UK professional service firms have seen a period of unprecedented growth driven by both the domestic and international marketplace. With few barriers to entry, firms have invested in and expanded their global networks and benefited from the booming global economy. However, as the Prime Minister has repeatedly told us, the economic problems we face today are not unique to the UK but affect the international economy as a whole. So will firms return their focus to domestic markets or maintain their international strategies?
In most cases, the ability to make financial investment overseas is ultimately determined by how robust domestic performance is and as we see from daily updates on the cost reduction measures across the professional service sector, it's clear that most firms are prepared for 2009 and 2010 to be 'difficult' at best. Recent history also shows us that the sector tends to lag the recession in the real economy and therefore perhaps 2011 is still too soon to be sure of a significant turn upwards for the market. So we are likely to see international firms being less aggressive in their moves into new markets. Management teams may view the initial cost of investment as a discretionary part of the strategy which can be put on hold for now and revisited in a couple of years' time when cash flows are more obliging or when external capital becomes accessible.
However, forward thinking management teams will still see the future opportunities that international expansion still provide, the global recession will end and growth will return to certain overseas markets sooner than others. International clients will still demand a high quality, consistent level of service across the globe and some would argue this is actually a good time to look to make lateral hires or find new premises to set the practice up to hit the ground running when activity levels pick up. Indeed recently we have seen SJ Berwin and Ashurst launching Asian offices in Hong Kong, Olswang tripling the partner headcount in its Berlin office and Jones Day opening up in Dubai (despite recent speculation of the State's demise).
Let's not gloss over things, we're in largely unknown times and some firms will be forced to adopt radical measures, but the firms that are likely to come out the other side best placed will be those which are led by strong management teams that have a clear strategy which they stick to. The strategic actions that they take should not be focused solely on reducing costs in the short-term but on putting the firm in the best possible position to take advantage of the upturn, whenever and wherever that may come.