If you work in Australia’s legal industry, but you’ve never looked at detailed industry data, you will love this.
The latest IBISWorld Industry Data report for Legal Services in Australia [external site] was released just last month, in July 2018. It gives us startling insights into what’s going on in the industry.
Below are some cliff-notes and thoughts about what the research tells us, and what it means for your firm in the current state of the market.
What makes a successful law firm, based on current market research?
The latest research tells us that a successful law firm:
- Has a good reputation. This means not just that you have a good reputation inside the industry, but that you also provide high quality advice, and high quality services. It tells us how likely you are to obtain and retain clients.
- Has high quality personnel. If you employ highly skilled and knowledgeable staff, then you are more likely to achieve good outcomes for your clients. It makes you more competitive and, if you’re in corporate law, it makes your clients more competitive. Note that this doesn’t just apply to your lawyers. It applies to everyone else, includingyour contractors. You can employ a writer on Upwork for example, or you could work with a specialist. The outcomes are strikingly different.
- Provides development programs for its team. If you give your employees opportunities to continue their education, and expand their expertise, you are more likely to provide higher quality services. This, in turn, helps you to maintain great relationships with your clients.
- Has the ability to effectively manage risk. The IBISWorld Reports tell us that this means you are appropriately covered by the right insurances. But I would argue that it’s much deeper than this. It’s also how well you manage your data, how you assess the risk in your information, content and publishing, and how good are your internal information barriers.
- Understands government policies and their implications. If your understanding of the law is current, and you use it to achieve good outcomes for your clients, that’s a key indication of your success.
- Has access to niche markets. If you specialise in certain areas of law, you are in a better position to provide high-value-add services, and will more easily differentiate yourself. If your firm is a generalist firm… well, you aren’t in such a good place.
High competition, no major players, and indicators in key practice areas
What Australia’s legal profession is facing is increasing external competition, partly from increasing globalisation, and partly from the fact that large accounting firms and government departments have been expanding their in-house counsel. And, if you rely on divorces, housing transfers, or criminals, then you might want to think seriously about your strategic plans, because IBISWorld is predicting revenues to fall in these areas by 2.5% across 2018 – 19.
The report itself has much more detail on the key external drivers, so if you’re interested in that data, I highly recommend that you go and get yourself a copy.
What is the outlook like?
The research suggests that over the next five years, there will be increasing opportunities overseas, particularly as a result of such agreements as the Singapore-Australia Free Trade Agreement, which makes it easier for firms to practice in Singapore.
The research also suggests that there will be greater downstream demand in property markets, and in the areas of financial services and insurance. This, in turn, will increase the demand for services in M&A, and other expansion-related activities.
It suggests that law firms will continue to expand their offerings, and will continue to introduce what it calls ‘supplementary’ services. However, the report suggests that this will be in response — reaction perhaps? — to the external competition from large accountingfirms, who are expanding their legal services.
I wonder how many of our law firms in Australia have started thinking about going the other way? Adding financial services rather than more legal services? It might be a good thing for the smaller guys to think about, as they continue to enter the market and serve nice markets, households and Australia’s many small businesses.
Beyond this, the report suggests that we can see an increasing trend in acquisitions and mergers. The industry is in a mature stage of its lifecycle. It’s got high market saturation, and not much technological change, besides those changes that can help it to become more streamlined.
The industries buying from the legal industry are mining, construction, telecomms, finance and other professional services
Commercial law continues to be the largest market segment, providing 32.2% of the industry’s products and services.
Intellectual property is a market segment that is strong. While it only comprises 5% of the market, it’s growing because of the increasing spend by biotechnology and fintech companies on research and development.
The largest market for legal services in Australia, according to IBISWorld, contains corporate and business client accounts. Of these, the largest is the banking, finance and insurance sector. Increasing regulation requires legal expertise, and it’s driving demand for compliance… which is why increasing the numbers of lawyers employed as in-house counsel is the flavour of the day.
But other businesses that are spending on legal services are the innovators in IT, communications, health, pharmaceutical companies and biotechnology. Together with property operators and developers, what I’m going to call the ‘innovation team’ comprises more than 32% of the market.
And yet, exports are low. There is opportunity for Australian firms to look up and outside the country’s borders and compete internationally.
Law’s hot spots are Victoria and NSW… but none of us are surprised by that.
Between the three of them, Queensland, New South Wales and Victoria comprise 80% of all enterprises in Australia’s legal profession.
Legal industry competition is high, and competition is increasing
Australia’s legal profession is highly fragmented, and its clients are increasingly price conscious. The report notes that the main points of competition are reputation, price and types of advice provided. And yet, because of the specialist nature of the industry, most people can’t provide alternative services; that falls to accounting and investment firms and large corporates.
One of the significant points in this report is that accounting is encroaching on law. Offering legal services is a point of diversification for accounting, particularly if the firm caters to large corporate clients. This is how the larger, globalised law firms are finding themselves competing against the globalised accounting firms.
So, who are the key players?
The IBISWorld report tells us that there are no major players. We have the Big Six, and well-established firms, but otherwise there is a high level of fragmentation.
And who are the Big Six? In order of market share, they are:
- Herbert Smith Freehills
- Ashurst Australia
- Clayton Utz
- King & Wood Mallesons
- Minter Ellison
For all the talk of tech and innovation, Australia’s legal industry isn’t really doing much
Not according to the research, anyway. Here is what the report says about technology uptake and its impact on service delivery:
The Legal Services industry exhibits a low technology change. This is due to the high face-to-face contact needed, and the specialised service offerings provided. While there have been relatively minor changes in technology over the past five years compared with the rest of the economy, there have been some notable developments. This includes online databases and video conferencing, which link law firms to clients and other establishments. Additionally, for some major and extended trials, law firms have established systems that allow for the videoconferencing of external parties, together with electronic documents, evidence and real time transcripts. Courts also provide online retrieval of documents and access to information. This has allowed law firms to streamline their operations.
I suggest that this is going to change. The early adopters of new technology like AILIRAwill streak out and away from the rest of the industry. As courts increasingly insist on electronic lodgement, and as legal hacks become the order of the day, the tipping point will hit the industry faster than it can comprehend.
Well, that’s my estimation anyway. If you aren’t prepared for it, it’s likely you will suffer as a result.
So what can you take away from all of this?
The IBISWorld report gives us an indication that Australia’s law firms can grasp significant opportunities, if they ‘get out of the building’ and talk to their customers.
All but one of the key success indicators are rooted in how well you know your customer. You don’t “achieve” reputation: Other people apply it to you. Similarly, all of the other factors — from education to understanding of policy — are only a success indicator when you think about it from your clients’ perspectives.
This is why doing the deep work to study and understand your clients and non-clients is such critical work. Seamless customer experience begins at the awareness stage. It’s not just something you apply to your website, or how you handle enquiries, but it applies to the entire process.
How your small firm builds a buttery, beautiful experience — from first contact to repeat business — is what will differentiate you in the market, and help you gain a foothold in what is otherwise a highly competitive market.
There are opportunities to diversify, especially thinking outside of the legal profession. Just as large corporates diversify by providing services outside of their primary remit, your firm may be able to find a way of doing something similar.
And then, look up. Think about the technology opportunities available to you beyondefficiency and streamlining. Think about what’s going on outside of Australia’s borders. Think about the things you are not doing but could be doing.
And, hot tip from me personally: Work out what it is that you offer, that nobody else is doing. Australia’s legal profession is conservative, so it doesn’t want to put a stake in the ground and say, We are the only law firm in NSW that specialises in representing fantasy authors in intellectual property cases (for example). Specialisation, in small firms is powerful. So, too, is mindfully building the story of your brand: What’s your intention? Why do you do what you do? Why are you here and where have you come from? The story is what attracts people to your business.
Our experts at Brutal Pixie have been helping small and niche firms to attract the right people since 2013. Call us today for a confidential discussion about how we can help you, on +61 8 8121 4134.