Brazil Nuts: Why Law Firms are Flocking to Sao Paulo

Throughout the next few weeks, we will be taking a closer look at certain emerging markets and their impact on the global legal industry.  Today our focus is on Brazil, but stay tuned for a discussion of why some are calling this the “Asian Century” on Friday.

The Influx of Firms

Although much of the focus in recent years has been on emerging markets in Asia, Brazil has been quietly claiming an important role in many law firm strategies.  The global economic downturn has only hastened this development, as large international firms have looked to developing countries as a key source of future business in the global market.

In 2011 alone, Dewey & LeBoeuf, Jones Day, Cleary Gottlieb and Davis Polk have announced new offices in Sao Paulo.  The CMS law firm network has announced interest in adding a member in Brazil (the UK member, CMS Cameron McKenna, already has an office in Rio de Janeiro focused on the oil and gas industry).  European players including French firm Fidal, German firm Heuking Kuhn Luer Wojtek, and UK firms Kennedys, Taylor Wessing and Harneys have also begun expanding into Brazil.  Fidal, Heuking and Kennedys are all setting up associations with local firms, while Taylor Wessing has launched a Brazil group based out of its London and Hamburg offices.  And Harneys has hired a Brazilian lawyer, Maria Pia Buchi, to serve as head of business development in Sao Paulo and Rio.

These new entrants join a longer list of international firms that have focused on Brazil as a burgeoning market in recent years, including Allen & Overy, Baker & McKenzie, Chadbourne & Parke, DLA Piper, Linklaters, Mayer Brown, Macleod Dixon, Proskauer Rose, Shearman & Sterling, Skadden, White & Case, Squire Sanders, Simpson Thacher, and Gibson Dunn.  Most of these firms have opened offices or created associations with firms in Sao Paulo, the country’s largest city, though both Rio and the capitol, Brasilia, have also garnered attention.

Brazil is clearly a hot spot for law firms, but what specifically does the country offer law firms and their corporate clients?

Brazil’s Special Case

Brazil is unique among emerging markets in its combination of natural, demographic, and structural assets.  Together, these assets create a ripe atmosphere for international business and finance that has naturally drawn the attention of global law firms.  In particular, these factors have helped Brazil weather recent economic turmoil better than other countries.

Natural/Geographic Advantages: Brazil is the fifth largest nation in the world by land area and the tenth largest by GDP (US $2.1 trillion in 2010).  The country is rich in natural resources, including oil, natural gas, and timber.  Brazil’s agricultural sector employs approximately 20% of the nation’s workforce and is a major exporter of coffee and soybeans.  The country is also rich in minerals, and China has recently shown increased interest in Brazil’s iron ore.  One reason Brazil’s economy has remained robust throughout the economic downturn is that the country’s natural resources have boosted GDP during a time when sales of manufactured goods are down worldwide.

Demographic Advantages: Brazil’s population is in a prime window, with 74% of the nation’s population at working age.  The workforce has already undergone urbanization – 81% of the workforce was located in urban areas by 2005, according to the U.S. State Department’s profile.  Compare Brazil’s mature, urbanized workforce with China’s, where the one-child policy has led to a rapidly aging workforce and urbanization is still underway, with only 44% of the Chinese workforce urbanized by 2005.

Investment and Infrastructure Potential: Another factor making this a key moment for investment in Brazil is the country’s current focus on infrastructure.  This focus is critical for the country’s development at this juncture, as the current infrastructure is limiting growth in exports by making it difficult to quickly transport commodities.  But Brazil has short-term deadlines that are speeding up these projects – the country will host the FIFA World Cup in 2014 and the Summer Olympics in 2016.

Obstacles, Issues and Moving Forward

Brazil’s allure, for investors, corporations and law firms, is clear.  But the market is not without its challenges.  As with Asia, there are limitations on the ability of foreign firms to practice locally, which is why many firms have chosen to enter the market through an association with a Brazilian law firm.  And ethics concerns raised by local chapters of the national bar may actually delegitimize these alliances, if the national bar affirms recent decisions.  This week, the ABA Journal reports:

The opinion [of the Sao Paulo chapter of the national bar] concludes that [foreign lawyers associating with local law firms] are not actually lawyers under Brazilian regulations, so alliances with them would violate Brazil’s ban on multidisciplinary practice. If the national bar endorses the opinion, any alliances between local and foreign law firms likely would be dissolved. Clients would have to go to local firms for advice on Brazilian law, while foreign firms could only give advice on non-Brazilian law.

And while infrastructure poses an enormous opportunity for long-term investments, the current shortcomings also pose concerns for companies trying to do business right now.  There is also a danger, given the rapid investment in the country, of Brazil experiencing its own real estate bubble.  Nevertheless, as the recent influx of foreign firms has shown, the potential for growth in Brazil is appealing enough for firms to take the risk.

Later this month, the Hildebrandt Institute and West LegalEdcenter will host a panel discussion as part of the 16^th Annual Law Firm Leaders Forum, on competitive opportunities for law firms in emerging markets in Asia and South America.  You can learn more about the forum here. 

Posted by Emily Fisher