While the UK legal market has been growing recently, with revenues up again in 2018-2019, uncertainties lie ahead—including the future of the post-Brexit economy as well as intensifying competition from U.S law firms and alternative legal service providers, including the Big 4 consulting firms.
Indeed, the local market remains strong and is dominated by some of the world’s largest law firms. Further, the U.K.’s largest law firms—the Magic Circle—are also among the most dominant players on the global field, enjoying excellent brand awareness that puts them on par with professional service brands in the areas of consulting, finance, and accounting.
Still, there are dark clouds gathering on the horizons that UK law firms would be wise to recognise. A new report, State of the Legal Market in the UK: Challenges to Growth and Sustainability, published by Thomson Reuters Peer Monitor and Acritas, takes a look at this legal landscape—the opportunities for growth, and conversely, the challenges that may be emerging.
With Brexit, the future of the UK economy may be entering a period of uncertainty with many expert commentators making gloomy predictions. Firms with a global presence and strong reputations are likely to have a more positive outlook, as they will be better positioned to balance growth in other markets against a potential contraction in the UK. In the short term, Brexit will also undoubtedly bring an inflow of work for law firms as clients will need a myriad of legal work done to prepare for possible new operating models. Though in the long term, law firms are likely to need to win market share from rivals, rather than rely on the size of the market increasing as a source of growth.
Worse yet, competition has intensified as the UK experienced a surge of eager legal entrants in the form of alternative legal service providers (ALSPs), with the introduction of alternative business structures by the Solicitor Regulation Authority. The market has also seen a renewed focus on legal from the large accounting firms, and watched as some U.S. law firms take market share through aggressive lateral hiring. Taken together with the efficiency gains that more nimble firms are achieving by leveraging technology across the industry, and the next decade clearly is not going to be clear sailing for UK law firms.
“As talent becomes increasingly mobile, firms need to be mindful of how lateral moves mean not only loss of talent but also negatively impact the ‘employer brand’ of the firm,” said Lisa Hart Shepherd, vice president of Research and Advisory Services at Thomson Reuters. “When a firm loses a top-performing lawyer, they lost both their expertise and their client relationships, which are two of the top drivers of how a law firm’s brand is favourably viewed by its clients.”
“The competitive landscape is shifting rapidly,” continued Hart Shepherd, “Firms need to take a more pro-active approach in retaining both talent and clients. More than ever, competitors stand ready to take market share at every opportunity.”
A closer look at the numbers featured in the report indicates that there is no room for complacency in legal boardrooms. Partners should be asking themselves and their colleagues where the next growth area will be and how their business model will have to change to position the firm for achieving growth, if not survival. Key trends that the report highlights include:
- The largest clients are cutting their legal costs in a drive for efficiency;
- U.S. firms are moving into the UK market aggressively, taking market share in specific areas, even where the market is not growing;
- ALSPs, although representing a small portion of the legal ecosystem at present, are increasing their revenues quickly;
- Talent is becoming increasingly mobile; and,
- Under-investment in technology carries the risk that UK law firms are falling behind new competitors and even their own clients.
As the report notes, the UK legal market is not immune to the disruptions and changes taking place across the business world. There will always be a demand for legal expertise of course, but those law firms that ignore the forces of change may find themselves pushed to the margin as other competitors respond better and faster to market and client demands.
Download your copy of the new report State of the Legal Market in the UK: Challenges to Growth and Sustainability.