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Author: Mark Ross

UK attorney and Director of Business Development at LawScribe, Inc. www.law-scribe.com

mross@law-scribe.com

1(818) 442-4615

The Los Angeles Daily Journal announced in their March 19 issue that pay scales for first-year attorneys rose yet again, with a number of firms hitting a staggering $160,000 starting salary. In the UK, the situation is much the same. The Lawyer.com reported that Linklaters is expected to heat up the pay war with an increase in its associate salaries of around 16 percent, to £69,000. The expected hike would push Linklaters ahead of Clifford Chance in the battle to win over top-flight graduates with lucrative starting salaries. Unsurprisingly, the remaining “magic circle” firms are currently “reviewing their salaries”.

Is it just me or does anyone else have a sense of “keeping up with the Joneses” going on here? Why do firms feel such enormous pressure to match each other in junior associate pay? The reason is because they are all trying to compete for the same pool of top talent. The competition for available talent is only going to become even more intense as 75 million baby boomers will soon give way to around 30 million generation X-ers. Although its seems incredulous right now given the preponderance of law school graduates, various studies indicate that there will be a shortage of around 14 million skilled workers in the US by 2020.

How high can the salaries rise and how long can this go on for before the tide turns? The answers lie with the leading firms’ corporate clients. Although there is no present indication that these clients aren’t willing to pay premium bills for multi-million dollar litigation matters, eyebrows are starting to be raised at first year associates’ over inflated hourly rates for routine, transaction based legal work.

The top law firms are perfectly aware of this and realize that while they will continue on the one hand to pay the ever decreasing pool of US and UK skilled talent ever increasing wages, they are also on the look out for cheaper labor elsewhere. This labor has become available through the opening up of the global legal marketplace and the increasing proliferation of offshore and outsourced legal process support companies. The major law firms on both sides of the Atlantic are now looking towards Asia, and in particular India, to provide them with the extra string to their bow that their clients are beginning to demand.

Think about this: we’re not far from the day where the top firms will be paying their newly qualified associates salaries approaching $200,000 per annum. Do these firms and their clients really want these associates’ time spent on document review and routine transaction based tasks if this work can be done elsewhere? If the US and UK talent pool is shrinking, these associates will increasingly be spending their time on higher-end legal work both out of necessity and because their clients will simply not accept anything else. India’s vast pool of highly qualified legal talent is the obvious choice to provide the outsourced legal support the US and UK firms will require. It is this thirst for talent that has led to the development of the Offshore Legal Process Outsourcing industry. US and UK Law firms have been exploring and developing relationships with offshore legal service providers now for the last 12-24 months and this trend shows no signs of slowing down. Offshore legal process companies such as LawScribe have moved beyond traditional back office legal support services to increasingly more complex core legal work including legal research, patent and trademark searching and drafting, document drafting and due diligence.

It’s also no secret that over the last 12 months a number of the top 100 firms have sent high power delegations to India. In turn the UK Law Society recently invited a 20-strong delegation from the All India Bar Association (AIBA) to the UK in the hope that this may help speed up the process of liberalizing entry into the Indian legal market. Some UK Government sources predict a partial opening of the Indian legal services market within a couple of years. As Indian domestic regulations currently stand, Indian firms are prohibited from advertising or from having more than 20 partners. The 1961 Advocates Act, which forbids foreigners from practicing in India, will also have to be amended.

Until these changes are implemented even the largest firms will continue to explore relationships within the growing legal process outsourcing market. So long as associates’ salaries continue to rise and clients increasingly become more demanding and price sensitive, the offshore legal process outsourcing industry will continue to flourish.

posted by Mark Ross



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Mark Ross asked:


Author: Mark Ross

UK attorney and Director of Business Development at LawScribe, Inc.

www.law-scribe.com

mross@law-scribe.com

According to a number of surveys and studies the offshore Indian legal process outsourcing industry is booming and shows absolutely no signs of slowing down. Last month the comprehensive ValueNotes report “Offshoring Legal Services to India: an update” was released. In one of my June postings I commented on the publication of the Brown-Wilson group’s annual survey of legal outsourcing vendors. Over the last few weeks I have read numerous blogs, articles and press releases in particular commenting on the release of the ValueNotes report. I have no intention on merely repeating verbatim the content of this detailed 96 page study. What I am interested in, is looking behind the quoted figures at the reality of the legal outsourcing industry, on the ground in India.

According to the report there appears to be substantial growth in revenue by an increasing number of players who are billing out their various legal support services at similar rates to 18 months ago. Surely this demonstrates substantial growth across the board? More money, more companies and more employees operating within the offshore legal outsourcing space.

On a more detailed inspection of the figures something however doesn’t quite add up. According to the ValueNotes study the revenue generated by the legal outsourcing industry in India was estimated at $62 million for 2005. This grew to $124 million by the end of 2006, a healthy growth rate in any one’s book. However, the number of people employed within the offshore legal process outsourcing industry and the number of vendors has tripled. This has all happened within 18 months. I fully appreciate that this is a remarkably simplistic calculation but it appears to me that revenue earned per full time employee has somehow dropped from around $34,000 to $21,000. How can this happen within such a short period of time, when the billable rates don’t appear to have dropped?

There are a few potential scenarios that I will explore. Does the vast increase in the number of vendors include a significant quantity of small-time operators, jumping on the LPO bandwagon, without any real client base? I suspect so. Believe it or not I currently receive on average one inquiry every couple of weeks from Indian and U.S. attorneys asking for help or advice in setting up offshore legal process outsourcing companies. I mentioned in a previous blog posting how LawScribe recently outsourced an element of our own marketing to a company with a wealth of experience of general marketing in the American legal sector. Several weeks following the conclusion of the marketing campaign, I received an email, no doubt in error, from the same company purporting to be offering legal offshoring and outsourcing solutions to U.S. firms through their arrangement with Indian attorneys! The emergence of fly-by-night operators and the threat that this poses on the long-term health and reputation of the industry is the main reason I have repeatedly called for independent verification and accreditation of LPOs. This is something that I am still working towards with a number of my colleagues from within the industry and I hope to have further news on this shortly.

Another possibility is that some existing LPOs are exaggerating the size of their offshore teams in the hope that this will attract both clients and outside investment. My one piece of advice to any potential client is to look beyond the rhetoric. Prepare a detailed RFP (Request for Proposal) prior to contracting with any LPO and insist on a site visit. Now I understand that not every sole-practitioner out there has the time, inclination, or funds to undertake a 15,000 mile round trip. At the very least, even if you are unable to physically view the India offices of the LPO, ask for a photogallery/video shoot and insist on meeting with the U.S. based team personally.

It is of course possible that the numbers are true. Surely this can only mean that some companies must be operating at a loss. No industry could possibly sustain such a huge drop in revenue per full time employee and still be making a profit across the board. This inevitably raises the spectrum of the boom and bust cycle that we saw with the Dotcom industry in the late 90s. The ValueNotes report predicts that until 2010 we will continue to see the “Boom” within the evolution of the Indian LPO space. I agree with these projections and their prediction that the explosion in the number of vendors will plateau within a couple of years. In an earlier blog I discussed the concept of accreditation and self-regulation as a necessity for the industry http://blog.law-scribe.com/2007/05/i-believe-that-formal-regulation-of.html. I believe that by the turn of the next decade we will see well established industry regulation, the consolidation of many of the existing reputable LPOs and the exit of the weaker players. I also anticipate the entry into the market of some of the major business process outsourcing companies.

I also read time and time again the much vaunted figure that over 70,000 attorneys are qualifying annually in India. Legal process outsourcing companies, law firm captives and Western companies with their own captive arrangements in India all maintain that they only hire the most highly qualified candidates from the best law schools in India. Surely not everyone can be telling the truth? In my previous blog posting http://blog.law-scribe.com/2007/07/liberalization-of-indias-legal-services.html I discussed the potential opening up of the Indian legal sector to foreign firms and the impact that this would have on the offshore legal process outsourcing industry. The ValueNotes report estimates that there are currently 7,500 people employed within the legal offshoring space and that this is set to increase to 32,000 by 2010. Although some exaggeration may be taking place and I am not aware of statistics detailing the proportion of these positions that will be filled by fully qualified Indian attorneys, whichever way you look at it the numbers are significant. Over the course of the next 2-3 years a vast number of qualified Indian attorneys will be working within the industry. I believe the Indian government and the Bar association will be backed into a corner and left with no alternative other than to formally open up the market to foreign law firms. How could they possibly turn a blind eye to thousands of attorneys working for foreign companies?

The fact that some within the industry are prone to exaggeration will have little effect on the exponential growth of the LPO marketplace. One thing is certain; the role that offshore legal process outsourcing will play within both the U.S. and Indian legal sectors is set to grow dramatically.



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Mark Ross asked:


Author: Mark Ross

UK attorney and Director of Business Development at LawScribe, Inc.

www.law-scribe.com

mross@law-scribe.com

I recently returned from the North American South Asian Bar Association (NASABA) conference. Out of all the sessions I attended over the course of the three day event by far and away the most thought provoking and certainly the one that sparked the most intense and combative question and answer session focused on the pros and cons of the opening up of the Indian legal services sector to foreign law firms. The position as it stands as of now is that the practice of law in India is governed by the Advocates Act of 1961. Foreign law firms are simply not allowed to engage in the practice of law in India.

Over the last decade we have seen the Western legal community look to find increasingly creative ways to circumvent these restrictions. A number of large multi-national accounting firms have set up offices in India and are clearly providing legal services to their clients, employing large numbers of Indian lawyers. Several foreign law firms have “Liaison” offices (permitted under current legislation) in India while others have developed affiliations with Indian law firms. We have also seen over the last couple of years the dramatic emergence of the Legal Process Outsourcing industry. Offshore Legal Process Outsourcing companies work alongside U.S. and U.K. law firms ensuring strict compliance with the restrictions on the unauthorized practice of law by providing “legal support services” to their clients which the U.S. and U.K. Law Firms ultimately take full responsibility for.

The esteemed panel of speakers at this fascinating session included one of the founders of the NASABA organization, Mukesh Advani of Zenith India Lawyers, Jaipat Jain, Partner at Lazare Potter Giacovas & Kranjac LLP and Yusuf H. Safdari of Pillsbury Winthrop Shaw and Pittman LLP.

I have personally been intrigued by the offshore legal process outsourcing industry now for the last 4 years, initially during my time as a solicitor and then partner at Underwoods solicitors and subsequently since joining LawScribe here in the U.S. It has been essential that I keep up to date on the developments within the Indian Legal sector and there have been numerous articles written in relation to this particular issue over the last few years.

There have been fact finding trips to the U.K. by eminent organizations including the All India Bar Association, Memorandums of Understanding entered into between the Bar Association of India and the Law Societies of the U.K., Australia and China and a bilateral working group on legal services set up by the respective governments of the U.S. and India. The Times of India even commented on Friday, March 9th 2007 that “India’s lucrative legal services market may finally be opened up to foreign law firms by the end of the year.”

At first glance the pressure mounting on the Indian government to open up the market to foreign law firms appears to be increasingly exponentially. To the untrained eye the liberalization of the market is imminent. It is clear to me that this is a somewhat naïve viewpoint and that there will need to be some substantial “in-house” changes before foreign law firms are allowed to formally set up shop in India.

The major reason why there are regulatory barriers in place is because of the perceived inability of the domestic Indian firms to compete with the major foreign firms that would enter the market once liberalized. The consensus among those reluctant to open up the market is that the best talent will be swallowed up by foreign firms. This will then have disastrous consequences on domestic firms who simply do not have the financial muscle to compete.

Is this an accurate picture of the state of the Indian Legal market? To answer this question it is important to have an understanding of the restrictions placed on domestic firms and why there is this perception that they are unable to compete with their U.S. and U.K. counterparts.

Currently Indian law firms are not permitted to have more than 20 partners. Indian law firms are also prohibited from engaging in any form of advertising whatsoever. This includes a ban on websites, brochures, television, radio etc. Furthermore law firms are also not allowed to obtain any form of financial assistance by way of bank loans. Due to these restrictions there is a feeling among many that Indian law firms will simply be unable to compete with the major U.S. and U.K. firms because they are not operating on a level playing field.

Mukesh Advani advocated a gradual liberalization of the market by initially persuading the Indian government to relax the restrictions on domestic firms. This would allow domestic firms time to increase in size and revenue in readiness for an opening up of the market to foreign firms.

The problem as I see it is that this line of argument assumes that foreign firms are standing still when we know this is clearly not the case. The firms that are investigating setting up liaison offices in India right now, or those that have already done so, are magic circle firms from the U.K. and AM Law top 50 firms from the U.S. These firms are growing at an exponential rate and will continue to do so. The other difficulty with Mukesh’s argument is that according to the many domestic based Indian attorneys I spoke to at the convention the reality of the Indian legal sector is somewhat different from what you might anticipate given the restrictions they are currently operating under. Lawyers across the globe are inevitably trained to both initially locate and then work through loopholes. This is what they are doing in India. Domestic firms are structuring themselves in a traditionally “Western” fashion, with trainees, junior associates, salaried partners and equity partners. Not only are they doing this but they are also associating with other domestic firms, and entering into relationships with firms in the U.S.

There was also a heated discussion around the point that the pool of highly qualified and talented attorneys capable of working on U.S. and U.K. related matters was somewhat limited. My experience with LawScribe and the Offshore Legal Process industry in general contradicts this point of view and I was vociferous in putting forward my own position in the question and answer session that followed. India is second only to the US in the number of qualified attorneys at around 600,000 with approximately 75,000 newly qualified attorneys emerging every year. Now I do agree that by no means all of this number have come from the country’s best law schools or are of a suitably high standard to work on U.S. and U.K. related matters. However, not all law-school graduates here in the U.S. or the U.K. are of the highest caliber. I worked at times, in utter exasperation alongside trainee solicitors and fully qualified solicitors in the U.K. wondering where on earth they had “developed” their legal writing skills. I believe that there is a substantial pool of highly talented individuals, graduating from top tier law schools in India, who with the right training and supervision are more than capable of working on U.S. and U.K. related matters within the offshore legal process outsourcing industry. When the market is eventually opened up these attorneys will be familiar with U.S. and U.K. law and able to work for these firms directly should they so desire.

What I came away with was an overriding impression that despite the plethora of articles, the Memorandums of Understanding and the agreements between governments that this is not something that is going to happen overnight. What I believe will happen is that U.S. and U.K. firms will continue to enter into relationships with Indian law firms and legal outsourcing companies. The Indian government in due course will relax the legislation on domestic firms however this will take time.

During some brief research I undertook prior to attending the session I came across an article entitled: “India may open the door to foreign practices under licensing agreement”. Given my reference earlier to the Times of India article from March 2007 one would be forgiven for assuming that this second quote was taken from another article written this year or possibly last year. This article was in fact published in the U.K. Law Society Gazette on July 6th 2001. For at least 6 years now we have seen articles being written, fact finding trips undertaken by important parties, Memorandums of Understanding and agreements being entered into between India and the U.S. and U.K.

Are we really any closer at all to the legislative liberalization of this huge market? What I do know is that the provision of offshore legal support services from Indian attorneys to U.S. and U.K. law firms and corporations will continue to flourish. Indian Law firms will only increase exploring methods of getting around the restrictions on their practices and U.S. and U.K. law firms will continue to enter into a wide variety of relationships both captive and contractual with their Indian counterparts, and Legal Process Outsourcing companies.

Although the legislation has not yet changed we are seeing right before our eyes the true liberalization of the Indian Legal market. The legal landscape in India is vastly different to what it looked like 5 years ago, and with or without legislative changes it will look vastly different in another 5 years.



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