India outsourcing special: legal eagles

Banks, insurance companies and even accountants have been outsourcing routine
functions for a long time. In-house lawyers – and those in private practice –
have been slow to follow that lead. But that is about to change.

With pressure mounting within the in-house legal departments of many large
domestic and international companies – both to contain the cost of their legal
function and, at the same time, become more involved in the review and
adjustment of routine contracts, for risk management purposes – new ways of
dealing with contract review need to be found.

The tentacles of the Sarbanes-Oxley Act extend to many companies operating in
the UK. Where previously organisations checked some aspects of legal risk by
senior managers, asking juniors to verify either verbally or by ‘signing off’ on
legal risks in ways designed to flush out ‘exceptions’ or major risks, now
systems need to be put in place to enable these companies to demonstrate that
they have proactively examined all contracts and assessed their legal risk.

Finance directors, risk managers, internal auditors and general counsel need
to be in a position to put their names to the fact that careful risk assessments
have been undertaken.

The cost of employing additional lawyers in Europe or the US to undertake
large-scale reviews of routine contracts would be prohibitive. The cost of
instructing UK, European or US lawyers in private practice to tackle these
reviews would be even greater. Hence a growing trend to explore low-cost country
sourcing options.

TALKING THE TALK

The latest research shows that India is mounting a serious challenge to China
as the first choice for low-cost country sourcing. One advantage is that, due to
India having so many disparate languages and dialects, English is the common
language for the professions in India. All corporate and commercial legal and
accountancy work is conducted in English, university legal training is conducted
in English and so is the daily business of the Indian courts.

A second advantage is that Indian lawyers can requalify as English solicitors
more easily than, for example, Scottish lawyers. They need only pass the Law
Society’s examination in legal practice and accounting stage. So training up
Indian lawyers to take on large-scale reviews of English-generated contracts is
relatively straightforward.

Many lawyers have already done just that. Others have postgraduate UK legal
qualifications and all undergo customised training to familiarise themselves
with what UK and European clients expect from their professional legal advisers.

Specific training is also given on the areas of UK contract law on which
legal teams there will be working on procurement, IT or distribution contracts.
Additionally, clients often extend their internal training regimes to embrace
Indian lawyers.

The third advantage that India has over other contenders is the
sophistication of its legal regime, a particular advantage over China.
Commentators suggest that, at present, there seems to be a distinct lack of
transparency regarding how companies operate in China, which relates to the
legal framework around companies, their trading and their reporting. The laxity
of the legal regime impacts in numerous different ways. Intellectual property
rights, for example, are much harder to establish, and thus protect, in China
compared to India.

The fourth benefit India has to offer is its significant lead on technology
and connectivity, compared to its other low-cost country competitors. This is
clearly crucial to any outsourcing business model: anyone looking to set up an
outsourcing business model needs to be able to create and store contracts
electronically. This allows one to build an archive that can be searched and
audited both in India and remotely.

A client’s general counsel or whoever has been appointed to act as liaison
with the remote legal services provider can be given secure access to the part
of the IT platform in which that client’s work is being undertaken. Regular
progress reports can be provided and face-to face meetings often scheduled with
the legal services provider’s local UK management.

EAGLE EYES

Today, general counsel manage their external legal providers much more
actively and closely than ten years ago. The legal services provider in India
simply becomes an additional part of the team or panel of external legal
providers being used.

Strength in technology and telecommunications is clearly vital to this
process.

Naturally, cost is crucial part of the reason behind outsourcing. The cost
savings are significant. Legal service providers are able to bill their lawyers
out at half the cost charged by top firms in the London legal market, simply
because of its Indian cost base.

Read together with the clear advantages over competitors regarding language,
re-qualification and training, sophistication of legal regime, and technological
lead India is certainly looking fighting fit in the competition for the title of
low-cost country sourcing destination of choice.

This is particularly so given how well its advantages suit the professional
services market and given the growth in the global market for professional
services. Perhaps it’s more a case of Crouching Dragon, Hidden Tiger than the
other way around…

Robert Glennie is co-founder of NewGalexy Partners, a Mumbai-based
outsourcing provider