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December 9, 2003

Corporate Outsourcing May Bring Trickle-Down Competition and Options in Legal Services

Filed under: pre-06-2006 — David Giacalone @ 8:22 pm

With news like this (“Firm Announces Hike in Hourly Billing Rates,” New York Lawyer, 12/9/2003):

“Fenwick & West is wasting no time cashing in on the possibility of an economic recovery in Silicon Valley. After two years of holding billable hour rates for partners steady, Fenwick announced to clients last week it is raising rates by 10 percent.” [partner hourly rates will range from $400 to $700]

it’s not at all surprising to see news like this (“Model Behavior,” The Recorder, by Renee Deger, 12-01-2003):

It’s called the Legal Model, and it’s become a concoction so tempting that lawyers from 160 companies have made the pilgrimage to Wilmington, Del., to test its cost-cutting powers. . . . It has cured polluted communications, poor-quality work, and most importantly, has saved DuPont $8.8 million in legal bills last year alone.  . . .

The trend is two-fold, with companies sending work to agencies in the United States that do discovery, document review and due diligence and pulling in foreign outsourcing companies — particularly in India — to perform tasks like legal transcription and basic patent research.

Jerry Lawson pointed to the outsourcing article last week at eLawyerBlog (Dec. 2, 2003), and to Ron Friedman’s discussion of it at the Strategic Legal Technology Blog (11-26-03).  Ron notes:

I find it encouraging that inhouse counsel are looking at alternatives to the traditional way of doing work. Not every outsourcing or alternative work arrangement will work, but it certainly makes sense to explore alternatives and test their cost and quality against traditional approaches. Many alternatives are facilitated by the appropriate use of technology to transfer work, monitor it, and compare results.

and Jerry adds:

Trends like these at the higher end of the legal market militate in favor of loosening restrictions on ordinary consumer use of alternatives to traditional legal services, including eLawyering.

I think they are both correct, and that changes at the corporate end of the legal marketplace bode well for the average consumer, who may soon find an array of readily-available options when in need of legal services and information.  I’ve got my fingers crossed that entrepeneurs will find ways to make legal services more efficient and consumer-friendly, and that the legal profession will choose to compete on the merits rather than to stymie innovation with ethical excuses and restrictions.

P.S. [12-10-03] Sabrina at beSpacific pointed today to an InformationWeek article, which notes:

Legal research and other back-office work carried out at law firms may be among the next set of white-collar jobs to move offshore in big numbers. According to a recent study by researchers at the University of California at Berkeley, legal assistants and paralegals working in India on behalf of U.S. law firms earn, on average, between $6 and $8 per hour. That’s about one-third of what their counterparts in the United States are paid.

Some of the largest law firms in the country are looking to take advantage of that discrepancy.

The article is based on a Berkeley study (The New Wave of Outsourcing, by Ashok Deo Bardhan and Cynthia A. Kroll, the Fisher Center for Real Estate and Urban Economics, University of California, Berkeley, Fall 2003), which explains the differences between services and manufacturing outsourcing:

Services outsourcing is structurally simpler than manufacturing outsourcing in terms of resources, space and equipment requirements and thus may proceed much more quickly. Services outsourcing affects overwhelmingly white-collar middle class jobs and occupations, unlike manufacturing outsourcing, which impacted primarily blue-collar workers. In addition, this time around it is a different set of countries that are in contention for these jobs.

The study outlines a number of scenarios, some quite disturbing, that might result from significant outsourcing of services.   Such outsourcing:

  • Impacts white-collar jobs

  • Affects individual occupations in many industrial sectors across the economy

  • May lead to different composition of occupations in the economy; unclear how the labor market adjustment will work.

  • Will lead to increased inequality within white collar occupations

The possible economic and political ramifications within the legal profession and legal services marketplace are staggering.

P.P.S. [12-11-03]  Doug Simpson of Unintended Consequences notes that outsourcing legal support services “also raises serious concerns about security measures necessary to preserve confidentiality, client secrets and attorney-client privilege.”

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