The rapid emergence of a new wave of highly-coveted emerging markets is providing contrasting challenges to the latest law firm networks. Ed Thornton reports

When Meritas chief executive Tanna Moore visits corporate counsel at multinational companies with operations in emerging markets, she finds that one question above all is on their lips.

"When I call on corporate counsel, one of the most important things that is asked is whether our network has local counsel who understand the government and local politics – to which I say 'Yes'," says Moore. "That is a big deal in emerging markets – how to get stuff done."

Emerging markets pose both opportunities and obstacles for companies. On the one hand, evidence suggests the leading emerging market economies of Brazil, Russia, India and China will be the dominant markets in years to come: it is estimated that these four countries will be among the world's largest economies within the next 40 years.

But on the other hand, venturing into emerging markets means crossing a cultural divide into jurisdictions with different systems of government and ways of doing business. Companies are therefore anxiously looking to independent law firms with strong roots in the jurisdiction and with homegrown lawyers for guidance on how business is done locally. As Meritas chairman Ken Kallish says: "Indigenous firms know the customs, have the contacts and know how business is run."

Johan Brink, the Johannesburg-based chair of Interlaw, agrees: "The ability of local firms to open doors economically and politically is of valuable assistance to exporters and companies looking to relocate."

In response, numerous independent law firm networks have embarked on something of a charm offensive of late, with representatives packing their bags and heading for the business capitals of emerging market jurisdictions in a bid to sound out suitable local firms.

The sales pitch of the global law firm networks is by now familiar to many – independent firms do not have to be swallowed up by the major global players if they are to respond to the globalisation of their clients; they can join an alliance and refer work to firms in other jurisdictions when necessary.

As Lex Mundi president Carl Anduri says, the network model enables members to retain their independence while receiving the benefits of a global offering. "It gives the firm the opportunity to control their own destiny," he says.

However, the networks all insist they are offering much more than simply a referral club.

"We see a network as more than just referrals but contributing to professional development. It is not just about referrals but also about practice development and management," says Brink, citing the extra services a network offers to members such as web seminars and training in areas such as knowledge management and human resources.

Lewis Silkin joint head of employment James Davies, who is a member of specialist employment law network Ius Laboris, says: "It is not just a referral network – we are actually working with people to develop demand in the region and internationally. Small firms [in emerging markets] have less sophisticated marketing functions than in the Anglo-Saxon world, so they can call on those resources."

Patricia Gannon, chair of the South East Europe Legal Group, says: "We spend a lot of time on training and client sharing. It is more personal – people know each other well and pick up the phone. We do a lot of business development and try to locate deals for them."

Lex Mundi's Anduri cites access to information and best practice as being among the benefits the network offers, as well as a free advice policy whereby each member firm can obtain up to half an hour's advice from another member firm at no cost.

Several of the major networks are offering emerging market firms incentives to sign up, such as reduced membership fees so that the not-insubstantial cost of joining is not a barrier to entry.

Finding a local player

But while networks are keen to publicise themselves in emerging markets, finding a local firm that matches up to their membership criteria is by no means straightforward.

Networks seek local firms populated by indigenous lawyers, but they equally expect firms that join their networks to function in a way that clients in the US and Europe are used to. Steve Hirschfeld, chief executive of the Employment Law Alliance, says: "The companies we represent are very sophisticated and have high expectations of client service. They want a quick response and 21st century advice – a 'yes' or a 'no' rather than a 20-page memo."

Most networks insist that member firms in emerging market jurisdictions conform to ways of doing business common in the US and Europe. For example, firms would be expected to have English-speaking receptionists and lawyers, operate voicemail, respond to client queries within 24 hours and commit to providing letters of engagement and fee estimates.

Kallish says firms in Meritas are catching on to the 'western' way of doing business. "When you go to emerging markets you have to be sensitive to the local culture; but we are finding that as markets mature, there is less and less concern around responsiveness and it continues to improve by the day."

Anduri concurs: "It is fair to say that if you are looking at the broad spectrum of firms that there is a difference [in terms of client service]," he says. "But our member firms are at the top and they are adapting to the client service standard."

Networks are aware they have to tread a delicate line – ensuring adherence to high standards while being sensitive to cultural factors. "The objective is never to be prescriptive or to enforce culture on a jurisdiction but to allow people to grow within the confines of their own cultural and language world and grow more towards minimum standards," says Brink.

At the same time, James Mendelssohn, chief executive of MSI Legal & Accounting Network Worldwide, says firms in developed jurisdictions should consider managing the process themselves if they are unsure as to how good the level of client service will be when referring work to a firm in emerging markets. He comments: "We always say you have to be sensible and use a degree of common sense in terms of giving access to clients."

The China connection

With 10.7% growth last year and the Olympic Games taking place there next year, China's economic boom is showing little sign of waning.

There has been no shortage of law firms looking to cash in on the economic boom in China. Recent months have seen Simpson Thacher & Bartlett, Weil Gotshal & Manges and Davis Polk & Wardwell announce plans to open offices in the country.

Lewis Silkin's Davies says: "China is of critical importance to everybody. In the last two to three years we have had more referrals from our members in China than everybody else in the Asia-Pacific region added together."

Charles McCallum, chair of TerraLex, echoes this view. "China is where we have been most successful in expanding the network of late," he says, adding that the way to gain access to firms is by developing contacts on the ground, since the availability of reliable resource information about firms is limited.

He adds: "The way we built the recent expansion of China was after finding a firm in Shanghai. We developed contact with one firm and that firm had knowledge of the market and led us to other firms. My impression is that the relationship issue is very important in China. Once a firm was tested we checked them out, but we would not have got in the door to talk to these firms without the help of other firms that we have relationships with."

TerraLex's member firms in China are Beijing-based Li Wen & Partners and Liu Shen & Associates.

Meritas' Moore comments: "The demand is so huge for work in China, but the law states – as in many emerging markets – that only locally-qualified lawyers can advise on local law or litigate. There are a lot of very well-educated Chinese lawyers who have been educated in the US. You need to sort through carefully who you work with, but it is becoming easier."

Indeed, network representatives who do gain access to Chinese law firms often find armies of hard-working local lawyers, many of whom have been educated in the US and Europe. Consequently, they have the local knowledge sought after by clients alongside experience of the business environment in the mature markets.

"Since many of the lawyers in these firms are educated in the US and London, they have absorbed the modern business culture so they know what the clients want and expect," says Kallish.

Other Chinese firms that have signed up for network membership include Beacon Law Firm, which is part of Meritas, and Jun He Law Office, the country's exclusive Lex Mundi member.

The challenge of India

While gaining information about Chinese law firms can prove difficult for networks, India's highly-regulated legal market is even more difficult to penetrate. The country's Bar rules prevent firms from advertising or displaying virtually any information on a website, while partner numbers were until recently restricted to just 20.

McCallum says: "India is still, to some extent, a mystery. Firms are not permitted to have anything but extremely limited information about their firm on a website and some of the information could be five or six years out of date. We have found directory information somewhat unreliable."

Hopes that the Indian legal market might soon be liberalised were dealt a blow in March this year when the country's legal regulator, the Bar Council of India, reiterated its earlier resolution that foreign firms should be barred from practising there.

The fact that India has played host to a number of high-volume international transactions makes the country all the more alluring for foreign firms – and can only mean an increasing number of US and European firms will be seeking to refer work there. Vodafone's acquisition in February of a controlling stake in Indian mobile network Hutchison Essar in an $11.1bn (£5.7bn) deal is just one example of the headline transactions that are being done in India or involving Indian companies.

UK firms not operating within established member networks have remained determined to nurture links in India, with Linklaters establishing a referral agreement with Mumbai-based Talwar Thakore & Associates and Olswang posting an Indian lawyer to Delhi to act as a consultant and build up links in the country.

One of the consequences of India's restrictive legal market is that networks are finding suitable potential members difficult to come by.

Hirschfeld says: "India has a very sophisticated Bar with primarily English-trained lawyers who have such an old-fashioned way of practising law that it is more English than the English firms. Many firms are 20-30 years behind the times."

This way of working has arguably bred a level of complacency and the perception that Indian firms do not really need to be competitive – they will win the work anyway.

Mendelssohn says that MSI receives more unsolicited applications to join the network via the web from Indian firms than anywhere else – many drawn to the kudos associated with being part of an alliance – but says that 90% would not make appropriate members.

However, Hirschfeld says he has started to notice a change in attitude among Indian law firms and after vetting about six firms during a process that took four years, the network chose Anand Prasad Trilegal as its member firm, a practice staffed by young lawyers who have trained overseas.

Furthermore, a number of other Indian firms have already gained membership of networks. For example, New Delhi-based Amarchand Towers is Lex Mundi's exclusive member.

The Russian supply chain

Russia and China may have both emerged from protectionist Communist rule to become major players on the world economic stage – but there the similarities appear to end.

McCallum says there are notably fewer referrals being sent to Russia than China. "From the point of view of the US market, and less so but still to a significant extent the European market, the attention of clients has focused on Asia, particularly China," he says. "We have not had as much pressure from our members to send out referrals to Russia."

Furthermore, whereas China is fast catching up with western ways of doing business, Russia, according to Meritas' Moore, lacks a supply of firms that are suitable for network membership. She says: "It is very difficult because there are not a lot of people who have been educated in the UK and US, and practices are not consistent with what our corporate clients are used to."

But while the Russian market might be a difficult location for networks to cultivate relationships, it is still a region witnessing substantial economic growth and playing host to some high-volume deals. Examples include last November's $2.3bn (£1.2bn) acquisition of Oregon Steel Mills by Evraz, Russia's top steel producer.

"Russia is not as easily accessible to outsiders as markets in central Europe, but it represents a massive opportunity and a great opportunity to transfer skills," says Brink. "It will grow, maybe not as rapidly as India or China, but a lot of growth depends on open national mindset."

Brazil – top of the pile

Brazil is perhaps a more mature legal market than Russia, India and China, due largely to the regular flow of business entering the country from North America and the wider South America region.

Real estate work is driving much of the deal flow in Brazil, while the country's major industrial companies have attracted the sights of overseas suitors, as explemplified by Anglo-Dutch steel giant Corus' £4.3bn approach for Brazilian steelmaker Companhia Siderurgica Nacional late last year.

Accessing information about firms in Brazil is a less arduous task than in other emerging market countries and indigenous firms are populated by some high-quality lawyers. "You get some very strong people, as law is a very prestigious career for the elite, so we have not had trouble finding excellent firms," Moore says.

MSI's Mendelssohn shares a similar experience of Latin America's largest country. "We have never really had a language or business or cultural problem there," he says.

Meanwhile, Terralex's McCallum says that challenges are presented by the geography of the Brazilian market. "Brazil is a very unusual market. It is geographically dispersed with micro-markets around urban centres located at great distance from one another."

While at different stages down the road to full maturity, the emerging markets and their regional neighbours look set to continue capturing the attention of multinational companies and, by extension, their legal advisers. Those independent firms that want to respond to client demand for advice in far-flung jurisdictions will increasingly call on the services of the networks whose responsibility it is to recruit appropriate member firms.

And they had better pack their bags for more business trips; demand for advice in the new wave of emerging economies developing around the world is growing, and firms without a trusted referral contact in, say, Vietnam, may miss out on an instruction to a global firm with its own offices in the region. The strength of the member networks is undoubtedly in its firms – the challenge now is to respond to emerging market demands apace and to maintain their reputation at the same time.

True, members that do not make the grade may be booted out, but the damage will already have been done.