The Business of Law in North Macedonia: Through the Lenses of Boshnjakovski Law Office

Our office has the ambition to go beyond the constraints of legal services and advising and into the field of classical business consultancy. To be successful at this, we need to hone our analytical, writing, and presentation skills to match the needs of the business consultancy market. So, we thought it would be a great exercise to analyze the business of law in North Macedonia through the lens of our office. We hope you enjoy it!

My analysis will be centered around Boshnjakovski Law Office – the law firm that I manage. Most of the observations will be made through “lenses” that are generally applicable to most legal markets, but at times I will try to zoom in on the peculiar conditions of the market in which the firm operates.

To give some context, the firm was established in 2020 and has three employees. It has some local recognition, a solid online presence, and a stable client portfolio. It operates in the legal services market of North Macedonia, with a broad focus on business law. The relevant market is very small, with fewer than 2 million residents and relatively low purchasing power. However, the market for legal services has been growing, prompted by the development of the domestic economy and the influx of foreign investment.

This year, our firm will take marketing steps to capitalize on these positive trends. But to deliver its value proposition, it must become more conscious of its operations management.

I. DEFINING THE “WHAT” AND THE “HOW”

By their nature, legal services include: i) a high degree of customer interaction under conditions that involve stress and uncertainty; and ii) a high level of compulsory customer activity[1], where the outcome depends, to some extent, on a client’s actions (e.g., procuring evidence, giving testimony, explaining business ideas or plans).

Also, the delivery process cannot be fully standardized due to factors such as: i) variability in circumstances, evidence, rules, and practices; as well as ii) the personal characteristics and expectations of clients. Still, there are some services that are standardized to an extent (e.g., company incorporation, residence permits, HR templates, and the like).

• What do we do?

Variability in demand is mostly predictable on an hourly, daily, or weekly horizon, since clients plan ahead for the use of services and accept some waiting time before execution. Demand is unpredictable on a monthly and yearly basis, since usage depends on irregular events such as the emergence of disputes or investment decisions. There are huge swings in demand between periods of high activity and periods of almost no activity.

• How do we do it?

The key physical resource of a law office is its office space for two reasons. First, this is a crucial client touchpoint, so it needs to: i) be easy to locate and access; and ii) demonstrate sophistication, privacy, and reliability. Second, the office is important for logistical purposes, such as proximity to institutions, key clients, and meeting points.

Aside from the office and its equipment, most resources are intangible in nature. These include the website, promotional materials, template documentation, and simple systems for tracking cases and tasks. None, however, surpasses the importance of human resources. It is a challenge to train individuals to a level that allows the independent: i) execution of core services; and ii) handling of clients at various stages of the client journey.

Human resources are also the biggest (and perhaps the only) obstacle to scalability. Although some repetitive services can be automated to an extent by using templates and automated document-drafting software, proper oversight is still needed. One way to meet short-term spikes in demand is to outsource some tasks to third parties. This, however, decreases the uniformity of the customer journey and poses risks to quality.

• Customer journey

Although it is advisable for customer journeys to remain consistently positive or follow an upward trend[2], law firms encounter external risks at the service-delivery stage that may cause the customer journey to turn sour, such as delays or negative rulings. Lawyers should help clients understand the reasons for such developments. However, one source of minor friction can be eliminated to improve the overall experience[3] – providing easy payment methods, especially for cross-border clients (more on this below). Finally, to “end with a bang”[4] and help the client forget the frustrations experienced during the service-delivery stage, it is nice to treat clients to small courtesy gifts immediately after the conclusion of the mandate.

II. ONE ENABLER AND FOUR CHALLENGES

The key enabler that will have a positive impact on law firms across the world is the fact that, in the coming years, there will be increased use of legal services[5]. The global legal services market by revenue is expected to grow at a rate of 6.97% up to 2026 and then continue at a pace of 5.6% until 2031.

This growth is driven by an increase in transactions (M&A and investments) and non-transactional services related to government regulatory activity, such as trust-busting, consumer protection, regulation of digital services, new technologies or business practices, and ESG[6][7]. It is noteworthy that Eastern Europe is expected to outpace global growth, with an average rate of 8.9%.

The growth in revenue will be challenged by increasing costs that law offices face on many fronts[8]. According to Thomson Reuters[9], 2022 saw record growth in direct expenses related to attorney compensation, as well as overhead expenses related to rent, non-lawyer staff, and office supplies. Overhead expenses are expected to grow further as law firms seek to tackle anti-money laundering regulations[10], data protection requirements, and increased cybersecurity threats[11].

This challenge is amplified in the Republic of North Macedonia, where the average salary grew by almost 60% between November 2017[12] and November 2023[13]. Finally, one hidden cost is the increase in the collection cycle that occurred in 2022 and 2023[14] and is likely to continue in the coming years. This is especially acute in times of high interest rates.

However, by far the most frequently cited challenge for law firms’ operations is attracting and retaining talent[15][16].

The Great Resignation has not spared the legal industry[17], and many young lawyers have been disillusioned by the fact that the profession encompasses “intense pressure, long hours, constant deadlines and high stakes”[18]. This problem has been compounded in the Republic of North Macedonia, which has seen a serious decrease in the number of first-year law students enrolled since 2010.

According to data published by the State Statistical Office of the Republic of North Macedonia, the Faculty of Law “Iustinianus Primus” – by far the biggest and most important law faculty in the country – has seen a drop of over 75% in first-year enrollments, from a peak of 1,130 in 2010 to 254 in 2022. These developments pose challenges for local firms, especially if we bear in mind the particularities of national legal curricula, which limit the potential to address labor shortages through migration or outsourcing.

Another challenge is the increasing complexity of legal issues[19], driven by increased regulatory density and the evolution of our societies and technology. Clients expect practitioners to be highly specialized in the relevant legal practice areas and industry sectors[20]. This is a huge challenge in small markets that do not provide the scale at which narrow specializations are economically feasible.

Finally, the acquisition of technology is a challenge, even though technology is also a solution to other challenges. In the local legal market, there is almost no use of legal or management technology, even among well-established firms. One reason for this is that, until recently, high levels of unemployment and low wages provided little incentive to invest in technology. However, the combination of a shrinking labor pool, increasing labor costs, and growth in the legal services sector will force local firms to change. This can be challenging in a country that is lagging behind most developed economies in terms of digital literacy[21], according to the Digital Skills Gap Index, and in a market that does not provide economies of scale that justify high fixed investment costs.

III. KEY AREAS OF OPERATIONS MANAGEMENT ACTION

The growth of the legal services market provides an opportunity to increase revenues and market share. To capitalize on this, we should enhance touchpoints (websites, SEO, PR, newsletters, brochures, guidebooks) that will capture clients’ attention during the first phase of their journey. Then, during the consideration and acquisition phase, we should increase the chances of acquiring customers by demonstrating responsiveness, competence, and loyalty. After service delivery, we should maintain touchpoints by showing appreciation and providing relevant information. However, to retain clients and grow our portfolio in the long run, we must improve our performance during the most challenging part of the client journey – service delivery.

The biggest challenges are increasing costs and the shrinking pool of new recruits. Increasing costs are beyond our influence. As one leading partner said: “Paying people at the top of the market is a necessary price to compete.”[22] We should not be reluctant to invest in fair compensation or in measures to attract, onboard, and retain talent. If lawyers are motivated and stay with the firm long enough, we will also find it easier to address the need to specialize in particular industry sectors. To stimulate the learning curve, we can allot free time to lawyers to study the relevant sectors – luckily, there are many online platforms that make this accessible. We can also ask clients to allow lawyers to spend more time at their premises and foster relationships with the clients’ non-legal staff. To balance the increased costs of improving touchpoints and talent, we must increase lawyers’ productivity. One useful KPI for this is “utilization,” which measures how much of a lawyer’s time is dedicated to billable work[23].

In the most productive markets, utilization is at best 37%[24] because lawyers are often burdened with administrative, technical, or business-development tasks[25]. Utilization can be improved through proper organizational measures, such as employing non-legal support staff and implementing technology that will automate some repetitive legal work. Technology can also be used to improve billing slightly and shorten the CCC. There is evidence that firms that allow online payment by credit card get paid twice as fast[26]. This can be further improved by using QR codes on invoices that lead to virtual POS terminals and even automated payment plans for subscription-type services[27]. This can also decrease friction and improve the customer journey.

Paradoxically, technology is an answer to certain challenges, but it is also a challenge in itself. As a young law firm, we are not constrained by the relatively low level of digital literacy in our country. Our main challenge is how to justify investments in technology in a firm and market with limited economies of scale. One solution would be to partner with a local software engineering company to develop a software solution that we would use for our own purposes but could also market to the broader legal market. This process can be further stimulated by grants for technological development issued by the Government of North Macedonia.

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[1] Weenk, E. (2019/2023).

[2] De Freitas, J. (2023, March 31).

[3] Chernev, A. (2023, March)

[4] De Freitas, J. (2023, March).

[5] The Business Research Company (2023)

[6] The Economist. (2022, January).

[7] Maloney, A. (2024, January).

[8] Law Society (2023, February).

[9] Josten, W. (2023, September).

[10] Bogaert, F. (2023, October).

[11] Khalaf, R. (2023, November).

[12] State Statistical Office of the Republic of North Macedonia. (2018, January).

[13] State Statistical Office of the Republic of North Macedonia. (2024, January).

[14] Maloney, A. (2024, January).

[15] Papov, S. (2024, February 1).

[16] Faustino, A. (2023, February 13).

[17] Thomson Reuters. (2022, May).

[18]Mosquera, K. (2023, March 29).

[19] O’Hare, J. (2022, December 01).

[20] Brown, D. (2023, May 31).

[21] Wiley. (n.d.).

[22] Miller, J. (2022, December 6).]

[23] Clio. (2023).

[24] Ibid.

[25] Ibid.

[26] Ibid.

[27] Ibid.

For advice on how to register and protect your intellectual property, feel free to write (contact@boshnjakovski.com) or call (+38970257879).