Tuesday, January 17, 2006

Legal Process Outsourcing (LPO) – Hype Vs. Reality: An Evalueserve Analysis

EVS PR Team mailed the following, so this post is essentially their press release.For the detailed PDF report, please contact me at jindal.rahul@gmail.com or the EVS address mentioned towards the end of this post. I quite agree with the approach of dividing the spectrum of services within LPO and correspondingly dividing the numbers (headcount, revenues, projections). That said, I don't have an immediate comment on EVS proclamation of LPO being more hype than reality. We shall see!

Legal Process Outsourcing (LPO) – Hype Vs. Reality: An Evalueserve Analysis

Gurgaon, India – Jan. 17, 2006: In a recent report on the Legal Process Outsourcing (LPO), Evalueserve contends that this opportunity is more hype than reality!
According to this report, only 1.2% of the legal and paralegal jobs would be offshored from the US to India by 2015 and this would constitute only 0.2% of the total revenue generated by the legal services industry in the US. The revenues generated by the Indian companies providing such legal services will be approximately $56 million during July 2005-June 2006, $300 million during July 2010-June 2011, and $960 million during July 2015-June 2016. During the same period, the legal services industry in the US is likely to expand from 975,000 legal and paralegal professionals in 2005 to 1.125 million professionals in 2010 and 1.3 million in 2015. Furthermore, the revenue generated by the legal industry in the US is likely to grow from $270 billion in 2005 to $360 billion by 2010 and to $480 billion by 2015. According to Dr. Alok Aggarwal, the Chairman and Co-founder of Evalueserve, “Unlike many areas, such as IT, banking, finance and insurance services, where as much as 10%-12% of the services may be offshored to India by 2015, the corresponding number in legal services is only 1%. Because legal services may not be offshored to India in large amounts, it is quite likely that some of the Indian LPO providers may not survive beyond the next 2-3 years.”

According to this Evalueserve report, in December 2005, about 1,300 professionals were providing legal services to the US from India and this is expected to grow to 5,200 by 2010 and to 16,000 by 2015. Out of these 1,300 professionals, the number of people involved in various sub-services included:
Approximately 750 Indian professionals were providing Legal Transcription and Electronic Document Management services at a price at $11-13 per hour;
Approximately 100 Indian researchers were providing Legal Research services at the cost of $24-26 per hour;
About 50 Indian researchers were providing Due Diligence services at of $24-26 per hour;
Approximately 50 Indian researchers were been providing Contract Drafting and Proof Reading of Contracts at $24-26 per hour;
Approximately 50 Indian researchers were providing Document Discovery in Litigation services, which are priced at $24-26 per hour;
Approximately 300 Indian researchers provide Intellectual Property Services, which are priced at $40 to $50 per hour.

The various impediments for the offshoring of legal services as pointed out by the report are the following:

1. The legal services industry is inherently averse to risk. This is particularly true about the corporate legal industry, where stakes are often very high, and hence, the general counsel and other in-house lawyers feel more comfortable in outsourcing work to US based law-firms (that they have been comfortable with in the past). Hence, this industry will be slow in adopting offshoring as a means of reducing cost and improving efficiency.

2. Since the cost of client acquisition in the legal services industry is rather large, many law firms and solo practitioners try to maximise the number of billing hours from each client. Sending work offshore clearly reduces the number of billing hours, and although some times the law-firms can make up for the lost hours by being more profitable, at other times, they cannot!

3. Sending work offshore also raises the risk of losing of confidentiality, and although more and more research and development work is being done offshore, US lawyers are quite apprehensive about offshoring confidential material.

4. Conflict of Interest issues are very important for most law-firms, solo practitioners and in-house attorneys. And, most legal services providers in the US are bound by ethics and guidelines that incorporate such issues. Hence, an appropriate framework needs to be created, while working with any offshore provider. This tends to slow down the process of offshoring. In fact, the closer the work is to litigation (e.g., document discovery or patent claim mapping), the more important the issues of confidentiality and conflict of interest become, and hence, offshoring of such processes may be that much slower.

5. Approximately 80% of the lawyers and paralegals in the US work for the government, academia, non-governmental organisations, and law-firms with three or fewer lawyers. Since the ‘unit’ of work that can be offshored by most of these organisations is less than that accomplished by one full-time person per organisation, it will be very costly for offshore service providers to market and sell their services to this group. In fact, the ‘real’ market for Indian offshore providers is only the larger law-firms with 10 or more lawyers and mid-size and large corporations, and these together constitute about 15% of the total US market and about $40 billion in revenue in 2005.

6. Currently, Indian law does not allow foreign (i.e., non-Indian) law-firms to practice in India. Since India is a strong emerging market whose GDP has been increasing – and is expected to continue increasing – at 7% a year and since its legal system is similar to that of the US, many US-based law-firms are quite eager in opening their own subsidiaries in India. And, once this happens, they will have an automatic incentive to send work offshore (from their US offices) in order to reduce costs and improve efficiency.

The report further provides insights on the various models of offshoring legal services and identifies four models: Captive Centers formed by US Law Firms and their Subsidiaries; Joint Ventures by US-based Firms; Third Party Vendors Providing Services to Law-Firms and In-house Corporate Attorneys; and Captive Centers.

The report also suggests various mechanisms along with offshoring that Law Firms can follow to reduce costs without compromising on quality.

For further details on the above study, please contact Evalueserve PR Team at +91 124 515 4000, +91 9811991003 or E-mail us at prcc@evalueserve.com