27 Mar 2015

It’s the opposite of grim up north. 

Cost cutting has always been an important part of business. With many top law firms now moving aspects of their business to other cheaper locations, we wonder what outcome this will have on those firms, the cities and current/future lawyers in them.
Offshoring is often used in business to cut costs, think of a phone company moving their call centres and telecommunications activities to India. Problems arose however as this generally caused issues due to language and negative connotations from moving labour out of the UK. Companies still moved activities to India despite this, lower costs advantages far outweighed the problems. It seems that big city law firms are beginning to follow suit, but in a less risky manner and much closer to home.

For a London based law firm, north-shoring, the process of moving certain aspects of the business; usually support staff, up north to a different location has clear advantages. Property wise northern cities have cheaper rent per square foot than the capital, something of increasing importance as rental cost per fee earner in London climb by 2% per annum. According to a survey by commercial property consultancy CBRE, annual rent for office space in attractive northern cities such as Manchester, Birmingham and Glasgow are around half that of London. Cheaper overall rents filter down to employees, meaning lower wages for similar work to that done in London. Ideal for roles like support staff due to good talent pools in northern cities.

Key advantages.
The most important point for cities regarding north-shoring is that some firms don’t just stop at simple business services and back-room support staff. The movement of some legal work to northern cities can only benefit and provide opportunities to talent in the local economy, or alternatively bring in external talent and know-how from London.
Routine legal work would provide opportunities to legal graduates and paralegals in the north, allowing them to gain training, experience and importantly employment at a time when there is an abundance of graduates; but not contracts. Firms are already combining cost cutting north-shoring efforts and partner led offices, with the aim of aiding and reducing the burden on their London offices. Improving infrastructure only adds to the advantages, Improving transportation and High-Speed Rail (whenever it actually arrives) allow quick access to the capital from around the county, HS2 is quoted as low as 1hour 8minutes from Manchester to London, further reducing the benefit of living local to the capital. For the northern cities the moves mean employment, use of high-end office space and a spot on prestigious law firms’ ‘locations’ webpage.

Relocation or redundancy?
An industrial size relocation of jobs from one end of the country to the other is not going to go down well with everyone. Those being forced out of the London will feel particularly begrudged. Their work will still be done, just in a different location, either by them or someone else. Freshfields is allegedly weighing up moving around 800 support staff up to Manchester. This would be the largest magic circle north-shoring to date and could cause internal friction and concern. The long term aim is to create a consultancy option whilst also trimming costs.

It’s not just the UK Firms.
US firm Latham & Watkins announced it will open a business services office in Manchester at some point in the first half of 2015. Though this is technically offshoring for them, they appear to have chosen Manchester over London. The aim of the office is to service the firm’s european network, something difficult to do from their Los Angeles based business services office. Contrasting LA-European time-zones and growth in their London office have played a factor. Rod Harrington, Latham & Watkins chief administrative officer in Europe, stated Manchester was chosen due to its good talent pool and transports links, also adding: ‘It’s a long-term play, we’ve not been forced to do this for short-term cost cutting reasons, it’s about dealing with the significant growth at the firm which we expect to continue. As we’ve grown outside the US, that poses challenges as the LA business services office has had to provide service to Europe in the middle of the night. By establishing a business services unit in the European timezone we can pretty much cover 24-7 support.’

Latham & Watkins will be joining other firms in Manchester such as Berwin Leighton Paisner, whose business services office opened in Manchester last year. Nabarro also opened a partner-led more cost-efficient office to focus solely on real estate work in May 2014.
Manchester is not the only option, firms such as Baker & McKenzie opened their first European business services offices in Belfast late last year. Allen & Overy and Herbert Smith Freehills have also opened low-cost legal offices in Belfast. Hogan Lovells has gone a step further, not only moving support, but also opening a cost efficient ‘Legal Services Centre’ which has a ten-strong associate team in Birmingham. As well as a strategic cost cutting option, the northern cities are providing a potential fee earning base.

The question is, why now?
Why has the trend of looking north for cheaper pastures only began to take off in recent years? One obvious reason is the recession proved no firm is too large to fail. Cost-cutting and streamlining efficiency are measures needed during difficult economic times. Post-recession firms can now look back in hindsight at how they could better prepare for the strain, this will be in the back of partners minds when determining future business strategy; it is easier to cut costs now than to make large-scale redundancies when in difficulty.
Threat of new entrants to the legal market could also of forced this trend. The ‘Big Four’ accountancy firms potential and long talked about entry into the legal market will bring with it their greater levels of efficiencies, along with cost and scale advantages. A positive for law firms however is their entry seems measured, cautious and focused on areas that complement their existing work; for example immigration, as it fits nicely with their expatriate tax work. Regardless, slowly but surely they will begin to gain ground. PwC Legal aims to double revenue to $1billion by 2020, the legal market is not growing fast enough for this to be done without competing with current leading law firms.
These threats, along with the market pressures from other large firms already reducing their costs and therefore fees, seems to be forcing law firms’ hand and encouraging them to follow. North-shoring seems a simple cost cutting strategy, however, the potential for future development makes it much more. The original aim was to simply reduce costs, but it appears that firms are realising there are services and fee making opportunities that can take place in the north. Moving support staff north not only cuts costs but creates the opportunity for future investment and income creation in a more cost-effective manner.


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