Legal Services Global Industry Outlook
In 2016, the global legal industry was valued approximately at $645 billion, and it is expected to grow at approximately3–4 percentto reach around $670billion in 2017.
BREXIT Impact on Sourcing Legal Services
Impact Area: Law Firms Providing Employment as a Practice Area and Legal Service Buyers Operating in the U.K.
- The UK’s decision to leave the EU is likely to have a significant impact on employment law practice. If the U.K. agrees to negotiate a bespoke relationship, the government would be at liberty to depart from EU employment law by repealing and amending legislation and the decisions of the European Court of Justice (ECJ) will not be binding in U.K. courts.
- This change will result in a lot of legal and commercial activity and a surge in demand for employment lawyers in light of expected renegotiations of contracts. One of the main tasks for lawyers in this transitional phase will be to examine current employment contracts and terminate those that are no longer valid
Legal Services Global Market Maturity
The maturity of legal service providers in North America and Europe is high, as they command the highest market share. More than 60 percent of the legal spend is concentrated in the developed legal markets of North America and Europe. The APAC region has the highest potential for growth, with many global legal service providers entering the fray.
Legal Services Global Drivers and Constraints
Increasing demand for transactional practice areas, like corporate work, real estate and tax work, is driving the demand for legal services. There is a mounting pressure to adopt AFAs and usher in transparency to billing models. These are some major challenges hampering the industry.
- Law firms (outside counsel)
- Sufficient recovery from the recession and Eurozone crisis has acted as a catalyst in improving the demand scenario for legal services.
- Increasing demand for transactional practice areas, like corporate work, real estate, and tax work, is driving the demand for legal services.
- Increasing demand from the emerging markets, like the APAC region and the Middle East, has also been driving the demand for legal services. LPO
- Cost reduction and the need for better utilization of internal legal staff for strategic services have led to more work being outsourced to LPO units in low-cost destinations.
- Favourable government policies, measures taken to liberalize and deregulate policies, reduced licensing requirements and the prospective removal of restrictions on Foreign Direct Investments (FDIs) are driving the need for work to be outsourced to low-cost offshore destinations.
Law firms (outside counsel)
Mounting pressure to adopt alternative fees to bring transparency to billing models is acting as a constraint in the legal service industry.
Increased budgetary pressure to reduce outside counsel spending acts as a deterrent.
robable Surge in Demand for Employment Lawyers With the renegotiation of existing contracts anticipated on the legal horizon in the coming months, there is expected to be an increase in the demand for lawyers in the Employment Practice Area. Action Item Proactive action is needed from the buyer’s end to understand the possible regulatory changes and the need to work with their law firm roster to assess if they have the required work force and expertise to address the upcoming restructuring of contracts. Bottlenecks for EU Local Law Practice by Licensed U.K. Lawyers Licensed U.K. lawyers might be prohibited from dealing with local laws in other EU states, along with withdrawal of access to requalification. Action Item As the possibility of such a prohibition is becoming more imminent, legal service buyers in the U.K. might need to look at restructuring their law firm roster and adding more EU state law firms (if they operate in EU states) to their existing U.K. law firms.
PUK-based law firms command the maximum market share along with Am Law firms. Regional law firms, like Fidal and Garrigues, also have a significant presence in the home countries. Their high profitability ratios and RPL numbers indicate their high maturity.
Higher spending on legal services and the large number of high-value transactions and deals in this region indicate high buyer maturity
Corporates are looking to bring more work in-house rather than outsourcing to law firms. The last few years have seen increased adoption in this region.
Companies should look to bring their e-Discovery work in-house, which will help them to exercise greater control over the e-discovery process, instead of being overly reliant on outside vendors. •Having a proper EDRM network in place is essential Companies should look to have a direct buy-in from an LPO, instead of going via law firms. Apart from resulting in cost-savings, it will help to free up time for lawyers, who can concentrate on high-end work.
Increase in M&A
Global suppliers are enhancing their service capabilities and geographical footprints through M&As
With the increase in geographical footprint of major law firms, clients are looking at availing their services in the respective countries.
The market is expected to be on similar lines in 2017, too, the reasons being a requirement to expand their geographical footprints, acquire more niche practice area talent and strengthen their financial backbones (for smaller firms). Emerging role of paralegals
Paralegals are increasingly being called upon to support more lawyers and perform multiple job functions
By this, the corporates keep law firm billing under control, as they command lesser billing rates compared to other traditional job roles, like associates and partners
Practice area expertise: Boutique firms provide expertise in specific practice areas.
Local law expertise: In countries like Argentina and Brazil, where the local jurisdiction comes into play, like IP and patent cases, and the firm needs a patent filing, patent licensing, patent prosecution etc., local technical expertise comes into play because global firms might not be as efficient. •Adoption of AFAs: Local/boutique firmsare slowly catching up in adoption of AFAs, along with the global firms. This is making them more desirable to the clients, who are demanding the AFA system for engagement with law firms. Engagement trends
Most adopted model globally: This is m ultiple suppliers’ sourcing strategy.
Why : As technical expertise is required for a wide range of practice areas, an optimal combination of a few global firms and some niche preferred suppliers, according to the legal requirement, is expected to optimize legal spend..