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EMERGING MARKET SPOTLIGHTS: An Introduction

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2020 paves the way for a credible disruption of the legal industry in Spain

Eighteen months ago, the Spanish alternative legal service provider (“ALSP”) industry was still nascent and unstructured. Today, as modern listed and private corporations and PE sponsors increasingly engage ALSPs in Spain, the legal market widely recognizes the Spanish ALSP space as dynamic, quickly expanding, and broadly adopted.

ALSPs in Spain render some of the services traditionally performed by law firms in a more innovative, efficient, and client-oriented manner, with three main groups of alternative legal services currently being offered in Spain:

1. Flexible legal talent.
2. Managed legal services.
3. Legal technology.

ALSPs in Spain are leveraging different business models and come with different structures, sizes, and market strategies. They range from small digital-law boutiques or legal start-ups with an innovative approach, to massive disruptors with high-calibre lawyers and specialized expertise, with strategic alliances with global ALSPs powerhouses, such as Axiom exclusive alliance partner Ambar and Integreon best-friend Samaniego Law.

Some ALSPs in Spain are implementing rigorous process and project management tools and integrating technology in their service model to gain efficiency and allow lawyers to concentrate their quality time on sophisticated legal work. Some others show a much more undeveloped use of management and technology tools and will require substantial efforts to build credible cutting-edge technology and process management intelligence.

Proprietary technology development marks another important attribute of ALSPs, and it is often emphasized more strongly in ALSPs than at traditional law firms. Technology-enabled services allow ALSPs to provide higher value legal services and take on different and more complex tasks. Some ALSPs rely on third-party technology, but others are developing ambitious state-of-the-art proprietary systems in search of competitive advantages.

The Spanish ALSP industry proves to be a thriving and diverse growing industry, with five main prominent trends:

1. ALSPs are offering more sophisticated services to a more varied segment of clients.

General counsel of Spanish corporations are one of the most sophisticated, demanding, and experienced buyers of legal services in Western countries. Spanish corporations' in-house legal teams have a clear understanding of the legal market and a sound knowledge of the value proposition across the diverse group of legal providers and the differentiated expertise offered by each type of ALSP.

Clients resort to ALSPs in Spain to benefit from their specialized expertise and show an expanded and more diverse use of ALSPs across all three main categories of alternative legal services: (i) flexible legal talent; (ii) managed legal services; and (iii) legal technology.

In many countries, ALSPs have been mainly engaged for cost savings. In Spain, ALSPs are steadily moving up the legal value chain to offer more sophisticated services to corporates. In-house legal departments tend to use ALSPs to also access expertise that they lack in-house, to gain more flexibility on their cost and organizational structures, to meet peak demand without having to permanently increase their headcount and to use their existing resources more efficiently and strategically.

2. Differentiated tiers across a varied array of ALSP firms.

In a short period of time, Spanish ALSPs cover all the spectrum of the legal space, with some ALSPs offering sophisticated legal services to high-end clients and competing with top traditional law firms, others focused on legal and consultancy services for SMBs or start-ups, and others highly specialized in the digital, privacy and cybersecurity arena.

While the Spanish ALSP industry has gained a great deal of media attention, only a few Spanish ALSP firms are managing to gain impressive market share and notoriety in the high-end of the legal value chain, becoming key players for complex M&A, litigation or arbitration, contract negotiation or legal niche-type expertise.

3. Companies are actively experimenting with flexible legal talent.

Regardless of whether clients have faced headwinds or tailwinds moving into 2021, the experience of the last 12 months during the COVID-19 pandemic has highlighted the need for C-suite leaders and general counsel to reimagine the cost structure of their in-house legal teams. A combination of creativity and diligence will yield multiple opportunities to replace fixed for variable costs and thereby create a structure able to reengineer staffing requirements for a more flexible mix of full- and part-time employees supplemented by experienced flexible legal talent and flexible legal talent firms for special projects.

One of the easiest ways for companies to take advantage of the ALSP model is to establish long-term partnerships with flexible legal talent firms to gain cost and organizational efficiency and flexibility, access the right legal talent for each project and meet peak demands with highly skilled specialists and high-calibre lawyers coming from top national and international law firms and the most sophisticated in-house legal departments.

4. Continuous growth of managed services firms to outsource ongoing tasks.

Managed legal services providers contract for all or part of the ongoing function of an in-house legal team, typically routine and high-volume work. Managed legal services have gained prominence in the market across multiple categories, including regulatory risk and compliance services, litigation and investigation support, due diligence for corporate transactions and legal research.

Among the largest managed services firms are the big four accounting firms, which are increasingly offering a deeper array of alternative legal services to corporate clients.

5. Increasing legal technology adoption. 

The legal technology space has exploded over the last couple of years in Spain, bringing unprecedented disruption to the global legal services market with products adapted to Spanish. Over the last years, plenty of local or foreign companies have burst onto the Spanish scene promising to transform daily legal tasks, and the pace of transformation has significantly accelerated. Funding of companies has increased since then, and consolidation and acquisitions are continuing.

This rapidly changing landscape, while exciting, has posed challenges. Some clients are now sceptical and have reached a certain disillusionment about some legal technology tools after some experiments and implementations have failed to deliver. Even sophisticated buyers continue to be overwhelmed by the choices when buying legal technology, from contract drafting to legal research, communications, matter management, e-discovery, and digital signature platforms. The confusion is further exacerbated when buzzwords such as AI, blockchain and the cloud are used.

Over the next couple of years in Spain, more instances of how the technology can benefit the enterprise will probably start to crystallize and will become more widely understood. Second and third-generation products should appear from surviving technology providers, and adoption of the latest technology among in-house lawyers will then very probably become mainstream.

Conclusion 

The current consolidation in the use of ALSPs in Spain paves the way towards the future success of the industry, which has plenty of headroom to grow and to continue with the thriving market acceptance of their new legal service delivery models.

The higher-value services rendered by some ALSPs illustrate one of the reasons corporates turn to ALSPs in Spain, not just for improved technology, efficiency on costs and flexibility around headcount, but for specialized legal expertise in a more client-oriented approach. Spanish ALSPs are also managing to attract top legal talent with attractive brands and credible and more flexible alternative work life value propositions in line with new normal work environments.