The State of Sourcing

Hiring contract review attorneys, temp staffing companies, litigation support companies – these are the various options available for procuring LPO services within US.

Over the last one year, the legal market in the US witnessed dramatic changes. A large number of attorneys, associates and support staff from the law firms and corporations lost their jobs. While this has impacted the legal market, it has also increased competition for the offshore LPO industry. Some of the lawyers, associates and paralegals (who lost their jobs) are seeking work as contract attorneys (with reduced billing rates!). A contract review attorney is billed at a much lower rate as compared to a law associate. The average billing rates for contract attorneys range from $35 to $80 per hour and onshore service providers rates range from $50 to $180 per hour.

While billing rates vary depending on the services offered, volume and their complexity level, marginal pressure on billing rates (for certain services) in the offshore industry was visible. Of course, the billing rates of onshore lawyers will not be comparable to rates of the offshore service providers; however the increasing competition for offshore LPO service providers cannot be dismissed.

Continue reading ‘Competition from onshore?’ »

Last year, Rio Tinto, a leading international mining group, created news by announcing its plans to offshore legal services to India. Following the footsteps of Rio Tinto, last week Microsoft announced its plan to send routine legal work to CPA Global.

While a team of 70 people from CPA Global has been offering services such as intellectual property and patent maintenance to Microsoft since 2005, this is a separate contract for the LPO related work. Microsoft engaged CPA Global for a pilot in October last year. CPA Global will be providing multi-jurisdictional legal support work and legal research to the tech giant out of its Gurgaon office.

Continue reading ‘Microsoft follows Rio Tinto’s footprints’ »

“Rio Tinto legal chief quits for a new role at CPA Global”, read today’s headline. This does come as a surprise but surely great news for CPA Global and the LPO industry.

Leah Cooper is the managing attorney at the mining giant Rio Tinto. She is responsible for the overall management of Rio Tinto’s multinational legal department (comprised of over 100 lawyers). Leah was the driving force behind the Rio Tinto-CPA Global deal. In May 2009, Rio Tinto awarded a contract to CPA Global. Rio Tinto offshored contract review and drafting, legal research and document review to CPA Global. When I spoke to Leah two weeks back, she sounded quite upbeat about the LPO industry. Talking about the outsourceability of the services, Leah said “Initially, the work undertaken by CPA Global included contract review and drafting, legal research, and document review. However, the scope of work is expected to expand to cover other routine legal services work.”

Cost control has become a pertinent issue across businesses. Corporate counsels have been worried about managing their external counsels and are building cost effective systems to handle their ad-hoc legal needs. Corporations are increasingly exploring alternatives such as contract attorneys and offshore service providers (LPOs), especially for certain services that require junior associates. Said Leah, “Cost was an issue but not the only issue to consider offshoring. We contracted CPA in May 2009. Since then, we have saved US$13.9 million. However, the main reason to offshore was the increasing work load. There was a point when the in-house lawyers were inundated with work and we thought that contracting an offshore service provider will help them reduce their workload.”

Continue reading ‘Winds of change?’ »

“ICG acquired a minority stake in CPA Global”, read the headline of a news article. Intermediate Capital Group (ICG), an independent investor and fund manager acquired a significant minority stake in a well-known LPO service provider. I was quite excited to read this news piece. Why? Investors taking interest in a segment positively reflects on the “sustainability factor” of the industry.

Most service providers in the LPO industry started off as self-funded companies and a few received funding from angel investors. In order to build marketing presence or significant knowledge base ahead of others, service providers are seeking VCs/PEs/angels. Yes! Investors are getting interested in the LPO segment. Funding from VC/PE firms started flowing in, but of course is limited at the moment as most companies are still quite small.

Continue reading ‘Investors get interested in LPO’ »

Despite the compelling needs of outsourcing, there have been instances in the recent past where some companies (although for different reasons) have shifted work back to their roots (onshore). This has been primarily seen in verticals including banking, financial services, retail, etc.

Bringing back the (offshored) operations in-house is not an attractive option for any company, as it eventually adds to their costs. However, there must be some compelling reason that forced companies to take work back onshore/in-house. The reasons might vary from….not enough cost savings, unsatisfactory results, quality not as expected to not a right choice of vendor.

Last year, we had conducted a survey of US and UK based law firms, which threw an interesting finding – “10% of the survey respondents tried and rejected offshoring”. During our course of research, we found a number of buyers who cited unsatisfactory work quality for abandoning their offshoring initiatives. Could this mean not enough groundwork done before selecting a vendor? Possibly!

Continue reading ‘Vendor selection – How important is it?’ »

The LPO industry has not grown as fast as was had estimated earlier. The industry growth rate (CAGR of 40+% over 2003-07) dropped to 28% in 2007-08, and further slipped to 16% for 2008-09.

As the global legal industry suffered, the offshore industry could not escape the negative impact (although short-term). The slow down in the buyer market impacted the offshore industry resulting in a drop in the growth rate. Revenues from the offshore legal services industry were US$320 million for 2008 and are expected to reach $440 million by end 2010, according to a recent ValueNotes study titled ‘Legal Process Outsourcing: Crisis Creates New Opportunities‘. Consequently, there has been a shakeout in the industry. Over the last two years, >20% of the total number of service providers exited the LPO business. Is this an unusual situation? Textbooks of micro-economic theory talk about firms exiting an industry all the time. This is probably a live and recent example they can update their texts with. As profits diminished, smaller firms that could not take the hit exited. In an uncertain economy, mid-sized and smaller service providers are the worst affected by margin pressures. However, over-hyped prospects and ease of entry in this industry led entrants to believe that getting business would be easy. Few bothered about the potential risks or competitive dynamics, resulting in many weaker players fading away in the current environment.

In the current scenario, almost all offshore legal service providers are in fact, battling. While in some cases billing rates have come under pressure, in others the volume of work has shrunk. A pertinent question is, in this situation, which company is best positioned to sustain the growth? While the smaller businesses battle with survival issues, service providers with multiple service capability will be better positioned to weather the storm. ‘Multi-service capability’ will become critical not just for sustaining growth but also for the very survival of service providers! Incidentally, we have recently released the ValueNotes Sourcing Prism: Legal Outsourcing Edition that presents a list of service providers who are currently best positioned in the industry. Follow this link to find out more about the product.

In one of my previous posts, ‘UK Law Firms: Catching up on offshoring‘, I shared my views about UK based law firms opening up to the idea of offshoring. The growing interest amongst the buyer community was also evident at a recent conference that I attended on ‘Legal Process Outsourcing and Offshoring‘, organized by the Lawyer magazine in London.

The fact that several partners and attorneys participated in the session reflects the high level of interest in the subject. Several law firms indicated that their clients are increasingly suggesting using offshore service providers. The motive behind corporates pressurizing law firms is quite obvious – lower costs.

Continue reading ‘Wake up call to law firms!’ »

The year 2008-09 will be remembered for the collapse of Lehman Brothers (the largest bankruptcy in the US history so far!) and also for all the numerous individuals, companies and cities that have withered under the pressure of the financial crisis. There are thousands of companies that have gone bankrupt. A total of 1,306,315 bankruptcy cases filed from June 2008 to June 2009 period (a 35% jump compared to the number of cases filed over the previous year), as per the Administrative Office of the US Courts. And the list of failed companies is only growing longer. Well, that’s the impact of the global economic meltdown, which has seen many corporations closing down due to bankruptcies leading to layoffs across the globe.

Business filings jumped by 63% to 55,021 for June 2009 from 33,822 filings reported in June 30, 2008. Recession hit several individuals and businesses. Even  cities in the US have not been able to escape the impact. Some are facing financial hardships  given the foreclosures, court damages, city wages, pension-plan losses, etc. Orange County, California in 1994 was the largest bankruptcy filed by a city in the US history so far! Last year, Philadelphia, Phoenix and Atlanta requested the Treasury Department for a $50 billion of the $700 billion from the “Troubled Asset Relief Program” in order to boost the local economies.

Continue reading ‘Gone to the wall!’ »

“Law firm axes attorneys, associates and staff positions” – News like this has been hitting the headlines frequently over the last one year.

Since mid-2008, law firms such as Clifford Chance, Eversheds started trimming their staff strength (lawyers, associates and support staff) while others like Thelen Reid Brown Raysman & Steiner LLP have discontinued operations. The market conditions had a severe impact on the financial performance of most law firms, who reported significant drop in revenues. Drop in legal spend, shrinking budgets and corporates moving their work in-house has impacted law firms adversely. Corporates looking to reduce expenditure are making attorney fees a soft target for cost reduction. The last eight months have been more severe for law firms and have further hit their revenues and profitability. As a result, several law firms (including Am Law 200, Magic circle firms and other law firms) resorted to cutting their staff strength. Law firms dealing largely with mergers and acquisitions are the hit hardest. With the housing market taking a dip, the US and UK conveyancers have seen a drop in their business.

A number of US and UK law firms, including Allen & Overy, White & Case and Shearman & Sterling, Clifford Chance, Freshfields Bruckhaus Deringer and Lovells have temporarily halted recruitment of associate positions and have announced corresponding cuts to starting salaries. (Some are also re-looking their compensation model!)

Continue reading ‘Challenging times for law firms’ »

Two years back, the question, “Is the knowledge services business scalable?” raised a lot of interest at a conference. Recently, a client asked me a similar question, “How important is size for an LPO?” . Well…the scenario two years back was quite different, with scale and specialization used as two distinct differentiators. The knowledge services business (especially, the LPO business) was not perceived as scalable (with a majority of 40 and 50 people companies). However, this is changing now as a result of the shifting needs of clients and increasing volume of work sent offshore.

Company size and scalability are important selection criteria, according to our recent survey of US and UK based law firms. Amongst the companies that have indicated greater importance for size are large law firms that are looking at service providers as an extension of their support staff and intend to send large volumes of work, across service lines. In other cases, size of the service provider does not appear to be such a crucial factor, given that the industry is yet to move towards larger contracts that require over 100 to 200 people at any given point of time.

Continue reading ‘Scaling up Knowledge’ »