Location, location, location
Driven by technological forces and the associated communications revolution that have fuelled globalisation over the last 30 years, outsourcing has emerged as perhaps the key strategic business process essential for the successful modern-day organisation. The large-scale outsourcing of manufacturing jobs which started in the 1970s resulted in a paradigm shift for the world’s developed nations in moving towards service as opposed to production economies. With the rapid improvements in telecommunications and information technology, a second wave of outsourcing followed in the 1990s with Business Process Outsourcing (BPO) where businesses contracted the operations and responsibilities of a specific business function to a third-party service provider.
More recently Legal Process Outsourcing (LPO) has emerged as a genuine strategic consideration for law firms and corporate legal departments looking to control legal costs while concurrently improving efficiencies through re-engineering their legal service delivery operational models. The most appropriate location for an LPO engagement or relationship is a crucial discussion, and as I reveal below, there are a number of options and issues for consideration.
Historically, corporate legal work was performed either onsite in the law department or offsite at outside counsel. Today, however, technological advances such as virtual data rooms, secure workspace collaboration, and sophisticated document processing, contract management and review tools make it easy to move many routine legal tasks to any location with appropriately qualified and trained individuals worldwide. Although cost is clearly a significant driver in determining the choice of location, there are many other forces at play here including ethical (such as client confidentiality, avoiding ‘unauthorised practice of law’ (US), and the undertaking of ‘restricted activities’ (UK)) and legislative restrictions (such as the Data Protection Act in the UK, and the Export Control Regulations in the US), complexity of the task at hand, familiarity with the client’s particular legal system, amount and type of communication required, project duration, client comfort with a location, timezone preference and language skills.
India is the most common offshore destination for legal work. According to a recent report by the research company ValueNotes, India’s LPO industry is expected to generate $440m (£293m) by the end of 2010. India leads the legal outsourcing pack for several reasons. With its large population, growing number of law schools, around 80,000 new, common-law-trained lawyers graduate every year, providing ample labour. Until the Limited Liability Partnership and Companies Acts passed in late 2008, domestic Indian law firms operated under archaic regulations restricting the number of partners allowed, the ability to take on external finance, and advertising. Many young Indian law graduates find the opportunity for advancement within domestic Indian law firms limited to say the least. The option of working within the LPO industry and applying their legal training on US- or UK-related matters is an attractive one. Further, India’s long outsourcing heritage has created a culture of process and quality control. In serving the IT, F&A, and other BPO industries, the country has developed the infrastructure required to serve Western business. India not only has the relevant discipline and infrastructure required to foster successful legal outsourcing but US and UK corporations are also familiar and comfortable with outsourcing to India other service lines, i.e. HR, IT, and finance and accounting.
The Philippines is probably the next most common offshore destination for LPO. Its population is, of course, much smaller; nonetheless, many qualified lawyers are available. Like India, there is a history of outsourcing, which provides the process and quality control discipline plus infrastructure. Though somewhat more expensive than India, on a per cent basis, especially relative to US and UK rates, the differences are not all that significant. Whereas UK lawyers may find India most comfortable culturally, US lawyers may find the Philippines more so. This reflects, respectively, the lingering effects of English and American colonisation and the close ties to the respective countries’ legal systems.
South Africa is more expensive but still a significantly lower cost than the US or UK. It has the advantage of even closer cultural affinity, specifically to the UK. Moreover, it is on almost the same timezone as the UK. Time differences are a sword that cuts both ways. In some instances, the big time difference between the US/UK and India/Philippines is favourable because it allows working around the clock with day shifts in all locations. In instances where UK clients want access to lower-cost staff on the same timezone, however, South Africa has the upper hand.
Israel is a special case. Compared to the other destinations, its population is small. It has, however, a population of very highly trained US lawyers, many with large US law firm experience. These lawyers now live and work in a jurisdiction with lower cost and lower pay, and – albeit on a small scale – are providing legal support services to US and UK clients.
No discussion of low-cost staffing is complete without considering domestic locations. Large US and UK law firms typically have most of their lawyers and staff in high cost (both for labour and real estate) cities such as London, New York, Washington or Los Angeles. But both the US and UK have many lower-cost locations with good supplies of lawyers and support professionals. In the UK, for example, Bristol, Wales or Northern England offer significantly lower costs than London. In the US, many Midwestern and smaller southern cities are much lower cost than the major coastal cities or Chicago. Given the harsh realities of the recent economic climate, high-quality legal talent is often available at rates much closer to those available in the offshore locations discussed above.
In the future, we may see legal process outsourcing work move to other countries. South America, Africa, and Eastern Europe all offer lower costs than the UK or US. For Anglo law and English language, however, these countries seem unlikely to be competitive anytime soon with the four countries discussed above. As law globalises, however, and Asia plays an increasingly important role in global trade, it is natural to expect China to become an important destination.
Political considerations, internal and external customer perception, availability of talent, currency exchange rates, disaster planning, shrinking cost differentials between domestic and offshore locations, relative inflation rates, all contribute to the decision of what location is best. I always advocate a ’different horses for different courses’ approach in determining the ’right shore’. Some processes, engagements and relationships are suitable for onshore, some offshore, and others on a blended model. There are also certain situations when providing LPO solutions to a client on-site at their own offices is the most appropriate course of action. Each organisation, and situation, is different and you should consider a number of factors before deciding on the location – or indeed which multiple locations – would be of most benefit.