German firms may face difficulties in raising their international profiles in a westward direction, but across the eastern border they have expanded quickly.
German law firms claim several advantages over English and US firms in the former Eastern Bloc. German is more popular as a second language, the cultures are closer and, more importantly, most have adopted a German-style civil law code. Russia's legal system is in the Austrian tradition – again, similar to Germany's.
"There are so many ties between the German economy and Russia and Poland," says Peter Naegele, joint managing partner of Puender Volhard Weber & Axster. "It is natural that legal business follows commerce and industry. There have always been friendly relations between the Russians and Germans and that relationship is being revived just now."
Although the wave of privatisations that followed the fall of communism is drawing to an end, the opportunities remain attractive, as German banks and investment capital continue to head east. Oil and gas – particularly in Russia – remains a steady source of work and Poland is described as 'booming'.
The latter market is regarded as possessing the greatest potential as Poland prepares to join the European Union.
German industry is the biggest investor in eastern Europe and Russia owes more money to German banks than the rest of the world's banks combined.
But it is not an area without its pitfalls. Running an office can be very expensive, particularly where the client-base is local. Relationships have to be handled with care and getting paid can be difficult in often turbulent economic climates. Firms also have to be careful about where clients' money is coming from.
In some jurisdictions, good local lawyers are in short supply. One managing partner complains that Polish lawyers, even junior ones, are very expensive and lack loyalty. "Some very young lawyers – some of whom wouldn't even qualify for a summer job in Germany – ask for a lot of money and their loyalty is not strong. If somebody offers them $10,000 more, they usually go," he says.
The other problem is persuading senior partners to staff the eastern outposts – and it is no remedy to create local partners instead. Eastern Europe may have potential, but the offices do not earn the money to justify full equity partners in each jurisdiction.
Consequently, there seem to be two approaches to eastern Europe. One is to develop domestic practices in many cities with the intention of remaining there. The other is to cover the region from Berlin or Leipzig (or, in some cases, Brussels), operating on a transaction-by-transaction basis when clients demand it, but not to offer on-going advice in the region. In both cases, the firms prefer to act for western European and US clients rather than local ones.
In the latter camp is Hengeler Mueller Weitzel Wirtz, although it does have offices in Prague and Budapest. "For our business, what is important is M&A and financing expertise," says joint managing partner Dr Hendrik Haag. "I am not convinced it takes 10 local lawyers to be the firm of choice for companies that wish to make investments in eastern Europe."
The other approach is typified by firms such as Puender, which has offices and local lawyers in Moscow, Budapest and Warsaw in addition to Berlin and Leipzig. "If there is one creed in the German national character," Naegele says, "it is long-termism. The Russians regard US investments in Russia as short-term. We get many applications from Russian lawyers who have trained in New York and who say they feel that we might be around longer."
It seems the Germans are in eastern Europe to stay.