Monday, December 1, 2008

  • NOVEMBER 26, 2008, 3:04 A.M. ET

With Times Tight, Even Lawyers Get Outsourced

By NIRAJ SHETH in Mumbai and NATHAN KOPPEL in New York

 

As the economic crisis deepens in the U.S., some lawyers are making out well -- in India.

At the Mumbai subsidiary of outsourcer Pangea3 LLC, rows of Indian lawyers at new computers pore over contracts, covenants and other financial documents. They're working for Wall Street banks fighting lawsuits filed in the U.S. by homeowners, investors and shareholders after the subprime-mortgage crunch.

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[SB122731139358049315]
Dhiraj Singh for The Wall Street Journal.

A worker at Indian outsourcing firm Pangea3.

As the ailing U.S. economy prompts companies to cut costs, it also has spawned legal problems. As a result, clients are pressuring the law firms they hire to trim fees.

That means more routine work like legal research, due diligence and document review is being done in India at roughly half the cost as in the U.S., outsourcers say. Starting associates at big U.S. firms often bill more than $200 an hour. But an experienced lawyer in India bills at $75 to $100 an hour, roughly the bottom rate for some U.S. paralegals.

Legal outsourcing in India currently draws around $250 million in annual revenue, analysts estimate. That's a tiny portion of the $40 billion in revenue for India's technology-outsourcing firms. But legal outsourcing is growing quickly, while tech-outsourcing firms are struggling to grow.

Many important tasks, such as appearing in court or handling witness depositions, can't be outsourced. Still, "we have only seen the beginning," says Sanjay Kamlani, co-chief executive of Pangea3, which is based in New York. "There will be a lot more work coming." The firm has 390 employees, mostly lawyers, in India.

The nature of the work already has changed. When Ankita Mullick joined Pangea3 three years ago from a Mumbai law firm, she spent time researching U.S. laws on drug labeling. This year, she has done work for banks on auction-rate securities, which have been a factor in the crisis on Wall Street. "The sophistication is increasing," says Ms. Mullick.

It helps that Indian and American law both are grounded in the British legal system, Mr. Kamlani says.

Pangea3 says it doubled revenue in the last six months from a year earlier, though it declines to reveal specific figures. Rival Computer Patent Annuities Ltd., with offices in Noida outside New Delhi, plans to have 1,200 Indian lawyers on its payroll by September 2009 and 2,000 by the second half of 2010. CPA, based in the British dependency of Jersey, currently has 450 Indian lawyers.

Forrester Research Inc., Cambridge, Mass., estimates that 35,000 U.S. legal jobs will be moved offshore by 2010 and 79,000 will move by 2015. That's a small portion of the 1.2 million licensed lawyers in the U.S. as of June, according to the American Bar Association. But hiring is down now for junior lawyers in the U.S. as firms struggle with declining demand, says Michael Short, a law-firm consultant with Hildebrandt International Inc.

The outsourcing industry "has built up now with cheap Indian lawyers who are pretty smart doing the sort of work done here by paralegals," says Talat Ansari, a partner at Kelley Drye & Warren LLP in New York. He says Kelley Drye uses lawyers in India to review documents in litigation and to standardize contracts.

Ajay Raju, a partner with Reed Smith LLP in Philadelphia, says his clients increasingly ask about using Indian lawyers. He says Reed Smith isn't convinced legal outsourcers will meet the firm's standards or that outsourcers, which are subject to high turnover, can adequately guard against disclosing confidential client information. Nevertheless, "in light of this economic tsunami, I anticipate stronger pressure...to cut legal costs and find alternative ways to be more efficient, including legal outsourcing," he says. Legal outsourcers say they take measures to ensure security, like using security badges to control access and making sure computers stay put. Most also require employees to sign confidentiality agreements. Though turnover rates are higher in India than the U.S., outsourced attorneys pose no greater risk than the temporary or contract attorneys that would likely be used in the U.S., says Pangea3's Mr. Kamlani.

Mr. Ansari says that since Indian lawyers often aren't licensed in the U.S., they must be closely supervised by U.S. lawyers to comply with ethical norms. As a result, some U.S. firms may feel more comfortable using American temporary or contract attorneys. But Mr. Ansari notes that U.S. temp lawyers typically bill at twice the rate of Indian attorneys.

QuisLex Inc., based in New York, says it is gearing up for more work at its Hyderabad, India, office stemming from the U.S. government bailout of Wall Street. Already this year, the firm has helped U.S. companies facing regulatory investigations about subprime mortgages.

"Any time there is economic fallout, one thing that always comes out is new regulation," says Sirisha Gummaregula, QuisLex's chief operating officer. "That's where we can help the companies out."

Write to Niraj Sheth at niraj.sheth@wsj.com and Nathan Koppel at nathan.koppel@wsj.com

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More woes for India-based outsourcing

Filed in archive Offshoring by Scott Wilson on November 26, 2008

More woes for India-based outsourcing
Not to minimize the very real human tragedy and other geo-political implications of the terror attacks currently paralyzing the Indian city of Mumbai, but the first technology related thought to cross my mind was, wow, this is a another unfortunate blow for India's off-shore outsourcing in a time when the industry really didn't need any further disruptions or disadvantages.

Mumbai, of course, is well removed from Bangalore, the tech hub of the country, but from half a world away, I'm not sure that many CIOs will appreciate the separation. Bangalore has not been immune to similar terrorist attacks, and the very fact of such vulnerability and unrest in the country is sure to have a chilling effect on businesses considering off-shoring their technology operations. With the market already depressed, and competition rising in China (which has depressingly efficient internal security services which effectively remove these issues from consideration in that country), this is the last thing that the Indian tech industry needs right now.

While terrorist attacks have been a reality in India for years, the relative isolation of Bangalore from incidents, combined with the general perception that the Indian government was the primary target, certainly seemed to insulate India-based outsourcing operations from any ill-effects... the industry exploded even in the wake of significant bombings in Mumbai in 2006. Of course, at the time, there were fewer options available to firms looking to outsource.

The disturbing new perception that American and other Western citizens may have been the primary targets in the most recent attacks, combined with the rise of China-based off-shoring operations, may change that. It's a short step from targeting American citizens to targeting American interests, and there is a lot of American interest in Bangalore. Responsible CIOs are going to be looking at their options right now, and India may be dropping off the top of the list.
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GM, Ford, Chrysler CEO Jobs May Hinge on Bailout Plan (Update3)

By Jeff Green

Dec. 1 (Bloomberg) -- General Motors Corp. Chief Executive Officer Rick Wagoner and his counterparts at Ford Motor Co. and Chrysler LLC will put their jobs on the line this week when they try to convince Congress they can save their companies.

U.S. House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid on Nov. 21 criticized Wagoner, Ford CEO Alan Mulally and Chrysler CEO Robert Nardelli for being unprepared after two days of Congressional hearings failed to convince lawmakers the automakers should get $25 billion to avoid an industry collapse. Congress ordered that new plans be presented tomorrow.

"Reid and Pelosi gave them a pretty clear plan for what they expect, and their focus had better be on coming in with a solid plan and looking contrite," said Clint Currie, a Washington-based transportation analyst at Stanford Group. "If I had to guess, I'd say top management is gone, I don't think they can survive this situation."

GM's board met in Detroit to consider the rescue plan that may determine Wagoner's fate. The directors started reviewing the automaker's proposals yesterday in a 10-hour meeting and will continue today, people familiar with the plans said.

GM rose 24 cents, or 4.6 percent, to $5.48 at 10:02 a.m. in New York Stock Exchange composite trading. Ford rose 25 cents, or 9.3 percent, to $2.94.

Board members are keeping open the option of filing for Chapter 11 bankruptcy protection if Congress refuses funding, the Wall Street Journal reported. In such a move, Wagoner would probably lose his job, the newspaper said.

Public Pressure

While Republican detractors such as Senator Richard Shelby from Alabama have said the auto chiefs were "arrogant" and that management changes might be needed, neither the government nor GM's board has yet signaled Wagoner will need to leave to get an agreement, people familiar with those discussions said.

So far, the public pressure for changing management, as the government did in the bailout of mortgage lenders Fannie Mae and Freddie Mac and insurer American International Group Inc., has come mostly from outside critics and Republican lawmakers who oppose the automaker bailout. The auto chiefs weren't directly threatened with removal during the hearings two weeks ago.

Still, Democratic Senator Christopher J. Dodd, chairman of the Senate Banking Committee, said Nov. 28 that Congress may demand executive changes from auto companies as part of the bailout.

'Writing a Check'

"Certainly I would never support writing a check to them without conditionality," Dodd said during an interview on PBS's Charlie Rose show, when asked if he might demand executive changes.

The U.S. didn't require management changes in the bailout last week of Citigroup Inc. and other banks' executives have kept jobs after getting bailout money.

Wagoner, head of the biggest U.S. automaker and the executive with the longest tenure of the three executives, has borne the brunt of criticism.

"Rick Wagoner does not deserve to be the head of GM," said Maryann Keller, an independent automotive analyst and consultant in Greenwich, Connecticut. "I don't know that Congress could make that decision, but Wagoner has evidenced so many times that it's a day late and a dollar short with this guy."

A GM spokesman, Steve Harris, declined to comment on what may be included in the Detroit-based automaker's plan or the board discussions. Ford and Chrysler said last week that they also would present plans to prove their future viability and detail their use of the loans.

Debt Swap

"Chrysler LLC is fine-tuning its original plan to meet the recent request from Congressional leadership, leading up to Tuesday's submission," Chrysler's Lori McTavish, a spokeswoman, said in an e-mailed statement last night.

Mark Truby, a Ford spokesman, wouldn't comment on specifics of Ford's plan to Congress. Ford said today it may sell its Volvo unit as part of moves to strengthen its balance sheet during a global auto-sales decline and economic slowdown.

The Senate is scheduled to conduct a hearing Dec. 4 and the House will follow on Dec. 5 before a possible vote the week of Dec. 8.

GM wants to cut debt -- probably through an exchange with current debt holders for either debt, equity or a combination -- and change union rules that pay workers when their plants are closed as part of an effort to ensure its future viability, people familiar with the plan said last week. The largest U.S. automaker also may ask to delay a $7 billion payment to a union retiree health-care fund and drop more brands, said the people.

Life Support

Pelosi and Reid told the automakers in a Nov. 21 letter that they must provide "a forthright, documented assessment" of their operating cash positions, short-term liquidity needs "and how they will meet the financing needs associated with the plan to ensure the companies' long-term viability."

"It shouldn't come as a surprise that the companies will have to show that the loans will be repaid and in three to five years the companies will have to be profitable," said former Michigan Governor Jim Blanchard, who worked on a federal loan program for Chrysler LLC in the late 1970s.

"What Congress really wants to insist on is a realistic plan for payment of loans and a viable path to profitability," Blanchard said.

Wagoner said during hearings that automakers would like action before President-elect Barack Obama takes over, because a global credit crunch that has slammed sales in the U.S. is spreading to global auto markets.

"A bailout is more like putting someone on life support when what they really need is a new heart," said Bill George, former CEO of medical-devices maker Medtronic Inc. and professor of management practices at Harvard Business School. "The only way to save GM is a massive restructuring, to tear the company in half and make it much smaller."

At the very least, Obama should appoint an "auto czar" to oversee the way the money is used, George said.

"GM needs a new management, and maybe a new headquarters city," he said. "It's got to have a different culture. In fairness to Rick Wagoner, he was dealt a bad hand."

To contact the reporter on this story: Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net;

Last Updated: December 1, 2008 10:13 EST

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