The Shifting Economic Center of Gravity

Editor’s Note: The author of this post is the chair of Baker & McKenzie. The firm’s global communications’ department contributed to drafting this post.

By Eduardo C. Leite, Global Chairman of Baker & McKenzie

The world is changing too fast. We live in volatile, uncertain, complex and ambiguous times and our job is to keep up and learn. If we’re really smart, then we must get one step ahead.

The economic center of gravity continues to move. We have witnessed a shift of capital and assets from West to East and from North to South.

• Fifteen years ago, 50% of all goods traded was between developed nations - today it’s 28%.

• Ten years ago, 60% of public companies were in the US, the UK or Japan - now that figure is 45%.

• The Middle East and Latin America have doubled their Forbes 2000 presence.

These trends will only continue. It’s not really about who is emerging’ anymore. The goal posts are constantly moving.

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So what do we do at Baker & McKenzie to stay relevant to our clients? Put simply, where our clients go, we should go. Globalization drives corporate strategy. Companies need markets where growth is greater, notwithstanding the geopolitical shifts. These are powerful forces as important as short term financing trends or interest rate movements.

But there are some strong headwinds. According to the International Monetary Fund, global economic growth will climb only marginally this year as slowing output in major emerging markets and weak expansion in many developed economies countries weighs on near-term prospects. Emerging markets are on course for the sixth consecutive year of falling growth rates.

There is risk of recession in Brazil, contraction in Russia - combined with geopolitical risks elsewhere, collapsing commodity prices; sluggish trade growth; a still challenged banking system; and the rising value of the U.S. dollar.

That’s why we need to keep on learning from and listening to our clients. We know from them that the term ‘emerging markets’ is a misnomer. Diverse, complicated countries and business cultures are not and in fact never were one homogeneous block. It sounds counterintuitive, but to provide clients with the same consistent quality of legal advice they need to grow their businesses sustainably, we have to treat every country and market differently.

Local knowledge is vital to navigating change. Very frequently, situations change in an instant in a way that impacts our clients’ business dramatically. And they expect us to be paying attention to the signs of disruption. Certainty. Quality. Proactivity. These are all things clients expect from their lawyers and consultants everywhere.

This deep local knowledge only comes when one is truly engaged with a country and its business culture. When we have roots in the community.

Change notwithstanding, it is a truism that those who do not learn from the past are condemned to repeat it.

That’s why we take a long term learning approach to emerging markets. Our second office after Chicago was Caracas, more than sixty years ago.

This depth of experience allows us to respond effectively to what clients need. As their growth strategies adapt and their legal needs evolve, so do we.

Law firms are learning that being global isn’t about planting flags. A colonial approach doesn’t work in the long game. Local markets require local expertise. But expertise that is trained to an exacting global standard, facilitated by secondments and training in other offices and systems, particularly in global financial and commercial centers.

Over the next decade we should see fewer major law firms, but those remaining will be highly competitive and better organized. Perhaps most importantly, they will be the firms that have ‘emerged’ as the best learners.