Over The Horizon – Legal Process Off-shoring
posted in Outsourcing News and Top Outsourcing deals |Source: Business Standard
First, it was manufacturing, then accounting jobs, services and call centres. Now, legal services are poised to become the next industry outsourced to low-cost Asian destina-tions. Off-shoring legal work to India could transform how lawyers’services are bought and sold in North America. Here’s what you need to know about the next big thing.
More than aware that legal process outsourcing is the next big thing, representatives of 33-Indian legal process outsourcing units (LPOs) met in New Delhi on 28th July to formally announce the formation of the National Association of Legal Process Off-shoring Companies (NALPOC). The objective of the body is to set up e-mail networking between the LPOs in the country. It could also help in bringing about some standardisation in the quality of the services offered.
And, since the IT / BPO industry has considerable know-how and experience in the field, NALPOC hopes to join the National Association of Software and Service Companies (NASSCOM) some time in the future.
The LPO sector has been growing at a breakneck speed over the last year or so. Until now, it has been growing haphazardly, without proper guidelines or understanding among its members. Today, there are over 100-LPO firms in the country, albeit most of them single person organizations.
However, as Russel Smith, SDD Global’s President and Chairman says: “Though the business figures seem small, the pace of growth of the industry cannot be ignored.”
So, if legal off-shoring is the next big thing, what is the general consensus on the trend? “Off-shoring enables a company’s legal department or a law firm to broaden its services without hiring more permanent staff,” claims S. Lata Setty based in New York and an employee of Pangea3, a Mumbai law firm involved in legal outsourcing.
Patent analysis, contract drafting, substantive document review, due diligence, are just some of services offered by highly qualified Indian lawyers, at a fraction of the fees charged by an American, Canadian or European articling student or junior associate. While, off-shoring legal work to lower-cost centres, such as, India is still in its infancy, management consultant James Bliwas recommends that law firms start considering the implications now. “It’s something they need to be thinking about today, so they’re not surprised tomorrow if it takes hold,” says the principal of Toronto-based Atticus Interim Management. Off-shoring can run the gamut from back-office tasks, such as, word processing and data management, to high-level legal services.
Forrester Research, an American market research firm, predicts that the U.S. will outsource up to 40,000 legal jobs by 2010, and as many as 79,000 by 2015. Last year, billing by Indian lawyers to U.S. firms for in-house work ranged between US $5-15 million; with approximately 600-700 people employed by legal process outsourcing in India. While, the U.S. and U.K. have been the first legal markets to feel the effects of off-shoring, there is no reason to think the legal profession in other English speaking countries will remain immune to the forces of outsourcing to India.
No country has benefited more from the off-shoring trend than India, in large part due to its highly skilled, English-speaking lawyers trained in a common-law system. As well, India’s decades of experience in off-shored software development, including call centres has helped. A ValueNotes Database Pvt. Ltd. 2005 study estimates, legal process off-shoring generates US $61-million in annual revenues for India, a number expected to reach US $605-million by 2010.
As with most off-shoring initiatives, corporations are leading the way. Several major Western firms have set up in-house legal departments in India, while many others (reportedly American Express, Microsoft, and Morgan Stanley) contract with local firms to supply legal services.
In-house counsel see the opportunities presented by re-directing routine, but expensive legal tasks from their outside law firms to Indian professionals. Off-shoring helps obtain legal work efficiently and in a timely fashion, thanks in no small part to the much-touted time-zone advantages (Indian lawyers work, while North American clients sleep). However, it cannot be denied that it is the cost savings that are hugely attractive.
According to a January article in India’s Economic Times, basic back-office legal work in India ranges from $15 to $25 per hour. Document management services command $30 to $50 an hour, while patent drafting and legal research can cost $80 to $150 an hour. Compare that to the $80,000 per year earned by some new Canadian lawyers, or the US $145,000 annual salaries drawn by first-year lawyers in large American firms.
“If, you’re filing 500-patents, the difference we bring to the table is quite significant,” says S. Lata Setty, Vice President of Intellectual Property for Pangea3, a legal outsourcing firm with offices in New York, Mumbai and Silicon Valley.
According to Thomas Friedman, The World Is Flat?
“In 2001, India graduated almost a million more students from college than the United States did. China graduates twice as many students with bachelor’s degrees as the U.S., and they have six times as many graduates majoring in engineering. The pay scales are a fraction of what people earn here, and the Internet and a global economy have put all of them in position to compete in almost every product-producing field.
Here is the dirty little secret that no CEO wants to tell you: they are not just outsourcing to save on salary. They are doing it because they can often get better-skilled and more productive people than their American workers.
According to Burgess Allison, Keynote Speaker, ABA
This is not just outsourcing. It goes deeper than that; it goes to the very heart of how we conduct business, what parts of the business we’re going to handle personally, where our value-add comes from, and whether or not our customers will keep coming to us for services or choose someone else.?
We’ve fundamentally changed the requirement for geographic proximity in some of our work, and even though that only changes part of how we provide services, it’s enough to change the basic economic equations for building a business that’s profitable
I don’t care if you look at it as a threat or an opportunity, because it’s both. But … if you’re a lawyer, you’d better pay attention and pay attention fast. If, you’re in a low-margin, high-volume market, I guarantee, you’re a target. And, if you’re in a low-volume, high-margin market, they’re targeting you, too.
And, corporations have also begun to appreciate the pro-active nature of the offerings of off-shore law firms. Case in point, one group of Indian IP lawyers combing the patent portfolios of North American firms, pointed out technical flaws and offered to correct them at no charge, by way of introducing their services. Now, how many North American law firms would make that kind of effort? Nary one, and that is why India is soon going to take over as the global legal off-shoring hub, including the rest!
While, some Western law firms perceive certain threats and opportunities, nonetheless, they are preparing to carve their own passages to India, even though local legislation prevents foreign law firms from setting up offices in India. However, a few American and Australian law firms have affiliated themselves with Indian practices, seeking to catch the wave while it’s still cresting. And, others are sending work directly to India. Leading Setty of Pangea3 in New York to say, Indian LPO firms are successful partly, due to: “Our secret sauce is having the Indian - U.S. attorney mix. If, you’re working directly with an Indian company or an Indian law firm, you would lose the U.S. flavour.”
So, the question remains, how close is English speaking world close to a real legal off-shoring revolution? The answer is that it is beginning to gain momentum, e.g. as Simon Chester, a partner with Heenan Blaikie LLP in Toronto, with personal links to India spanning several decades, says: “I think the first development in outsourcing was Linklaters, which I believe moved all of its word pro-cessing to Bombay. Somebody in Linklaters did the analysis and reckoned that it would be cheaper and more effective, to move the stuff to India than to move it to a different floor in the same building.”
And, other firms are following suit. For example, May 2004 saw global firm Milbank Tweed begin to outsource word processing, editing and proof-reading tasks to India through OfficeTiger, a leading Indian outsourcing firm. More than 3,000 word processing tasks are sent to India every year from Milbank Tweed’s head office in New York, and the firm reported a 98% quality performance result in its most recent survey.
Indian law firms have also begun directly soliciting work from the West. Currently, an e-mail is making the rounds of Canadian lawyers’ in-boxes offering legal research and writing services in India for just US $15/hour.
According to Dhiraj Aggarwal, CEO - EconomicalServices.com, a New Delhi firm that offers legal and paralegal services to Western law firms and sole practitioners, his firm saves its clients 75% on this sort of work.
Alternatively, a law firm could use a third-party vendor with North American offices that handle sales and supervise the work of their Indian legal staff, providing the reassurance of dealing with someone closer to hand. The choices are multiplying, and each is economically attractive.
Mukesh Gupta, Director for Strategic Relations at TCS Canada in Ottawa says, the parent company pioneered the off-shoring of software development in 1968, and today it is expanding its business offerings to include legal services. “Everybody understands that the cost pressures are there.”
Aggarwal of EconomicalServices.com, New Delhi believes: “This industry is all set to grow like the Indian IT industry. The world will look to India!”
And, the smart money is not betting on it being a passing fad, but believes it could seriously upend the North American legal services marketplace? Take for example, Pangea3, which counts Fortune 500 and Fortune 50 companies among its clients, along with a number of smaller businesses and some well-known law firms. New Delhi’s EconomicalServices.com also reports it has Canadian clients, while Gupta in Ottawa says TCS Canada is in discussions with large businesses and law firms here.
Whether, legal decision-makers admit it or not, they are paying close attention to the possibilities of off-shoring. Working directly with a local firm can be a good option for Western lawyers, if they have the skills and resources to identify highly qualified local counsel.
Indeed, off-shoring offers few benefits, if the services do not measure up. Chester has no doubts about the potential for very high-quality work coming from the subcontinent. “There’s been a myth, I think a complacent myth that Indian lawyers have a lesser standard of excellence,” he says. “That’s completely untrue.” He remembers helping a Canadian multinational defend its bid for one of its Indian subsidiaries, and found himself ‘blown away’ by how bright, sophisticated and responsive his Indian counterparts were.
India has one million lawyers. In Bangalore, the National Law School attracts the best and brightest from across the country, selected through fiercely competitive entrance examinations. Its graduates are recruited by top law firms in London, New York and Sydney, as well as, by firms like Pangea3.
“We have a very strong philosophy that what you start with is what you get,” explains Setty of Pangea3. “If you start with excellent people, the work product will be excellent.”
The market will prove how viable off-shoring legal services really is. But, the fact remains that the volume of legal work going over the Pacific from Canada and the U.S. is only going to increase. Lawyer salary pressures show no sign of easing, and corporate law departments are determined to cut costs.
India has proven once before that it can become a major player in a global, knowledge-based sector. “This industry is all set to grow like the Indian IT industry,” predicts Aggarwal. “The world will look to India for qualified and skilled legal professionals.”
