India’s legal outsourcing industry has grown in recent years from an experimental endeavor to a small but mainstream part of the global business of law. Cash-conscious Wall Street banks, mining giants, insurance firms and industrial conglomerates are hiring lawyers in India for document review, due diligence, contract management and more.
Now, to win new clients and take on more sophisticated work, legal outsourcing firms in India are actively recruiting experienced lawyers from the West. And U.S. and British lawyers — who might once have turned up their noses at the idea of moving to India or harbored an outright hostility to outsourcing legal work in principle — are re-evaluating the sector.
The number of legal outsourcing companies in India has mushroomed from 40 in 2005 to more than 140 at the end of 2009, according to Valuenotes, a consulting firm in Pune, India. Revenue at India’s legal outsourcing firms is expected to grow to $440 million this year, up 38 percent from 2008, and should surpass $1 billion by 2014, Valuenotes estimates.
“This is not a blip, this is a big historical movement,” said David B. Wilkins, director of Harvard Law School’s program on the legal profession. “There is an increasing pressure by clients to reduce costs and increase efficiency,” he added, and with companies already familiar with outsourcing tasks like information technology work to India, legal services is a natural next step.
So far, the number of Western lawyers moving to outsourcing companies could be called more of a trickle then a flood. But that may change, as more business flows out of traditional law firms and into India. Compensation for top managers at legal outsourcing firms is competitive with salaries at midsize law firms outside of major U.S. metro areas, executives in the industry say. Living costs are much lower in India, and often, there is the added allure of stock in the outsourcing company.
Right now, Pangea3 is “getting more résumés from United States lawyers than we know what to do with,” said Greg McPolin, managing director of the company’s litigation services group, who divides his time between India and New York. ...
Many legal outsourcing firms have offices around the world to interact with clients, but keep the majority of their employees in India; some also have a stable of lawyers in the Philippines. Thanks to India’s low wages and costs and a big pool of young, English-speaking lawyers, outsourcing firms charge between one-third and one-tenth what a Western law firm bills per hour. ... Even white-shoe law firms like Clifford Chance are embracing the concept. ...
Many corporations agree that outsourcing legal work, in some form or another, is here to stay.
“We will continue to go to big firms for the lawyers they have who are experts in subject matter, world-class thought leaders and the best litigators and regulatory lawyers around the world — and we will pay a lot of money for those lawyers,” said Janine Dascenzo, associate general counsel at G.E.
What G.E. does not need, though, is the “army of associates around them,” Ms. Dascenzo said. “You don’t need a $500-an-hour associate to do things like document review and basic due diligence,” she said.
The legal industry is certainly in the midst of some large changes in the way it has traditionally functioned. This being just one of many changes that are occurring as client’s willingness and ability to pay has weakened in the face of the recent economic climate. These changes are forcing law firms to become more efficient and cost-effective.
Long-term, this should lower the cost of legal services and promote greater competition among law firms. Overall this is likely to be a good thing for consumers of legal services and for the economy as a whole. Short-term, it is likely to make the market for legal jobs even more intense and painful – particularly for recent law school grads.
I wonder if some aspiring entrepreneur will take advantage of this situation and set-up outsourced legal services to make it easier for solo practitioners to get into business (although this is going to be much easier for experienced attorneys than those freshly out of law school). You might run into some ethical issues involving client confidentiality, but with some care and ingenuity, those issues could probably be overcome. With the increasing number of young, bright law graduates with non-ideal employment prospects, this might help create a climate allowing smaller, low-cost law firms to start chipping away at some business of the big law firms. In time, who knows? Maybe this kind of law firm model could do to law what the mini-mills did for steel?
(HT Paul Caron)