Europe's independent law firms are bullish, but aware that retaining their independence is likely to prove more of a challenge than ever, if the results of Legal Week's first ever survey of Europe's remaining independent law firms are anything to go by.

Almost all expect to grow in size in the coming years and the vast majority expect that their fee income will improve in the coming months. But the figures also demonstrate that they anticipate that the outside competitive threat to their markets is likely to become more intense.

The survey, which questioned independent firms across Europe (excluding the UK), found that firms on average expected to have 43% more lawyers in five years' time than they have now. But this figure masks some interesting differences in confidence across the Continent.

By some way, the least optimistic firms are the Dutch (some of which expected to be no bigger at all in five years' time) and Belgians, which only expect to have grown by an average 18% in five years' time. Most buoyant of all were the French firms, which on average expect to be 78% larger by 2008, followed by the Italians at 60% and the Germans, Spanish and Portuguese at 46% each.

To achieve these growth rates, these firms clearly expect that their respective legal markets will expand, because without exception they also expect that the market share of the independent sector will shrink in the coming years.

Currently across the Continent, Europe's independent lawyers estimate the market share of their international competition to be 22%. However, within five years, this figure is predicted to rise to 31%.

Again, within this average, there are some marked disparities.

After all the takeover activity of the late 1990s, it is hardly surprising that the presence of international firms has been felt most keenly by Germany's lawyers – the country's independent lawyers estimate the overseas firms' market share at 40% – or that it is the only jurisdiction that predicts that international firms will have the majority (55%) of the commercial legal market within five years. Nor is it a particular shock that overseas competition already accounts for around a third of the French and Eastern European markets, a figure that lawyers in both regions expect to increase to the same figure – 44%.

Less predictable, given the attention that many Anglo-Saxon firms have been paying to Spain, is the apparent lack of penetration into the Iberian market, at a mere 24%.

Meanwhile, independent law firms in Scandinavia remain the most confident that the multinationals will not be moving onto their patches in a big way, expecting to have ceded only 17% of their market in five years' time.

Overall, Germany aside, every European jurisdiction expects that independent law firms will retain a (slim) majority of their respective commercial law markets. And independent law firms have clearly been more than able to make inroads into the legal work of foreign investors into their respective markets, if the responses to the survey (which found that an overall average of 42% of work done by independent law firms was for overseas clients) is anything to go by.

But if these are the headline figures, what type of work will this be? Commercial law covers a multitude of disciplines and, unsurprisingly, some are more interesting and suited to the mega-firms than others.

In particular, respondents to the survey provided a breakdown of the types of work that were most dominated by international law firms, almost all identified capital markets work (although M&A still seems largely open to all).

The Prospectus Directive will soon introduce a single set of listing rules across the European Union (EU), reducing the need for individual listing advice in each country that a company is listed in and, in the medium-term, it is predicted that the capital markets of Europe will consolidate.

Already, the French, Belgian and Dutch exchanges have developed a single trading platform, Euronext, and plans were announced earlier this year to create a single stock exchange for Scandinavia and the Baltic region, most likely located in Stockholm. Ultimately, many predictions are that the EU will have only three major financial markets, centred in London, Frankfurt and Madrid.

The on-going globalisation of capital markets has meant that English and New York law have become the common currency of cross-border transactions, a fact that clearly plays into the hands of multinational networks.

Some, such as Italy's Chiomenti or Norway's Wikborg Rein, have responded by hiring their own English lawyers or by training their own lawyers in 'Anglo-Saxon' legal principles. "Most major firms in Switzerland require a post-diploma education of their associates in Anglo-Saxon jurisdictions," says Felix Ehrat, senior partner of Bar & Karrer in Zurich. "The globalisation of capital markets means that certain business law concepts, such as corporate governance and listing rules, become more and more uniform. Traditionally, Anglo-Saxon law firms contribute to the development of these rules and standards and the current move toward standardisation cannot be overlooked."

Little wonder then that 49% of respondents described the impact of foreign-based law firms on the way that business is conducted in their jurisdictions as either 'major' or 'massive'. But the 'Anglo-Saxonisation' of legal practice is not reserved for capital markets practice. The way business is conducted generally has been altered to a greater or lesser extent by the influence of the international firms.

This has not necessarily been a comfortable process. In order to remain competitive, many firms have had to adopt the shape and management structure of their international rivals, by introducing specialist practice areas, increasing the partner/associate ratio, and, for the first time in many countries, making lawyers redundant as they apply a harder business rationale to the practice of law.

In Italy, for example, this has meant that law firms have had to relax the traditional tight hold that senior partners have had over the equity. In Denmark, it has made the top law firms force their partners to choose which area they will concentrate on. In France, it has forced leading practices to assume boutique status or merge with their overseas rivals.

A further function of 'modernisation' is the emphasis on service delivery and the standardisation of working practices to fit in with correspondent firms in other countries. It also means increasing investment in IT systems and knowledge management. The latter does not come cheap, and is one area where smaller, single jurisdiction law firms would appear to be at a disadvantage to their multi-jurisdictional rivals.

Indeed, faced with a declining market share, increasingly unable to compete at the lucrative top end of the capital markets and facing ever-growing investment costs, it is surprising how few (19%) non-aligned law firms would consider a merger, with either a UK or US firm or a practice from another European country. It is also surprising that only 60% are members of the various referral networks such as Lex Mundi (the most popular with those that do join). Perhaps many share the view of Sweden's Hammarskiold & Co, which describes joining a referral network as a "contradiction in terms for an independent firm".

The figures for each country vary wildly -from Germany and Italy, where 60% and 57% of independent firms would consider a merger, to France, Spain and Portugal, where none of the respondents want to give up control of their destinies.

A further interesting development has been the small, but significant, number of firms that are taking the Anglo-Saxon giants on at their own game and opening offices in other jurisdictions.

One of the pioneers was Germany's Haarmann Hemmelrath, which now has a presence in 14 countries, including China, Singapore, Russia and the UK – followed by French firm Gide Loyrette Nouel, which added to its 13 international offices earlier this year by taking on the Anglo-Saxons in their own backyard and opening an office in London.

Norwegian firm Wikborg Rein is exporting its shipping expertise to Brazil, where it currently has a referral relationship, and to the Far East, where it has an office in Singapore. And it has plans to open in Russia. Meanwhile, Scandinavian law firms are in the process of establishing offices in the Baltic states in the run-up to their accession to the EU next year.

However, the only certainty for the future is that independent law firms will have to continue to keep their collective fingers on the pulse and ensure that they are ready to change tack if the market moves against them. This was certainly the experience of leading Italian corporate practice Carnelutti, which dramatically threw in its lot with US-based McDermott Will & Emery, after years of resisting the advances of the incoming Anglo-Saxons. "We had to be realistic," said senior partner Marino Bastianini.

So flexibility is key. "We remain entirely committed to independence," says one respondent.

"However, no option is entirely ruled out."