Despite sharing many similarities, Central and Eastern Europe’s legal markets are highly diverse. Still, a 20,000-foot view reveals a gradual retraction of the larger international firms to the strongest (and therefore most lucrative) CEE markets, a corresponding emergence of regional firms, and the appearance of ever-more sophisticated local firms, as business lawyers struggle to find reliable profits and sustainable business models in challenging times.
The internationals start to pull back
The international firms that swooped into CEE in the years after the fall of the Berlin Wall, to capitalise on the rapidly emerging markets and lucrative privatisation opportunities, remain in the region, by and large, though the number of transactions that can support their London-driven billable requirements have shrunk. Bit by bit, as the privatisations and big ticket deals that characterised the first two decades dwindle, many firms are starting to retreat back to the most profitable markets.
Thus, in the past decade stalwart Linklaters ended its presence in Bucharest, Budapest, Prague, and Bratislava (in 2008), White Shoe firm White & Case withdrew from Bucharest and Budapest (in 2015), French Gide Loyrette Nouel withdrew from Belgrade (2009), Bucharest (2014), and Budapest and Kyiv (both in 2015), Chadbourne & Parke closed its doors in Kyiv (2014) and Warsaw (2016), and Clifford Chance stepped back from Budapest (2009) and Kyiv (2015). Speculation is common about which offices of which firms are next to go.
But international firms are hardly pulling out of the region entirely, and several dozen offices remain throughout CEE, including – despite significant political turmoil and conflict – in Ukraine, Russia, and Turkey. The Czech Republic and Romania also remain popular, despite several prominent departures. And of course cheap travel and modern technology (including legal document management software) mean firms are increasingly able to manage local mandates from home offices located outside CEE as well.
In addition, two firms seem to be defying the general trend, as Dentons and CMS – both with flexible operating models which allow them to compete directly with local and regional players in terms of fees in ways many international firms refuse to do – seem to be thriving.
Regional firms fill the void
As the international firms slowly retreat to the north, a growing cadre of regional firms is expanding to take their place. This expansion reflects one of the most significant developments over time in the region — the growing sophistication and skill of local lawyers, who are increasingly able to compete with the expatriates who flew in from London or New York to manage deals in previous years.
These regional firms are generally able to offer lower fees than the internationals, which are hamstrung by London or New York billing requirements, and they are increasingly able to offer a “one-stop shop” service across the region, including in markets such as Serbia, Croatia, Bosnia & Herzegovina, Albania, Slovenia, and Bulgaria, which are too small for the internationals.
As the Austrian firms had a decades-long head start over competitors from the formerly Communist markets surrounding them, the majority of leading regional firms come from Vienna, with well-known Austrian brands such as Wolf Theiss, Schoenherr, Cerha Hempel Spiegelfeld Hlawati (CHSH) and ENWC (now known as Taylor Wessing CEE) retracing the contours of the former Austro-Hungarian empire by opening offices across the region. Wolf Theiss and Schoenherr both have offices in 13 CEE countries, while CHSH and Taylor Wessing CEE both have offices in six. CMS Reich-Rohrwig Hainz – the Austrian member of global CMS – manages offices in six CEE countries as well, with shared management of three more.
Nonetheless, a number of firms based in the former Iron Curtain countries have begun expanding as well in recent years, led by Kinstellar and Peterka & Partners. Kinstellar began with Linklaters’ CEE offices, after that Magic Circle firm withdrew from its four CEE markets in 2008, and has since expanded into an additional four markets (plus one in Almaty). Peterka & Partners (which calls itself, presumably by excluding Austria from its definition of CEE, “the only one law firm from the CEE region operating on a regional level”) has grown organically since its launch in 2000 to cover eight markets. Both are based in Prague, as is bnt attorneys-at-law, which has offices in nine CEE markets – including, uniquely among the regional firms, all of the Baltic states.
As a related phenomenon, recently regional firms have emerged that focus on countries sharing a particular cultural and political history, which makes a multi-office offering particularly useful. The Serbian Karanovic & Nikolic and Slovenian ODI Law firms have spread effectively across the Balkans, for instance, joined by offices from Austrian CMS Reich-Rohrwig Hainz, Wolf Theiss, and Schoenherr.
The growth of the multi-office model in the three Baltic states is similar, though instead of the strategic growth pursued by the pan-Balkan firms, the Estonian, Latvian, and Lithuanian markets are consolidating somewhat, with local firms tying-up with one another to increase their ability to compete with the traditional Big Four of Sorainen, Tark Grunte Sutkiene, Ellex, and Cobalt (the latter two of which traded Estonian offices in 2015 and rebranded from Lawin and Raidla Lejins & Norcous).
Other firms with pan-Baltic presences such as Vilgerts and Fort were joined in 2016 by Primus, Derling, and Leadell, and additional alliances are likely to follow (even as previous alliances such as Baltic Legal Solutions, Borenius, and Glimstedt dissolve, with constituent parts tying up with other brands). With the exception of Sorainen – the only truly integrated firm in the Baltics, with full profit-sharing among equity partners – all the other firms are highly formalised alliances, though several claim to be in the process of moving towards the Sorainen model.
Similarly, a large number of Czech firms (including Havel Holasek & Partners, Glatzova & Partners, and Dvorak, Hager & Partners) have offices in Slovakia, and a number of firms based in Ukraine and Russia have offices in both countries, including Egorov Puginsky & Partners, Eterna Law (the former AstapovLawyers), Yust, and Integrites.
Strangely, despite being the largest CEE economy and the home to a large number of extremely strong firms, both domestic and international, no Polish firms have yet expanded into other CEE markets.
Although a substantial number of domestic firms (i.e. those without offices in other countries) in CEE have always competed effectively with their international and regional competitors, a number of them have, in recent years, formed alliances – either loose or binding – to increase their visibility and, they claim, provide a “one-stop” service comparable to that offered by the regional firms. Most of these new alliances – including TLA, SELA, and ADRIALA – focus on the former Yugoslavia. It’s a bit early to predict the extent to which these alliances will succeed in taking business from the regional firms – the regional firms claim to be unconcerned – but, if they are successful, more should be expected.
Again and again over the past few years, partners at international, regional, and local law firms across CEE have insisted that there is room for everybody and all models in the region. Perhaps. But there’s little denying that the make-up of the region is changing, with international firms starting to abandon some of their footholds in this part of the world for greener pastures elsewhere, and regional and domestic firms increasingly able — in both structure and sophistication — to pick up the slack, generally offering lower fees in the process.
Nobody’s suggesting that the many world famous law firm brands present in CEE are unnecessary or over-priced; for the most challenging and cross-border deals, those firms continue to provide clients with the benefit of decades (or, sometimes, centuries) of top-level experience, knowledge, and competence. But local and regional firms are increasingly nipping at their heels here in CEE, and businesses looking to do deals in this part of the world would do well to familiarise themselves with possible alternatives before signing on the dotted line.
CEE Legal Matters is a print and online publication providing coverage of the 24 legal markets in Central and Eastern Europe. CEE Legal Matters also produces the annual CEE General Counsel Handbook — an annual report of preferences and policies of General Counsel and Heads of Legal in the region, based on a widely-distributed online survey — and hosts the GC Summit, an annual conference for senior in-house counsel in the region. To learn more or to subscribe please visit us at ceelegalmatters.com.