For SmallLaw, it’s Always Been About Homeshoring

In a recent post over on the TechnoLawyer Blog entitled SmallLaw: 2010 Legal Profession Predictions, legal tech commentator Mazyar Hedayat prognosticates about the forces that will shape the small firm world this year.

Among Hedayat’s six predictions is that “[o]utsourcing [will] give[] way to insourcing.” According to Hedayat,

[i]n a world where the Internet has flattened space and shortened our time to think about nearly everything, location has become nearly irrelevant. Research done in Texas or Hyderabad can be combined with drafts produced in Tennessee or Hong Kong to be presented by an attorney in New York.

Outsourcing is nothing new. However, as costs fall and people overcome their skepticism, this kind of scenario will become increasingly common in 2010. In addition, as communication and collaboration costs fall to zero clients will demand to benefit from the savings (translation: downward pressure on rates).

Every lawyer has heard about “outsourcing” to foreign destinations, but this year more of us will discover that work can be “insourced” to states with higher attorney unemployment. Does it sound like I’m celebrating the misfortune of others? Maybe a little, but at least this way we can keep the jobs from going overseas. Besides, I heard the lawyers in India are asking for competitive wages now. Where do they think they are? America?

I agree wholeheartedly with Hedayat’s basic premise here, which is that more small firms will be using the services of U.S.-based contract lawyers. However, I take issue with both his terminology and his explicit and implicit underlying assumptions.

The Semantics

As I explained in my analysis of Richard Susskind’s 2009 ABA Techshow keynote address (which was based on his book, The End of Lawyers?: Rethinking the Nature of Legal Services), outsourcing, is generally defined as “subcontracting a process . . . to a third-party company.” A process or task can be outsourced to either a foreign provider (offshoring) or a domestic one. Domestic outsourcing (a/k/a subcontracting, from whence we get the term “contract lawyer”)—particularly to the flyover states—is sometimes referred to as homeshoring (a/k/a homesourcing) (though, to make things even more confusing, that term can also be used to refer to the provision of services from an employee’s home).

Insourcing, by contrast, is most often defined as the delegation of operations or jobs from production within a business to an internal (but ‘stand-alone’) entity that specializes in that operation. (Steve Matthews of Stem Legal tackles insourcing in the legal context over at the Vancouver Law Librarian Blog.)

On this blog, I generally stick with the broad (and common) “outsourcing,” and qualify whether I mean foreign legal outsourcing (a/k/a LPO or legal process outsourcing) or outsourcing to independent U.S.-based contract lawyers. (Yes, I know that’s a clunky phrase, but it also serves to distinguish solo contract lawyers from lawyers who work through temp agencies, primarily performing document review for large firms.)

The Substance

The basis for my disagreement with the substance of Hedayat’s prediction about outsourcing is his assertion that “[e]very lawyer has heard about ‘outsourcing’ to foreign destinations, but this year more of us will discover that work can be ‘insourced’ to states with higher attorney unemployment.”

First, although (as Hedayat notes) it doesn’t matter where a lawyer working on “inside” work (such as legal research and writing) is located, many solo and small firm lawyers nevertheless outsource to local contract lawyers. This makes sense from the perspective of both the contract lawyer and the hiring attorney. From the contract lawyer’s perspective, although all kinds of lawyers are getting more and more business via the web, in-person networking within the local legal community remains a valuable source of business. (Heck, although I have a fairly robust national presence, probably 50% of my clients are in New York, where I’m admitted.) And hiring attorneys may prefer to outsource to contract lawyers who are admitted in their state, because those contract lawyers are more familiar with the state’s procedural rules.

Second, Hedayat’s observation that “[e]very lawyer has heard about ‘outsourcing’ to foreign destinations” (emphasis supplied) is critical: I don’t know of a single solo or small firms that has outsourced legal work to a foreign country. Instead, those who’ve outsourced legal work have homeshored—they’ve hired independent U.S.-based contract lawyers. Have you (or any of your solo or small firm colleagues) used a foreign LPO provider? If you have, I’d like to hear about your experience; please share it in the comments below.