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The source on outsourcing

Credit: Mahesh Bhat/Getty Images

Law, too, is going offshore. Two Harvard Law students are getting a firsthand look.

No American politician is likely to make the loss of lawyers’ jobs to New Delhi a hot-button issue during upcoming elections. Yet over the past few years, legal work has joined the list of services—from IT support, to radiology, to debt collection and even health care—being sent overseas.

The work ranges from document processing and litigation support to patent applications, contract drafting and even brief writing—including a brief for a tax case that went before the U.S. Supreme Court.

It’s more of a trickle than a wave: Twelve thousand legal jobs (half lawyer, half paralegal or research) went overseas in 2004, according to the firm Forrester Research. Much of it is going to India—$61 million worth last year, according to one account. That’s a small fraction of the estimated $192.7 billion spent on legal services in the U.S. over the same period.

But for 3Ls Shaun Mathew and Vikram Thomas, the fact that legal offshoring is in its infancy makes this the right time to study it. And, as children of professionals who emigrated from India to the U.S., they have their own experience with an earlier chapter of globalization.

“Our idea was to go to India and see firsthand what the industry looks like today,” said Mathew.

Friends since their 1L year, and sharing interests in law and business, they approached Professor David B. Wilkins ’80, head of the school’s Program on the Legal Profession and its new Center on Lawyers and the Professional Services Industry.

Wilkins saw the project as a perfect fit. “The center we’ve started is trying to understand the way professions like law are being reshaped by large-scale forces like globalization,” he said. “And offshoring has, of course, been one of the most important new developments in the global economy.”

The Supply

To begin to grasp the supply side of the business, Thomas and Mathew got on a plane to India in January and interviewed law students, attorneys at top corporate firms, venture capitalists and India’s second-ranking solicitor general. They also visited the cubicles where legal work is being done at a fraction of the going U.S. rate.

Shaun Mathew

Credit: Mahesh Bhat, Getty Images Shaun Mathew, 3L, was welcomed to QuisLex in Hyderabad in August, with a garland and a mark of red turmeric.

Although the offshoring business hasn’t been around very long, they found several models. In 2001, a division of General Electric set up a small operation near New Delhi staffed with Indian lawyers. Since then, some Indian corporate law firms with international practices have begun exploring the idea of handling American legal work.

But the more common approach—and the one Mathew and Thomas found the most promising—is the independent firm started by an entrepreneur, often an Indian-American lawyer who supervises the work of Indian-trained attorneys. So far, their clients are primarily corporations and small law firms.

Most of the CEOs the students interviewed were not forthcoming about finances or the names of clients. “One of their selling points has to be confidentiality,” explained Thomas. But they discussed business strategies and invited Thomas and Mathew to speak with their employees.

“Obviously, these firms are still in the client-building mode,” said Thomas, “and there’s a lot of spin.” One example is the claim that a firm hires only graduates of the national law schools—a pool of less than 1,000 law students out of tens of thousands matriculating in India each year. In fact, Thomas and Mathew found few top law school graduates working in the firms.

The companies also claim they are focused on high-end legal work, says Mathew. In fact, although many of the firms they visited aspire to take on more complex tasks as they gain client confidence, right now most offer only document preparation and litigation support for corporations.

The firms that specialize in patent assistance are an exception. Tapping into graduates from India’s highly respected engineering schools, they supply a range of services to American companies, stopping short of filing the patents. It was reported in The New York Times that a patent application that would cost $11,000 in the U.S. can be prepared by an Indian lawyer for an American attorney’s review for $5,000 or less.

Thomas and Mathew have both worked at New York law firms over the past two summers. Before starting the project, they wondered why experienced attorneys would be willing to do the sort of repetitive tasks that are usually the training fodder of junior associates or the domain of paralegals.

In fact, one of the things that they found most striking in their on-site interviews was the visible enthusiasm of the employees.

That was true at Pangea3, a firm in Mumbai, India, whose clients include Fortune 500 companies such as Yahoo. An attorney who had worked in corporate law for 14 years—before being hired by Pangea3 to manage contract drafting—said the opportunities she got at the company could not be matched by Indian law firms, many of which are still family-run and offer little flexibility or chance of promotion. One intern was clearly excited to be involved in international work. He called his job “paradise.”

The students learned that the costs of training employees who prepare patents can run as high as $9,000 per worker, whereas salaries average around $12,000. When they questioned how the firms’ business models were sustainable in the face of these numbers—attrition is notoriously high in other sectors of the offshore economy—the best answer seemed to be employees’ enthusiasm, at least until the Indian legal world can offer better opportunities.

As Thomas and Mathew traveled in India, they witnessed a country in transition. Evalueserve, one of the biggest companies on their itinerary, located in the newly built New Delhi satellite town of Gurgaon, was housed in a modern building just a few yards from makeshift houses and mud huts.

Some people they spoke to speculated that India, which has taken the lead in providing legal offshoring thanks to an abundance of English-speaking law graduates familiar with the common law system, can expect to lose market share on low-cost services as wages increase. Just a few months ago, OfficeTiger, an offshoring firm with an operation in India, opened a branch in the Philippines.

The Demand

The British law firm Allen & Overy started outsourcing the majority of its document processing three years ago and has saved around $3 million. Other U.K. firms have followed suit, but most American law firms have been cautious. Rohan Weerasinghe ’77, senior partner at Shearman & Sterling, told Mathew that his firm routinely outsources work in the U.S. As for offshoring, he said it’s a question of “when,” not “if.”

Vikram Thomas

Credit: Joshua Paul Vikram Thomas, 3L, at Skadden, Arps, Slate, Meagher & Flom in New York City, where he was a summer associate after a trip to India earlier this year.

But Mathew and Thomas sense that, despite the allure of cost savings and the possibility of overnight turnaround, the biggest U.S. firms are unlikely to send work offshore until their clients demand change.

The students’ interviews with American corporate counsel indicate that such demands may not be far off. Peter Solmssen, former general counsel for GE Plastics, told Mathew that GE’s decision to set up a legal office in India was a cost-cutting measure, but one that also added value. When its plastics division hired Indian lawyers to draft contracts of the sort once prepared by counsel in the U.S., the company saved about $1 million in two years. At the same time, it freed up in-house counsel to do other, more challenging work.

As the students talked to lawyers at other U.S. companies considering offshoring, they heard concerns about quality and worries about confidentiality, but also a strong interest in cutting fees connected to litigation, and legal fees in general. DuPont, which is sending documents for processing and review to OfficeTiger’s Chennai and Manila offices, hopes to cut up to $6 million from its annual $200 million-plus in legal spending, according to one account.

Ben W. Heineman Jr., who was senior vice president for law and public affairs at GE when it began offshoring legal work and is now a senior fellow at the Program on the Legal Profession, told Mathew: “It’s part of the never-ending struggle with the law firm—productivity just isn’t in their genes.” Part of the point of hiring Indian lawyers was “to get the attention of the big law firms,” he said.

In the meantime, smaller American firms have already taken the plunge. Lexadigm Solutions, located in Gurgaon, does most of its work for solo practitioners and small law firms. Wilkins is intrigued by this phenomenon: small firms being able to do more with less and passing the savings on to the client—at least in theory. If clients do receive the benefit, as ethics rules require, “think about the implications for lowering the costs of legal services to individuals,” he said.

Ethical Issues

Although much of the legal work sent overseas is fairly routine, the students were surprised by some of the tasks carried out by lawyers who aren’t certified by the bar in the U.S. There’s the Indian lawyer who claims to have written the opening statement read in a California trial court, another who prepared an amicus brief for the U.S. Supreme Court and the head of one company who claimed that his staff and even interns negotiated contracts over the phone for clients. The students wondered when this work crossed over into unauthorized practice of law. One CEO told Mathew that firms were following guidelines based on advice from counsel. The gist of that advice: Make sure your clients are lawyers.

“Nothing has blown up yet,” said Mathew, “but it may just be a question of growth of the industry.”

Already one prominent bar committee has addressed some of the new ethical issues—many similar to those raised by domestic outsourcing. In August, the Association of the Bar of the City of New York’s Committee on Professional and Judicial Ethics issued an opinion on sending legal work overseas. In addition to preventing the unauthorized practice of law and ensuring competent representation, offshoring lawyers, the committee stressed, must take steps to protect client confidences and avoid conflicts of interest, pass savings on to the client and, under certain circumstances, obtain advance client consent.

The Future

Mathew and Thomas are continuing to research the demand side of the business this fall. Their goals are to publish their results and, just as important, to bring offshoring players and interested clients together at a symposium at the law school before they graduate.

Wilkins says the two students are on the front line of something that really hasn’t been explored. “Will it ever get as big in law as in IT? I would say probably not,” he said. “Because of regulatory barriers, because of the fact that law is a relationship business in a way that IT is not. Because there is a lot of local and tacit knowledge that goes into the creation of legal documents that would be hard to systematize. But we’ve seen all kinds of things be systematized that we thought couldn’t be systematized and digitized. So we shouldn’t just assume it couldn’t happen here.”