As PwC prepares to formally launch a US legal services business, a new study has warned that law firms need to become more efficient and develop alternative services in areas such as technology and process management in order to counter the growing threat posed by the Big Four accounting firms.

The report, by ALM Intelligence, says that law firms should "prepare for a significant increase in competition" – particularly if the Big Four start targeting more higher-value work. And they will need to look at changing their staffing models to help reduce costs, the report states.

Law firms should also consider forming managed legal services partnerships with the Big Four, the report adds. Allen & Overy last year teamed up with Deloitte to launch a technology product that helps banks deal with complex new derivatives regulations.

Deloitte, EY, KPMG and PwC have invested heavily in legal services in recent years – particularly in Europe – and now collectively employ about 8,500 lawyers globally.

Each of the Big Four's legal arms has regularly achieved double-digit revenue growth – EY's revenue has risen by more than 10% for five consecutive years. Their focus on lower-value work is reflected in relatively weaker financial performance compared to top law firms, however. PwC Legal's $500m revenue would put it in the bottom quartile of the Global 100 by that metric.

A separate report by ALM Intelligence, which was published earlier this month, says that the Big Four's formidable brand strength, client base and ability to offer multidisciplinary services has helped them take market share from traditional law firms.

While the Big Four have historically focused on practices that complement their audit and tax advisory businesses, such as tax, labour and employment, and immigration, they are increasingly branching out into other areas, including M&A.

Two thirds of law firms surveyed by ALM Intelligence said they were "concerned" about the threat posed by accounting firms and other alternative service providers, while 45% consider them to be a "major threat".

The latest report comes less than a week after The American Lawyer reported that PwC will be launching a law firm in the US.

The business, called ILC Legal, will operate out of Washington DC. It will not offer US law advice, but instead will assist US clients on international issues and act as a marketing operation to generate work that can be referred to PwC's existing legal services network.

ILC will be led by the head of PwC Legal's international business reorganisations practice, Richard Edmundson, who will relocate from London alongside a small number of other PwC lawyers and support staff.

Edmundson said the office will focus on services that are relevant to US-based multinationals doing business abroad, including international corporate structuring, M&A support, labour, financial services, immigration, cybersecurity and data protection, corporate secretarial, tax controversy and dispute resolution. "We don't regard ourselves as a traditional law firm," he said. "We don't look at legal services in isolation – it's just one part of a broader offering."

ILC, which Edmundson described as a "law firm", is structured as a separate legal entity from the rest of PwC and its legal services arm. Edmundson said that although the firm would not offer US law advice, there is no reason why it couldn't. "It isn't controlled by the accounting firm, so it can in theory do anything that any independent law firm can do," he said.

Large corporations are now "much more accepting" of accounting firms providing multidisciplinary services, including legal advice, he added.

Edmundson said PwC decided to open in Washington DC, in part because it is a large and important market. But it also chose the city because bar rules permit lawyers to register as foreign legal consultants and practice UK law.

The firm has no current plans to open additional offices in the US, but Edmundson didn't rule out it doing so in future. "We want to be successful and grow our business," he said. "We will see how the market reacts."

With 3,200 lawyers across 90 countries, PwC's legal arm is not only the largest of the Big Four, it is the world's sixth-largest legal services provider by lawyer headcount – ahead of Hogan Lovells, Jones Day and Clifford Chance.