U.S. losing legal work to overseas firms
Some firms also oursourcing wide range of work
By LULADEY B. TADESSE, The News Journal
Posted Tuesday, December 12, 2006
If the jobs at General Motors or DaimlerChrysler's plant in Delaware suddenly moved to China, people wouldn't be shocked. Manufacturing jobs have been moving offshore for years.
But what if major corporations decided it was cheaper working with lawyers in India?
The practice already has begun. And the Wilmington-based DuPont Co. is recognized as a pioneer in the growing trend.
The legal offshoring industry is estimated to be about $60 million to $80 million today -- tiny in comparison with the estimated $225 billion U.S. legal industry -- but it has the potential to grow up to $4.7 billion by 2011-12 in India alone, according to a report by Crisil Research and Information Services.
The cost of working with lawyers in India averages $50 to $70 an hour, compared with an American lawyer with the equivalent experience who would get paid $200 or more. An Indian lawyer working as a temp would cost $20 or less, where as one in this country would cost up to $70 an hour.
As more work shifts to legal companies abroad, the number of jobs lost in the United States is expected to jump from about 23,000 this year to about 79,000 in 2015, according to a 2004 report by Forrester Research.
So far, there seems to be enough work to go around for Delaware's legal services industry, which employs about 5,200 lawyers, paralegals and other service providers.
Josh Bivens, an economist at the Economic Policy Institute in Washington, doubts lawyers will be affected significantly by offshoring.
"In my lifetime, corporate sector lawyers will be very well-paid," Bivens said. "In part, it is because they have very select skills. And, in part, because of a lot of regulations that make it difficult for outsiders to compete in that field."
For many years, lawyers were shielded from the offshoring phenomenon, mainly because their work was steeped in arcane U.S. law. It also often dealt with sensitive information companies feared could fall into the wrong hands. But that reluctance is fading.
DuPont, the second-largest private employer in the state, has a crew of about 100 lawyers, mostly in India, who are available around the clock to review documents in such complex matters as asbestos lawsuits. The company expects to save 30 percent to 60 percent on the traditional costs, amounting to more than $6 million a year from its $200 million annual legal bill.
"We need to constantly search for the highest quality of service at the lowest possible cost," said Tom Sager, assistant general counsel at DuPont. "It's becoming a way of life, and it is driven by the digital age and the globalization phenomenon. Companies like DuPont can't be satisfied with using the providers down the street."
Other corporations like Oracle, Cisco and General Electric also are trimming their legal costs as well.
New federal rules require companies to produce nearly all electronic data as evidence, including deleted e-mails. As a result, the amount of document review required by lawyers is expected to grow exponentially in the next few years. Foreign legal services companies see this as a tremendous opportunity to grow their business in America.
'Leap of faith'
Only about a dozen foreign vendors specialize in legal services in the United States. And U.S. companies are still trying to figure out how to take advantage of foreign lawyers and measure performance.
At first, only the simplest legal work was sent overseas. Today, that's changing.
DuPont took a "leap of faith" last year when it hired OfficeTiger, an Indian company with a U.S. base, to handle some of its most important projects, including one with millions of pages of documents and more than $100 million of claims related to asbestos litigation.
DuPont has given them several additional projects.
"They can handle anything of a complex nature: toxic tort, insurance coverage cases, complex commercial, intellectual property," Sager said.
Most of DuPont's legal work is sent to India and the Philippines, where lawyers there speak English and are familiar with the U.S. legal system. OfficeTiger lawyers based in the U.S. review some of the work performed in India and the Philippines.
"We are looking for an offshore partner that can provide us high level of professional judgment, not just crummy work that no lawyer wants to do,'" said Justin Miller, senior vice president and managing director in global legal services at OfficeTiger.
The push from companies such as DuPont to reduce legal costs is forcing local law firms to send some of their own work to vendors overseas. Other lawyers are taking the initiative to cut costs.
"There are lawyers that are highly trained as legal thinkers -- not in our law necessarily but as lawyers -- for 20 percent of the cost in India, say, and there are a lot of them, so it is a resource," said Sharon Klein, managing partner at Pepper Hamilton in California. "It's very difficult to argue to one of our firms' customers or clients that we shouldn't do it, because the talent is there."
Pepper Hamilton, which also operates branches in Wilmington and Philadelphia, sends a wide range of work to foreign firms, including preparation of trial exhibits, legal research and document management.
"It is just a reflection of the global nature of business and law practice," said Richard Horwitz, partner at Potter Anderson & Corroon in Wilmington, one of DuPont's two law firms in Delaware.
Horwitz said working with lawyers in India has not significantly changed the way his firm operates. But he emphasizes that not all the work done by the firm can be outsourced.
"If I had a box of documents to review, they would not necessary be sent to OfficeTiger," he said. "It doesn't present any significant obstacles to have them do that work, but obviously there are certain contexts in which you may not want a lawyer who is not familiar with, or licensed with, a particular state law."
U.S. lawyers protected
Although the movement of legal work overseas may result in thousands of job losses in coming years, laws protect lawyers against foreign competitors.
Unless the lawyers in India are licensed to practice in specific states, they will never be able to take over the jobs of American lawyers.
"Unfortunately, there will be displacement, but the reality is, it's a limited amount of work that is going offshore because of confidentiality and risk of competitive intelligence," said William A. Tanenbaum, partner and international chair of the Technology, Intellectual Property & Outsourcing Group at Kaye Scholer in New York.
And experts say most companies will rely on their American lawyers for the specialized skills and high-level legal writing and appearance in court.
DuPont said it doesn't see the offshoring of legal work as a way to replace its American lawyers. By freeing up some of its lawyers from tedious document review, the company hopes it can pursue other legal cases, which over the years it may have had to settle or ignore because they simply didn't have time or would have been too expensive.
"More and more of our economy is exposed to foreign competition. The upshot is not necessarily job losses -- but I think it will mean much slower wage growth for a wide range of industries," said Bivens, of the Economic Policy Institute.
Contact Luladey B. Tadesse at 324-2789 or firstname.lastname@example.org.