Outsourcing: trick or treat?

Given that this is being written during Hallowe’en, I begin with the frightening thought that in the past year in the UK we have seen new employment legislation on flexible working, increased maternity leave, paternity leave, adoption leave, race discrimination, equal pay, working time and the national minimum wage, to name but a few. In the course of the next three years there will be legislation on sexual orientation, religion or belief, use of mobile phones, TUPE, control of asbestos at work, disability discrimination, employment tribunal reform, dispute resolution, information and consultation, sexual and sex-related harassment and age discrimination, again, to name but a few.

The question of whether these measures are positive or negative for business is one which raises temperatures on both sides of industry. Leaving this to one side, faced with the prospect of managing the burden of this new legislation it is unsurprising that businesses are seeking ways to avoid the increased costs of complying with so much “red tape”. Outsourcing non-core services is providing part of the answer for a steadily increasing number of employers. This is usually a cost driven exercise and moving work to jurisdictions with not only lower labour costs but also less employment regulation is proving to be an appealing solution for many companies.

The globalisation process, assisted by increasingly efficient technology is seen as affecting larger businesses rather than those in the SME category. However, most are affected by the process, even if only indirectly because more of their competitors can operate from a lower cost base. Furthermore the range of services outsourced from the UK has broadened. There has been a subtle shift from an emphasis on “back office” processes to a much broader range of offerings such as, for example, financial analysis. Daily, news articles highlight such developments as more companies make decisions which have a huge knock-on effect on the economy of this country as well as the social infrastructure. India has for some time been one of the key players, but other countries such as China, Malaysia, Sri Lanka and New Zealand are forecast to compete heavily. Language and distance are no longer barriers to delivery.

There are a range of legal, moral, political and economic factors attached to outsourcing, necessitating an assessment of the costs, benefits and risks, together with the impact on the organisation’s brand. Recent US and UK press articles highlight this issue well, with headlines highlighting job losses and the backlash by home employees and union representatives. In the US, this has led some States to advocate the building of barriers in the form of job protection policies aimed at stopping outsourcing in its tracks. However, others would argue that outsourcing is a natural development of free trade. Whatever your belief, it makes for interesting times.

The implications for our clients tend to be well recognised but is the legal profession paying sufficient attention to where this process takes delivery of legal services? Some firms have transferred document processing to India and others have digital dictation done there. But what of other components of the legal process, such as for example legal research? While many aspects of what lawyers do require a face to face presence, it is increasingly being recognised that a wide range of processes within the legal framework can be delivered from elsewhere. As pressure grows on firms to justify fees, will they be more inclined to join the rush of other businesses to save costs by outsourcing?

It is therefore not a clear-cut or easy decision but one which many firms look set to consider. Faced with intense competition from within and outwith the profession, increased cost and regulatory pressure, the business case is tempting. Outsourcing is certainly not for everything or for everyone, but it is here to stay.

It would be ironic if increased employment legislation became one of the factors causing legal firms as employers to outsource services elsewhere in the world.

Trick or treat?