Cheap labor is appealing. But high-quality cheap labor is irresistible.
When the in-house bar caught wind of General Electric's 2001 cost-saving strategy to open legal departments in India for GE Plastics and GE Consumer Finance, a light bulb appeared above the head of every general counsel in corporate America as he asked himself: "How can I make this work for my department?" While the idea of sending work overseas was common in the tech industry at the time, legal departments had never considered it an option. But as countries such as India and New Zealand churned out qualified, English-speaking lawyers trained in the common law, taking advantage of that talent pool seemed a given.
GE took on the task of being first.
The Connecticut-based electrical manufacturing company charged its senior in-house counsel in the U.S. with interviewing, hiring and supervising lawyers abroad. GE's Indian lawyers and paralegals worked on projects such as drafting outsourcing agreements and confidentiality contracts. After only two years, the company reported it had saved nearly $2 million in legal fees that otherwise would have gone to outside counsel.
Not shy about discussing its groundbreaking idea, GE soon spread the word that legal departments could realize substantial savings by sending work abroad. Many GCs began to take advantage of the new opportunity.
Illinois-based Andrew Corp., for instance, shipped patent application work to New Zealand; Minneapolis-based General Mills sent some IP work to Australia and Canada; and Bermuda-based Accenture opened a legal department outpost on Mauritius, a small island off the coast of Madagascar, to handle everything from drafting contracts to reviewing documents. It seemed as if the answer to every legal department's budgetary woes fell on one word: offshoring.
But the hype was short-lived.
When in-house counsel realized they could only offshore certain low-level legal projects, the number of companies hopping aboard the outsourcing bandwagon leveled off. Throughout the 2004 presidential election season, the candidates surrounded offshoring with a constant stream of negative rhetoric. Companies began pulling away from the idea all together. Those who were still offshoring legal work stopped talking about it. GE, General Mills, Andrew Corp., Microsoft and several other major corporations that offshore legal work either declined to participate in this article or didn't respond to requests for interviews.
"Offshoring became somewhat of a volcanic issue during the election year," says Alex Woollcott, a partner at Kilpatrick Stockton in Atlanta. "This issue was hijacked by those seeking to use it for election-year politicking, and that hype obscures some true concerns that any company offshoring work should be mindful of."
It's not surprising that companies were seduced by the idea of offshoring. The cost benefits alone are astounding.
Legal outsourcing vendors such as U.S.-based Lexadigm and India-based Atlas Legal Research charge $60 to $80 per hour per lawyer. Paralegals and junior associates in the U.S. charge three or four times that amount for the same work. The Indian lawyers these companies employ handle low-end legal services, such as patent application work and prior art research.
"But a law department isn't going to offshore something purely on the basis of cost," says Ganesh Natarajan, president and CEO of Mindcrest, a Chicago-based legal outsourcing vendor. "If quality and efficiency aren't there, it makes no sense."
Although his company's services are up to 70 percent cheaper than a
U.S.-based law firm's rates, Natarajan, formerly a partner at McGuire Woods, believes it is efficiency--not price--that drives the decision to send work abroad. Other vendors agree.
"Our clients are interested in freeing up in-house counsel to provide higher level strategic and value-added services to management," says Andrew Ziarno, global business development director of Office Tiger, a New York-based legal outsourcing company. "Right now you have senior level in-house counsel wearing multiple hats. They are trying to provide both high-level strategic consulting services to their clients, as well as tackle the lower-level projects."
Vendors believe offshoring allows U.S.-based counsel to operate more efficiently, but some experts claim even the most senior employees need those mundane tasks to maintain a high level of productivity.
"In the real world, we all know no one wants to work at their highest and best value all the time," says Rees Morrison, a director at New Jersey-based Hildebrandt International, a legal consulting firm. "If they're even capable of it, they will burn out almost immediately."
But Natarajan points out there are other benefits and the time difference between the U.S. and other countries creates a more efficient operational model. India, for example, is anywhere from nine to 13 hours ahead of the U.S.
"While the folks in the legal department are sleeping, lawyers in India are doing research or reviewing documents," Natarajan says. Some experts, however, argue this could actually work against a company's productivity.
"If a problem arises while an attorney in India is reviewing a document, he can't just turn around and ask a supervising American attorney for help," says Kevin DeBr?? 1/2 , partner with Greenberg Glusker in Los Angeles. "He would have to send his question in an e-mail and wait until the next day for an answer. This is why offshoring doesn't make sense for certain projects."
But not all legal departments have confronted those issues. In fact, some believe certain types of legal work are perfect candidates for offshoring.
"The type of work companies offshore is what we would refer to as commodity work," Morrison says. "It would be work that generates a large flow. Most of it is fairly similar and can be systematized."
Document review, online and legal research, patent applications, contract and other document drafting, litigation support and paralegal services typically fall under this category. An American-trained lawyer, either in the U.S. or onsite at the offshore facility, often oversees the work to ensure the lawyers abroad are doing it accurately.
For example, Accenture employs an overseeing lawyer in Mauritius to assign work to its five local lawyers. Before sending the work back to the company's Bermuda office, that lawyer reviews it for accuracy.
Many legal departments follow a similar model.
"This is all highly repetitive work," explains Dale B. Tauke, a partner at Fox Hefter Swibel Levin & Carroll in Chicago. His firm has been helping companies outsource both domestically and abroad for 10 years. "It has to be defined and standardized with reasonable provisions so the lawyer monitoring--without doing the work himself--can supervise and maintain it."
Be it domestic or overseas outsourcing, companies offshoring work need to set metrics by which to measure the performance of their service providers. This can be an agonizing part of any contracting process. But it's the only way to ensure the work is handled successfully.
"To achieve the benefits of outsourcing, you have to have the projects set up so the service provider knows exactly what needs to be done and can have his performance monitored and evaluated when the work is completed," Tauke says. "If you don't have a good set of standards, then the person doing the work either has to go into it blindly or has to do a lot of preliminary work and stay completely involved in the entire process all the way through, which cuts against the benefits of outsourcing in the first place."
Tauke adds that because most legal work can't be reduced into a formula, legal departments are limited in what work they can send overseas.
"In most cases, it just makes more sense for corporations to outsource most of their work to law firms or legal research firms in the U.S.," he says.
In-house counsel who are offshoring, however, admit (off the record) the few projects that they can ship overseas can save them millions of dollars.
Proceed With Caution
A corporate counsel of a Fortune 500 company who wishes to remain anonymous says her department is currently sending employee-benefits work and legal research overseas with the help of a legal outsourcing vendor. But it's all process-heavy administrative work that doesn't require very specific legal knowledge or judgment.
"We document all the steps the lawyers overseas need to take," she says. "Everything is in writing, and they follow a detailed process."
Her company, which employs 100 in-house lawyers and paralegals, has been sending work overseas for four years. The foreign lawyers charge about a third of U.S.-based law firms' typical rates. More importantly, she says, the quality hasn't suffered.
"We are getting the same high quality work from our lawyers overseas as we had from our former law firm here," she says. "We're saving money, and we're saving time."
Despite her success, many U.S.-based lawyers warn companies to be cautious about the work they receive from offshore attorneys, claiming foreign attorneys' knowledge of the law isn't comparable to that of their American counterparts.
"There is no substitute for being in a location where you just learn, almost by osmosis, how a legal system works," Tauke says. "The informal learning we do vastly improves our ability to help our clients."
In addition, geographical boundaries can impede the development of attorney-client relationships. Law firms can more easily foster close partnerships with their clients when they have the ability to meet in person.
"Law is a very communicative and personal profession," DeBr?? 1/2 says. "And those relationships are developed over time."
To represent clients to the best of their abilities, lawyers need to understand the clients' affairs. That could prove challenging from a great distance.
Furthermore, companies often want a big-name law firm to stand behind their legal work. Experts say a company is asking for trouble if there is no one to hold accountable in the event something goes wrong.
"When you have somebody in Calcutta doing the first review of document and he misses something, it's tough to say, 'Yeah, well, we saved $50,000,'" Morrison says. "Those concerns about quality and control will always be there."
Offshore Or Bust
As of now, GCs have barely explored offshoring as an option. The idea is only in its infancy, so companies considering offshoring have little to benchmark against.
"I believe more companies would offshore their legal work if they knew more about it," says the in-house counsel who wishes to remain anonymous. "Folks just haven't had significant exposure to it. And it's hard to be among the first to try something."
Although her company is taking full advantage of offshoring, she's not eager to make it the posterchild for the practice. She only agreed to comment off the record and refused to elaborate on any of the work her department sends to India.
It's no wonder companies that have begun to offshore legal work are staying quiet about the idea. During last year's presidential race, John Kerry and John Edwards focused heavily on offshoring, criticizing President Bush for outsourcing too many American jobs.
"Outsourcing is particularly painful at this moment because we haven't been creating jobs ?? 1/2 to some measure because of the overhang of the 1990s, the excess capacity that we were left with and the need to sort of burn it up," Kerry said in a December 2003 campaign speech. "Now, there's a huge amount of stimulus in our economy ?? 1/2 and we're beginning to see some of the impact of that. We're still not seeing the job creation that we need."
The negative stigma attached to offshoring caused many legal departments to shy away from the idea completely.
"I had one client with a compelling need to offshore some legal work," Woollcott explains. "They had a great deal with a very capable law firm in India, but even at the boardroom level, the controversy was so severe during the election, my client consciously chose not to pursue an option that would have saved them a significant amount of money and generated a lot of quality results because of the hyperbole surrounding the idea."
The companies that do offshore legal work have stopped talking about it to the media. Microsoft, which recently hired an Indian company called Intellevate India to handle some of its patent work, declined to participate in this article, but indirectly addressed the issue in a statement it released soon after it announced the partnership.
"We have just begun to have Intellevate India conduct prior art searching for new patent applications and proofreading issued patents," the Redmond, Wash.-based company said in the recent statement. "As a global company, we are constantly working to improve our ability to serve our customers worldwide in the most cost effective, efficient manner. IP protection makes it possible for innovators to invest deeply and build businesses around their resulting innovations, thereby spurring growth and job creation that benefits consumers, industry and the economy."
Despite the stigma, all the experts agree that at the low-end legal work level offshoring is here to stay. In fact, Massachusetts-based Forrester Research predicted in a recent study that by 2015, more than 40,000 U.S. legal jobs will be sent overseas, costing lawyers $4.3 billion in lost wages.
"There is always going to be some market for outsourcing legal services," DeBr?? 1/2 says. "Whether it is for work that is administrative or paralegal, or clients looking to save money, there will always be an opportunity for overseas firms to capture U.S. legal work."
When corporate America will actually submit to it remains to be seen.