Law firms in the Middle East - the new normal

Law firms in the Middle East - the new normal?

Shane Morton Market Insight, Market Intelligence, Law Firms...

What a difference 10 years makes. When I arrived fresh off the plane from the UK in 2007 to set up Taylor Root's Dubai presence, the market I walked into was as chaotic as it was exciting.

There didn't seem to be any strategy behind law firm growth, just an innate desire to jump on the rollercoaster and get a piece of the action. Whether this meant growing teams from scratch or opening new offices in the region, there was the mindset that the more people we employ, the more work will come through the doors. In essence it was the same as the Dubai "story" - build and they will come; tourists, real estate investors, construction companies, welcome to the biggest party on Earth.

Most people know what happened next - the GFC burst the balloon in the most abrupt way imaginable, leaving behind many broken dreams across a majority of sectors, including the legal world.

However, one could also say that that period following the GFC was also what the market required. A time for introspection and assessment, a necessary lesson in economics and the upward (and sometimes downward) trajectory in emerging markets.

So where are we now in 2017 and what lessons have been learnt? Whilst the market remains hugely competitive, particularly in a market which has been less than buoyant in the last couple of years of falling oil prices, there has been a sensible rationalisation of what it takes to be successful (and sustainable) in the Middle East legal market.

Full service international firms still exist, as do those with multiple offices across the region. Firms still have strong teams in their chosen areas of expertise (particularly where they are global players). There has been further growth in the top-tier local firms as they capitalise on the continued growth of the region, and particularly Dubai, as a new global hub which ties into the old world of Europe and the US just as easily as with the new powers in Asia and emerging markets of Africa.

However, in line with the above, firms have adopted a much more focused approach as to what areas and markets they can and can't be competitive in. This has been seen in the closure of some offices in smaller markets such as Abu Dhabi and Qatar which had become overbroked during more exuberant times. It can also be recognised in the smaller, more agile nature of many teams in the region, where maintenance of utilisation rates is paramount, particularly in a cost-conscious market where deals are priced accordingly. In addition, some firms simply do not compete in some practice areas where you would otherwise expect them to do so in other parts of the world.

So is this the new normal?

The relatively subdued market, as well as a maturing of the region in general, has facilitated the movement towards this model. It is very definitely a sensible long-term plan to minimise risks encountered in an emerging market.

However, to some extent, it also leaves some firms in a bit of a predicament when it comes to future growth of legal work in the region. Due to likely improvement in workflows resulting from a stabilising oil market as well as diversification and financial re-focusing of the GCC countries, the smaller teams could well be overwhelmed quite quickly should a sustained upturn occur. From experience, this is already happening in some cases even though the market is only just emerging from a slow period.

It remains to be seen how long the firms can maintain the "small and agile" model in the face of such an increase or whether they may yet again be swept away by opportunities presenting themselves in the market.

The likelihood is that an element of the mature approach will remain and firms will not overstretch too far, with more organic, steady growth reflecting the actualities of the market.

However, there will once again be significant competition for the limited talent which is available. Law firms may have inadvertently boxed themselves into a corner by running an increasingly tight ship over the past few years and it will be interesting to see who are the winners and losers in the new world.