LPO: Hype Vs. Reality

There are various impediments for the offshoring of legal services :

1. The legal services industry is inherently averse to risk specially in corporate legal industry, with high stakes and hence, the general counsel and other in-house lawyers feel more comfortable in outsourcing work to US based law-firms (that they have been comfortable with in the past). Hence, LPO industry will be slow in adopting offshoring as a means of reducing cost and improving efficiency.

2. Since the cost of client acquisition in the legal services industry is rather large, many law firms and solo practitioners try to maximise the number of billing hours from each client. Sending work offshore clearly reduces the number of billing hours, and although some times the law-firms can make up for the lost hours by being more profitable, at other times, they cannot!

3. Sending work offshore also raises the risk of losing of confidentiality, and although more and more research and development work is being done offshore, US lawyers are quite apprehensive about offshoring confidential material.

4. Conflict of Interest issues are very important for most law-firms, solo practitioners and in-house attorneys. And, most legal services providers in the US are bound by ethics and guidelines that incorporate such issues. Hence, an appropriate framework needs to be created, while working with any offshore provider. This tends to slow down the process of offshoring. In fact, the closer the work is to litigation (e.g., document discovery or patent claim mapping), the more important the issues of confidentiality and conflict of interest become, and hence, offshoring of such processes may be that much slower.

5. Approximately 80% of the lawyers and paralegals in the US work for the government, academia, non-governmental organisations, and law-firms with three or fewer lawyers. Since the ‘unit’ of work that can be offshored by most of these organisations is less than that accomplished by one full-time person per organisation, it will be very costly for offshore service providers to market and sell their services to this group. In fact, the ‘real’ market for Indian offshore providers is only the larger law-firms with 10 or more lawyers and mid-size and large corporations, and these together constitute about 15% of the total US market and about $40 billion in revenue in 2005.

6. Currently, Indian law does not allow foreign (i.e., non-Indian) law-firms to practice in India. Since India is a strong emerging market whose GDP has been increasing – and is expected to continue increasing – at 7% a year and since its legal system is similar to that of the US, many US-based law-firms are quite eager in opening their own subsidiaries in India. And, once this happens, they will have an automatic incentive to send work offshore (from their US offices) in order to reduce costs and improve efficiency.