Over the past couple of years, the legal market in the United Kingdom has shown a pretty good track record of growth, with revenues up again last year compared to the year prior.
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 (traditionally more visible) professional service brands in the areas of consulting, finance, and accounting.
U.K.-led firms just outside the Magic Circle have also become globally recognized as they have merged and gained scale across multiple jurisdictions.
Still, there are dark clouds gathering on the horizons that U.K. law firms would be wise to recognize. A new report, The State of the Legal Market in the U.K., published by Peer Monitor and Acritas, both part of Thomson Reuters, takes a look at this legal landscape, the opportunities for growth, and conversely, the challenges that may be emerging.
With the coming of Brexit, of course, the future of the U.K. domestic 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 U.K. Brexit also will 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; but 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 U.K. experienced a surge of eager legal entrants in the form of so-called new law companies. 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 may not be such clear sailing for U.K. law firms. Indeed, the dark clouds may already be gathering in the distance.
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 sustainability. 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 U.K. market aggressively, taking market share in specific areas, even where the market is not growing;
- Alternative legal service providers (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 U.K. law firms are falling behind new competitors and even their own clients.
As the report spells out, the U.K. 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.