Bogota Colombia
Despite economic slowdowns in certain parts of Latin America, the region’s changing political and social climate is attracting U.S. law firms looking to be better positioned to do business where their multinational clients operate. Holland & Knight LLP, Greenberg Traurig LLP, White & Case LLP, Baker & McKenzie, DLA Piper, Norton Rose Fulbrightand Mayer Brown LLP are among the firms with multiple offices in Latin America. As Latin America has stabilized, particularly in Mexico and Colombia, international law firms have opened in major commercial centers amid structural reforms.
Latin America is still considered an emerging market. Even though Brazil has a large economy, it has experienced a slowdown in its GDP. However, forecasts indicate other parts of Latin America are poised for opportunity and growth. For example, a World Bank forecast projects the Mexican economy will accelerate with GDP growth strengthening from 2.9 percent in 2015 to 3.5 percent in 2017.
The four largest emerging and developing economies by either nominal or PPP-adjusted GDP are the BRIC countries (Brazil, Russia, India and China). The next five largest markets are South Korea, Mexico, Indonesia, Turkey and Saudi Arabia, although South Korea is not considered an emerging market by most sources.
Law firms that are optimistic about pockets of growth and emerging energy markets appear less resistant to entering Mexico than other Latin American countries. This is likely because they are familiar with Mexico due to its proximity as a nation that borders the U.S. However, Colombia is probably a safer environment, and it is rich with minerals and natural resources, so there are good reasons for a firm to establish itself in that region. Holland & Knight, DLA Piper, Baker & McKenzie and Norton Rose all currently have offices in Bogota. Dentons has gone on record wanting an office in Bogota as well.
Staffing an office
Staffing a successful legal team in Latin America typically involves a choice between three strategies:
Full service from the start. Merging with a well-known local firm cuts back on the time it may take to adapt to Latin American culture. Joining forces with a local, established practice can also make a firm’s reputation shine right away. On the other hand, it calls for a much higher initial capital outlay than a smaller-scale strategy. A prime example is the merger/acquisition in August 2014 of the prominent, 75-lawyer Mexican practice of Barrera, Siqueiros y Torres Landa with Hogan Lovells. In a press release announcing the move, Hogan Lovells’ CEO Steve Immelt said, “2013 ushered in sweeping structural reforms for Mexico, which could unlock major potential for investors and companies in a broad range of industries that are looking to capitalize on the current environment.”
Build on a boutique firm. Acquiring a local boutique firm that focuses on either one practice or multiple practices, but is not full service, will provide a springboard for expansion into full service. Jones Day incorporated this strategy in 2009 by combining with the top-tier Mexico City-based law firm De Ovando y Martínez del Campo, S.C. The two firms collaborated for 20 years before combining forces. Jones Day has now expanded to the point where Mexico City considers it “full service.”
Assemble a dream team. This strategy involves various rainmakers from different firms bringing other attorneys with them from their old firms. We have not yet seen this approach executed in Latin America, but it has been done in the U.S. with varying degrees of success. Ideally, all sides can work together and do so productively and amicably, but it is contingent upon the way the integration process is approached. The challenge in Latin America, as it is elsewhere, is defining the rainmaker’s role in the new entity: who is the leader and would the other rainmakers fall in line?
Start with a strategy
Before making a move to open shop in Latin America, it is advisable that law firms familiarize themselves with certain cultural barriers.
For example, overhead costs will vary. Prime office space prices in Brazil are considerably higher than in Mexico or Colombia and are on par with New York City.
Central American countries including Honduras, Guatemala and El Salvador may still be too unsafe to consider locating to. Chile and Peru are growing economies (Baker McKenzie currently has offices in Chile and Peru) and have GDPs that are on a much smaller scale.
From a regulatory perspective, it is easier to operate in Mexico and Colombia than in Brazil, where The Brazilian Bar Association (Portuguese: Ordem dos Advogados do Brasil or “OAB”) prohibits international firms from practicing local law. While there are no roadblocks to opening in Colombia, it is one of the world’s most difficult places to enforce a contract. According to the World Bank’s latest ease-of-doing-business rankings, when it comes to contract enforcement, Colombia ranks 168 out of 189 economies globally because it takes 1,288 days, 33 procedures and costs 47.9 percent of the value of the claim to enforce an agreement.
Latin American labor and employment laws can also be tricky because they typically reflect the political history and values of the respective countries and offer disproportionate protections for employees. Foreign investors can face higher risks than they might in the U.S. and are wise to get advice from firms that have boots on the ground to navigate the legal and regulatory landscape.
Making the commitment
Moving into Latin America may take a commitment of between three and five years before profits materialize. For many firms, this path is not the desired one, so they seek out alternative options for expansion. Yet, for other typically larger practices, there is enormous potential in Latin America’s future and it is well worth the capital investment to see it through.
Of course, commitment is not defined merely by the number of years on the ground and the investment made. Latin America is rich with culture and each distinct culture has its own set of mores beyond the legal landscape. Building a presence in Latin America will not succeed if it starts out as a hasty decision to replicate what other law firms have done. Rather, the payoff can be generous for firms that take a long-term approach; understand the costs and regulatory landscape; and, most importantly, understand the importance of cultural acceptance and integration.
A Look around Latin America
Bogota, Colombia. Bogota is not only bursting with natural resources, but also has the benefit of government stability. Additionally, it offers a comprehensive legal framework for business and its regulatory procedures are far more simplified than other countries in the region. Bogota has become a sanctuary for people from Venezuela, a country that likely sits on the largest oil reserve anywhere in the world.
Mexico. Mexico is one of the largest economies in the world and is considered an emerging market. Law firms are eyeing international capital markets and the growth of public/private partnerships in the infrastructure sector. Energy reforms, in particular with respect to Mexico’s oil industry, will also likely fuel substantial growth. With its open economy and its wide-ranging free trade agreements, the country is wide open for possibilities. Mergers with small-to-medium-sized firms tend to yield the best opportunities for foreign law firms.
Brazil. Many law firms have entered Brazil in the past 10 years. Although it is an emerging market, success has been limited due to a slow-growing economy and the OAB, which poses tough regulations for new firms looking to open up in the region. Firms with an existing presence, however, are trying to retool and shift their focus to project finance and away from capital markets, an area where Sao Paulo, specifically, has not seen many deals in the past three years. It has also become increasingly difficult to open an office in Brazil because international firms are not able to practice local law. Another disadvantage comes from vast cultural differences and a different language (Portuguese) than what is spoken throughout the rest of Latin America (Spanish). However, law firms have been expanding into Rio de Janiero, which is known as the energy capital of Brazil. Hogan, Baker Botts and Norton Rose have recently opened offices in Rio.
As we sit on the cusp of Latin America’s growth, there are international law firms exploring its countries to see which offer the most promise. One way or another, a law firm must service its clients wherever their business takes them. Currently, many are bullish on Latin America as the next frontier. In the end, as always, the ultimate decision is dictated by whatever it takes to keep clients happy and for law firms to maintain their profits.
—By Bruce Lubin, Lippman Jungers LLC
Bruce Lubin is a senior managing director in the New York office of Lippman Jungers LLC, a global legal recruiting firm. With more than 10 years’ experience as a legal recruiter, Lubin has placed groups and individual partners at top-tier law firms around the globe. He can be reached at Bruce@LippmanJungers.com.
