Legal Outsourcing Market: Who Benefits and What affects

Over the past few decades, outsourcing legal services has become increasingly popular in the industry. This practice involves transferring legal work from law firms or legal departments to external service providers, who may be located in the same country or other countries.

The global legal outsourcing industry is expected to see significant growth in the years ahead. According to a report from Grand View Research, the market size for legal process outsourcing is projected to reach USD 117.89 billion by 2030, growing at a CAGR of 30.9% from 2022. As the demand for legal services continues to increase, outsourcing provides a cost-effective solution for managing workloads for both law firms and corporations.

In this article, we will examine the parties involved and their roles in legal outsourcing to determine who receives the lion's share. The specific outsourcing arrangement and the parties involved play a critical role in determining the answer. However, in general, certain groups benefit more from legal outsourcing than others.

Key Players

Legal outsourcing service providers offer a wide range of outsourced services, from paralegal assistance to high-level contract drafting to technology implementation and at times departmental optimization. These providers can be identified by various acronyms, including

• Alternative Legal Services Providers (ALSPs)
• Legal Process Outsourcing (LPO) or Legal Services Outsourcing (LSO)
• Knowledge Process Outsourcing (KPO)
• Legal Business Process Outsourcing (Legal BPO)
• Research Process Outsourcing (RPO).

While ALSPs, KPOs, and RPOs offer specialized services, LPO/LSOs and Legal BPOs provide a mix of services. Examples of specialized service providers include Factor, LegalArmy, Axiom, Kalexius, IP Calculus, Deloitte Legal, and Elevate Services.

The ALSPs have become a significant segment of the legal market, with a valuation of $20.6 billion, according to Thomson Reuters' Alternative Legal Services Providers 2023 Report. The report indicates that Law firm captives have experienced the most rapid growth, while the Big Four have seen the slowest growth.

Another intriguing finding from the report is that the use of Technology consulting is growing at a fast pace. Over half of the large law firms (51%), along with about one-third of midsize (37%) and small firms (31%), have used ALSPs for this purpose.

Furthermore, Thomson Reuters' 2020 report showed that document review (48%), litigation support (43%), and contract review (42%) are the most frequently outsourced legal tasks. These tasks tend to be time-consuming and labour-intensive, making them ideal for outsourcing to ALSPs that can leverage technology and specialized expertise to improve efficiency and reduce costs.

It is important to note that the ALSP market is fiercely competitive, and the industry is continuously evolving. As a result, the market share of ALSPs may fluctuate over time, and new entrants may emerge and disrupt the existing market dynamics.

The Ecosystem

Legal outsourcing has become an increasingly popular option for clients looking to reduce the costs of legal work in developed countries. By outsourcing non-core legal work, clients can focus on their core business activities and reduce their overhead expenses. Outsourcing providers, typically based in countries with lower labour costs, offer a wide range of legal services at competitive prices while still ensuring high-quality work. However, legal outsourcing can also have an impact on the following:

Clients: Legal outsourcing is primarily driven by clients who choose to outsource their legal work to external providers. The main motivation behind this decision is to cut costs, given the expensive nature of legal work in developed countries. Outsourcing offers a cost-effective alternative that enables clients to get their legal work done at a lower cost. By outsourcing non-core legal work, clients can concentrate on their core business activities and decrease their overhead expenses. In addition to cost savings, outsourcing offers access to a wider range of legal services and specialized expertise.

Outsourcing providers: These providers are usually based in countries with lower labour costs, such as India, the Philippines, Eastern Europe, South America or South Africa. Clients can benefit from a wide range of legal services provided by outsourcing providers, including document review, legal research, contract management, and paralegal services. These providers offer competitive pricing to clients by leveraging their lower labour costs, while still ensuring high-quality services. Clients can also take advantage of outsourcing providers' specialized expertise in specific areas of law. Outsourcing providers may either be independent companies or subsidiaries of law firms or legal service providers.

Lawyers and legal professionals: The legal outsourcing ecosystem involves lawyers and legal professionals who may work for law firms, corporations, or outsourcing providers. Legal outsourcing provides them with access to a broader range of legal services and resources, including specialized expertise and knowledge that may not be available in-house. This enables lawyers to improve their legal skills and better serve their clients. However, legal outsourcing can result in job losses for lawyers and legal professionals in developed countries as their work is outsourced to countries with lower labour costs.

Governments: Legal outsourcing is influenced by governments in various ways. Their enactment of laws and regulations, including data privacy, labour, and intellectual property laws, can have a significant impact on outsourcing. In addition, governments may advocate for outsourcing as a means of boosting economic growth and generating employment opportunities. However, concerns regarding job displacement and the potential outsourcing of confidential data may arise as a result of outsourcing.

Society: Legal outsourcing has an impact on society in various ways. It can result in job losses and the displacement of workers in developed countries, and may also affect the quality of legal services provided, as outsourcing providers may lack the same level of knowledge and experience as lawyers in developed countries. Nonetheless, outsourcing can also present prospects for workers in developing countries, where the legal industry may be underdeveloped. Furthermore, it can enhance access to legal services for clients who cannot afford them in developed countries.

As long as the legal outsourcing arrangement is meticulously structured and managed to guarantee quality, efficiency, and adherence to legal and ethical standards, all parties involved can benefit.

Factors Affecting the outsourcing need

Legal outsourcing needs are driven by various factors, including:

• Operational costs for human-intensive tasks such as abstraction, digitisation, and document filing.
• In-house expertise requirements for forensics, collections, and legal advice on specific topics.
• Project type and complexity also play a role, ranging from routine tasks like client onboarding to heavy-lifting jobs like document review and due diligence.

Ultimately, the legal outsourcing ecosystem involves multiple parties, including clients, outsourcing providers, and lawyers, and the ALSP market continues to evolve with new players and innovative solutions.

Author: Varun Bhatia, Co-Founder of 3NServe.

Also read top viewed Ai Legal article: The Role of AI in Legal Research.