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For law firms looking to scale back, some of America’s cities are looking better even than New Delhi.
BOSTON — Dayton, Ohio. Nashville, Tennessee. Wheeling, West Virginia.
These aren't the first places that come to mind when you think of booming centers of commerce.
But as large parts of the American landscape have been gutted by outsourcing and technology, these locations are presenting unexpected opportunities.
That's because the cost of labor has sunk right along with the cost of living, making lower-cost cities newly attractive as places to set up shop for cash-strapped global law firms.
Rather than shipping work overseas, at least six major US law firms have opened global offices in struggling US cities — Dayton, Nashville and Wheeling among them.
Call it “Amerisourcing.”
A pioneer of this trend is Orrick, Herrington & Sutcliffe, a San Francisco-based international law firm with more than 1,000 lawyers spread over 21 offices worldwide.
Its day-to-day administrative operations, however, aren't in Beijing or New Delhi. Since 2002, the company has been run out of Wheeling, W. Va., a former steel hub where the population has been waning since the Great Depression.
By all accounts, and despite the hand-wringing of law school graduates, Orrick's 350-person Wheeling facility has been a grand success.
According to the Pittsburgh Post-Gazette, the Wheeling facility generates Orrick an estimated savings of $10 million to $15 million a year. Orrick CEO Ralph Baxter called the move "one of the smartest decisions we've ever made.”
To be precise, the Wheeling office provides mostly back office support — like human resources, accounting and the like — for the lawyers who work elsewhere.
But it is also home to a slew of "career associates," who aren't eligible for partnership and who earn less than traditional associates. But these are lawyers, all doing legal work.
Though a risky move that received much criticism initially within the legal world, Orrick's Wheeling office has since been credited with helping pull Wheeling out of a slump. City leaders were quick boosters of the plan, and local organizations raised the $10 million necessary to renovate the Wheeling Stamping Building where the firm now resides.
The Stamping building itself illustrates the promise of the trend. The four-story building began as a metal stamping factory. In the 19th century, as a wholesale warehouse, it became the center of the Ohio Valley's grocery industry. It was literally days from being demolished when Orrick moved in.
Inspired by Orrick, several other major law firms have followed suit in recent years.
“Within this industry, in the law firms, I would tell you that most of the Am Law 50 are now thinking about this,” said Mark Klender, a strategy and operations principal with Deloitte consulting, referring to the country's 50 biggest law firms.
“That’s not to say that they will all do this,” he added, but “there’s a trend. This should be a wave over the next five years.”
Deloitte has helped a handful of the major law firms open offices in lower-cost US cities — including WilmerHale, a Boston-based firm that opened a facility in Dayton, Ohio, in 2010; Pillsbury Winthrop Shaw Pittman, a New York-based firm that set up shop in Nashville, Tenn. in July of this year; and Bingham McCutchen which is due to begin operations in Lexington, Ky. by the spring of 2013.
Economic pressure is the clear driver. Clients are simply unwilling to pay what they used to pay, according to Brad Christmas, COO of Dow Lohnes, a DC-based law firm.
“Since 2008, the supply of lawyers has exceeded the demand, and so the prices become more competitive,” he said. “The general counsel at these big corporations are just not willing to pay for a very expensive lawyer in a major metropolitan area to do what can be done more inexpensively in lower cost markets.”
The number of law graduates in the US has increased five-fold since 1963, according to the American Bar Association. As a result, the percentage of new lawyers finding jobs has dramatically declined — plunging from 85 percent to 63 percent between 2011 and 2012.
And the savings associated with operating in one of America's downtrodden cities are significant. Real estate provides about 20 percent of the savings, according to Deloitte's Klender.
Office space goes for $60 to $80 per square foot in high-cost cities like Boston and New York, he said, while comparable space costs only $20 per square