Trends and Changes in the Legal Industry

Trends and Changes in the Legal IndustryA enshroud issued for Samantha at PLS to discuss the trends and potential changes in the statutory industry aboard pecuniary analysis of the steadfastly and a nonher competitor. Future enthronisation opportunities be in like manner discussed as well as over all in all advantages and disadvantages.The Legal field and BrexitBritain opting to leave the European Union shook the country last course of instruction. The misgiving surrounding Brexit has left fair playful professionals around the world nervously awaiting its extend to on the commercial-grade world. During the two form negotiation period integrity firms result be awaiting innovatives of a intempe valuately-fought or light Brexit and further establishing how each potential outcome could implicate their nodes.1.1 A hard or soft Brexit?A hard Brexit wold involve Britain giving up full phase of the moon entrance fee to the mavin marketplace and losing all rights to free run at bottom the EU. How eer, trading would be regulated by the World cover Organisation suggesting that there would be no confusion politically intimately the withdrawal from the EU.1 On the other hand, a soft Brexit would entail staying well involved with the EU and keeping devil to the single market. This would follow S bottomlanddinavian orderls whereby there is no membership of the EU but soundless access to the single market via the European Economic Area.1.2 How Financial Services could be affectedWithin the commercial world, financial operate would be single of the sectors most affected by a hard Brexit because avocationes would resort their testimonial rights to operate in the EU. London is present-day(prenominal)ly ranked as pencil lead in financial services, meaning that Britain has a large trading add upitional in the EU2. 7.7% of the UKs GDP is from outputting financial services with over 1.1 million diligent in the industry and two thirds of t hem working outside London3. in that locationfore, losing access to the single market would affect many crinklees and consequently clients of large commercial firms.The UK financial service sector has been pass oning loopholes if a hard Brexit is initiated. As banks atomic number 18 generally affected by losing EU passport rights, alternative options argon existence considered if the UK did leave the single market with no deal negotiated (essentially a worst-case scenario situation).4 indemnification and Asset management argon less affected because they tend to be part of a orbiculate industry, for example, Lloyds of London5. However, many banks including HSBC, JP Morgan Chase, UBS and Morgan Stanley are standing by to fly the coop thousands of employees to countries within Europe ahead of negotiations taking place.6A trace issued by Shearman and Stirling suggested that there are various(a) ways of trading with the EU without implying a passport7. Some of the main looph oles being discussed arereverse appealingnessDelegation of fund management/outsourcing of servicesConduit entities backrest to back trading8Back to back trading is the most prevalent of the four listed. Banks would sell its services from a topical anesthetic entity to EU clientele but would then move to the UK immediately subsequently9. A drawback is that this is a short term solution, but after part implement police force firms more than(prenominal) time to find a immense term alternative. EU regulators are also likely to frown upon loopholes when they testament be relied upon by firms to carry on trading under a hard Brexit. 10Essentially it is difficult for large commercial law firms to plan but how they are going to deal with the loss of passport rights. However, it would be safe if the UK attempts to convince the EU-27 that keeping financial markets open across the Channel is a matter of mutual interest because fragmenting Londons Ecosystem would lead to gameer(pr enominal) costs for every angiotensin converting enzyme involved.111.3 The engineering science sectorBrexit go out likely cause little affect to the engine room and innovation sector on the premise that the UK stays in the European Economic Area. However, if negotiations mean that the UK fully detaches from the EU, then changes to this sector, as with many others, will be more wide-ranging12. Nevertheless, it must be remembered that there are boffo countries operating outside of the EU. Norway is a prime example and has a unattackable presence in the technology and innovation sector without benefitting from EEA tax incentives, explore, development, thronement and funding.13More specifically intellectual property rights are mostly unswayed because they are non regulated by the EU. However, data protection is a hot topic of discussion. It remains to be seen if craftes within the UK will still be allowed to apprehend sale activity data via subsidiaries in the EU and whether the UK adopts the General Data Protection ordinance. 14Technology has the same potential threats as financial services and the two year negotiation period will desist the next chapter for the legal industry. However, it must be remembered that regardless of the outcome, advice and expertise of commercial lawyers will still be needed.Financial Analysis of PLS and FFSPLS 2016PLS 2015FFS 2016FFS 2015Profitability salaried back on capital employed50.35 %10.5048.77%10.4891.08%10.9181.07%10.81 elapse on sales27.99%10.2727.10%10.2731.05%10.3132.26%10.32Asset utilisation symmetry11.8011.8012.9312.51Liquidity and solvencyCurrent proportionality12.6312.9012.1412.40Liquid ratio12.6312.9012.1412.40 abilityCreditor long time191.82 sidereal days160.28 days174.12 days164.38 daysDebtor days233.08 days209.64 days198.05 days188.01 daysStock days0000InvestmentGearing52.80%10.5244.37%10.4479.90%10.7966.28%10.66Return on equity48.66%10.4847.24%10.4787.20%10.8778.26%10.78Interest cover0000Profitab ility justice firms are increasingly use additions to measure their firms success rather than revenue. This is because rat headway is a more exact version of how the firm, large or small, is doing financially. faithfulness firms are ranked by revenue so it is understandable to focus on this, but often profit points/important data can be overlooked. A law firm is a subscriber line and must always aim to reform gainfulness. 152.1.1 Return on capital employed (ROCE)ROCE is a ratio that measures how successfully a company is turning its capital invested into profit. A higher circumstances indicates a more effective use of capital and therefore an make up in share filmer value. When comparing revenue, FFS has a more than higher per year figure than PLS but its revenue has dropped importantly in just one year (70m).In 2016, FFS turned 91.08% of its capital into profit, which is a large rise from the previous year which measured at 81.07%. The large percentage of profit s temming from capital investment whitethorn be due to a higher enumerate of reserves being re- incloseed back into the business. FFS seem to be use their share capital in a more financially safe way than PLS by retaining their reserves rather than distributing them all to members. This whitethorn be because recent investments in new points needed funding. Eventually, FFS will be tenor for a larger shareholder value.PLS has not seen a significant ontogenesis in ROCE (less than 2%). This suggests that substantial investment is not occurring. Instead they are using local firms in China, and not reinvesting profit for the financial year available for division amongst members. It whitethorn lessen their revenue for a charm but investing in new offices like FFS could eventually advance their profitability and shareholder value.2.1.2Return on sales (ROS)The ROS is a measure of how much profit is being formed per pound of sales. FFS giveed a decrease in their ROS by 1.21% which ma y be because of their loss in operating profit.Comparatively, PLS change their percentage by 0.9% from 2015-2016. Where FFS puzzle seen a significant increase in staff costs, PLS puzzle only seen a minor one. Where FFS put one over suffered a large decrease in turnover, PLS consent seen a minor one. PLS may have also foc employ more attention on the 6 profit points and lessened expenses to improve their overall profitability. PLS is unlikely to be under playacting as it is converting a similar amount of company revenue into profit as FFS, even though FFS has a much higher turnover.2.1.3Asset utilisation ratio (AUR)The AUR for PLS has not increased from 2015-2016. This would be because they have not invested in the firm to gain more asset appreciation. Generally, the higher the AUR, the better the company is performing because it would be generating more revenue per pound of assets. FFS have invested in new offices meaning the general equity has decreased significantly since 201 5. The equity at PLS has barely changed suggesting a higher inefficiency to deploy assets in order to establish a higher revenue.2.2 Liquidity and Solvency2.2.1 Current ratioThe current ratio portrays the health of the business. A ratio above 1 but no higher than 3 suggests efficiency in utilising assets. Both firms are within this bracket but in 2015 PLS came close to 3 suggesting that they are not investing assets back into the firm as efficiently as they could. This and reduced significantly the next year.2.3 Efficiency2.3.1 Debtors daysDebtors days is the measure in days that a firm will develop to collect cash from debts. Both firms have rising debtors days but it would take PLS longer to receive debts owed as the days have grown by 25 compared to FFS with only 10.It is well k flatn that billing clients can be a long process and usually the cause for lengthy debtors day results from firms. However, clients could also be asking for longer or divers(prenominal) acknowledgeme nt terms causing the rise for both firms. PLS could take into account purchase new software package to speed up the billing process, generally modify timekeeping and tracking firm financials more acutely to improve their figures.2.4 InvestmentReturn on equity (ROE)The ROE depicts a firms profitability regarding how much profit is made from money shareholders have invested. ROCE and ROE come hand in hand because ROE analyses how much profit is being made from shareholder investment where ROCE assesses how much shareholder investment has gone into the company.FFS have a much higher ROE, which has increased by 10% in the year 2015-2016. PLS have barely seen an increase in increment suggesting that they are not investing their equity efficiently enough. Although FFS have suffered a massive reducing in revenue and remuneration to members, their investment from equity seems to be paying off. In 2016 87.20% of shareholder money transferred to profits whereas PLS only saw 48.66 %. poten tially investing globally with equity money could benefit the overall profitability of PLS.3. Strategy and the legal industryAll Industries change how they conduct business when assessing potential and current trends in their environment. This is often done by using analytical tools which further evidence changes to strategic positioning.3.1 PESTELPESTEL is a tool used to identify different trends of the legal macro environment. Politically speaking, Brexit is the most current threat to the legal environment. As a result of a hard Brexit the economy may suffer because large corporations are likely to move outside of the UK. 16This representation that the economy will not only suffer from loss of business but lack of investment. Brexit has already caused many firms to hold off further investment, which may be why PLS are considering disruption a new office outside of the EU. The tightening of the government crinkle will also have an effect on firms, particularly in the energy sect or where less contracts have become available.17Social aspects implicate the changes in dedication of clients because it is much easier to shop around and choose different firms. It is in the interest of fee earners to keep their clients satisfied so they dont lose them to other firms.There has been a significant boom in software and technology recently. Clients of law firms who previously would have sought legal advice now have access to the internet and free online legal tools. However, on a more positive note firms have typically improved quantify and efficiency because of billing and database software made specifically for law firms. 18Most firms have also reduced the amount of paper being used because this is more attractive to environmentally conscious clients.The Legal Services Act 19has meant that account firms such as Deloitte and PWC have extended their own in field legal departments. Consequently, large commercial firms have lost clients and further gained competitors . Brexit may also cause loss of employment rights, lessen jointures and acquisitions and could cause various laws to be changed.3.2 Porters cinque ForcesPorters quintuple forces is a tool to assess how emulous forces shape strategy and ultimately profitability. This methodology was initially apply to the legal industry, but seemed to defy the agonistic pressures outlined in Porters article, whereby it still experient a rapid rise in profitability.20 However, recent changes in the legal industry has led to re-evaluation regarding the use of the five forces tool, to gain an insight into the combative market of law.The bargaining power of suppliers usually refers to the firms employees, as they do not have suppliers in the typical sense. There has been a growing amount of legal talent throughout the past three years 21which bureau that firms have been able to reduce fee agreements. For example, instead of hiring more solicitors a firm may choose to hire experienced paralegals which would cost significantly less. Although this is positive, it does mean that recruiting fees are higher and may cause retention pass judgment of staff to be lower.The power of buyers is the most commanding part of the five forces in terms of competitive strategy. Firms have seen less customer loyalty and less dependency from buying local for legal services.22 Legal query charges have also been removed from overall billing which is costing firms millions in added cost.23The threat of new entrants relates mostly to smaller firms using technology to give legal services on the same level as larger firms.24 This is because technology now allows this, and smaller firms charge significantly less. As PLS is an internationalist firm it may at some point wish to enter a foreign market but some are double-dyed(a) and are therefore hard to enter and be successful.The threat of put back products and services has changed because of the Legal Services Act 25 This means that many companie s who would have otherwise used law firms, are now investing in their own in house legal departments. Deloitte, an accountancy firm have done this and have subsequently saved in legal fees26.This all adds to the most important aspect of the five forces rivalry amongst existing competitors. However, with trends in the market changing rapidly, further threats in relation to other competitive measures are equally as important and making the market more complex. As in house becomes more popular (6 billion dollars in the US market in 2 years) 27and client loyalty lessens, firms need to acknowledge that new service climatels create separation from rivals and provide the repugn market space necessary to limit the impact of Porters Five Forces on their operational strategy28Organic developing vs MergersPotential Merger with a local firmIt is seen that mergers and acquisitions (MAs) are one of the principal ways in which organisations can achieve rapid growth.29 They benefit from economi es of scale and therefore lower overheads which means cutting costs significantly. Commercial benefits include instant access to client databases and loss in competition with the firm chosen to merge. As PLS are also looking to set up in culture on the whole different to that of the UK, it would be potentially very beneficial to have access to experienced legal professionals already based in Shanghai who understand the market and clients.The burst of activity in the last quarter helped make 2016 the second- outflank year for dealmakers since the financial crisis.30 Therefore, more firms are seen to be conflux in order to eliminate vulnerability and to make themselves truly global rather than just international. Norton roseate recently merged with Texas Fulbright and Ashurst with Australias Blake Dawson. Meanwhile, SJ Berwin became the first ever UK firm to join arms with an Asia-Pacific firm, King Wood Mallesons, in 2013.31 As PLS are friendly with local firms who they pay for t heir services, there may be an option for a potential merger with them. It would also mean that PLS do not have to pay to set up their new office in Shanghai which would save a significant amount of money.There are risks involved with potential mergers. When two companies decide upon this option they may lose aspects of their brand which could cause an array of disadvantages including loss of clientele. It will also likely mean that they have less control over the business and its future. Given the importance of interaction with their foreign customers, PLS should opt for a high degree of control over their foreign market penetration mode 32and a merger does not necessarily give this.4.2 Setting up a new office in ShanghaiOrganic growth is known to be expanding the business from the inside rather than the outside (MA). The scotch benefit for PLS of investing in a subsidiary office would be that they do not have to pay local firms for their service. They can reconstruct their own client database, promote their own brand and have full control of the office. Businesses that grow organically can control their rate of growth and normally face less cultural and integration challenges than those that choose an inorganic strategy.33 However, they may face cultural challenges with clients.The risks of organic growth lie in expansion that outpaces the ability to effectively manage, stretches resources too thin, strains capital, or diverts focus from the business core mission34. It would cost PLS a substantial sum of money to invest in the office and is the most expensive of the foreign market entry options. division 0Year 1Year 2Year 3Year 4Year 5Cash flows (000)(1000)1,50017502,2002,6502,900 expose Value(1000)1,071.42892.86801.75689.82539.21Net Present value 2,995,000.06The investment will add 2,995,000.06 of value to PLS and therefore the office in Shanghai is worth potentially investing in. However, there are some risks involved with the NPV calculation. It does n ot consider unforeseen expenditure and is often based on estimates. It therefore does not fully account for potential risk in investments costs, discount rate and projected returns.Essentially, each investment holds significant risk because both a potential merger and buying a subsidiary office are very drastic forms of expansion. Other options such as purchasing a stake in an associate office or forming a best friend alliance may fit the needs of PLS more substantially. 35Further, they may then decide upon organic growth or a merger once they have definitive evidence that the high risk will benefit the overall firm.BibliographyLegislationGeneral Data Protection Regulation (EU) 2016/679Legal Services Act 2007Secondary SourcesArticlesDowney, J, (2008) Mergers and acquisitions, Topic Gateway series No. 54Blomstermo, A, Sharma, D, (2006) Choice of foreign market entry mode in service firms, International Marketing appraise, Vol. 23 Issue 2Internet ArticlesKuntz B, EYVoice Organic vs. Inorganic Which way to grow? 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I have not conducted research involving human participants for the purposes of this workDate 23rd February 2017Word Count29961 Sims A, What is the difference betwe en hard and soft Brexit? Everything you need to know (The Independent UK Politics, 3rd October 2016)4 M Arnold, Banks study loopholes to enable UK branches to sell to EU clients, (Financial times, 02 February 2017) accessed 14 February 20175 Booth S, How to ensure UK and European financial services continue to thrive after Brexit (Open Europe, 17 October 2016)