The Balkans is a fragile region where bad news come first and good news last. As a rule, economic crises hit the Balkan countries first, and the Balkans is usually the last region to experience economic rebound.
The legal profession in the Balkans shares a destiny similar to that of the local economies – the common thing for commercial and corporate law firms in the Balkans is a constant flux between good times and bad times (with a frequency higher than in the rest of Europe). In such an environment, local firms have gotten used to operating in bad times and have a robust set-up where the headcount is carefully adjusted to the upturns in business, but always with a view to easily reaching a sustainable number of employees when the rainy days come. Therefore, unlike perhaps in some other parts of the CEE, law firms in the Balkans generally do not experience big changes in headcount, and the average number of lawyers in these law firms is lower than it is in the rest of CEE (and of course lower than in Western Europe).
Another common trait of the Balkan legal markets is that several Austrian law firms have regional outposts in each and every country, but no other international player is present in the entire region. The alternative to Austrian coverage of the region is a handful of networks or alliances of law firms which, with more or less success, are able to offer unified legal products across the board. The absence of Magic Circle firms or other international or global firms is a clear indicator of two main problems inherent in the local legal markets: fragile economies and small markets where deployment of an office does not make economic sense. However, local lawyers see this as a genuine opportunity to serve as preferred law firms to the big international players, and every country boasts several law firms whose success is built on the relationship with and referral work coming from the larger international law firms. These firms, with client bases dominated by foreign clients (or their local branches), prove to be more resilient during times when local clients experience difficulties paying for legal services or cut demand for the services. It is therefore not surprising that in this market constellation there are not many newcomers. What is common to these markets are spin-offs from the already established firms. The spin-offs have generally proven to be successful – and often represent the only “new blood” on the market.
The prospects for the region and its legal markets are positive, even though in the near term they are not likely to be as successful as Western Europe or the Scandinavian countries. My optimism is founded on the fact that relatively soon most of the Balkan countries will be in the European Union, with unified and predictable legislation. Although the EU has current and cooperative challenges (particularly the potential outcome of the Brexit crisis), it still offers the Balkan countries more potential benefits than any alternative. If the Balkans are to have a decent period of quiet in which there will be no more wars, immigrant crises, or unexpected world economic crises, these countries and their legal markets can do quite well and prove to be a hidden jewel for direct foreign investments. The Balkan legal markets will become visible on the radar, and sooner or later we will witness mid-sized international law firms putting their flag on the region. This will significantly increase competition, making it harder for the local players to continue attracting top talent because international newcomers will be able to offer greater opportunities for young lawyers to be part of large international networks, with related secondment opportunities, further training and education, and travel. On the other hand, the top tier local firms are likely to remain the preferred choice for the most sophisticated deals requiring the best local knowledge and experience – a competitive advantage which any newcomer will find hard to match.
Of course, things may go in a completely different way – the EU may dissolve, another big crisis may strike, or the world may go crazy and enter into a new regional war (the latest developments between Russia and US are a reason for concern). If that happens, in the Balkans we may again experience “interesting times.” My hope is that we, who live and work in the Balkans, never again hear the old phrase “May you live in interesting times” – we have had enough of it and we need some boring, peaceful times to prove that we can do much better with all the resources, talents, and knowledge at our disposal.
By Damir Topic, Partner, Divjak Topic & Bahtijarevic
This Article was originally published in Issue 3.3. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.