Will the legal profession be taken by surprise by a dramatic growth in the demand for sophisticated legal services in the Philippines over the next five years?
Our recent evaluation of the growth prospects of Asian legal markets between now and 2020 persuade us that the Philippines will present great opportunities for local and foreign law firms. We expect more foreign law firms to increase their activities and, for some, their presence in the Philippines. We also expect that increased competition will challenge the strategic thinking and management acumen of Philippine law firms, including well-established market leaders, as perhaps never before.
what to expect in the Philippines
As previously noted in this blog, the Philippines has become one of the most robust smaller economies in the Asia-Pacific Region. The International Monetary Fund projects that Philippine economic growth in 2016 will be the fastest among the ASEAN countries, at 6% in 2016 and 6.2% in 2017. This will be driven by strong economic demand, as well as an expected government stimulus package this year. Barring any major regional or global disturbances, this level of growth should continue, we believe, at approximately the same rate through 2019 or 2020. Direct foreign investment is expected almost to quadruple between the end of 2016 and 2020.
The growth of emerging markets like the Philippines presents a variety of challenges for the local firms, and these challenges usually appear and develop in market-specific and firm-specific ways. Although the experiences of other markets, such as Russia, Turkey, Colombia, and Nigeria, can be instructive, a "one size fits all" approach, which tries to force-fit "best practices" and "models" onto an emerging market or its law firms, seldom works well and often is counterproductive. Two phenomena that our firm has observed in other countries, however, appear highly likely in the Philippines in the next five years.
more visible involvement by foreign law firms
As in other emerging international legal markets, we anticipate several developments, which some law firms in the Philippines might not have considered in their strategic planning, or which they might be structurally unprepared to meet. These include increased participation by foreign firms in the international legal market and, in some cases, incursion in services previously assumed to be "domestic" in nature. Currently only one major foreign law firm, Baker & McKenzie, has an office in Manila, in association with the Philippine firm Quisumbing Torres. Although a number of other foreign firms, such as DLA Piper, Latham & Watkins, Pinsent Masons, and Linklaters, are prominent in the Philippines international legal market, they usually deliver services from their offices elsewhere, notably Hong Kong and Singapore. The expected growth of the Philippines market, we expect, will prompt these and other foreign firms to consider strategic alliances, affiliations, even "brand mergers" with some of the leading local firms, beyond the "best friends" relationships that might already exist.
All this will create attractive new opportunities for Philippine firms. The difference is that, more than in the past, the national firms will have to compete harder for this new work, because of the greater presence of foreign competition. Nonetheless we believe that there are a small number of firms among the current market leaders in the Philippines that could position themselves not only to compete credibly for the new inbound legal work, but in many instances could do so directly to the foreign clients, without reliance on referrals or subcontracting from foreign firms.
destabilization of partnerships
Competition for clients will increase, but the fiercest competition will be for legal talent. Based on what we have observed in other legal markets, we expect that some of the current leaders in the Philippines legal market will find it harder to recruit the best new associates and to retain them.
We also expect to see significant destabilization of some law firm partnerships. "Free agency" of legal talent at the partner level becomes more attractive in emerging legal markets. The decision whether a partner should remain at one's firm or move to another firm is not a matter of loyalty or greed. It simply is a question of which scenario presents the better business case for each partner and his or her practice. The increased demand for more sophisticated legal services, as well as the increasing price sensitivity that emerges as a competitive consideration for clients in some practice areas, can persuade some younger partners and senior associates that their better business case is to leave traditional firms to form their own firm, where they can be more competitive on price and more profitable through innovative practice management and internal operations and higher fee-earner productivity. As we have observed elsewhere in Asia, eastern Europe, Latin America, and Africa, these "second generation" law firms can quickly become some of their former partners' most formidable competitors.
As we reviewed the biographies and experience in the current partnerships and associate constituencies of the leading Philippine firms, we noticed that most of these firms appear to have in their ranks a number of younger partners and senior associates with many of the indicators of future potential competitors. All of these firms need to be sure that their governance systems, partner compensation, and career management structures (including career management after becoming an equity partner) will be able to meet their needs over the next five years as the competition for legal talent becomes even more intense. Moreover, simply paying people more will not ensure that they stay.
making the competitive case for Philippine law firms
One of the most serious challenges for each Philippine law firm, as for local market leaders in almost every fast-growing international legal market, is to present a persuasive case why a potential client should select their firm over one of the other highly qualified law firms that can deliver the same service. Our firm has observed in emerging legal markets over the 14 years that, as a market becomes more competitive and clients become more sophisticated, one of the most important -- and usually the most challenging -- part of developing and executing a sustainable business strategy for a local or national law firm is to articulate clearly and specifically the reasons why your firm should be hired.
This competitive case requires a clear understanding, articulation, and communication of at least four basic elements. The first two elements communicate the expertise of the firm to handle the client's matter: (1) the qualifications of the lawyers and other service providers; and (2) their individual and collective experience. The second two elements communicate the competitive advantages of the firm, consisting of: (3) the specific, relevant benefits that the firm delivers to clients; and (4) how the firm is different from its equally-competitors.
This last element, differentiation, is probably the most challenging for most law firms. What does a law firm offer that is unique or vitually unique among its best competitiors? This often is expressed in terms of a level of service, specialization, or expertise that none of the competitors can match. Buzzwords and catch phrases like "quality," "technology," "innovation" or "value added" have almost no persuasive value to sophisticated clients -- or even to unsophisticated ones.
We studied the websites of 11 Philippine law firms that we consider to be the current local leaders in the Philippines legal market. We note that we focused entirely on the content of each website, and did not judge its design or functionality (which also can be important, although not necessarily strategic, factors in a firm's marketing communications). We evaluated the clarity, completeness, and persuasive effect of the content with respect to each of the four elements described above. This produced a combined score for effectiveness of each firm's communication in two dimensions: (1) its expertise (qualifications and experience), recorded on the vertical axis of the chart below; and (2) its competitive advantages (client benefits and differentiation), recorded on the horizontal axis. Our evaluations were based on general characteristics of effective marketing communications for law firms in other emerging markets worldwide, but they also took into account any local regulations or professional customs concerning law firm marketing.
As displayed above, most of the 11 law firms do a minimally adequate job of communicating expertise (indicated by an expertise score above 0). Most of them fail (as indicated by a competitive advantage score below 0), however, to articulate how their expertise results in benefits to clients that are tangible, significant, and relevant, or to differentiate their firm in any significant way.
The three law firms indicated in red in the lower left quadrant, with negative scores for both expertise and competitive advantage, actually may be losing potential clients because of the relative ineffectiveness of the content of their websites. In other words, their websites probably are not helping their business development efforts in any significant way and actually might be causing prospective clients to dismiss their firm from further consideration.
None of the current market leaders, in our opinion, present website content that we believe is competitively effective overall (i.e., with scores above +6 for expertise and +12 for competitive advantage). Four law firms, indicated in green in the upper right quadrant, appear to be leading the pack, but not by much. Most of those four firms, however, are not as specific or as persuasive as they could be in explaining their benefits and differentiation in their website; and two of them are significantly weaker in their communication of expertise.
In short, none of the websites of the 11 market leaders, in our opinion, make the best case for their respective law firms.
Why are websites important?
Few, if any, sophisticated purchasers of important legal services base their selection of local counsel solely on a law firm's website. However, the content of the website can have two important roles in that decision. A website that fails to communicate expertise and competitive advantages effectively may disqualify a good, capable firm from further consideration. By contrast, a firm that clearly communicates its competitive advantages -- benefits to clients and differentiation -- can sometimes suggest a selection criterion that the prospective client had not considered, or one that could be the "tie breaker" among two equally qualified competitors.
Moreover, an effective communication of competitive advantages -- not the age of the firm or the CVs of the partners -- can allow even a small, new firm quickly to become a substantial competitive force in a growing legal market.
Our competitive evaluation of website content produces only one set of indicators about whether a law firm has a well thought-out, relevant strategy to compete in a fast-changing legal market. However, they have significant diagnostic value. Relatively low scores, such as we observed in the Philippines, suggest that some firms either lack or have not implemented well-informed business and marketing strategies, or that their marketing communications fail to make the best case for the expertise and service delivery capabilities that are already there.
asking the right questions
All of this involves more than making clever edits to one's website. The more sophisticated clients in the Philippine legal market now and in the next five years will not be fooled. Service, not slogans, is what matters. If a firm develops the slickest, most awe-inspiring website in the world, but fails to deliver its promises to its clients, the effort and expense of fixing up the website will have been in vain.
The value of a detailed strategic evaluation of a law firm's website -- particularly that of a current market leader -- is that it is a practical entry point into a focused and action-oriented consideration of what should be a firm's strategic priorities for the next three to five years. This involves asking some interesting, but often challenging, questions:
- Where do we appear to be weak?
- Are we making the best case for ourselves?
- Are we wasting time and effort chasing clients and work that will not produce sustainable benefits for our firm?
- What investments of partner time, management attention, and intellectual energy will produce the best return on those investments?
- Are our partners willing to make the significant investment that will be needed to manage the changes that we will need to make in our firm and in the way that we approach our changing legal market?
These questions -- not just "What do we need to do to fix our website?" -- are the ones that Philippine law firms should be asking as they prepare to take advantage of the exciting opportunities that their legal market will offer in the next five years.
- Examples of other firms that have been active in the Philippines include: Herbert Smith Freehills, Hogan Lovells, Milbank Tweed Hadley & McCloy, Shearman & Sterling, and Skadden Arps Slate Meagher & Flom.