2013 already causing a headache for mid-tier firms

As omens go, news this week that HMV has finally called in administrators while CMS Cameron McKenna is to make around 40 redundancies in the UK means, barely three weeks in, 2013 is not getting off to an upbeat start.

The UK law firm's redundancy plans make CMS only the latest in a fast-growing list of practices planning to scale back staff numbers in response to the prolonged malaise in Western economies.

The number of job losses involved across the firms have yet to come close to the post-Lehman 2008-09 crash and notably the magic circle – bar a rare set of secretarial cuts at Slaughter and May and a handful of associate layoffs at CC almost a year ago – have so far avoided such moves.

But it is clear that as mandates remain thin and pressure on fees high, cost-cutting is on the minds of many. That CMS has been affected is unsurprising. Like many of those making cuts right now, its UK-centric practice does not have the benefit of a large book of business in markets far from the worst of the turmoil such as Asia.

The firm posted roughly static revenues for 2011-12 and turnover is thought to have been fairly flat for the first half of the current financial year – a period for which many firms, including CMS' most comparable UK peers, reported static or falling fee income.

Despite positive efforts to boost profitability and play up to its strong sector focus in areas such as intellectual property and life sciences, the firm still sits squarely in the mid-tier.

And while its decision to outsource its back office to Integreon has generated some savings, the move is generally viewed as so far being a mixed success rather than a triumph.

The firm is hardly alone in the challenge that it faces now, though, and at least it has taken steps to address its costs. Thus far, all indications are that 2013 is going to be a difficult year for everyone. But it is those in that middle group that look likely to bear the brunt of the pain.

While this year will likely see more redundancies and partner-level restructurings at many firms, simply shrinking in order to protect profits is not a long-term solution. Instead, all firms need to be looking for opportunities to genuinely grow their business.

The strategy will clearly depend on the firm, but for those in the middle – whether you're talking about CMS, Simmons & Simmons, SJ Berwin or a host of other similar names – it most likely needs to involve either some kind of tie-up with another firm or a structurally bold re-positioning of the business.

As firms such as Norton Rose and DLA Piper continue to shift the market through globalisation, there is only room for a few outliers in the vein of Slaughter and May or Travers Smith.

For everyone else, 2013 needs to be the year they take action or risk being left behind.