Friday 4 February 2011

Is Belfast the new Bombay?

Shocking news in the sedate world of the legal sector yesterday. Magic Circle firm A&O has decided to open a big office in Belfast that will do some work for clients as well as moving up to 180 jobs from London to Belfast (read that as London redundancies).

Now A&o call this'onshoring' rather than off-shoring. But for a beast like A&O that only has an office in London, and technically there is a sea between Northern Ireland and Britain; so I am not so sure.

What it does show is finally (although Herbert Smith opened a Northern Ireland office) the Legal sector is being affected by cost drivers that have long driven Finance, HR, IT and other support departments. This is perhaps not so good for those £1 million plus partners who work at these top firms and manage to avoid the brickbats of being bankers despite earning more than your average banker by some distance.

The reason is that their clients have caught on to the fact that law firms aim to have 30% margins and nice swanky offices in the major cities around the world, whilst their clients move their head offices to Newbury, Cheshunt, or even Dublin. Given the UK legal sector is something of an oligopoly at the high end, the Magic Circle firms reality has been avoided for some time.

Also, Magic Circle firms are worried about 'brand' issues. They have the best people so sell on quality. Employing Northern Irish staff on lower wages and getting them to offer lower level services is a big brand extension and whether this will work is unknown. Also there are a multiple of UK City and Regional firms that already do this work, so A&O is not exactly creating a new market here, but trying to defend its position from the non-Magic Circle firms that are challenging it.

Interesting too is that the move is alot about moving back office staff and so reducing A&O overheads; the bit about saving clients money is kind of secondary and for the future. The initial savings are to be for the Partnership and I guess clients if they can manage to negotiate well on fees.

The wider background is interesting too, the Legal Marketing Act comes into force this year and it is expected that Accountants, Consultants, Private Equity and Large outsources are going to try and move on the UK legal market; this is one of the first steps taken to try and pre-empt this move. Hopefully one of two law firms will go down the route of listing on the FTSE so that we can have a play with their stock too.

Belfast must be a happy place though, all these high value services moving to the Province can only be a good thing for its local economy.


Old BE said...

Are they not getting the same services from their admin staff that they would get in London, but a little bit more cheaply because of wage differentials? The NI workforce is not undereducated compared with nor culturally different from the London workforce.

There is a large firm of solicitors which maintains a small office in London to attract London clients and runs all its "back office" functions in Brum where the trainee solicitors and admin staff are a few per cent cheaper.

SumoKing said...

2 things at work here

first the recession has ended the flood of transaction gravy train matters where 6 year PQE solicitors sit by a fax for 12 hours at £500/hour until the back page of an SPA comes through and still have the gall to call themselves lawyers

second, with big transaction clients no longer quiet as flush with cash as they were they are begining to wonder why their litigation is done on competitive tender/ebay auction and their transactions aren't

I don't think you will see the magic circle listing, slaughters poo poos at even LLP status, more likely you'll get mid tier volume operations who think "hmmm Japanease companies flush with cash in the 80s did well didn't they? didn't they? I don't recall how that ended, I'm sure it was fine, look at this tiny camera!"

Worsel said...

the 2.5 million quid from the public purse no doubt helps.

no one knows what will happen when the legal SERVICES (not marketing) act comes into force. there's no chance of a magic circle firm listing, they simply don't need the capital and why would they want to give up ownership? the more likely candidate is some vehicle that will roll up a load of smaller firms doing commodity type work and thus benefit from economies of scale.

Timbo614 said...

@CU "Hopefully one of two law firms will go down the route of listing on the FTSE so that we can have a play with their stock too."

Oh that'll be fun - we'll just become "big case watchers" with fingers on both BUY/SELL buttons as the Judge starts to give his final oration! Will add some spice to boring profit/loss & year ends!


David Farrer said...

In the many years that I worked as a company secretary and finance director it was always a mystery as to why lawyers always seemed to bill us later than anyone else. I eventually concluded that they must have margins that normal folk could only dream of. When I worked in advertising, billing clients one day late could potentially have brought down the company. The equivalent for lawyers seemed to be about a year.

Of course, we only need two laws:

(1) Don't initiate force or fraud
(2) Keep your agreements

How many lawyers would that necessitate?

Old BE said...

"Keep your agreements

How many lawyers would that necessitate?"

More than you think!

Laban said...

"Northern Irish staff on lower wages and getting them to offer lower level services"

There are some very clever people there - and they've only commenced the project of trashing the grammar schools quite recently, so education's still pretty good. I think they'll get a lot of bang for the buck. Plenty of hard-nosed Prods doing the detail in the back rooms and some nice Derry Catholic accents on the telephones ...