Is Everything What it Seems in the India Offshore Legal Outsourcing Space?

Author: Mark Ross
UK attorney and Director of Business Development at LawScribe, Inc.
www.law-scribe.com
mross@law-scribe.com

According to a number of surveys and studies the offshore Indian legal process outsourcing industry is booming and shows absolutely no signs of slowing down. Last month the comprehensive ValueNotes report “Offshoring Legal Services to India: an update” was released. In one of my June postings I commented on the publication of the Brown-Wilson group’s annual survey of legal outsourcing vendors. Over the last few weeks I have read numerous blogs, articles and press releases in particular commenting on the release of the ValueNotes report. I have no intention on merely repeating verbatim the content of this detailed 96 page study. What I am interested in, is looking behind the quoted figures at the reality of the legal outsourcing industry, on the ground in India.

According to the report there appears to be substantial growth in revenue by an increasing number of players who are billing out their various legal support services at similar rates to 18 months ago. Surely this demonstrates substantial growth across the board? More money, more companies and more employees operating within the offshore legal outsourcing space.

On a more detailed inspection of the figures something however doesn’t quite add up. According to the ValueNotes study the revenue generated by the legal outsourcing industry in India was estimated at $62 million for 2005. This grew to $124 million by the end of 2006, a healthy growth rate in any one’s book. However, the number of people employed within the offshore legal process outsourcing industry and the number of vendors has tripled. This has all happened within 18 months. I fully appreciate that this is a remarkably simplistic calculation but it appears to me that revenue earned per full time employee has somehow dropped from around $34,000 to $21,000. How can this happen within such a short period of time, when the billable rates don’t appear to have dropped?

There are a few potential scenarios that I will explore. Does the vast increase in the number of vendors include a significant quantity of small-time operators, jumping on the LPO bandwagon, without any real client base? I suspect so. Believe it or not I currently receive on average one inquiry every couple of weeks from Indian and U.S. attorneys asking for help or advice in setting up offshore legal process outsourcing companies. I mentioned in a previous blog posting how LawScribe recently outsourced an element of our own marketing to a company with a wealth of experience of general marketing in the American legal sector. Several weeks following the conclusion of the marketing campaign, I received an email, no doubt in error, from the same company purporting to be offering legal offshoring and outsourcing solutions to U.S. firms through their arrangement with Indian attorneys! The emergence of fly-by-night operators and the threat that this poses on the long-term health and reputation of the industry is the main reason I have repeatedly called for independent verification and accreditation of LPOs. This is something that I am still working towards with a number of my colleagues from within the industry and I hope to have further news on this shortly.

Another possibility is that some existing LPOs are exaggerating the size of their offshore teams in the hope that this will attract both clients and outside investment. My one piece of advice to any potential client is to look beyond the rhetoric. Prepare a detailed RFP (Request for Proposal) prior to contracting with any LPO and insist on a site visit. Now I understand that not every sole-practitioner out there has the time, inclination, or funds to undertake a 15,000 mile round trip. At the very least, even if you are unable to physically view the India offices of the LPO, ask for a photogallery/video shoot and insist on meeting with the U.S. based team personally.

It is of course possible that the numbers are true. Surely this can only mean that some companies must be operating at a loss. No industry could possibly sustain such a huge drop in revenue per full time employee and still be making a profit across the board. This inevitably raises the spectrum of the boom and bust cycle that we saw with the Dotcom industry in the late 90s. The ValueNotes report predicts that until 2010 we will continue to see the “Boom” within the evolution of the Indian LPO space. I agree with these projections and their prediction that the explosion in the number of vendors will plateau within a couple of years. In an earlier blog I discussed the concept of accreditation and self-regulation as a necessity for the industry http://blog.law-scribe.com/2007/05/i-believe-that-formal-regulation-of.html. I believe that by the turn of the next decade we will see well established industry regulation, the consolidation of many of the existing reputable LPOs and the exit of the weaker players. I also anticipate the entry into the market of some of the major business process outsourcing companies.

I also read time and time again the much vaunted figure that over 70,000 attorneys are qualifying annually in India. Legal process outsourcing companies, law firm captives and Western companies with their own captive arrangements in India all maintain that they only hire the most highly qualified candidates from the best law schools in India. Surely not everyone can be telling the truth? In my previous blog posting http://blog.law-scribe.com/2007/07/liberalization-of-indias-legal-services.html I discussed the potential opening up of the Indian legal sector to foreign firms and the impact that this would have on the offshore legal process outsourcing industry. The ValueNotes report estimates that there are currently 7,500 people employed within the legal offshoring space and that this is set to increase to 32,000 by 2010. Although some exaggeration may be taking place and I am not aware of statistics detailing the proportion of these positions that will be filled by fully qualified Indian attorneys, whichever way you look at it the numbers are significant. Over the course of the next 2-3 years a vast number of qualified Indian attorneys will be working within the industry. I believe the Indian government and the Bar association will be backed into a corner and left with no alternative other than to formally open up the market to foreign law firms. How could they possibly turn a blind eye to thousands of attorneys working for foreign companies?

The fact that some within the industry are prone to exaggeration will have little effect on the exponential growth of the LPO marketplace. One thing is certain; the role that offshore legal process outsourcing will play within both the U.S. and Indian legal sectors is set to grow dramatically.