With Australian corporations seeking to replace high-priced firms in an effort to cut legal costs, ALB speaks to some of the leading mid-tier players who stand to benefit
The legal market in Sydney was once described by Chang Pistilli & Simmons partner Mark Pistilli as "Australia's gateway to the world", indicating that Sydney had the largest international reach of any Australian jurisdiction. While this characterisation may be true, the question for law firms operating in the Sydney market today will be: is this exposure to international markets necessarily a good thing? With the world economy contracting on a scale unprecedented in the last 70 years, law firms operating in the nation's biggest city appear to have been most affected. This time last year, ALB reported a gradual but steady decline in legal services in Sydney compared to the previous two years.
Crowded market
Over the past 12 months, as the credit crunch evolved into a full-blown global financial crisis, no Australian legal services market has been more vulnerable than Sydney - the national headquarters of several of the nation's top-tier law firms. Indeed, the slow-down in corporate activity has had a disproportionate impact on many of their clients' businesses. For example, companies based in New South Wales accounted for 56% of all wind-up applications and liquidations filed so far this year - an output that exceeds the rest of the country combined.
According to Mills Oakley managing partner John Nerurker, several factors will come together to make 2009 a challenging year for Sydney law firms. "On top of the legal profession expanding more quickly than their clients' businesses, corporations are merging faster than ever before and reducing the number of law firms they use. For this reason, the battles for clients and recognition in an overcrowded legal marketplace are challenges of primary importance," he says.
Bartier Perry's CEO Luke Stevens is in agreement. "The market is probably close to saturation and the decline in economic activity will exacerbate that," he says. "Law firms won't be immune to the forces of marketplace rationalisation as the economic contraction starts to bite."
Value for money
According to Deloitte Forensic in-house counsel, Victoria Sweetman, corporate counsel are working their own teams harder and looking for savings from law firms. Sweetman, who is one of the authors of a recent Deloitte in-house counsel study, says the overall effect has been that law firms are coming under pressure to provide a better deal for corporate consumers of legal services. As a result, the report concluded, mid-tier firms were positioning themselves to take advantage of the cost pressure on the big firms to deliver better value for money.
Pistilli says he has observed an increase in clients who were formerly advised by national top-tier firms now approaching boutique firms in search of better value for money. "You can also see this from the number of smaller law firms getting onto panels," he says.
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