Despite the tendency of U.S. legal firms to nervously inch forward when considering outsourcing legal processing work to India, the LPO companies in India expect total success and are moving full steam ahead.
Many U.S. firms are merely skittish about publicizing the fact that they outsource work.
“They fear backlash from people in their home country who are concerned with the effect that offshoring will have on the job market,” says Sanjay Bhatia, head of operations at SDD Global Solutions, an LPO founded by New York law firm SmithDehn LLP. He noted that among the better known clients of SDD Global Solutions are 20th Century Fox, Calvin Klein, John Wiley & Sons, and Elsevier. “But you will find that most providers of offshore legal services keep their client lists very private.”
“Initial outsourcing clients were legal departments of large corporations,” continues Bhatia. “Such clients are now driving large law firms – the last to outsource work that will cut into their own billing – in the offshoring direction as well.”
An article in the India Business Law Journal by Ben Frumin charts the development of the legal process outsourcing industry and assesses the opportunities and risks it poses to global businesses and law firms. Frumin indicates that “[t]he work farmed out to LPOs ranges from small projects to months-long document reviews, transcriptions, litigation support, electronic data discovery, court briefs, patent applications, proofreading and the auditing of legal fees.” He says that the clients of the legal process outsourcing companies “are typically Western legal publishers, law firms and corporations – each with unique requirements.”
Noting that the majority of employees at LPOs are Indian-trained lawyers, Frumin adds that, “[a]t SDD Global, for instance, Bhatia says that new employees ‘are hired only after a three-hour written aptitude test, a written essay, multiple interviews and a thorough background check.'”
Frumin analyzes the argument from many LPOs that the work they produce is not only cheaper but better than that of U.S. employees:
Several LPOs also claim to be faster than their Western counterparts, an advantage Bhatia describes as “extraordinary.” “Our legal outsourcing teams add approximately 12 hours to the normal legal services workday,” says Bhatia. “As law firm attorneys or in-house counsel in the West head home to sleep, a fresh round of legal work on the day shift in India is just beginning.” Bhatia’s firm is also able to meet the demands of clients that require a large number of lawyers to work on a single project: “We can provide the assistance of a single researcher or an entire platoon of trained professionals thus enabling clients to ‘flood the zone’ where such an approach is warranted.” “This is virtually the opposite of the practice of many large Western law firms, which, by necessity, must promise their clients, ‘lean staffing’ to address well-founded fears of compounded hourly fees climbing through the roof.”
Frumin also refers to the problems on the client side of legal process outsourcing:
Trouble can arise, for example, if a U.S. lawyer utilizing an LPO adopts a “wash-their-hands” approach to a particular outsourced task or function, says Mark Ross, LawScribe’s director of business development and a former partner at Underwood Solicitors. Maintaining clients’ reasonable expectations is sometimes difficult, Ross continues. Clients also need to be aware of what Ross describes as “fly-by-night” LPOs. Aaron P. Lawlor, vice president of project management at Aphelion Legal Solutions, views such companies, which often offer services in areas in which they lack expertise, as the “major problem” for the budding industry.
Frumin believes that among the U.S. criticisms leveled at the LPO industry, security and confidentiality concerns often top the list:
This is not only an issue for clients to worry about, but also for the LPO vendors themselves: A well-publicized breach would be devastating and could destroy international confidence in the industry. “[Security] is a legitimate concern of clients,” concedes Bhatia, “regardless of whether the legal service provider is a Western law firm or an offshoring company in India.” Bhatia says several U.S. ethics panels have scrutinized LPO work, and have concluded that everything “is perfectly ethical as long as the work is supervised by a licensed U.S. attorney who is finally accountable for the product.” It is also important that the primary client is aware that one legal service provider is outsourcing its work to another.
The author concludes by cautioning the prospective clients that irrespective of the dangers that do exist, it’s important that they exercise a great deal of care when selecting a legal outsourcing vendor:
Water-tight contracts between a client and an LPO are another important safeguard. These should contain provisions setting out specific recourses in the event of a breach of confidentiality by the LPO or one of its employees. They should also specify performance targets and penalties that apply if these are not met.
Despite opposition in the U.S. for the reasons listed above, “the LPO industry, which was valued at US$146 million at the end of 2006, was expected to grow to more than US$640 million [by last spring]. Manpower in the sector is expected to quadruple from 7,500 to 32,000 over the same period.” And Bhatia is confident this figure will grow significantly: “Western companies and individuals now spend US$250 billion per year on legal fees,” he says. “We figure the vast majority of the work can be done in India for half the cost, so we are actually looking at a legal outsourcing industry worth up to $100 billion or more.”
“India is the outsourcing market of choice for the U.S. and U.K.,” says Rob Stichbury, business development director at legal process outsourcing firm CPA.
Even Frumin, who wrote about U.S. opposition, points out that there are several reasons for India’s emergence as the world’s primary offshore legal outsourcing market: “Widespread use of the English language, a legal system based on common law, a plentiful supply of well-educated graduates (not to mention graduates in other fields of technical expertise like engineering, chemistry and biology) and, of course, the potential for huge cost savings.”
“No other country has the scale, skills availability and legal system equivalent to India today,” says Stichbury. And as businesses have succeeded in reining in their legal spending, the outsourcing sector in India has been the principal beneficiary. As a result, there are now more than 100 LPOs in India, although Stichbury estimates that 80 percent of the market is served by about 10 of these companies. Major players include Aphelion, CPA, Evalueserve, Infosys, Integreon, LawScribe, Mindcrest, Pangea3, QuisLex, SDD Global and others, but according to Stichbury, “no dominant player has yet emerged.”
Examples of changes of heart in the U.S. abound: Four years ago, Russell Smith, a stressed-out lawyer from New York, visited Mysore, 100 miles southwest of Bangalore, for a yoga course. Three months on, he fell in love with India, and hired an assistant to work on his U.S. practice, while refining his “shirshasana,” a yoga posture . Since then, the two-person outfit grew to SDD Global, a 32-person company that wants to be a 100-person unit, with operations based in Kuvempu Nagar in southwestern Mysore.
About 380 miles away, at the Ascendas International Tech Park in Chennai, 70 lawyers are browsing through a sea of legal documents for clients that include a handful of American and British multinationals. The lawyers work for Cobra Legal Solutions, a three-year-old New York-headquartered legal process outsourcing (LPO) company. One of Cobra’s largest clients is personal computer giant Dell, which does its litigation document reviews and M&A due diligence work out of Chennai.
Meanwhile, in Mumbai, Thomson Reuters, just months ago, began acquiring Pangea3, one of the largest LPO firms in the country. Pangea3 has over 650 lawyers on its rolls, most of whom are based in Mumbai and New Delhi.
So why are the likes of Dell, Sony Pictures and Universal Studio offshoring legal work to India? And why is one of the world’s largest information and research providers looking at acquiring an LPO company in India? The answer is simple: cost. “There is a tremendous incentive for American companies and law firms to hire LPO companies in India,” says Russell Smith, President, SDD Global. “They can obtain quality legal services for a tenth of the cost, and office space in Mysore is as little as 1/43rd the cost of comparable space in the United States,” he adds.
Consider these numbers. “A document review in a New York law firm will cost $75-80 per hour; in Ohio, it would be $40-50. In India, we do the same for $11-12,” says Sakthivel Venkatraman, Managing Director for India Operations of Cobra in a Business Today article published last December by T.V.Mahalingam and Rahul Sachitanand.
It is hardly surprising then that more than 85 percent of all legal processing vendors, either primarily or exclusively, deliver services out of India, even though most of them are headquartered in the U.S. India has over 30 legal outsourcing firms, employing about 12,500 lawyers.
And the size of the Indian industry? “A billion dollars,” proclaimed Sanjay Kamlani, Co-CEO of Pangea3, at a global industry conference held in Noida in November 2010. It was a number that not everybody agreed with. “Perhaps $400 million is more like it, if we were to look at just pure-play LPO work done out of India. Perhaps, if you included back-office work, too, then it could be a billion dollars,” says Ganesh Natarajan, President and CEO of Chicago-headquartered Mindcrest. Kamlani, though, says his estimate of a billion dollars includes the captives of American corporations like Citigroup and Honeywell, which do legal work out of India. There might be various points of view on the size of the industry, but everybody at the conference was clear about one thing: growth is here to stay.
Kamlani is very upbeat about headcount growth. “We doubled our headcount to 650 this year and we see that number doubling again to over 1,300 lawyers in another year,” he says. Mindcrest’s Natarajan sees headcount going to 2,500 lawyers in three to four years from 600 now. Even a smaller player like Cobra has been scouting for talent on campuses, and expects headcount to more than double to 150 by last March.
Sceptics might argue that the recent boom in the LPO industry is short-lived and can be attributed to the global recession. They argue that as bankruptcies and litigations went through the roof, Indian LPOs got a chunk of the huge legal work that is generated in these proceedings. But, industry folk like Natarajan and Kamlani believe a structural shift of sorts is happening and that the business is at a possible inflection point in terms of growth.
“Earlier, LPOs were getting most of their business from the legal departments of companies that wanted to reduce costs,” says Natarajan. “However, since the recession we are seeing more law firms talking to LPOs,” he adds. It is a point of view echoed by SDD’s Smith. “Law firms, too, are increasing their involvement in LPOs, but mostly at the insistence of their corporate clients,” he says.
Also, courtesy of the recession, American law firms are being asked by clients to bid for business on a fixed-fee basis rather than on hourly bills. That has forced law firms to cut costs and, in turn, engage LPOs. “We are now getting work from not just the legal departments of companies but also other departments like human resources,” explains Natarajan.
He adds that LPOs, including Mindcrest, are increasingly signing on three- to five-year contracts against the earlier practice of project-to-project work. Another sign of the maturity of the industry is the nature of the work that LPOs are undertaking and the increasing depth of client relationships. Gurgaon-based UnitedLex began with patents support and contract management but has expanded to document review, trademarks support and legal research.
UnitedLex CEO Daniel Reed says companies such as SDD and the one he heads are also trying to move the LPO industry beyond the lift-and-shift business model. “Clients are now approaching us to help them redesign their overall contracting function and provide technology and process design support,” says Reed. The company, backed by venture capital from Canaan Partners, has grown to over 550 people.
A pecking order is emerging. Firms such as Pangea3, UnitedLex, Integra and Mindcrest are considered large (with a lawyer headcount of over 500). At the other end are niche firms like Cobra and SDD, with headcounts of about 100. Then, there are the IT services and business process outsourcing, or BPO, players who are eager to make their presence felt in the space. Unlike pure-play LPOs, which sell on the basis of their lawyer teams and legal expertise, these players are looking to use their technology platforms and client relationships.
Take Cognizant, which debuted in the LPO space just two years ago. “We started by reviewing contracts for our financial services clients,” says Vipul Khanna, Head of Global Delivery for BPO and KPO. The company has since graduated to regulatory reporting, disclosure-related processes, and anti-money laundering compliance.
Considering this kind of optimism, and the fact that India churns out about 80,000 law graduates annually, is this industry all set to hire by the hundreds or thousands in the next few years? Insiders advise caution. Despite the generous supply of lawyers, not all of them are good enough for the industry. “The majority of Indian law graduates are not prepared to handle Western legal research and drafting, even with intensive training,” says SDD’s Smith. The way out? Months, if not years, of training for recruits.
Reed says training at UnitedLex can extend from at least four to six weeks for simple assignments to up to 36 weeks for more complex ones. Infosys has similar programs. Pangea3 says that it hires engineers from campuses, including IITs, and trains them extensively to do intellectual property related work. Doesn’t hiring from the IIT campuses cost a lot? “Yes,” says Pangea3’s Kamlani. “But, our clients pay us a lot, too.”