Legal Outsourcing- Breaking the Business Barrier

The indiscipline rise in a law firm’s operational and administrative costs in the past few years has logically caused major law firms to outsource their legal and paralegal work offshore. For the simple reason that the compensation desired and expected by a fresh law school graduate is much higher in the United States. With the ever rising operational costs, it is no wonder that law firms find it economically difficult to hire and sustain these fresh and experienced attorneys who are required for high end legal work such as, complex mergers and acquisitions, patent prosecution, contract drafting and litigation, when it has become possible for them to offshore their work to countries like India with massive human and intellectual resource.

The possibility of outsourcing of legal work has turned out to be a boon for these Law Firms and Corporate America, thereby bringing down the ever growing legal and litigation cost. Although, conceptually in a nascent stage and despite the current worldwide recession, legal process outsourcing has become a more viable business option for its existing and prospective buyers and is slated to grow further. The exponential cost increase in performing legal and litigation work has made it more reasonable for the law firms to look up to offshore their work to professional workforce--skilled but relatively cheap—for performing the similar tasks for both simple as well as complex legal work. India has an extraordinary edge there as serious service provider.

Though, many companies have found their business comfort by offshoring the high-end and the low end services, the companies and firms are cautious about the client related confidentiality issues and any possible liability and error damage that they might be held responsible for on account of outsourcing the work and above all that work is being performed offshore. The attorney-client confidentiality plays a very significant role in this entire process. And this has been an obvious concern for the growth of LPO in India as well as other countries. But looking around, increasing number of US law firms are now convinced about the safety and precautionary standards being adopted by these LPO. Lower litigation cost is another wildcard for the growth of LPO.

The LPO industry in India is growing at a remarkable velocity. When other KPO verticals are growing at a rate of 30 to 35 per cent per annum, the growth of legal service is pegged at 40 per cent annually. Just within few years of its takeoff, the LPO industry has moved, innovating new business models and displays matured results. Apart from the traditional business player in the LPO spectrum, the industry also sees a sudden investment interest from the venture capitalists and the established private equity funds:

• Pangea3 has accomplished US$7 million in Series C funding by Sequoia Capital India. The company has declared to use the fund towards development, recruitment and marketing.Mindcrest also received funding from a Chicago based company, Talon Asset Management in December 2006.
• SDD Global Solutions went for a comprehensive endowment agreement with SFP Priority Co. Ltd.
• Clutch Group, the Bangalore-based LPO backed by Jerry Rao, (formerly known as JuriMatrix) has accomplished a funding from Angel funding. The company is on its way of increasing its employee strength as it is getting regular projects.
  
• Unitedlex based in Gurgaon is another LPO which has drawn investments from Helion Ventures. The company is in the hiring mode adding additional work force of almost 500 employees, managers and associates.
• Recently, Sanshadow Consultants, an LPO firm located in Delhi received strong investment from the Band of Angels, a group of successful entrepreneurs who invest in start up or early stage ventures and provides services to overseas market like US and Europe.
• The Mumbai-based LPO firm Inventurus Knowledge Solutions received investments from Rakesh Jhunjhunwala, a leading PE investor in the country to the tune of $5.5 million. The company focuses on IP, litigation support and financial transactions.

The high potentiality of this business has indeed lured important BPO players, like Infosys and Wipro towards LPO. While the legal outsourcing industry is fighting with challenges like rising wage, depreciating dollar value, billions of dollars worth legal business is waiting at the other side.

Legal Process: Steering through the uncertain economic climate

The present economic meltdown has crashed many major financial institutions of the Wall Street. With the colossal collapse of financial giants, like Merrill Lynch, Lehman Brothers and Washington Mutual, the banking and financial crisis deepened in Europe and other parts of the world. Just when the U.S economy is trying to find some relief through outsourcing, the strictures of World Bank against SATYAM, one of the greatest IT and outsourcing companies in India, on the ground of moral turpitude came as a huge blow.

Although a ban was imposed on Wipro in 2007 by the World Bank but it was only after the fiasco of Satyam Computers that Wipro decided to make it public. Along with Wipro, Megasoft, another IT company of India and Gap International and Nestor Pharmaceuticals also faced World Bank’s fury. All these questioned the authenticity of corporate governance of India and brought it under scanner. Added to this is the change of guard in U.S that threatens outsourcing of jobs offshore. The change at the White House has brought in President Obama’s popular debate on the business viability of outsourcing. But this does not read any misfortune for the LPO industry of India. In August 2008, the American Bar Association (“ABA”) Standing Committee on Ethics and Professional Responsibility issued a formal opinion (also referred as the Formal Opinion 08-451) in support of U.S. lawyers outsourcing their legal work offshore, provided they adhere to the set rules.

Prior to that The Bar Committees of Los Angeles County, New York City, San Diego County and the Bar Association of California have declared that U.S. lawyers can outsource their legal work off the US boundaries and to the extent of their liability under Attorney-Client privileges. Hence the LPO industry of India can expect a huge inflow of legal work even during this downturn. The Process of Outsourcing has become one of the preferred and cost–effective tools for the U.S law firms and Attorneys.

Considering the huge difference in cost between attorneys in U.S. and that in India, it is obvious that the U.S corporate will cling to outsource their legal services in an attempt to gain profitability during a situation of economic crunch. The downturn has also given rise to new forms of business, like: Corporate Compliance, Customer Guidance Work and of course Risk and Conflict Management.

The LPO industry in India today involves high end niche area services related to Corporate and Regulatory Compliance, Corporate Governance, Contract Review and Management and Intellectual Property. Interestingly, a major part of these works are coming from U.K and U.S, where the cost of litigation is very high. Of course the driving factor here is the uncompromising quality of Indian LPO-producing quality work product at a much competitive price.

LPO Industry: The Future is Here

National Association for Software and Services Company (NASSCOM) in its report, describes Legal Process Outsourcing as “the next big thing” to happen to India, as far as the outsourcing industry is concerned. In a very recent article titled “Thought Leaders” by Reena Sengupta and Paul Solman, published by the Financial Times (London) in their 2008 annual issue of “Innovative Lawyers” states,

“The trend that is having the most impact on the thinking of the partners at top law firms is the impact of globalization and its intersection with people and technology. In particular, the way in which legal work is resourced and the location in which it gets done is coming under greater scrutiny. Outsourcing to India was the theme of many top-ranked submissions both from company legal departments and private practice”.

Approximately one-fourth of the top U.S. companies today have shown their concern on the ever mounting cost of litigation and other legal expenses that virtually takes away a large chunk of their annual corporate spending and is surely a concern on account of their profitability. It is quite obvious that they would start to look for some viable alternatives and conclude outsourcing both for their low and high end process as most cost effective without compromising for the quality of work. The difference in wages of an Indian attorney and that in U.S. and U.K. affirms this fact; an Indian attorney charges almost 80 per cent less than his U.S. or U.K. counterparts.

Several factors encouraged the growth of LPO in India. The graph of the development of LPO in India reveals a result that is overwhelming and why not? The legal system in India and the usage of English as the medium of instruction at our Law Schools, coupled with a solid Common Law background that we posses, provides an ideal knowledge and resource structure that has helped us gear for the substantial growth in the LPO spectrum. Hence with a minimal training, it has been possible for our Indian lawyers to deliver high quality legal work product. India is thus all set to complement the LPO wave.

From the Indian perspective, the legal work outsourced to India might only constitute 2 per cent of the global legal spending, which is valued at US$ 80 million. In its recent surveys Forrester Research speculates that in the coming years, the LPO market in India will see a tremendous surge of legal work that would be outsourced to the country and that may in turn generate huge job opportunity for our law graduates and this demand is slated to grow up to 35,000 job opportunities by the year 2010 and further taking it up to 79,000 opportunities by 2015.

The U.S. corporate sector holds great opportunities for the LPO of countries, like India. The need for legal advice is high and we can certainly assist them with the required back-end support. It need not be mentioned that the possibilities of this industry are immense. We have entered the era of Legal Process Outsourcing. It’s time for us to witness the change it brings in the outsourcing industry.