An amalgamation of law, technology and outsourcing

Hollywood legal contracts, litigation support, low cost yet highly-skilled Indian lawyers, projected $640 million LPO market by end 2010... Subhankar Kundu explores the trends of the domain critical legal process outsourcing industry

Creative personalities of tinsel town hardly understand the legal tangles in their contracts. In the recent past, bollywood star Arjun Rampal said that he never reads his contracts and passes those over to his lawyers to be read and sorted out. Well, it’s nothing but outsourcing. One shouldn’t be surprised if the Tom Cruises and Al Pacinos of Hollywood are found sending their contracts to India before signing them with the likes of Paramount and MGM. This might sadden President Barrack Obama as he has been sloganeering against outsourcing to India but who cares? Skilled Indian legal experts coupled with the low cost of labor have always been the driving factor for the growth of legal process outsourcing (LPO) in India.

Indian lawyers at a LPO firm in Mysore, SDD Global Solutions, recently pulled off a big win in a major Hollywood legal case. The SDD Global team assisted its New York based parent law firm in doing all the legal research for two of the most controversial comedies released in the recent past, Borat and Bruno, both starring Sacha Baron Cohen. The LPO outfit recently won a landmark court decision that has become a tipping point in favor of legal outsourcing, one that will also benefit comedy writers, performers, television broadcasters, and film studios. SDD Global performed all of the legal research and drafting for the successful motion to dismiss Doe v. HBO, a high profile libel litigation in Los Angeles County Superior Court involving Sacha Baron Cohen’s acclaimed comedy series, Da Ali G Show.

US law-trained Indian attorneys at SDD Global conducted the legal research and drafted all of the preliminary drafts of court papers in the litigation, including Defendant Channel 4’s motion and brief for summary judgment, which allowed Channel 4 to fight and defeat the lawsuit, rather than settling in order to avoid burdensome legal fees. A team of Indian lawyers at SDD Global drafted, and is credited by name in, the summary judgment brief for dismissal. SDD Global continues to do significant legal work for the film industry, especially Hollywood.

Sanjay Bhatia, head of operations, SDD Global Solutions, said, “The victory created shock waves in the US, British and legal media because it was the first example in which a team of Indian lawyers at a legal outsourcing company was able to win a major Western litigation. The media and legal worlds learned a lesson that has profound implications for the future of legal services in the West. Without SDD Global's involvement, mounting a defense against this lawsuit would not have made economic sense, and the defendants would have simply paid the plaintiff to go away. This would have been just to avoid US legal fees, even though the case had no merit.”

This is a clear indication of the diverse capabilities that Indian LPOs possess. Both law firms and individual corporations are in the process of identifying support in India which will come at a considerably lower fee burden. The idea behind LPOs is to create an amalgamation of law and technology.

In the wake of a recession

Major processes are being outsourced in areas like litigation support, contracts management, regulatory compliance, legal research and legal analytics. It’s almost end-to-end legal support.

In the wake of the global economic downturn, LPOs are not immune to the crisis. The amount of legal work has significantly increased in several areas of the law. Yet, legal budgets remain frozen or have shrunk. Pune-based LPO firm, Mindcrest India has observed that buyers of legal services, whether corporations or law firms, are keen on forging strategic partnerships with LPO providers.

Such partnerships typically contemplate engaging a single preferred provider for a variety of legal services that derive significant value with scale and over multi-year relationships.

Law firms now feel the pressure from corporate counsel to provide fixed pricing and to do more with less, retain talent and support global operations. The corporate counsel’s office has to do more with less apart from taking proactive measures to mitigate risk for their corporations. There would be an increased acceptance of offshoring and this may result in clients picking up the least risk and least complex pieces of work, to begin with. Clients, who already have worked with offshoring vendors, will move up the value chain and look at outsourcing more complex pieces of work.

There are certain critical challenges such as long sales cycles, balancing the unpredictability of the work compared to a traditional BPO scenario where there are steady state annuity contracts as well as engaging long term client confidence by doing consistently high quality work.

Bodhi Global, another Indian LPO firm thinks that companies worldwide are doing their best to pare down legal costs. They are pushing their third party providers for innovative delivery models that yield price and cost efficiency. While this does present an opportunity for LPOs, it also means that Indian firms will have to be flexible about pricing while ensuring that the quality of work is not compromised. This is an opportunity for third party providers to come together and present a comprehensive product offering that benefits the end client.

Arihant Patni, CEO, Bodhi Global, said, “The industry is still young and has great growth prospects but it requires the sustaining power to survive whereas those that want quick results may be disappointed.”

Now more than ever before, law firms are reengineering their value proposition to clients. While firms continue to provide sophisticated and expertise-driven work directly to their clients, they are increasingly seeing the need to partner with an offshore LPO provider to perform high volume services that are repetitive in nature.

Rohan Dalal, Managing Director, Mindcrest India, said, “This hybrid approach presents to the ultimate client, the corporation, greater control over its legal budgets.”

Recent studies suggest that at present, only 3% of the sslaw firms in USA and UK outsource their back office work to India. Indian revenues from legal services offshoring are slated to grow from $146 million for calendar year 2006 to reach $640 million by end 2010.

Although this percentage (3%) may seem small right now, the LPO industry is helping top AmLaw firms and Magic Circle law firms apart from the Global 2000 corporations. Significant awareness of the kind of quality work that can be offshored with cost reductions of up to 50% has been generated. As success stories become better known, the growth and adoption of the model will definitely increase. The crisis will have a catalyzing impact on adoption as it is becoming almost a necessity.

Rahul Shah, Head Solutions, SDI and Marketing, Infosys Knowledge Services said, “Regarding numbers, there is a number of $440 million in 2010 being spoken about. At a productivity figure of $25,000 per person (as per the earlier trend), this works out to about 18,000 people in the industry. Our take is that the numbers are smaller—possibly not more than 12,000-15,000—pegging the industry at around $350 million.”

SDD Global thinks the potential is vast as it considers $640 million by 2010 to be a conservative figure. Bhatia said, “Western companies and individuals now spend $250 billion a year on legal fees. This number is way too high, sometimes even crippling. We figure that a vast majority of the work can be done in India, for less than half the cost. Effectively, we are looking at a legal outsourcing industry worth up to $100 billion or more. I am optimistic that the legal offshoring industry may grow beyond $1 billion by the end of this year.”

SDD Global backs this optimism as the firm received an inquiry from a Fortune 100 company which was exploring legal outsourcing options. This one company alone spent $400 million on its legal matters in 2009.

Big players vs. LPO oriented players

There is a distinct difference in approach to LPO business between bigger diversified outfits and smaller but pure-play LPO players.

Big ITES firms like Infosys are clearly seeing opportunities in this space to enable clients to transform their business. Infosys strongly believes that big players bring large relationships, strong focus on quality, risk mitigation and governance, financial strength, IT strength and infrastructure scalability. This, on one hand, will drive faster maturity and education in the marketplace apart from vendor consolidation.  

Shah said, “We have a focused LPO practice. We believe that providing focus on a line of business will enable us to understand the client imperatives better and therefore we partner with our clients in their transformational journey.”

The key components of Infosys Legal Services’ approach include focus on domain expertise, attracting and retaining the best industry talent and being a transformational partner for its customers.

SDD Global doesn’t want to compete with the big players. Bhatia said that the large firms are into volume-driven low-end work, largely relating to electronic discovery.

Patni said, “The LPO arena is different from BPO in that while systems and processes can be mapped to this type of work; there is always a perceived ‘art form’ in the legal part of the tasks. Clients need to be made comfortable that this is effectively addressed. Since the founding partners of one of India’s leading law firms, AZB & Partners, has a stake in our business; their oversight ensures that adequate measures are taken in this regard.”

Dalal emphasizes, “As the first mover and the most established player in the LPO industry, Mindcrest’s core strength lies in understanding the domain-specific needs of the legal marketplace. Our approach is focused on providing the highest quality legal services that are supported by best-of-breed technology, process and infrastructure.”

Human resource angle

The industry employed around 7,500 people in the legal offshoring space in India as of end 2006. The employee headcount is expected to reach 32,000 by end 2010. According to Forrester Research, the number of jobs outsourced in the legal services area will grow to 35,000 by 2010 and up to 79,000 by 2015. These numbers, if correct, are expected to help end the jobs drought in the legal space.

Dalal said, “Mindcrest has been at the forefront of creating new and specialized jobs for lawyers in India. We have in a brief span of time created nearly 700 jobs in this young industry.”

The minimum qualification that Mindcrest looks in candidates is a law degree (LLB). It also looks for candidates with advanced qualifications and or industry experience in Economics, Finance, Engineering, Business and other disciplines that are aligned to the various services that it offers.

Taking a more conservative approach in hiring, SDD Global does not go for voluminous hiring. Its present head-count is just 27, which is not surprising given the fact it does not get into volume driven work which requires a large headcount.

Bhatia pointed out, “We get hundreds of job applications every week but are extremely selective in our hiring. Presently, we are seeking to recruit only from the top three law schools in the country and we believe that even if we increase our head count by 10 in the next few months, we would have done well for ourselves.”

SDD Global founder Russell Smith, a graduate from Columbia Law School with almost 25 years of experience as a media and entertainment lawyer, usually conducts the training. The training focuses on US legal writing.

Moreover, renowned lawyers from reputed US and UK lawyers regularly come down to India to train and supervise processes.

Geographical markets

The economic downturn over the past couple of years has raised enough questions on the over-dependency of Indian outsourcing on the US and UK. However, this has hardly changed the business strategies of LPOs in terms of geographies. US, UK and Europe still represent by far the dominant geographic regions outsourcing legal work.

Multinational corporations that have global footprints regularly request services to be performed for their offices worldwide, be it Asia Pacific, EMEA, etc. Mindcrest provides services in many of these jurisdictions to its clients.

SDD Global has been exploring newer markets in Australia and Canada. Largely, the major chunk of work is being outsourced from the United States and the United Kingdom.

Bhatia said, “In the recent past, we have bagged three Canadian clients and are close to opening an office in Vancouver. We have also received inquiries from Australia.”

Bodhi Global has identified new markets and elicited interest in mainland Europe, Australia and Hong Kong/Singapore.

Patni maintained, “I would say that the primary markets remain US, UK and Canada.”

Infosys Legal Services claims to have 7 clients primarily in the EU and US regions.

Among its clients are a legal publishing firm, a Magic Circle law firm, a globally recognized courier company, Fortune 5 Oil and Gas Company, large financial publisher and a life insurance giant.

There is always a notion that big players would hardly prioritize focus on a small business segment like LPO. However, Infosys said that it has focused on its LPO practice.

Shah said, “We believe that providing focus on a line of business will enable us to understand the client imperatives better and thus we partner with our clients in their transformational journey.”

For now, smaller pure-play LPO players are leading the score-card in terms of customer wins. Dedicated focus and domain expertise are perhaps the factors considered by the clients more than the size of the firm.