Outsourcing and its Economic effect – With special reference to Legal Process Outsourcing.

Author: Kanishk Thakur

IN TODAY’S competitive world of business, gaining efficiency and staying profitable have become the corporate “mantras”. Like other BPO (Business Process Outsourcing) activities, India’s legal services are affordable and efficient. Most international law firms based in the US and Europe is taking the Legal Process Outsourcing (LPO) route to be lucrative. Several international law firms, legal departments of large corporations and also state and federal government agencies are increasingly outsourcing their legal work to India to reduce cost and increase efficiency

Preparation of pleadings, docketing, proof-reading, transcription of recorded documents, litigation support and research, case studies and law firm marketing are various avenues of work that are being outsourced to India. The advantage of the time zone,availability of English speaking attorneys and familiarity with common law doctrines attract foreign firms. Indian attorneys with US/UK qualifications are sought after. International ttorneys are impressed not only by the labor cost differential, but also by the quality and speed of work done.

Legal outsourcing is one of the most risk-prone sectors given issues of confidentiality and attorney-client privilege. However, research analysts have concluded that its overall benefits have tremendously boosted business. LPO is also gaining momentum in countries such as China and South Korea. However, given the advantages of Indian lawyers, experts believe that it is unlikely that other Asian countries will compete in this sector, as has been the case with call centers.

Indian companies also provide legal transcription services, which involve providing accurate tape and digital voice transcriptions. They transcribe audio files into wav, vox, dss and mp3 forms in less than 12 hours. The LPO business will soon become a mainstream practice for many attorneys in India. Professionals with Indian law degrees, including paralegals are assets to multinational law firms. Outsourcing helps the in-house counsel to concentrate on core legal issues while outsourcing research and managerial tasks at effective

What is OUTSOURCING?

The practice of moving processes or services to another country, in order to improve business efficiency and reduce costs (called as outsourcing) – is now an integral part of the modus operandi of western business, and the numerous companies that have gone down this route in recent years have derived immense benefits, not just from cost savings, but also in terms of overall focus and business development. But even as it benefits
the business interests of companies, many still believe that outsourcing is detrimental to western economies, not least because the creation of jobs in countries where labor is cheap is perceived to come at the expense of western workers. In one of research it was found that around 52% of the Americans have lost their jobs. It has become a threat to the U.S. economy but then too there is no denying that the outsourcing route is one more and more companies are taking, and those that have already benefited from it have realized that it has
much to offer beyond cost-cutting.

Indeed, organizations that have already outsources certain business functions are not only outsourcing greater amounts of work, but also more significant work, and this helps to enhance both the value of the organization and what it can deliver to its clients.The outsourcing of a greater number of business functions enables workers in the U.S. to concentrate on the most core and essential functions of their day-to-day work, confident in the knowledge that while they sleep, workers in other countries will take over the relay and support their endeavors with quality work. The business process thereby becomes seamless in terms of delivery, execution and standard of work — mandatory for any company that wants to be at the forefront of today’s global economy.

The Cost-Saving of Blue-Chip Corporates

Like IBM (and other blue chips of technology which are the pillars of U.S. economy) Achieve by Outsourcing lends itself to the entire U.S. Economy. The outsourcing of service work also lends itself positively to the overall development of a U.S. business. Workers can focus more on specialized areas and precious resources can be freed up to further these. In turn, more specialized and focused businesses have a chance of creating additional jobs for more skilled workers by branching off into areas that require a special skill set. On a broad level, the overall wealth of a nation like the U.S. can improve if companies are focusing on developing core businesses.

Another industry that makes full use of outsourcing services is the financial services industry. According to the studies it is found that the top 100 global financial services firms – whose outsourced work spans the gamut from basic back office IT work to intricate, highly skilled knowledge services – topped out at more than $700 million in 2006. It is no secret how important the business of Wall Street is to the U.S. economy, and as capital markets continue to develop all over the world, to the global economy. While the outsourcing of
financial sector jobs has undeniably moved the job of the more junior rungs to India and other countries, it has also created space for the more sophisticated, skilled workers to prove themselves. This dynamic also spurs future members of the financial services industry to really push them to do better and acquire skill sets above and beyond the ordinary. In today’s world, therefore, society can no longer remain static; it is up to every individual to be the best that they can be in order to remain competitive, no matter what industry they are in.

What is LPO (legal process outsourcing)?

The name LPO (legal process outsourcing) can be said as to be the brainchild of media and its coverage. In very simple words an LPO can be defined as an industry which outsources the legal work from the areas where it is costly to perform to areas where it can be performed at a significantly decreased cost. Most firms and corporations outsource primarily for cost saving measures and this is considered the biggest advantage for legal process outsourcing. While an attorney in major legal markets such as the US charge at minimum 250 dollars for work, countries that are offering legal process outsourcing charge just a fraction. Some countries, especially in the Indian sub-continent have gained prominence due to the fact that some of their attorneys with higher degrees work at meager salary. This has attracted major corporations to outsource some of the minor and less sensitive work in their legal departments. Another comparable
advantage is the turnaround time since most countries that offer legal process outsourcing are either on the other side of the Atlantic and generally with customers from the US.

At face value, it would appear that outsourcing service work to another country is detrimental to the U.S. workforce. This is only at the surface, though. The net effect created is a positive one for the U.S. The creation of jobs in countries such as India leads to the creation of new wealth, and a new class of consumers will have increased purchasing power to buy U.S. goods. Countries like India, to which jobs have been outsourced, make for new markets for the U.S. to export to, and this in turn creates revenue for the U.S.
The outsourcing of service work also lends itself positively to the overall development of a U.S. business. Workers can focus more on specialized areas and precious resources can be freed up to further these. In turn, more specialized and focused businesses have a chance of creating additional jobs for more skilled workers by branching off into areas that require a special skill set. On a more macro level, the overall wealth of a nation like the U.S. can improve if companies are focusing on developing core businesses.
It goes without saying that the LPO trend offers great benefits. India’s legal services are affordable, efficient, and above all, skilled. Outsourcing legal work to India costs up to 80% less than the cost of using the services of American law firms. Because it is far less expensive to hire talent in countries such as India, an outsourcing company is in the enviable position of being able to commit larger teams of talented workers to more specific areas of concentration. An LPO, for instance, can afford the luxury of dedicating an entire team to register trademarks or process immigration visas.

Why India?

All the kind of intellectual work is moving to India because of the following reasons:-
India is a country with greater population than US or UK or Europe, thus there is a higher number of university graduates in India than in US or UK or Europe. For instance, India graduates 5 times annual number of US engineering graduates.

In India, the students have a great interest in the fields of science, technology, mathematics, and computers. Thus more university graduates are studying science,technology, mathematics and computers. Indian BPO companies demand for the employees with university degrees and even some BPO companies offer post
graduate education benefits to their employees (as a retention device and an additional employee benefit).

In India, the people take lower wages and cost structure than their US equivalents. For instance, the $5-6,000 Indian BPO employee is a US $30k+ processing employee. Annual salary for an LPO lawyer (full time) is approximately $10k per year. Indian software programmer wages are 1/6th of US wages. Some types of legal tasks are particularly susceptible to cost savings. For example, patent filings
average $2,000 per application v. $8-12,000 in legal fees if prepared by a US patent law firm.

Most of the graduates in India have graduated in the English language which is a common language in US, UK and even in Europe. Thus Indian graduates can cope up with the environment of English language much easily than any other country. Work in India can be done “at night” which leads to 24- workday if work is started in the US and completed in India.

India’s legal services are affordable and efficient. Preparation of pleadings, docketing, proof-reading, transcription of recorded documents, litigation support and research, case studies and law firm marketing are various avenues of work that are being outsourced to India.

Why attracts Indian youngsters?

For a young legal professional, a career with an LPO is attractive for several reasons: it is a sunrise industry which should see a boom in the next 3-5 years;
there is a tremendous variety of work at all levels of expertise;
high-end opportunities for graduates of top law schools;
attractive remuneration and future management prospects;
an opportunity to work in a corporate structure that straddles borders;
A learning opportunity for those considering legal and paralegal careers in the U.K. or the U.S.

Economic Effect of Outsourcing Globally

With respect to India:
National Association of Software and Services Companies (NASSCOM), the Indian chamber of commerce interface to the Indian software and BPO industries, predicts outsourcing of legal services to India will soon account for $3-4 billion US annually. 79,000 lawyer jobs may move from the US to countries like India by 2015, and India could capture 70% of the KPO business worldwide. Other (non-legal) outsourced BPO is estimated to be worth over $120 billion; India accounts for much of this market. BPO and technology outsourcing may now account for 5-7% of the total Indian GDP. The IT-ITES sector (information technology and IT-enabled services) provides direct employment.3 million people in India, creating employment for.2million more. Thus, for each person employed in the IT-ITES sector, about 4 people are employed in the rest of the economy.

With respect to US:
Forrester Research projects the US loss of 3.3 million service jobs to outsourcing between 2000 and 2015. (Wall Street Journal Classroom Edition, “Special Coverage: Understanding Outsourcing.”) About 86% of 182 US companies surveyed will increase the use of offshore firms, per Chicago-based consulting firm Diamond Cluster International. (Canadian firms surveyed are much less likely to report willingness to outsource, e.g., less than half.) Job loss from outsourcing may be compensated for by US productivity gains or the ability to provide 24/7 coverage. Outsourcing lower level jobs led to increased domestic payroll for Microsoft and Oracle.

Conclusion

The argument that, as a practice, can create tremendous employment opportunities is now largely uncontested. It has been validated time and time again, and India is a shining example, arguably the best example. The Indian BPO industry, which currently employs 6.5 million people, has become the stuff of stories and legends. People have made their careers not just in the industry but even ‘on’ the industry, through bestsellers and big screen blockbusters! The benefits of outsourcing have been felt in numerous industry verticals, including health care, research, media and, more recently, the legal industry. The significance of ‘outsourcing’ in the Indian economy is continuously increasing, and many believe that these are the ‘early days’ of outsourcing not just in terms of volume of work but also in terms of variety. For the legal industry this is a period of tremendous learning and development, and the shape that Legal Process Outsourcing has taken raises incredible possibilities for legal professionals and industry alike.

The Indian higher education machine, and it’s a big one, turns out close to 80,000 law graduates every year. Of this lot, only a handful, mostly from the top 12-15 law schools (a number not exceeding five per cent of the total graduates), join the law firms and legal departments, or apprentice under good counsel (senior lawyers) at the various courts and tribunals. A sizeable percentage of the rest pursue other options including the civil services while the remaining majority struggle to succeed in the courts. LPO opportunities can transform that five per cent to something closer to 40 per cent, by drawing law graduates into work that’s not large in volume but tremendously diverse. Rising legal costs in the U.S., and more recently in the EU, are amongst a variety of other factors that are driving a diverse portfolio of legal work to India. There is now outsourcing work at almost every level of expertise and this is what makes the curry very spicy and appealing to a wide range of legal professionals.

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