IBISWorld estimates that the legal services industry will generate $21.8 billion in revenue in 2009-10, which represents growth of 3.5% above 2008-09 levels, and an average growth rate of 2.2% per annum over the preceding five years.
A drop in major corporate activity such as IPOs, and mergers and acquisitions has weighed on revenue at the top end of the industry, along with businesses and clients seeking discounts as they look to cut legal expenses. But this has been partially offset by counter cyclical activity such as insolvency work and restructuring.
Aside from commercial work, other service segments tend to be less correlated with the economic cycle. Criminal and family work, for example, provide a fairly stable revenue base for the industry.
There are six major national law firms in Australia: Mallesons Stephen Jaques; Freehills; Minter Ellison; Clayton Utz; Allens Arthur Robinson; and Blake Dawson. Collectively, the top tier law firms are expected to account for over 13% of industry revenue. Although this industry is characterised by low industry concentration, the market shares of the major players are high compared to the US for instance, where no firm accounts for more than 1.0% of the industry.
Industry outlook
Revenue in the legal services industry is expected to increase by 20.6% to $26.3 billion over the five years to 2014-15, which will represent an average increase of 3.8% per annum. Unlike the 1980s and 1990s when firms enjoyed strong demand for services as a result of financial deregulation and micro-economic reform, there does not seem to be any policy or law reform of that scale on the agenda in the coming five years. Environmental laws, particularly those relating to climate change, along with financial regulation in the wake of the global financial crisis may represent the most significant area of reform over the coming five years.
Key success factors:
- Proximity to key markets: being in a highly visible location conveys a sense of prestige and expertise.
- Having a well-defined strategy/goal: having a marketing plan to generate new clients; focusing on servicing a small number of large clients, or a large number of small clients.
- Access to quality personnel management: having a maximum ratio of around one partner to four staff; offering competitive remuneration to attract quality partners.
- Provision of development programs for personnel: having a structured training program for all staff.
- Ability to effectively manage risk: having adequate professional indemnity insurance coverage.
- Well developed internal processes: having professional management practise systems, which includes cashflow management, the introduction of appropriate time management systems, a job costing system, etc.
- Access to niche markets: specialising in growing areas of the law rather that offering services covering all areas of the law.
- Automation - reduces costs, particularly those associated with labour: using new technology to assist labour productivity.
Barriers to entry
Although there are still some legislative (regulative and licensing) barriers to entry into this industry, these are currently being reduced following federal and state government inquiries and the associated legislative reviews and amendments. The Federal Government in association with the states is seeking to establish an international legal services market, with all but one of the major players in this industry now having offshore operations.
Robert Bryant is the general manager of business information firm IBISWorld.
