In recent years, the legal industry has experienced a global paradigm shift in the delivery model for legal services. This model, known as Legal Process Outsourcing (LPO), involves the transfer of legal processes to low-wage markets overseas. LPO is growing in popularity as law firms seek to minimize costs, increase flexibility and expand their in-house capabilities.
LPO initially appealed to large multinational corporations and law firms because of the economies of scale and wage cost arbitrage opportunities. However, small and mid-size legal markets are beginning to capitalize on the LPO phenomenon. LPO levels the playing field for smaller organizations, which might lack staff, resources and in-house expertise, allowing them to scale up operations quickly for a specific project or lawsuit.
Although LPO began with low-end, back-office functions, firms now send more sophisticated work overseas. A growing range of legal services are outsourced across the globe, including data entry, legal transcription, pre-litigation documentation, legal research, due diligence, contract management and intellectual property services.
While the most popular offshore destination is India, LPO is gaining momentum in other parts of the world, including China, Australia, South Korea and the Philippines.
LPO is a complex process and is not the best solution for every organization. Below are the major advantages and pitfalls of outsourcing legal work to foreign markets.
Advantages of LPO
- Cost Savings. Legal employees in overseas markets earn 30–70 percent lower wages than comparable employees in the U.S., allowing domestic firms to reap tremendous cost savings. Infrastructure costs in India and other overseas markets are also significantly lower.
- Round-the-Clock Operations. The 12-hour time difference between the U.S. and India permits 24/7 operations. Offshore teams can work through the night, resulting in quick turnaround time for pressing legal projects.
- Access to Global Labor Pool. India, China and other offshore destinations offer a large, trained labor force. India’s labor force is predicted to increase at an average rate of 15 million per year, ensuring a large pool of qualified workers for law firms in the United States, Europe and other parts of the world where the demand for labor is increasing.
- Flexibility. Employing a combination of onshore and offshore talent allows companies to tailor their capabilities in response to workload and client demands. LPO also allows domestic firms to tap into global expertise that is lacking within the organization.
Disadvantages of LPO
A Dun and Bradstreet survey revealed that almost a quarter of outsourcing relationships fail in the first two years, and half fail within five years. Below are a few drawbacks to LPO:
- Cultural Differences. Offshoring work to foreign markets introduces cultural and language barriers that could hinder communications between onshore and offshore teams.
- Confidentiality. Outsourcing sensitive legal information across the globe gives overseas vendors access to confidential information. Some people contend that sending legal work overseas constitutes a waiver of the attorney–client privilege because the U.S. government monitors cross-border communications, and foreign countries lack the privacy rights afforded by the U.S. Constitution.
- Communication Barriers. Many outsourcing ventures fail because of unclear expectations, poor vendor responsiveness, a lack of understanding and ineffective governance. Companies with multi-shore operations must dedicate time and resources to managing the offshore relationship, diverting attention from core business functions.
- Hidden Costs. In some instances, hidden costs undermine the cost benefits of outsourcing work overseas. Hidden costs include vendor management, quality control, contract management, employee turnover, vendor profit margins and increased operational costs.
- Geographical Hurdles. Relinquishing control of complex legal processes to a party across the globe can result in a loss of managerial control over people and processes. The practice of employing remote workers also can increase certain costs such as travel and training.
The Outsourcing Center — Articles, case studies, directories and content on emerging trends and best practices in outsourcing.
Outsourcing Institute — Neutral professional association that provides outsourcing information, consulting and networking opportunities.
Middle Market Reports — Newsletter that provides outsourcing information for middle-market organizations.
LPO Network — Resource and communications center for news and information about the LPO industry.
International Association of Outsourcing Professionals — Offers a list of the best outsourcing service providers.