Total global legal budgets may remain largely static, but a closer look reveals immense variations between them.
Clients in our Sharplegal* 2011 survey reported a median average total legal budget of US$5m. However, some quite staggering differences exist in budget levels across industries. Banking budgets for example, top the scale with an average budget of US$49m, trailed by insurance at US$16m and healthcare at US$10m.
In terms of predicted changes to legal budgets in the coming year, following a decline in legal spend in 2009, figures show some increase in overall spend in 2010/2011, but not at levels seen in 2007 and 2008.
Although virtually all industries anticipate some level of future increase, those most likely to be expecting higher legal spend are in highly regulated industries such as banking and other financial services, insurance and healthcare. Manufacturing also falls into this group, but the positive expectation is more likely to be driven by internationalisation than particularly strong regulatory burdens.
Less variance in legal budgets exists across regions, with median averages ranging from US$7m in the US and Middle East to US$2m in Mainland Europe.
However, a notable regional observation from the study is that respondents in Asia-Pacific are over four times more likely to predict an increase than a decrease in spend over the next 12 months – both in terms of domestic legal spend and spend by companies based outside the region. However, it should be noted that they are starting from a much lower base in terms of spend.
In contrast to marginal growth in total spend, significant growth has occurred over the last five years in the international element of legal spend ie spend outside the domestic market/the country where the organisation's HQ is based.
This has increased year on year in terms of the volume of legal departments with international needs, the number of countries where the average multinational has needs and the level of spend in each market. Altogether, Sharplegal has recorded a 50% increase in the value of this spend during a three-year period.
Another interesting area to watch is the way in which legal budgets are being spent and the likely effect this will have on legal budget size and allocation.
The continued economic uncertainty is putting pressure on clients to seek more cost-effective ways of using their legal spend as well as driving new approaches to finding legal support.
Although the proportion of legal budget spent with alternatives to law firms at present is under 10%, clients in all regions expect around 2% spend, or slightly more, to be allocated to alternatives in the next two years – imagine the impact of every firm losing 2% of its revenue.
There is potential for more significant spend shifts if new market entrants emerge with revolutionary offerings. Many law firms are preparing for this threat by developing:
Collaborative approaches with would-be competitors for legal budget.
Their own alternatives to the traditional servicing model.
These developments will ultimately offer clients the combined benefits of working with the professionals they trust in a more cost-effective manner.
To find out more, including how your legal budget ranks alongside those of your peers, contact email@example.com.
* Figures taken from Sharplegal Global Elite (ie companies with US$1bn+ revenue). Sharplegal is the most comprehensive annual study of the global legal market and contains the views of over 2,000 general counsel in the world’s largest companies.