For the past few weeks, the Hildebrandt Institute Blog has been taking a closer look at certain emerging markets and their impact on the global legal industry. Previously, we looked at the market indicators driving law firms to Brazil the increasing significance of Asia in law firm growth strategies, and the competition for top legal talent in Hong Kong. Today, we turn our attention to Turkey and the economic drivers which are attracting a growing number of international firms.
Several economic factors are contributing to an increased interest in Turkey by international law firms. Unlike a number of its European neighbors, Turkey fared reasonably well during the global economic crisis with the country’s banking system managing to avoid a government-funded bailout. After negative growth in 2009, the economy bounced back well in 2010, recording the third-fastest growth rate among G20 countries last year, with an impressive 9% rise in GDP.
Growing interest by foreign firms
In 2009, there were just five foreign law firms operating in the market (White & Case, SNR Denton, Gide Loyrette Nouel , Salans and Curtis, Mallet-Prevost) with White & Case by far the most prominent. The US firm has affiliations with two market-leading local firms: Akol Avukatlik Bürosu in Istanbul, and Çakmak Avukatlik Bürosu in Ankara.
This has more than doubled in the past 12-18 months. 2010 and early 2011 saw the arrival of four new foreign firms: two global powerhouses, DLA Piper and Clifford Chance, who continued their investment in emerging market economies, as well as a number of Central & Eastern Europe-based firms, including Kinstellar (Linklaters’ CEE spin-off) and Austria’s Schoenherr.
Three further firms have recently announced their entry into the market; German firm Graf von Westphalen, the U.S.’s Chadbourne & Parke and most recently, Baker & McKenzie. It formed an exclusive relationship with leading Turkish law firm Esin Attorney Partnership, as well as opening its own foreign office in Istanbul (in Esin’s office space).
The moves have been in response to growing client interest and activity in Turkey, with Baker & McKenzie’s EMEA Chair, Koen Vanhaerents, stating “It has become increasingly clear that Turkey is rapidly growing in importance for our clients”.
Although the presence on the ground of these newly entered firms remains relatively small, a number of the associations formed have the potential to have a strong market impact. Other firms are expected to follow suit, with the CMS alliance recently announcing that it was looking to add a Turkish member to its exclusive alliance network.
Turkey’s economic buoyancy in the midst of a global financial crisis is to an extent a result of its own crisis in 2001. A combination of factors, including a poorly executed devaluation program, led to a number of banks failing and a deep recession. What followed was a restructuring of the banking industry with more stringent capital ratios, which better positioned its banks to weather the current global financial crisis.
Western banks have also showing interest in the market; ING, Citi and Deutsche Bank have already established a presence, while in 2010, Spanish bank BBVA acquired a 24.9% stake in Istanbul-based Turkiye Garanti Bankasi. The deal was worth more than $5.5 billion, ranking it the largest M&A deal involving a Turkish company for the year.
There are reports of significant interest from foreign investors in the country, which has been a key driver of economic growth. Private equity investors have begun to target the region, there are increasing levels of M&A activity (with many of the largest being in the energy & power sector), and ongoing privatizations. Additionally, 2011 has seen a rising number of infrastructure projects and financing announcements, particularly in healthcare and renewable energy areas. The latter is viewed as increasingly important with the country facing a possible shortfall of energy between demand and supply in the medium term.
Strict Turkish bar rules prevent foreign law firms from opening local offices that practice Turkish law. Foreign firms can however establish a presence on the ground and practice Turkish law via formal associations with local firms. In some cases the local partnerships may, in essence, form part of the international firm. However, in order not to break Turkish bar rules, the international and Turkish firms continue to structure and market themselves as separate entities.
Notes of caution
As with most emerging markets, although rewards may be high, they do not come without their risks. There are concerns among economists that Turkey’s economy may be overheating particularly in light of its increasing current account deficit and rising inflation levels. Freedom of expression is also an issue with and EU report indicating high rates of journalists in jail. Although Turkey itself is enjoying a stable political climate, its geographic location means that geopolitical issues abound, and internally, ongoing discord between the government and the Kurdish population have resulted in renewed arrests, including a number of political leaders, which has heightened tensions further.
This week, the Hildebrandt Institute and West LegalEdcenter will host a panel discussion as part of the 16th Annual Law Firm Leaders Forum, on competitive opportunities for law firms in emerging markets. You can learn more about the forum here.
Posted by Tricia Pelton