker & McKenzie, Chadbourne & Parke and Pepper Hamilton & Scheetz have opened offices in Almaty, Kazakhstan, in the last year while White & Case has gone as far afield as Tashkent.

UK law firms, however, are still thin on the ground although this is slowly changing. Clifford Chance has an office in Almaty while McKenna & Co has just opened in Tashkent, where its main client is tobacco giant BAT Industries. The firm is also looking for premises in Almaty.

The pattern is all too predictable. The US brigade dominates in Prague, Budapest and Moscow as well as emerging centres such as Kiev and Bratislava. The British moved in later – but their number included few of the big commercial names and most have preferred a low-key presence.

Is it a question of missed opportunity or common sense caution in the best British tradition? US investment in the region far outstrips the UK's generally poor record, giving the US firms a ready pool of clients. At the same time, as one senior lawyer operating in the Commonwealth of Independent States notes, “US firms often get projects under US AID [a US government-funded agency] advising governments. This provided a basis for setting up.”

EC or British Government-funded work gave UK firms access to privatisation work and contracts advising government on legislation. But there were fewer projects specifically for lawyers than under the US AID programme. And the work is tightly priced, some deals reputedly being done as loss leaders. It did not necessarily justify the opening of an expensive office in a distant land.

Some have attempted to carve niche practices in countries others would not dare touch. Bishop and Robertson Chalmers, a large Scottish firm, opened in Lithuania last month. City firm Sinclair Roche & Temperley has an office in Bucharest. So does Taylor Joynson Garrett. But it acquired the practice from Hicks Arnold, a small London firm, indicating that for some at least the East European experiment was not appropriate. Turner Kenneth Brown, now a part of Nabarro Nathanson, closed its Prague office within a few months of its opening.

That Eastern Europe was a difficult place to make money became obvious – something which applied to US firms as well. Texas-based firms Johnson & Gibbs and Vinson & Elkins shut offices in Berlin and Warsaw respectively.

Firms are taking a more realistic view. This is particularly true in Central Europe where the practice mix is changing.

“Privatisation work has tailed off,” reports David Lacey, a lawyer at the Prague office of Norton Rose.

“We are now looking at commercial inward investment and financial restructuring arrangements. Czech companies are looking for technology, marketing and management skills and finance.”

Andrew Kozlowski, a partner at McKenna & Co in Warsaw, agrees: “M&A activity is still occurring. But the focus now is on other things which are more interesting, more exciting and more complex.”

In particular, financial services is identified as the one area of practice which is set to explode and firms with traditional expertise in this area are likely to be the first to benefit whether UK or US based.

In Moscow, Linklaters & Paines has just upgraded its office from a representative office to a full branch with 14 lawyers, a potent signal of the importance of Russia's burgeoning financial sector.

Other firms, not necessarily in the top tier of financial services firms, are furiously developing strategies to stamp their mark.

McKenna & Co is aggressively seeking market share in Warsaw. Earlier this year, it poached a number of lawyers from the Warsaw office of Coopers & Lybrand, one of the city's best known legal and tax consultancies. This was followed by the acquisition of two Polish banking experts.

“Law firms that have substantial depth in Polish law and international experience will be the champions,” comments Kozlowski. This effectively excludes all but a few local law firms,with limited exposure to sophisticated transactions.

Among the international firms in Warsaw, which are likely to dominate large transactional work, competition is formidable. Two of the City's pre-eminent banking practices – Clifford Chance and Allen & Overy – have been in Warsaw for a number of years as have some US firms with well-known financial law practices.

“It all boils down to who's done what,” Kozlowski points out. The Polish market still has huge potential, but he cautions that firms thinking of entering the market will find it most difficult. They will only be able to do it with the right resources – that means being able to attract local talent.

When Clifford Chance set up in Prague earlier this year, it did so by forming an exclusive association, as Bar rules require, with a local Czech lawyer Vladimir Petrus with whom it had a long-standing informal relationship and who had been primed in Clifford Chance's culture.

Norton Rose, another recent arrival in the Czech capital, has taken a different tack, relying on the input of a local firm, Balcar Polansky & Partners, on a non-exclusive basis.

Although the office is advertising for a junior Czech lawyer, it has no immediate plans of taking on anyone more senior. Lacey argues that co-operation with a local firm is sufficient to service client needs at the moment.

Prague is a smaller market than Warsaw, perhaps requiring a more cost-effective approach. But the message is clear that, while specialist knowledge will become more important a real presence on the ground is needed to have any chance of getting the work.

Patrick Stewart is a freelance journalist.