Top commercial law firms must become more flexible and less reactive to cope with the boom-bust pattern of global markets over the next 10 years, a report by consultants Jomati has suggested.

Introducing variable rather than fixed costs, creating links with legal process outsourcers (LPOs), and setting up internal LPO-style businesses will be essential to dampen the effects of unpredictable markets, according to the report, New Frontiers: Law Firms in 2020.

The report said: ‘As the building up of global capability grows over the next 10 years, and the investment in people, IT, office space and support staff grows for transactional teams, so will the risk of a dangerous cost over-shoot. A bust for a one-office firm is bad enough; a bust for a firm with corporate associates in 20 offices is going to hurt significantly more.’

Meanwhile, competition from Chinese law firms, which are already hiring senior lawyers from major UK and US firms and are becoming increasingly skilled, could lead to fee competition across Asia, the report predicted.

Jomati principal Tony Williams, a former managing partner at magic circle firm Clifford Chance, said: ‘We often talk about global law firms as if they are finished products. The truth is, the development of global law firms is just beginning.’

Top lawyers and general counsel from the ‘baby boom’ generation will retire over the next 10 years, leaving a skills gap at senior management level, the report warned. At the same time, global law firms will increasingly have to be stocked with senior lawyers with a deep understanding of emerging markets, it suggested.

Population changes will create a ‘pull effect’ on banks and corporates, which will in turn look to lawyers for advice, the report said. Predicted population growth of 10% in the US in the lead up to 2020 could signal more domestic legal work for mid-tier US firms, and increase the value of what is already the world’s most valuable legal market, the report found.

It added that Japan’s stagnant economy could force companies to restructure and expand aggressively abroad, bringing related work for lawyers. An increasing number of high net- worth individuals will also bring more private client work, and in particular a need for advice on tax avoidance, the report suggested.