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Legal Process Outsourcing In India

Globalization has brought about a revolution in international trade with increasing participation and contribution of countries and greater access to domestic economies. It is evident that the need for professional services has been tremendous in the legal service sector. LPO is the most recent and one of the most prominent forms of business opportunity which have emerged from this changing scenario writes Hemant Batra.

Way back in 1996, Richard Susskind in his book `The Future of Law’ noted that changes in technology will fundamentally, irreversibly and comprehensively change legal practice, the administration of justice, and the way in which non-lawyers handle their legal and quasi-legal affairs.

“Law is today both a business and a profession."

Private law practice is squarely in the midst of this change, as technology and numerous other factors are challenging the initiative and creativity of lawyers. The good news is that the legal profession is adapting quickly and innovatively, creating new patterns of practice, developing detours around regulatory rules that might stifle growth and competition, finding resourceful methods of handling the increasing costs of practice and overheads, and adopting new tools of management as competition from professional service firms increases.

To better understand the transformation of legal practice from a profession traditionally made up of small independent firms to a multi-billion dollar global business, Harvard Law School has established the Center on Lawyers and the Professional Services Industry, the first program of its kind in the nation.

"Law firms and other professional service providers are now a critical part of the global economy,” said Harvard Law School Professor David Wilkins, director of the new program. "At the same time, we depend upon lawyers to play a central role in regulating the global economy in a manner consistent with our fundamental democratic commitments. The academy and the profession must work together both to understand how lawyers are responding to the tremendous changes in the market for legal services and to help the next generation of professionals develop innovative and effective responses to these changing conditions while preserving the profession's core values."

The legal industry is undergoing rapid change. Increasingly, law firms are merging into large global enterprises that often also provide ancillary services such as investment advice, consulting services, and venture capital. Simultaneously, other professional service firms including accounting firms, investment banks and consulting firms have begun to offer services that overlap with those offered by lawyers, and in some parts of the world, legal services themselves.

These and other similar developments blur the boundaries that previously separated professions while at the same time posing new challenges for the professionals who must now manage these diverse global enterprises.

Legal practice is being transformed every day by economic realities in today's global marketplace. It deserves serious academic study so that students, consumers, policymakers and members of the profession themselves can better understand its role in our economy and society, and so that needed improvements can be made thoughtfully.

How has legal practice and learning progressed over recent years?

A number of factors have changed the rules by which the legal services sector must operate. Law firms can only respond by acknowledging that legal practice is a knowledge-based business. While Knowledge Management is not new to the profession, there is strong evidence that its benefits, processes and practices have not yet been sufficiently understood.

Firstly, how much progress has been made in legal practice over recent years? There have been many changes regarding which we should congratulate ourselves. The legal profession has come a long way from the stereotypical old fashioned lawyer, who was obsessed with legal precedents and nursed a blatant contempt for his client. The advocate of today is not only a lawyer, but also a business person juggling the demands of an increasingly competitive practice. The make-up of legal practice has changed considerably in the last one decade.

Advocates today, whether in the high street or large city firms, must provide excellent client service as well as a market to new clients, manage their staff and their finances to be successful. To do so they require not only excellent legal knowledge and legal skills, but also good interpersonal and management skills. Advocates in practice are becoming increasingly aware of the importance of learning, developing and honing these skills. That is why law firms like my own invest in an extensive internal training programme, covering topics such as drafting and negotiating skills through to leadership, supervision skills and networking skills. Admittedly not all partners completely share the importance of learning and personal development, and some are still driven by the goal of attaining the required number of CPD hours. However, I remain optimistic that this view is gradually changing and that the methods used in legal education at undergraduate and postgraduate level have an important part to play in it.

The legal profession has undergone a sea change over the last decade, what with existing businesses growing in size and with a large number of new business enterprises opening shop each year. Due to this new trend, corporate lawyers are on a growth flight which in turn has led to an increase in Law Firms in India.

Globalization brought about a revolution in international trade with increasing participation and contribution of countries and greater access to domestic economies. The repercussion of the same on the legal service sector has been both qualitative and quantitative. The past decade has been a mini revolution in the legal service sector with the greatest legal impact on the corporate legal arena. Activities in project finance in intellectual property protection, environmental protection, competition law, corporate taxation, infrastructure contracts, corporate governance and investment law were almost unknown before 90’s.

It is evident that the need for professional services has been tremendous in the legal service sector. In last few years’ the role of Law firms in India in providing legal services in corporate sector has increased by several times. These new Law firms in India primarily engage and specialize in designing equity and loan instruments, writing infrastructural contracts, power contracts, drafting of project finance contracts, finalizing transnational investments, joint ventures and technology transfer contracts. There is a sharp shift in the nature of emerging legal sectors towards settling disputes through Alternative modes of Dispute Resolution (ADR’s) rather than the previously prevalent adversarial mode of litigation. Globalization has thus expanded the internal and external demand for legal services.

LPO is the most recent and one of the most prominent forms of business opportunity which have emerged from this changing scenario.

What is a KPO – Knowledge Process Outsourcing?

What is LPO – Legal Process Outsourcing?

KPO, simply put, is BPO but at a higher level in the intellectual value chain. The crux of KPO is to provide value to the client primarily in their business by providing assistance in various critical and strategic decision making processes.

While KPO is driven by the depth of knowledge, experience and judgment; BPOs in contrast are more about size, volume and efficiency.

What is a KPO – Knowledge Process Outsourcing in context of fiscal or accounting or legal assignments?

Legal Process Outsourcing (LPO) is a highly specialized aspect of Knowledge Process Outsourcing (KPO). As above said, Knowledge Process Outsourcing, in turn, simply put, is BPO but at a higher level in the intellectual value chain.

According to me, it’s an act or process by which a customer/client out-sources or contracts out fiscal or accounting or consulting or legal work which in the ordinary course of business practice is capable of being handled/executed in-house by the concerned customer/client or at their own end, as the case may be. Such process has also come to be known as FPO and LPO .

Obviously, legal work like litigation, issuance of legal notices and legal opinions cannot be branded as KPO work because in ordinary parlance or ordinary legal market practice the said kind of work is not handled in-house.

So what work can be branded as outsourceable? Let’s understand this first and we can later categorize business processes or activities into those that are domestically outsourceable, and those which may be outsourced trans-nationally.

We can split/divide the KPO work (legal context) into two categories –

1. Documentation.
2. Litigation Support Services.

Documentation would include commercial agreements, transactional documents, trans-national agreements, regulatory documents, business advisory services, charters etc. Similarly, proof-reading and transcription of recorded documents, is an area that lends itself to this kind of outsourcing.

Litigation Support Services cover case law research, docketing, preparation of pleadings etc.

Legal outsourcing to India started out as a low-end work that mostly included transcription. But that is a thing of the past. Now, everything from patent application drafting, legal research, pre-litigation documentation, advising clients, analysing drafted documents, writing software licensing agreements to drafting distribution agreement is being outsourced to Bharat.

Legal Process Outsourcing provides innumerable avenues for entities in India. For instance, a US based FMCG Corporation might engage a LPO to examine packages of 1000 different items manufactured by them. These Packages are scanned and sent in soft copies to the LPO along with a copy of applicable Statute/Rules etc. dealing with declarations to be given on the packages (single, multi-combination, wholesale, retail). The LPO examines these (1000) packages in light of the statutory provisions, rules .etc. and wherever required suggests changes in the declarations given thereupon. The assignment is spread over 300 man hours @ cost of US$ 75 per hour as against cost of US$ 175 per hour (if the research was to be done in US). By way of another example, a US based tobacco company fighting a legal battle in Australia may require British judgments in support of their contention before an Australian Court. A LPO in India having a UK case laws database in its possession does research and furnishes 5 important judgments to the said client. 5 judgments are taken out after a research spread over 2 hours @ cost of US$ 75 per hour as against cost of US$ 175 per hour (if the research was to be done in US or UK or Australia).

These instances underline the financial sense, which Legal Process Outsourcing makes for corporates and law firms globally.

The difference in compensation between Indian law graduates and their US or UK counterparts is astounding. A fresh Indian law graduate can be employed for Rs.25, 000 (US$555) per month while his US counterpart will earn at least US$5,000 per month for the same position. Such a marked difference in compensation is beneficial in two ways as it helps US or UK companies to reduce costs and results in increased profits for foreign law firms outsourcing legal work to India. Outsourcing legal work to India costs up to 80 per cent less than the cost of using the services of American law firms.

The question arises whether a law degree is an essential qualification to handle the sort of work mentioned above whether one needs to be an advocate to execute such work. The answer to this could be in the negative BUT definitely, if one has legal qualifications, one is more capable to undertake the said work.

Further, outsourcing is of two kinds:

(i) Domestic Outsourcing; and
(ii) Cross Border Outsourcing.

Domestic outsourcing means outsourcing of any assignment legal or financial and/or accounting work by the domestic persons which is otherwise capable of being executed/handled in-house.

Cross border outsourcing means outsourcing of any legal or financial and/or accounting work pertaining to a foreign jurisdiction.

LPOs – the pros and cons

Legal services are the next destination for a cool business process outsourcing unit. According to a study by the United States-based Forester Research, the current annual value of legal outsourcing which is worth $80 million can rise up to $4 billion and can fetch 79,000 jobs in India by 2015. Certain branches of law, which are of a global nature, like Intellectual Property laws (patents and trademarks) can give such LPOs a fillip in their endeavor.

According to the BPO Council of the Associated Chambers of Commerce and Industry (ASSOCHAM), "India is already known for its large and increasing pool of quality engineering graduates, many of who are being attracted to the patent services segment of legal BPO." Estimates state that by early 2006, there were over 400 professionals engaged in providing patent services such as literature searches, prior-art searches, technology and patentability assessment, patent claim mapping, etc, from India. The emerging legal service sector in the shape of specialized Legal Firms in India is equally beneficial to all the consumers of legal services, without discrimination. In the age of consumerism and competition law, Legal Firms play an important role vis-a-vis providing quality service with respect to particular fields. In India, corporate legal activities are on the rise due to the emergence of Law firms. Earlier the solution of some of the complicated legal issues could only be provided by professional international law firms but now this problem has been solved due to the establishment of eminent Law Firms in India. In fact now the trend has taken a u-turn and the Law Firms in India are emerging as important entities at the International level. Indian Law Firms are no longer small and incapable of associating with legal experts from other countries, and are therefore no longer at a disadvantage when compared to law firms of U.S. and E.U.

Opening up of legal services sector has lead to a flow of expertise in sectors where Law Firms in India and lawyers can compete globally and help people in obtaining advantage of India’s considerable expertise and providing consumers with the opportunity of free and informed choice. Law firms in India do not limit themselves to tackling just complex corporate and international issues but also help clients tackle issues in all walks of life. The emergence of LPOs has thus provided another significant and lucrative avenue for providers of legal services, to reach out to global clients and customers, and become truly world-class organizations. However, there is a flip side as well, to the LPO story. A number of factors stand in the way of India's exploitation of the global LPO market. A major hindering factor is the reluctance of foreign clients to outsource work to India, based primarily on worries about the security and confidentiality of their information, given that data-protection and confidentiality laws have not been codified yet in India. Another area of concern for foreign clients is the loss of attorney-client privilege available in their home jurisdictions, since the Indian Advocates Act, 1961 does not extend this privilege to foreign legal work outsourced to India. Political factors too might prove to be roadblocks in the LPO success story. There is strong political opposition in the US against outsourcing as may affect the livelihood of US attorneys, and this might affect the plans of American corporates and firms, of diverting their legal work to India .

Future of the LPO business in India

As mentioned earlier, data privacy and confidentiality are areas of paramount concern and importance to the legal outsourcing industry. Presently, India does not have codified data protection laws, but various commercial forums and associations, such as NASSCOM, are working in close association with the government to enact data protection laws that are on par with those in force internationally. It is certain that Indian companies have realized that they need to scale up their security mechanics in order to cater to and allay these concerns.

After achieving success in the business process outsourcing (BPO) segment, India will emerge as a leader in the knowledge process outsourcing, especially in the LPO sector, considering its large base of talented and qualified legal professionals.

''Global Integration through KPO'', a report taken out by Price Waterhouse Coopers (PWC) states that "India will be a key player on the KPO supply side, as it is a country with a large base of highly qualified professionals. "An ageing workforce in the western world and the consequent shortage of professional skills in the future will be key drivers for the inclusion of Indian talent," The report also lists India's evolution as an offshore knowledge hub by analysing legal services amongst 15 key industry verticals, including software product development, Pharma R&D, legal services, writing and content development. As per the PwC projection, a law firm in India could offer services to their counterparts in US in future, a pharma research team can offer very specialised services to global markets and a mathematical tutor in India can providing tuition to American children over the Internet. For each specific sector, the report highlights the features of KPO that distinguish it from BPO. KPO is not an extension of BPO as the premise of a KPO is to include into a global delivery team, the requisite skills that support an organisation's core processes. While KPO is driven by the depth of knowledge, experience and judgement; BPOs in contrast are more about size, volume and efficiency, the report states.

Nasscom predicts the Indian BPO industry to grow 11% to $6.8 billion by 2008. In the longer term (2008-2015), however, there will be more focus on the KPO side of business, like insurance and equity research, patent and legal outsourcing rather than voice-based transactions. Companies like TCS which don’t have niche areas in life and pension are building their base by entering the business at the lower end and hoping to graduate to high-end services.

Industry analysts say that though countries like Vietnam, China, Hungary, Czech Republic and Philippines will pitch for business against Indian companies, outsourcing to India will continue to boom due to quality rather than the cost factor.

India is positioned at the fore front of the KPO revolution. Thanks to the time zone difference between India and its potential clients globally, India can easily help enable 24x7 capabilities for organizations across the globe. India, today, has an additional edge in ‘knowledge’ based services basically because of its large, cost efficient talent pool. India churns out around 75,000 MBA graduates and more than 2,50,000 graduates annually with excellent proficiency in English speaking and writing skills. In addition, the number of law graduates being churned out by India’s universities is also phenomenal.

The additional ‘secret recipe’ that India seems to possess is made up of rigorous processes, high productivity, confidentiality, sound HR policies and good risk management skills — all in the right quantities. Processes like high level customer interactions, integrated with customer relationship management (CRM) skills, on-time delivery processes, quality checks while ensuring compliance and yet confidentiality to the clients are now very much an ingrained part of our corporate culture.

In the present era, globalization has become the norm and while geographical boundaries are shrinking day by day, the exponential development of the Internet ensures that businesses either evolve to the next level or perish. The direction, supervision, and control of the overseas legal support system has become critical to legal outsourcing. In the contemporary context, the outsourcing of legal work to economically viable destinations has become a practical necessity. If the industry develops as per analysts’ expectations, and overcomes the initial hiccups, LPOs could very well go on to become the backbone of India’s booming service industry, along with BPOs and other KPOs.

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HEMANT BATRA is the Vice-President SAARCLAW and the Managing Partner of Kaden Boriss..

 
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