Legal outsourcing leads field for cost savings

Offshore legal services outsourcing, including intellectual property (IP) work, has produced the highest cost savings for its client base than any other outsourced function, according to the year's first major outsourcing report. Buoyed by a growing recognition in the US legal system of the document work required in IP cases, legal services outsourcing has tied with innovation outsourcing as the most profitable offshore solution.

The report, 'Is the Global Outsourcing Industry in for a No-holds Barred Competition?', was produced from survey results compiled by PricewaterhouseCoopers (PwC) in partnership with the Offshoring Research Network (ORN) of North Carolina's Duke University. Its findings provide evidence to support last year's view from leading industry specialist Valuenotes that legal services outsourcing (also referred to as legal process outsourcing, or LPO) is shifting to a multishore model – a view endorsed on IP Review Online, and in the Valuenotes report itself, by Paul McGolpin, director of legal services outsourcing at leading provider CPA Global.

Examining developments from 2007 to 2009, the report puts the average client cost savings achieved by LPO providers at 44%, with software development coming in at 41% and knowledge/analytical services in third place with 39%. Below the top three, call centres, human resources, marketing and innovation are the next highest achievers. Meanwhile, LPO's average profit margin ties with that of innovation services for first place, with both classes hitting 29%.

'The attractive economic benefit of LPO,' says the report, 'may explain the high number of service providers entering the market and of companies exploring opportunities to outsource their most routine legal activities over the past few years.'

Speaking to IP Review Online about the new report, Paul McGolpin said: 'We have clients who have told us that the legal services outsourcing initiatives we have provided have made greater cost savings than other kinds of outsourcing they have been involved with, so there is anecdotal evidence for that. There is so much potential in legal services to streamline and codify the various processes that the differential compared to the costs of standard law firms is there straight away – but there are so many other efficiencies gained on top of labour arbitrage.'

PwC and the ORN trace back the success of legal outsourcing to a US legislative watershed, stating that the 2006 Federal Rules of Civil Procedure concerning Electronic Discovery 'has changed the relationship between law firms and their corporate clients'. They also cite an American Bar Association (ABA) ethical opinion of 2008, which backed the outsourcing of legal services.

'Any favourable opinion towards outsourcing from the legal industry bodies is going to be influential,' McGolpin added, 'but the effects of views among clients are equally important. Over the past six months, legal services outsourcing has gathered pace. People are saying that it makes sense and that it's not going to go away, and in this period we have seen the highest activity since we went into business in this area – particularly in services such as e-discovery and document management.'

While the report says that, in India alone, 'the LPO industry is growing faster than 40% per annum,' it also points out that Sri Lanka and the Philippines are growing in popularity – crediting the Philippines in particular for its natural compatibility with the US legal system. But multiple new LPO locations throughout Asia have developed in parallel with a broad trend among outsourcing clients for finding close-to-home solutions, too.

Nearshoring, says the report, has 'gained momentum among companies currently offshoring and those considering it'. The logistics of the time-zone differences and geographical distances associated with outsourcing, it adds, have combined with the emergence of new, near-shore service providers to influence client choices. This has prompted incumbent service providers 'to establish delivery centres in multiple locations'.