There has been much talk in the last 18 months about the growth of onshore LPO/Legal Outsourcing delivery. This article in the NY Times captures the wider story affecting financial services in the US, but I wanted to dissect the reasons affecting the legal profession a bit more clearly.
A number of the larger Legal Outsourcing Suppliers have had onshore presences for a while, mainly driven by market preferences rather than pure economics. As with most trends in LPO, this is a mirror image of the initial growth in other areas of outsourcing. To be fair, India/China/Philippines were still not mainstream delivery locations at that point, but the key reason for outsourcing was to give it to a specialist in a specific area who had a cost base to match the level of work being carried out.
Even in recent deals I’ve worked on the client has had structural or legacy reasons that prevent them from moving to a new cost base internally. Further, they’ve had cultural or investment barriers that have also made internal change almost impossible or, at least, very slow.
So why not offshore? Why move work onshore, whether it is to somewhere like Kansas in the US or Belfast in the UK?
In the first few days of an assignment we walk clients through their options and the dynamics of each delivery model, but here, in summary, are the 8 reasons law firms choose onshore delivery over offshore delivery:
1. Onshore costs have decreased relative to those in major business hubs, mainly due to an oversupply of lawyers. This has been exacerbated by the lower number of legal jobs in the main hubs, cutting the flow of talent into those areas significantly.
2. Law firms are happy achieving 15-25% savings onshore, rather than the full 30-50% savings that is possible. This gives them future wiggle room should they be required to tap into it.
3. Psychological barriers still exist about having legal services delivered from India, China, or the Philippines. Part of that may be related to the next point, and part is related to concerns about security, data protection, and “the practice of law”
4. Lawyers are used to managing their teams onsite, very close by, so even moving services to a different part of the same country poses major management challenges. This is a transitional issue, and will dissipate as they get more comfortable with an offsite delivery model.
5. Clients (in house GC) are not sophisticated buyers of services, so are not driving law firms to have the lowest possible delivery structure. A little more knowledge on their side and the GCs would be questioning onshore strategies.
6. Many law firms do not see Legal Outsourcing as a strategic advantage, so are taking steps that will please their clients but will not push the boundaries of what is required.
7. General Counsel themselves are cautious about the offshore model. Selecting a supplier that has an onshore delivery capability allows law firms to offer a range of options.
8. The level of outsourcing being carried out is still very small. Because most law firms have not carried out Strategic Legal Outsourcing, the bottom line impact of outsourcing is negligible at a firm-wide level. When they do take a strategic review of what services they want and don’t want to be delivering, then the full commercial impact of offshoring will kick in.
In theory the presence of shareholders would change the dynamics, but most big corporates did the same thing, taking the half-way step first before eventually moving the work offshore. The work will head offshore at some point, but not immediately and only at a pace that reflects what is, and always will be, a very conservative profession.