U.S. Firms Expand into Latin America at a Record Pace

Recent data released by The National Law Journal, an ALM sibling publication of this newsletter, reveals that Latin America is the fastest-growing emerging market for Am Law 200 firms. The reason for U.S. firms' growing interest in the region is clear: Many Latin American economies boast above-average GDP growth and strong economic ties to the U.S. and Europe. Additionally, U.S. firms appear to be gaining traction in the region, with signs that they are taking market share from domestic firms.

ALM Intelligence's data shows that these factors have created a sustained and growing push by Am Law firms into the region. The data also reveals the different strategies these firms are using to tap Latin American markets.

A Growing Interest in Latin America

Last year saw record growth in Latin America for Am Law 200 firms. ALM Intelligence's NLJ 500 Report reveals that Latin American headcount, measured in lawyers, grew nearly 20% for Am Law firms. Perhaps most surprisingly, Latin America outpaced Asia in terms of lawyer growth. Am Law 200 firms added 265 lawyers across the region. By contrast, these firms only increased their headcount by 148 in Asian markets, despite Asia being four times larger than Latin America in GDP, according to the World Bank. The only international market that outperformed Latin America was Western Europe, a region with a much larger GDP and a longer history of US law firm presence.

Growth in Latin America came from a variety of sources in 2015. Am Law 200 firms added three new Latin American offices in the past year. Littler Mendelson, a labor and employment specialist, opened an office in Guatemala to complement its network of nine other offices throughout South and Central America. Mayer Brown and Thompson & Knight opened offices in Mexico City, both of which will initially be focused on energy related services. These market entries bring the total number of Am Law offices in Latin America to 69, up 68% from 2010.

While market entries account for a portion of Am Law 200 growth in Latin America, the vast majority of growth came from existing offices. Am Law 200 firms added 179 lawyers in existing offices, accounting for 67% of lawyer growth last year. This fact adds weight to a growing body of evidence that Am Law firms are successfully competing with domestic firms across the region. Data provided through ALM Intelligence's Latin America 50 Report reveals that Am Law firms grew their existing offices, in lawyer terms, by 5% per year over the past two years. By contrast, local Latin American firms averaged 3% growth over the same period. This fact should provide some comfort to law firm leaders making big bets on Latin American expansions.

Differences in Firm Strategies

While Am Law 200 firms are deploying a broad range of strategies in Latin America, two approaches stand out. The first, epitomized by Baker & McKenzie, is to blanket the region. The firm's Latin American network includes 774 lawyers in 15 offices across seven countries. Baker's strategy, similar to the firm's approach in Asia in the early 90s, is to focus on developing an early foothold in the region and pairing a strong regional network with the firm's vast international network. In doing so, Baker hopes to differentiate itself from domestic players, who lack the international presence, and from international firms, who are currently less established in the region than Baker. This strategy has shown some success thus far, with a majority of the firm's Latin American offices seeing consistent growth over the past five years.

The second strategy, which is being pursued by many elite Am Law firms, is to maintain small offices in key financial centers across the region. While these offices can provide clients with some level of local service delivery, their capabilities are limited by their size. These offices, which typically have no more than 10 lawyers, are more likely to be business development and client relationship management centers that refer work back to the firm's primary offices in the United States. This strategy is best suited to transaction-focused firms. The high value nature of these services allows the firms to justify a lack of local capabilities. Simpson Thacher, Davis Polk, Gibson Dunn, Skadden, Cleary Gottlieb, Milbank, and Proskauer Rose all appear to be following some form of this strategy.

These firms have offices in key Latin American business centers, including S'o Paulo, Buenos Aires and Mexico City. The offices of these firms average only five lawyers and have seen little growth over the past four years. Despite this, many of these firms are featured at the top of mergers and acquisitions league tables for Latin America, suggesting the small office strategy can yield results.

Continued Expansion Likely

Greater expansion into Latin America by Am Law firms appears likely over the short term for a variety of reasons. The World Bank projects that the region's GDP growth, which has been held down by economic problems in Brazil and Venezuela, will pick up over the next few years. Central America and the Caribbean are predicted to be particularly strong spots for growth. Columbia, a midsize economy that is emerging from the shadow of a long civil war, may also be a source of growth for some law firms. Even Brazil, which is projected to see a decline in GDP this year, is expected to return to growth by 2018. These factors, combined with slow growth in the U.S. and Western Europe, are likely to cause law firms and their clients to look to Latin America for growth.

Am Law firms will almost certainly continue expanding into the region. This is likely to happen for two reasons. First, many U.S. and UK firms will see an opportunity to continue stealing market share. Second, there may be a greater range of opportunities for firms looking to enter through merger or lateral hiring. As domestic firms come under greater pressure from foreign firms, they may see an outflow of lateral partners or be forced into mergers with foreign firms. This would increase the pace of the internationalization of Latin American legal markets. A similar series of events occurred in the development of the Asian and European legal markets, and there is little reason to believe Latin America will be substantially different.

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Nicholas Bruch is a Senior Analyst at ALM Legal Intelligence.