In late 2003 when Kunoor Chopra, an attorney with Fulbright & Jaworski LLP, founded LawScribe there were a handful of companies globally offering lower cost legal support services from overseas destinations. Four years later, in India alone there are now well over one hundred such companies offering these services to US and UK law firms and legal departments. In addition to the legal process outsourcing (LPOs) companies, representatives from the world’s leading law firms are regularly embarking on fact-finding trips to India with a view towards opening up branch offices or entering into captive arrangements with LPOs.

To appreciate fully exactly what is happening in the legal outsourcing space it is crucial to have an understanding of the regulatory structure of the Indian legal sector which is to a certain extent responsible for the very emergence of the LPO industry. I will also take a brief look at some of the major driving forces from the US and UK perspective. I will conclude with an overview of some of the facts and figures appertaining to the legal outsourcing industry in India and whether the state of the industry is quite as rosy as some of the figures might lead us to believe.

The position as it stands as of now is that the practice of law in India is governed by the Advocates Act of 1961. Foreign law firms are not allowed to engage in the practice of law in India. The major reason why there are regulatory barriers in place is due to the perceived inability of the domestic Indian firms to compete with the major US and UK firms that would enter the market if it were to be liberalised. The general consensus is that the best talent would be swallowed up by these firms. This would then have disastrous consequences for domestic firms who simply would not have the financial muscle to compete. Currently Indian law firms are not permitted to have more than 20 partners. They are also prohibited from engaging in any form of advertising whatsoever. This includes a ban on websites, brochures, television, radio, etc. Furthermore, law firms are also not allowed to obtain any form of financial assistance by way of bank loans. Owing to these restrictions there is a feeling among many that Indian law firms will be unable to compete with the major US and UK firms because there is no level playing field.

Over the last decade we have seen the Western legal community look to find increasingly creative ways to circumvent the restrictions imposed by the Advocates Act. A number of large multi-national accounting firms are clearly providing legal services to their clients, employing increasingly large numbers of Indian lawyers; several foreign law firms have set up “Liaison” offices in India or developed affiliations with Indian law firms and of course, as I mention above, we have witnessed the dramatic emergence of the legal process outsourcing industry.

Legal process outsourcing companies such as LawScribe work alongside the US and UK law firms. The law firms ensure strict compliance with the restrictions on the unauthorised practice of law by supervising (albeit remotely) and taking full responsibility for the legal support work that the LPOs provide.

The demand for a lower cost legal services alternative is as a direct result of increasingly cost conscious US and UK corporate clients. These clients are no longer prepared simply to sign a blank check when it comes to paying their attorney’s bills.

The Los Angeles Daily Journal announced earlier this year that pay scales for first-year attorneys rose yet again, with a number of firms hitting a staggering US$160,000 starting salary. Law firm leaders insist that these increases have resulted from the US domestic economic forces, necessitating a policy of “Keeping up with the Joneses” in order to retain the top law school talent. The fully loaded cost to the firm of a junior associate at these salary levels will be in excess of US$250,000 per annum.

The partners are going to be looking to bill these associates out at hourly rates of US$300 plus per hour. These rates simply do not wash with clients when it comes to routine level legal support work such as basic document drafting, litigation support or document review work.

The document review process involved in large scale litigation has increased dramatically alongside the exponential increase in email and electronic communications. KPMG estimates that the cost of first level document review can regularly amount to 58-90 percent of the total cost of litigation.

I am aware of several Fortune 500 companies who have advised their US law firm representatives in no uncertain terms that they either offer a cheaper alternative for routine, basic level document review work or lose their business altogether.

On top of this, the advances in technology have had a two-fold effect. First, they enable the performance of increasingly more complex legal tasks at the simple push of a button and in a fraction of the time. Documentation relevant to the litigation process is now stored electronically and is available for transfer, storage and review anywhere in the world. With the increased prevalence of digital dictation it matters little whether your secretary is ten feet down the corridor or 7,000 miles away.

More crucially, through improved connectivity, a vast pool of common law trained legal talent is now available to assist law firms and legal departments here in the US. The legal systems in countries such as India, the Philippines, and South Africa are all based on either the UK or US systems. In India alone 70,000 graduates emerge from law schools annually.

According to the independent research company ValueNotes in their July 2007 report, “Offshoring Legal Services to India - An Update”, the revenues from legal services offshoring are forecast to grow from US$146 million in 2006 to US$640 million by the end of 2010. The legal outsourcing industry in India currently employs around 7,500 people and this number is expected to rise to 32,000 by 2010.

The vast majority of these individuals will be working on the US legal matters, albeit indirectly, for the US law firms and legal departments. 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.

On a more detailed inspection of the figures , something however does not quite add up. According to the ValueNotes study the revenue generated by the legal outsourcing industry in India was estimated at US$62 million for 2005. This grew to US$124 million by the end of 2006, a healthy growth rate in anyone’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 US$34,000 to US$21,000. How can this happen within such a short period of time, when the billable rates do not 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. The emergence of fly-by-night operators and the threat that this poses to 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.

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. At the very least, even if one is unable physically to view the Indiann offices of the LPO, ask for a photogallery/video shoot and insist on meeting with the US 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 specter of the boom and bust cycle that we saw with the dotcom industry in the late 1990s. 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 reach a plateau within a couple of years. 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.

The fact that some within the industry are prone to exaggeration will have little effect on the exponential growth of the LPO marketplace. Increasingly large numbers of Indian law school graduates will opt for a career path in an LPO rather than in a traditional domestic Indian law firm. One thing is certain; the role that offshore legal process outsourcing will play within both the US and Indian legal sectors is set to grow dramatically.



The author is a UK solicitor and director of LawScribe Inc, one of the most reputable and established legal outsourcing companies in the United States. Prior to joining LawScribe, he was a partner at the highly influential and innovative UK law firm Underwoods solicitors. Mark is a regular speaker at legal conferences and is recognised as one of the world’s leading authorities on legal process outsourcing.