Business Review

Swimming with the local sharks

The tough local competition coming from local law firms may trigger a more cautious approach from international law firms and even a longer preparation for market entry. The latest entrant was White & Chase, and others are expected to follow.
DLA Piper has already been rumored to be showing more than a slight interest in Romania.
Of the five law firms in the UK's Magic Circle, only Linklaters and Clifford Chance are present in Romania. Allen & Overy has tackled business in Romania while representing firms interested in privatizations here, without opening a local office. For Freshfields Bruckhaus Deringer and for Slaughter & May, Romania was not convincing enough.
Meanwhile, Linklaters has been rumored to be closing its local office and restructuring its CEE business. By the time Business Review went to print, Linklaters had not issued any official position on the matter.
Of the top 100 law international firms recently ranked for turnover by The Lawyer, only five are present in Romania: Linklaters, Clifford Chance, White & Case, CMS Cameron McKenna and McGuire Woods.
The local market for business legal services was estimated to reach EUR 200 million in 2008, and according to estimates, the biggest piece of this pie stays in local hands.
Chambers and Partners' most recent ranking of law firms in Romania puts Nestor Nestor Diculescu Kingston Petersen (NNDKP) and Badea Clifford Chance in the top tier for banking & finance services. Chambers' second band for banking and finance includes CMS Cameron McKenna, Linklaters, Musat & Asociatii and Salans. The third tier includes Bulboaca & Asociatii, Gide Loyrette Nouel, Noerr Stiefenhofer Lutz, Popovici, Nitu & Asociatii, Schoenherr, Tuca Zbarcea & Asociatii, Wolf Theiss, and Zamfirescu Racoti Predoiu.
Chambers' corporate and M&A practice for Romania includes in the top band Linklaters, Miculiti, Mihai & Asociatii, NNDKP, with CMS Cameron McKenna, Musat & Asociatii Popovici, Nitu & Asociatii and Tuca Zbarcea & Asociatii in the second band.
The third band is shared by Badea Clifford Chance and Salans, while the fourth one includes Buzescu Ca., Austrian Cerha Hempel Spiegelfeld Hlawati, French Gide Loyrette Nouel, Nörr Stiefenhofer Lutz, Wolf Theiss and Schonnherr.
The Legal 500 publication has recently acknowledged the domination of major domestic law firms in Romania. "Long established NNDKP and Musat & Asociatii have ruled the roost since the liberalization of the market in 1990s, though Popovici Nitu & Asociatii and Tuca Zbarcea & Asociatii are gaining market presence year on year," writes Legal 500. Radu Taracila Padurari Retevoescu (RTPR) is also mentioned as an up-and-coming firm.

Early pickers on privatization deals become pool of lawyers
Only a few foreign law firms came to Romania from the early 90s, hoping to benefit from the large privatizations and other large transactions expected to happen. These deals, however, happened relatively late in Romania in comparison to its neighboring countries, where these firms had already been working. Several of these early entrant foreign law firms are no longer present in Romania, some of them having been subject to takeovers internationally, having restructured strategies in the region or just having closed business worldwide.
Burns Schwartz was one of the foreign law firms present in the mid 90s in Romania.
The firm's arm in Romania was taken over in 2000 by UK law firm Linklaters, the first of the Magic Circle law firms to have stepped into the local market.
Hayhurst Robinson, another foreign name in Romanian legal counseling, became part of CMS Cameron McKenna, the two having merged in 2006.
This first wave of foreign law firms in Romania did not manage to benefit from the bulk of these expected deals, which went to local firms, turning them into today's top firms locally.
The foreign presence however created a pool of young lawyers which joined the teams of other foreign law firms or spun off to create their own practices.
Catalin Predoiu and Ioana Racoti, now heading their own law firm Zamfirescu Racoti Predoiu, were working for Burns Schwartz in the mid-90s. So was Daniel Badea, now managing partner with
Badea Clifford Chance, and Dragos Radu, who went on to create his own firm together with several partners: Radu Taracila Padurari Retevoescu.
"Romania is somewhat unusual among countries in the CEE/SEE region in that the local firms have been quite successful at competing with foreign firms entering this market. In part this is due to the longer period of time the Romanian firms have been operating and the corresponding strong reputations and deal experience that they have gained in Romania," says Bryan Jardine, managing partner with the local office of Austrian law firm Wolf Theiss, also a late entrant on the market.
In contrast to Hungary, Poland or the Czech Republic, for example, most foreign law firms currently operating in Romania entered the market only after 2000. They were not here in the early and mid-1990s as they were in these other markets in the region, says Jardine.
"The combination of economic downturns and delays in the privatization process in Romania that ‘burned' the initial foreign firms entering this market coupled with the more recent economic growth is, I believe, why more foreign law firms have only recently directly entered the Romanian legal market," the Wolf Theiss managing partner believes.
To a certain extent, both foreign law firms and local ones have benefited from the major privatization in the last couple of years in Romania. The privatization of BCR in 2006 brought together Musat & Asociatii, which represented bidder KBC, Popovici & Asociatii (currently Popovici, Nitu & Asociatii) for Dexia, Tuca & Asociatii (currently Tuca, Zbarcea & Asociatii) for Deutsche Bank, and Gide Loyrette Nouel representing BNP Paribas. Winner Erste was represented by foreign Cameron McKenna.
The seller, the Romanian state, was represented by Nestor Nestor Diculescu Kingston Petersen (NNDKP).
In Petrom's privatization, Linklaters represented the state, while winner OMV was represented by a consortium made up of Deutsche Bank and NNDKP.
The privatizations of electricity distribution company Electrica's branches and that of Distrigaz have also fuelled the increase in businesses for local law firms.

Fight for lawyers and clients follows courage of the 90s
"In the early 90s when it was hard to predict the future and the economic development of the country, to open this kind of business in Romania represented an ‘act of courage.' Nowadays it is much easier, when a realistic business plan for the law firm can be made or when the chances for development can easily be foreseen," says Joerg Menzer, partner with Noerr Stiefenhofer Lutz in Romania. "The major challenge for Noerr Stiefenhofer Lutz back in 1998 was to conquer the Romanian market not only through German clients but also through the domestic ones," says Menzer.
The market entry of international law firms in the late 90s-early 2000s has brought along some of these firms' customers from abroad. "When Salans came to Romania more than ten years ago the challenges were different. At that time many people were questioning whether it would be appropriate to invest in this part of the world. [...] We managed to persuade many of those who were reluctant in those days to follow us," says Cristopher Berlew, managing partner with Salans.
Foreigners come with a backup of resources, know-how, client relationships, legal and business training programmes for lawyers, says Daniel Badea, managing partner with Badea Clifford Chance.
While many foreign law firms were too reluctant to step in, local law firms grew and developed teams of lawyers, some of which went on to create their own firms as well, increasing the local competition further. Local lawyers became accustomed to working as local counsels for international law firms.
So it was even harder for foreign firms to enter, especially since the market entry meant taking away lawyers and clients from local firms.
"By the time international law firms did decide to enter this market, the local firms already had strong established practices, capabilities and client bases. Moreover, once a client is comfortable working with a law firm in a particular market, they are often reluctant to move their business - even if the foreign law firm entering the local market is their preferred counsel in other jurisdictions," said Jardine.
After Romania's acceptance into NATO and its recent EU entry, the country became more interesting for foreign law firms. In 2006, a second law firm from the UK's Magic
Circle, Clifford Chance, opened a local office by joining the local office opened by lawyer Daniel Badea.
"For Clifford Chance, the Bucharest office has become a hub for the entire SEE region - we are now doing deals in Bulgaria, Serbia, Montenegro, Croatia, Moldova and Turkey. Such a regional role would be more difficult for a domestic firm," says Badea.
Salans's decision to open an office in Romania in the late 90s has proven wise. More than 10 years after, its office in Bucharest has managed to outperform the firm's overall yearly increase. "Our office in Bucharest outperformed the firm's global performances in 2007. While Salans had a 37 percent growth in 2007, here in Bucharest we experienced 50 percent growth," says Berlew.
The major challenge for an international law firm which nowadays wishes to enter the local market is to create a team of lawyers able to provide the type of services that such firms offer internationally, Badea believes.
The local market is facing a 30 percent deficit in personnel, and each new entry dips into the pool of lawyers from existing legal practices.
For its recent market entry, White & Case recruited lawyers both from its global network and from other firms locally. It now has 10 lawyers, of whom two are partners. There are plans to expand the team to 15 lawyers within one month.
Before opening an office here, White & Case had served the Romanian marketplace acting on behalf of clients with interests locally. The firm's Bucharest office is managed by Todd Shollenbarger, formerly of Linklaters.
In order to overcome the shortcoming of "fishing in the same pool of legal talents," as Jardine says, the new entrant firm would need to distinguish itself from those law firms already on the market - to make it attractive to lawyers who may be considering leaving their current firm in order to work with the new entrant, he says.
Wolf Theiss's entry in Romania in 2005 attracted lawyers mostly from local law firms. "Although our firm was a relatively new entrant into this market in 2005, many of the core team of lawyers actually worked together going back to the late 1990s and early 2000s," says Jardine.
To counter the lack of personnel, law firms go directly to university students, who are selected in their final university years and paid for internships at the firms.
The quality of the team makes the difference on the Romanian market, says Badea. The team should however rely more on local expertise than on using expat lawyers.
"To be successful in a country like Romania, foreign law firms must avoid the temptation to rely too much on foreign lawyers, instead of building a solid team of highly qualified Romanian lawyers," says Christopher Berlew of Salans.
In most of the foreign law firms working in Romania, the number of expat lawyers is relatively low compared to the number of local ones. Salans employees three foreign lawyers, out of a total of 37 people. The firm plans to expand to 50 people and move to larger offices by the end of 2009.
Badea Clifford Chance works with 39 Romanian lawyers and with six expats, while Wolf Theiss has 30 locals and only two foreign lawyers.
Apart from the challenges of putting together a local team of lawyers, international law firms are also facing the bureaucratic Romanian system.
"The major shortcoming is the unknown environment to which the foreign law office has to rapidly adapt. The Romanian system is sometimes still too bureaucratic
and the legal system is very dynamic but despite the early 90s this dynamic has positive results," says Menzer of Noerr Stiefenhofer Lutz.
Internal bureaucracy is another step back for foreign firms. "Foreign firms, because they are often larger and more complex entities than Romanian firms, tend to be more bureaucratic in their processes and decision-making. They are not as nimble as the Romanian firms, which can typically have decisions made immediately by one or two key partners within the firm," says Jardine.
He believes lower fees also come as a competitive edge for local law firms.
"Moreover, the Romanian firms can be more aggressive in their fee structure since they typically do not have the same level of overheads, cost centers and professional insurance as the international firms."

By Corina Saceanu

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