Wednesday, January 19, 2011

Executive Summary: 12 Ways Offshore Legal Outsourcing Could Shake Up the Law World in the New Decade

Many good points already have been made about what offshore legal outsourcing (or legal process outsourcing/LPO) has achieved in 2010, and what it is likely to contribute in 2011. But this is not just a new year; it's a new decade. This second decade of the 21st century is the one in which the legal world, as we know it, might be turned upside down. Along with related factors, offshore legal outsourcing is likely to continue to be among the leaders of the law revolution. Let us count the ways:

1. Meritocracy Beats Aristocracy

In the new, client-centric legal world, legal services providers can no longer rely on privileged positions. They can no longer depend on unwavering acceptance of the old model, which Cisco General Counsel Mark Chandler famously described as "the last vestige of the medieval guild system to survive into the 21st century." Lawyers and law firms must deliver value. That's what high-quality, offshore legal outsourcing is all about. This is the number one reason why the LPO (legal process outsourcing) sector is likely to continue to boom throughout the new decade.

2. Change is happening in the East as Much as in the West

Much has been written about the dramatic upheaval in the US and UK legal worlds. But just as rapidly as the Western legal market is changing so is the legal world in India. National law schools are proliferating, skill sets are improving, business-oriented metrics are beginning to prevail, and India's "demographic dividend" is in full effect.

3. The New Tort Reform

Now that high-profile U.S. law suits have been defeated with the use of high-end, offshore legal outsourcing, the corporate world is just beginning to realize that the best response to bogus claims is not a costly settlement payout, but instead, a cost-effective defense.

4. Capital Funding of Litigation

The new development of third-party funding of plaintiffs' litigation, to the tune of hundreds of millions of dollars provided by seemingly unlikely investors such as Citigroup, means that corporations are under even more pressure to reduce their legal costs. Offshore legal outsourcing answers not only them but also to the claims investors, who want to maximize their returns on worthwhile cases, rather than see most of their money go to legal fees.

5. The Billable Hour Bites the Dust

Value-based, flat-fee or fixed-fee billing already is beginning to turn the legal world upside down. Instead of trying to maximize hours and costs, law firms that practice alternative billing, voluntarily or otherwise, are now trying to minimize those same hours and costs. Under that scenario, offshore legal outsourcing is not a dangerous threat to law firms, but instead a great opportunity.

6. Unintended Effects of Regulatory Reform

The financial regulations that arose from the lack of transparency and oversight blamed for the recent recession that shook the core of the Western economy, together with the regulations contained in the new U.S. healthcare legislation, have created vast new compliance obligations for U.S. corporations, all of which cry out for cost-effective, offshore legal solutions.

7. "Legal Trauma Units" Level the Playing Field

As the ABA Ethics Commission astutely recognized, offshore legal outsourcing can be a blessing to overwork and out-gunned solo practitioners and small law firms. LPO providers are acting as "legal trauma units" for such lawyers, expertly handling their deadline emergencies, leveling the playing field for them, magnifying their strength and allowing them to not only meet difficult deadlines, but even run circles around the client-required, "lean staffing" of large law firms.

8. Offshore Beats Nearshore

While some companies reportedly are thrilled to pay $100-200 per hour for "nearshore" or onshore U.S. contract attorneys, and although this trend may thrive for some time in contrast to the $300-500 per hour that "BigLaw" firms charge for similar work, the nearshore/onshore providers will continue to have serious competitive trouble in the face of the reality that very high-quality, more reliable alternatives are available offshore for $20-40 per hour, or better yet, for inexpensive flat fees.

9. The Death of the "They're Taking our Jobs" Myth

The mostly untapped market for affordable legal services (a phrase now widely seen as an oxymoron) is vast. At some point, it will become apparent to the legal and corporate worlds that when offshore legal outsourcing allows otherwise unaffordable court cases to be opposed or prosecuted, and deals to be done, most of which require Western lawyers to supervise and implement, the amount of work for Western lawyers will go up, not down.

10. More Proliferation than Consolidation

Some experts talk, perhaps wishfully at times, about the supposedly upcoming "consolidation" of the LPO industry. In fact, there has been much more proliferation than consolidation. With the one exception of the acquisition of LawScribe by UnitedLex, it seems that so far there has not been a single example of one LPO buying or merging with another. Of course, several legal process outsourcing providers have disappeared entirely (some leaving their old websites intact for posterity, like electronic tombstones), but for every company that has gone under, another three or so have cropped up. The industry has gone from 15 companies in 2005, to over 200 today, and that trend will only increase, as offshore legal outsourcing becomes more popular. This can be a very good thing, not just a bad thing, to the extent that boutique and other niche LPOs emerge to satisfy client needs that go beyond the currently dominant trend of high-volume document coding.

11. Western Lawyers Switch to Football

Instead of complaining about the supposed loss of jobs, forward-thinking Western lawyers are realizing that offshore legal outsourcing provides them with an opportunity, and maybe even a necessity, of moving up the value chain. Whether they are litigators or transactional lawyers, they have the opportunity to focus on becoming quarterbacks or team coaches, or as Jordan Furlong puts it, "solutions managers." That's what clients want from them the most. As for young associates, they will be trained to negotiate deals, appear in court, supervise offshore providers, and provide legal advice. None of those tasks can be done best (or in some cases, at all) by foreign lawyers. All of those roles provide an opportunity for growth, not decline, at least on the part of modern law firms that are willing to embrace the future, rather than resist it.

12. The Future May Belong to the "Just Crazy Enough"

In a now-famous New York Times article, business journalist David Segal reported on the surprising fact that many venture capital funds deliberately look for entrepreneurs who have a mental disorder. The investors are looking for potential business leaders who are "just manic enough" or "crazy enough." In the LPO field, about 6 years ago, Indian providers like Mindcrest, Lexadigm, Quislex, Pangea3 and others were "just crazy enough" to provide document review and other services that most Western companies and law firms would never imagine sending overseas. Now, the sending of document work to India is routine. Today, arguably "crazy" legal outsourcing entrepreneurs and other LPO leaders are setting their sights on the highest-value and highest profit-margin mother lode, which is legal research and legal drafting. It is in those areas that offshore legal outsourcing is likely to make its greatest and most profitable mark.

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Written by Russell Smith