Thursday, July 05, 2007

Businessworld piece on LPO

I must say here's one piece which makes so much sense. The print version is here, snippets below:

A decade after legal work began to be outsourced to India, the industry has grown to reach an annual turnover of $60 million(Rs 246 crore). But despite the hype over how legal outsourcing and other such value-added services would alter the global economy by moving high value, white collar jobs out of western economies and into India, the fact is that this is not happening.

$60 million sounds like a reasonable estimate. I don't think the day will ever come when even theoretically every Western lawyer will be replacable by an Indian lawyer. In India, law doesn't seem to be a career of choice for many and it doesn't seem things will change vastly anytime soon. This, of course, affects how many of legal graduates being churned out by law schools across India are suitably deployed for doing offshored legal work.

William Tanenbaum, international chair of the technology, intellectual property and outsourcing group at Kaye Scholer LLP and a partner in the firm’s New York office, says the mistake LPO proponents make is in assuming their industry’s trajectory will mirror that of the business process outsourcing (BPO) industry. “There’s never going to be an absolute, compelling case with legal outsourcing the way there is for outsourcing of call centres and work that are commoditised,” says Tanenbaum. “U.S. law firms are not offshoring any work because they are afraid of confidentiality issues, lack of control, besides they still have to figure out what they can send out that would be high volume enough to make it worth it.”

Tanenbaum, who advises several U.S. clients on legal offshoring issues, also says legal outsourcing will not take off in the way that information technology support and other services have because the former are highly subjective and judgement-oriented and less reducible to standard delivery models. Further, he argues, “You really are tied to specific client information and don’t get the high-volume advantage that you do when you are doing commodity work. Others may disagree, but it is a major consideration.”

This makes quite a lot of sense. With IT, at the end of the day you have a machine telling you if the code cooked by a programmer will or will not be acceptable to a western client. Thus, quality is quite measurable, even in operations of vast scale. The same holds true for BPO/call-center type of work - easy to define metrics for measurement of quality. Finding suitable metrics to measure quality (scale will only add to the challenge) in work output based so much on judgement won't be a trivial task.

Others do disagree. Christopher Arena, a partner at Philadelphia-based intellectual property law firm Woodcock Washburn LLP, says legal outsourcing will increase with time. “Corporate budgets are not getting bigger; they are getting tighter,” says Arena. “It’s an issue that’s here to stay, the law firms and the corporations and the LPOs in India should figure out a way to do it effectively.” He adds that ultimately it boils down to providing value to clients.

That could, in fact, be the key to the problem. “Law firms have less of an incentive to offshore as such, because it is their clients who foot the bill anyway,” says Sonny Ajmani, principal consultant at Opera Solutions in New York, a global consulting firm that advises clients on outsourcing and offshoring. “Unless there is peer pressure, which will induce competition or pressure from the clients to reduce costs, I don’t see law firms going the offshoring way.”

From the grounds, I can say that there is enough proof for the hypothesis that corporates have been and will continue to drive offshoring of work, including legal work. Corporations are generally used to the idea of getting it done remotely, be it manufacturing, IT or lower-end back office support.

“Unlike many areas, such as information technology, banking, finance and insurance services, where as much as 10-12 per cent of the services may be offshored to India by 2015, the corresponding figure for legal services is only 1 per cent.”

I don't think anyone can confidently say that a tipping point in offshoring of legal services will come, but then no one can say it won't.

The reasons are many. For one, when companies assess their costs, legal expenses normally figure at the bottom of their list. This is partly because legal costs are not fixed and difficult to estimate. There is also a reluctance to tinker with legal costs because of the high risks entailed by negative legal outcomes.

“Nobody wants to touch legal costs because your internal counsel will tell you that if you lose one major litigation, you’ll wash away any savings you can get through offshoring,” says Opera Solutions’ Ajmani.

Ajmani says there is still scope for Indian LPOs to grow. First, they should forget about trying to win the real high-end work that has a significant impact on the future of the firm like, say, litigation. Instead, he says, they should focus on more routine jobs, such as the drafting of contracts, which is essentially a standardised process and relatively easy to farm out to third party service providers.

Already, the great part of legal work being outsourced to India is of this type, with patent and trademark filings constituting about 70 per cent of all LPO revenue.

Currently, only around 10 per cent of LPO work is related to litigation support, which is categorised as high-end LPO business. However, in terms of the total global legal process outsourcing market, which is pegged by the Quatrro research firm in TTTT at $20 billion (of this $6 billion are offshorable), it is precisely the latter segment where bulk of the opportunity lies.

Higher end is more profitable, lower end will give the scale, conjuring a right mix is skill!