I know this is Gavin's beat, but the press this week has had a lot of activity in the outsourcing arena.
First news is Microsoft's announcement today that it's following Rio Tinto's lead and route a fair amount of routine legal work to Gurgaon. Microsoft has been outsourcing basic intellectual property and patent maintenance to CPA Global since the mid-Noughties with around 70 CPA staff. However, this is a separate new arrangement for general legal work.
Second development goes in the other direction. CPA is inspecting sites in Northern England for its own outsourcing centre to take on 10-20 lawyers and paralegals for low-level legal tasks. The talk is for expansion to several hundred legal personnel.
Next to Delhi for a report in last week's Hindu that predicts that India’s business processing outsourcing market (including exports) made $71.6 billion in 2009 and could touch $285 billion in 2020 growing at a compounded growth rate of 15 per cent, according to a report by KPMG and ASOCIO (Asian-Oceanian Computing Industry Organisation).
Down in Bangalore they're targeting Europe for more outsourcing business, again reports the Hindu. The challenges will be privacy and regulatory.
The American Ambassador to India expressed concerns yesterday about economic distortions and tax-driven investment in outsourcing. The headline is U.S. wants Indian firms to create jobs in America, which didn't quite line up with what he said, but outbound Indian investment is burgeoning.
Finally, having listened to Leah Cooper (aka Super-Cooper) at the Law Society's useful video replays of its Legal Breakfast programme in mid-January, I was suprised to see the announcement that legal services outsourcing provider CPA Global has appointed Leah Cooper, former Managing Attorney at Rio Tinto, to its executive team to be responsible for leading the strategy and development of CPA Global's legal services outsourcing solutions for the company's growing portfolio of clients. This is a significant appointment since she has significant credibility in the field.
Outsourcing to locations with lower fixed and/or variable costs is all well and good, but it still leaves the underlying issue that there are variable costs in the (legal services) supply chain.
What clients are telling their legal service providers is that they want fixed fees – this means eliminating variable costs from the equation.
However, all that's been done here (and all that outsourcing can ever achieve) is that those variable costs have been shifted from one intermediary (law firm/inhouse) to another (outsource provider). To be sure, the variable costs have also been reduced for now, but they will inflate again when the outsource providers' own input costs rise as their economies develop. As long as variable costs remain in the system, the party with whom those costs reside remains at risk of being caught out of pocket if there is a spike in either the volume or price per unit components of the equation.
The only sustainable, long term solution for the elimination of variable costs is automation. Starting from the industrial revolution, automation has been steadily creeping up the value chain, in line with the advancement of enabling technology. We are now able to automate intellectual as well as physical labour.
There's no better illustration of this evolution within a single organisation than Ford Motor Company, which not only uses labour automation to assemble its vehicles, but is now also beginning to use document automation to assemble its legal contracts (using the Exari document assembly system).