Outsourcing and the globalizing legal profession.

Author:Krishnan, Jayanth K.
 
FREE EXCERPT

ABSTRACT

The issue of outsourcing jobs abroad stirs great emotion among Americans. Economic free-traders fiercely defend outsourcing as a positive for the U.S. economy, while critics contend that corporate desire for low wages, alone, drives this practice. In this study Professor Krishnan focuses on a specific type of outsourcing, one which has received scant scholarly attention to date--legal outsourcing. Indeed, because the work is often paralegal in nature, many see the outsourcing of legal jobs overseas as no different from other types of outsourcing. But by using case studies of both the United States and India, the latter of which is receiving an ever-increasing amount of outsourced American legal work, Professor Krishnan describes how there are many forms to the legal outsourcing model and how this practice can entail a range of legal services.

This Article, however, moves beyond providing a descriptive account of legal outsourcing. Legal outsourcing to India occurs against the backdrop of an Indian legal system in crisis. For those who are fortunate to benefit from legal outsourcing, the payoffs are indeed rewarding. But most Indians, of course, are not participants in--or beneficiaries of--this practice. In fact, in everyday Indian parlance, the word "legal" is associated with a process that is delay-ridden, backlogged, and unduly expensive. It might seem that legal outsourcing is unconnected to the problems that have long plagued India's legal system. Yet as this Article will argue, in addition to having an ethical obligation to provide assistance to the legal environment on which they draw, those engaging in legal outsourcing also have an economic incentive to ensure that India has a better-operating legal system. As a means of raising much needed revenue to fund its legal reform efforts, India, as Professor Krishnan proposes, might levy a minimal fee on U.S. legal outsourcers, and because strengthening the rule of law is ultimately in their financial interest, these American investors may well accept shouldering such a cost.

TABLE OF CONTENTS INTRODUCTION I. A BRIEF BACKGROUND ON OUTSOURCING II. THE GROWTH IN LEGAL OUTSOURCING A. Recent Trends B. Why India? III. THE BUSINESS MODEL FOR LEGAL OUTSOURCING: AN EMPIRICAL CASE STUDY IV. THE LEGAL ENVIRONMENT FOR ORDINARY INDIANS A. The Problems at Home B. Confronting (and Avoiding) India's Judicial Dilemma V. FUNDING REFORM THROUGH LEGAL OUTSOURCING A. "The Public Be Damned. I'm Working for My Stockholders." B. Sketching Out Ethical and Economic Justifications for a "Good Governance Fee": Concluding Remarks INTRODUCTION

Over the past several years, there has been a vigorous debate in the United States over the benefits of outsourcing. Even amidst the ongoing threat of terrorism and the war in Iraq, the subject of outsourcing, perhaps not surprisingly, made its way into the last presidential campaign. One notable exchange highlighting the volatile nature of this issue occurred when then-White House economic advisor Gregory Mankiw remarked in February 2004 that outsourcing American jobs to foreign workers abroad was just "a new way of doing international trade" (1) and "a plus for the [U.S.] economy in the long run." (2) Both Republicans and Democrats soon pounced on Mankiw. Republican Speaker of the House Dennis Hastert noted that Mankiw's "theory fails a basic test of real economics," (3) and even President Bush responded coolly to Mankiw's assertion. (4) Not to be outdone, the Democratic presidential nominee, Senator John Kerry, condemned the White House economic team and labeled business executives who engaged in outsourcing as "Benedict Arnold C.E.O.'s." (5)

Clearly, in conventional discourse outsourcing has come to signify the transfer of services to markets where costs are lower to employers. There is no shortage of stories that discuss how American companies have been increasingly turning to cheaper workers in places like India, China, and Brazil to perform lower-skilled, labor-intensive jobs, such as staffing those now famous call centers. (6) Paralleling this trend, during the past decade high-technology firms, such as Microsoft and Dell, have been hiring sophisticated software engineers in developing countries. (7) As New York Times columnist Thomas Friedman recently wrote, because of the worldwide reduction in economic and trade barriers, previously noncompetitive countries are now able to compete against advanced industrialized states. (8) In fact, according to Friedman, progress in technology, telecommunications, the Internet, and outsourcing have all helped the world become more "flat." (9)

Many have embraced this globalizing economic trend. Supporters argue that relying on relatively inexpensive and talented laborers in places like Bangalore, Beijing, or Brasilia frees up capital in the United States which then can be used to hire Americans to develop more cutting-edge, innovative technologies. (10) On the other hand, critics note that when real, living Americans see jobs they once did now being performed by workers overseas, it is hard not to infer that the practice of outsourcing hurts the U.S. labor market. (11)

To the extent that call centers and information technology (IT), in particular, along with wages, jobs, free trade, and principles of macroeconomics, more generally, remain at the center of the outsourcing debate, it is unlikely that either side will retreat from its position anytime soon. But what happens when the types of services outsourced move beyond the industrial, manufacturing, and technology sectors? Since 1995 a growing number of American legal services have been outsourced to different countries around the world. (12) Tasks from the preparation of simple documents, to patent applications and appellate briefs (one of which reached the U.S. Supreme Court in 2005), are increasingly being handled by foreign workers. (13) In 2004 alone, 12,000 legal jobs were outsourced abroad, and by 2015 one research firm estimates that the total number will near 80,000. (14)

Interestingly, few academic studies have been published that examine the specific issue of legal outsourcing. (15) Perhaps both supporters and critics of outsourcing see the performance of certain types of legal tasks as not substantively different from other outsourced work, such as reading X-rays, developing computer chips, and preparing tax returns for American companies. Why not then expect low-cost foreign workers to perform certain types of legal services? This Article shall argue that there are many forms to the legal outsourcing model and a range of legal services that can be provided.

Part I seeks to ground this discussion in the larger outsourcing and globalization framework. Part II will then specifically examine the practice of legal outsourcing. This Part introduces India as a country that receives an increasing amount of American legal outsourcing. As the first half of Part II explains, the legal outsourcing to India has generally been in one of three forms: U.S. corporations hiring in-house Indian lawyers and/or paralegals within their Indian subsidiaries; U.S. corporations and U.S. law firms hiring Indian lawyers and/or Indian paralegals on a contract basis to perform certain tasks; and U.S. third-party vendors that serve as intermediaries and facilitators between U.S. corporations and law firms and Indians who are willing to provide their services. (16)

The second half of Part II will explain why American legal outsourcers have set their sights on India. These reasons include generous tax breaks for legal outsourcing entrepreneurs, subsidies on commercial property, and other financial incentives from the Indian government. In addition, these entrepreneurs are able to hire easily trainable, often very bright employees at a fraction of what it costs to hire American workers. India offers investors other advantages--linguistic, political, and historical, to name a few--which only further facilitate doing business in that country.

Part III will then focus in detail on third-party vendors that engage in legal outsourcing. Third-party vendors are thought to be the fastest-growing aspect of legal outsourcing. In January 2006 I received permission from one of the most well-known and profitable third-party vendors in the world to interview the company's chief executive officer and to observe how the business operates. This vendor serves as a model that competitors seek to emulate. Part III will discuss the findings from this case study.

This Article, however, moves beyond providing a descriptive account of legal outsourcing to India. Legal outsourcing occurs against the backdrop of an Indian legal system in crisis. For those who are fortunate to benefit from legal outsourcing, the payoffs are indeed rewarding. But most Indians, of course, are not participants in--or beneficiaries of this practice. In fact, as explained in Part IV, in India the word "legal" is associated with a process or system that is delay-ridden, backlogged, and unduly expensive.

It might seem that legal outsourcing is unconnected to the problems that have long plagued India's legal system. Yet, because of the numerous benefits they receive from operating within India, these investors, as argued in Part V, have an ethical obligation to pay what might be called a "good-governance" fee to the state. (17) Drawing on the rich corporate social responsibility literature, the Article contends that these foreign businesses ought to act, as Professor Lawrence Mitchell has put it, both "responsibly and morally," (18) which would include paying a levy to go toward raising much-needed revenue to fund efforts aimed at reforming India's legal system.

Of course, there may be initial reluctance to accept such a fee; after all, many legal outsourcers will contend that, because of their investment, the Indian economy is reaping millions of dollars it otherwise would not see, and that...

To continue reading

FREE SIGN UP