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Barbarians at the Gate: The Invasion of Regional Legal Markets and How Mid-sized Firms Should Respond

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Large law firms have spent the past two decades expanding into new markets at a tremendous pace. Since 2001, the United States’ largest 250 law firms by attorney headcount, known as the NLJ 250, have nearly doubled their geographic coverage – adding more than 1,400 new offices across the globe. This process has fundamentally changed the legal market in two important ways. First, it has created a group of law firms with vast scale and geographic reach. Equally important is the impact that expansion has had on local law firms. Many regional legal markets have been transformed over the past decade. They have transitioned from localized markets, dominated by legacy firms, to highly competitive marketplaces, fully integrated into the global legal services market.

The rate at which this transformation has taken place begs important questions. This is particularly true for regional firms whose clients and talent have been targeted by expanding firms. What impact has geographic expansion had on local firms whose markets are being “invaded”? Have those firms lost market share? Have they declined in profitability?

An analysis of the data on nearly 1,500 law firm office openings over the past two decades provides answers to many of these questions. The data makes a compelling case that firms should approach geographic expansion more cautiously. While expansion has enabled growth, it has not always enhanced profitability. The data also offers lessons to local firms. When markets get invaded, legacy firms typically lose market share. A case study on the Houston market suggests this does not, necessarily, spell doom for local firms. There are strategies local firms can pursue to defend their market position and protect their profitably. Above all, the data suggests the trend of larger firms expanding into new markets is unlikely to end any time soon. Local and regional firms should prepare themselves for increased competition with national and international firms.

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