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Jim Leason

Customer Proposition Lead, Legal Professionals Europe, Thomson Reuters

Quotation Marks
In these constrained circumstances, it’s clear that law firm revenue growth will need to come from winning market share rather than overall market growth

Frenemies or business partners? Law firms, ALSPs and the Big Four

Frenemies or business partners? Law firms, ALSPs and the Big Four


Ther';s plenty of scope for growth if firms prove their cross-border worth and work on pricing and service delivery, explains Jim Leason

As 2021 progresses and we take stock of the year that has just passed, it’s clear that the legal sector has overcome many of the challenges that it faced in 2020. But the challenges beyond do not get any simpler.

At the start of 2020, completion of the Brexit transition period seemed to be the main challenge and opportunity facing the legal industry in Europe. It soon became clear that a second, and eventually bigger, challenge was rapidly emerging. Not only did covid-19 bring about widespread change in the way all organisations function, but it has also created the most challenging economic environment for some time.

Winning market share

These economic and operational pressures have caused many organisations to refocus how they manage their costs, deploy their resources and understand the value they are seeking from their suppliers. A major study by Thomson Reuters (TR) on the state of the legal market in Europe shows that even before the pandemic, corporates were allocating greater resources to inhouse legal teams, at the expense of their external law firms.

European corporates allocate an average of 47 per cent of their legal spend on external legal advice (compared with 60 per cent in the UK). At the end of 2019, a net of just 2 per cent of European corporates planned to increase external spending (29 per cent of corporate legal departments were planning increases compared with 27 per cent that were planning decreases).

While UK corporates spend more with external suppliers than their European counterparts, they have continued a trend of insourcing work with internal hiring. In these constrained circumstances, it’s clear that law firm revenue growth will need to come from winning market share rather than overall market growth.

Firms also face stiffer competition from alternative legal service providers (ALSPs), including the Big Four, which have grown their revenues by 15 per cent between 2017 and 2019 – in many cases, offering highly-targeted service propositions, delivering process-heavy services enabled with technology.

So how can law firms meet these increased budget and competitive pressures; and are ALSPs competitors or potential business partners to law firms?

The TR study, based on 578 interviews with general counsel and 2,000 senior corporate decision-makers globally, provides insights into what firms should consolidate within their existing offerings. It also gives insights into where firms might turn their attention to be able to win more work to increase their share of the increasingly challenged corporate legal spend budget.

The threat from ALSPs

The research found that ALSPs now receive 7 per cent of legal spend among European corporates, having outperformed market growth at the expense of law firm market share.

One of the perceived advantages that ALSPs have over law firms is their technology-first approach. By investing in technology solutions, ALSPs have been able to streamline processes and lower their costs. They go to market with highly targeted service propositions solving specific high-volume needs, often brought about by regulatory change, litigation or corporate activity, such as contract repapering, document review or due diligence. This represents 52 per cent of corporates’ demand for ALSPs.

ALSPs also provide flexible resourcing services that can be accessed quickly as departmental demands peak, for instance to meet seasonal trading, representing 42 per cent of corporates demand for ALSPs. In all cases, ALSPs tend to be taking care of important but non-strategic work in an effective way for inhouse legal teams, which allows them to focus on more strategic matters.

The Big Four have made significant headway into the legal market in the last decade, particularly in areas such as regulation risk and compliance, as well as mergers and acquisition (M&A) due diligence (in some cases, packaged with a broader set of tax and financial transactional or advisory services).

A major advantage has been their access to technology resources and their extensive corporate relationships globally. The multi-national presence provides an advantage for servicing cross-border work. This has enabled the Big Four firms to win high value mandates that might have been carried out by law firms previously.

While the Big Four undoubtedly benefit from international brand recognition, Thomson Reuters research shows that their reputation when it comes to legal services is still much lower than that of major law firms. Further findings on the growth and mainstream acceptance of ALSPs can be found in the Alternative Legal Service Providers: 2021 Report at

Cross-border demand

So, does cross-border work hold the key to boosting law firm revenues?  International work accounts for almost half of the total spend on external counsel by the average multinational company. 87 per cent of legal buyers in Europe report that cross-border work remains one of the main reasons for seeking external legal support, again above the global average – and perhaps reflecting the importance of cross-border trade and foreign investment within and outside of the European Union. With the array of complex legal issues posed by Brexit, one can assume that this demand will remain strong and could potentially rise.

This presents a clear opportunity for firms to build expertise in managing cross-border work. Many law firms already operate in multiple jurisdictions to service global customers. Some choose to operate through close international networks of ‘best friend’ firms to handle cross-border matters.

For all those firms that are successful with this work, it’s critical that they are able to offer strong local expertise to meet multinational clients’ expectations, as well the tools needed to manage matters effectively and collaborate on work with lawyers and law firms in other jurisdictions.

Firms looking to expand into new markets and jurisdictions need to tailor their offerings to stand out from competitors. For example, US firms operating in Europe have carved a niche in the M&A and general corporate sectors, which account for 46 per cent of hours worked by US firms in the region.

Remaining competitive

The TR research shows that general counsel and corporate legal departments expect their advisors to offer commercial solutions, considering the broader business context and strategic goals of the organisation, while also recognising the internal pressures facing the legal department.

Tapping into this last need seems to be where ALSPs have exploited an opportunity to understand their customers’ unmet needs and to serve them with new service offerings, often delivered efficiently with technology. Law firms with institutional relationships to preserve should take a similar approach with their customers to grow their ‘share of wallet’ and/or explore ways in which they can work with ALSPs to offer broader propositions that better serve the needs of the modern corporate.

Indeed, several law firms have created their own ‘captive’ ALSP subsidiaries to offer a more multi-disciplinary service to their clients.

Outside of the more lucrative cross-border projects, it is likely that pricing will also be a key lever that firms must pull to win market share in their domestic markets. Over the last decade, law firms have shown greater flexibility in this area through alternative fee arrangements (AFAs), rather than relying solely on hourly billing rates. AFAs, such as fixed or capped fees, provide clients greater predictability on costs enabling them to plan their budgets more effectively.

In order for law firms to compete with AFAs and meet their profit expectations, effective controls over the cost drivers of delivery are needed, as well as the need to manage those costs. This likely means standardising processes within the end-to-end delivery of a matter and driving continual improvement to improve the cost of delivery. This is likely to drive more firms into developing more technology-enabled services.

If AFAs become increasingly expected in order to win higher value, cross-border mandates, then this too may favour global law firms – with international offices and more ability to absorb cost overruns and drive – towards process standardisation within the firm, over those independent firms that choose to operate through ‘best friend’ networks.

But there remains opportunity for ‘best friend’ networks if they can collaborate and develop more standardised, technology-enabled services together.

The economic damage wrought by the covid-19 pandemic means that there are still considerable challenges to navigate in 2021. This is not to say, however, that there is little scope for growth. By proving their worth with cross-border expertise and strengthening their value proposition to better meet the needs of their clients, with attractive pricing and more effective service delivery, law firms can emerge from the current crisis in a stronger position.

Jim Leason is vice president of Legal Professionals Europe at Thomson Reuters