Outsourcing involves the transfer of the management and/or day-to-day execution of an entire business function to an external service provider. The client organization and the supplier enter into a contractual agreement that defines the transferred services. Under the agreement the supplier acquires the means of production in the form of a transfer of people, assets and other resources from the client. The client agrees to procure the services from the supplier for the term of the contract.
Reasons for outsourcing
Organizations that outsource are seeking to realize benefits or address the following issues:
- Cost savings
- Improve quality.
- Knowledge.
- Contract.
- Operational expertise.
- Staffing issues.
- Capacity management.
- Reduce time to market.
- Time zone.
Legal Process Outsourcing (LPO) is the industry in which in-house legal departments or organizations outsource legal work from areas where it is costly to perform, such as USA or Europe to areas where it can be performed at a significantly decreased cost, primarily INDIA. Legal Process Outsourcing is a high end industry that has been growing rapidly in the recent years.
Legal Process Outsourcing covers the following services in general:
- Legal Research
- Document Drafting like standard contracts, agreements, letters to the clients, patent applications etc.
- Legal Billing activities like preparation of invoices, collation of time sheets etc.
- Intellectual Property research--substantive and administrative
- Paralegal Services
- Administrative and secretarial activities like following up with clients, etc.
The work is done by experienced paralegals and attorneys using industry standard databases like Lexisnexis and Westlaw. The main criteria for deriving value from such services is the level of maturity of delivery processes of the service provider. Also sufficient control should be exercised on the operations to ensure that the work is delivered to the level of expectation of quality of the client and the data is secure.
Effects of Outsourcing
The Outsourcing market is estimated to grow tremendously in the coming few years with an increasing number of companies planning to outsource both low-end and high-end jobs to offshore destinations. Also the number of companies providing outsourcing services is on the rise, thus resulting in larger variety. Due to the fact that more and more companies are outsourcing, the risks are getting smaller as businesses have more experience and clearer objectives.
Outsourcing in the world today is seen as a strategic management option rather than just a cost cutting operation. It aids companies to achieve their business objectives through operational excellence and a better market position.
However, the concept of outsourcing has been criticized. The negative attitudes toward offshore outsourcing have been mostly discussed by parties in the US and UK, due to job losses in the mentioned countries. Some people in countries like the US feel that outsourcing is threat to their economy. Outsourcing jobs to offshore destinations, is causing unemployment in the minds of some people.
On the other hand not only does outsourcing have benefits for the company it also has positive implications or effects on a larger level. Outsourcing will ensure that companies can pass the reduced costs to national consumers or for investors to reinvest. New revenues will be created as outsourcing to a foreign country will establish demand for the company’s national products, especially in high-tech products. Although some national jobs may be lost in the outsourcing process, other jobs will then be filled generating additional value for the economy.
Both negative and positive effects of outsourcing can be recognized. Positive effects of outsourcing can include concentration on core business areas, world-class technology at lower rates, skilled manpower at affordable prices, increased productivity, competitive advantage and tax benefits. Negative effects of outsourcing can be decreased quality, increase in time-to-market, poorer customer service, hidden costs, loss of control, unreliable vendors and negative long-term effects on business.
Large investment businesses have large legal and compliance staffs but for smaller institutions, the challenge of attracting and retaining in-house lawyers with sufficient expertise at a cost that isn’t prohibitive can be daunting, if not impossible. Obtaining these services from law firms is obviously an alternative, but someone inside the company – someone who knows its needs and how to manage the lawyers – has to remain involved -- a task that takes time away from other responsibilities. Yet the failure to pay close attention to legal and compliance issues is a risk that is too great to take.
Outsourcing in India
The majority of outsourcing contracts are moving to India, even though countries like China or Russia are offering better rates in some of the services. The dollar buys a lot in India and companies in the USA are saving billions of dollars by outsourcing their non-core operations.
Cities such a Bangalore, Chennai, Calcutta, Pune and Mumbai are really jumping on the call center market boom and more and more Indian companies have started investing in the industry.
Outsourcing in India is developing by the minute with new companies, big and small, setting up shop at a very fast pace. As a result of the increase in the LPO operations, India is also seeing an increase in legal consulting services. The development of legal outsourcing to India over the last few years is definitely worth paying attention to. It is a modern day boon. Outsourcing grants businesses the freedom to dump non – core, yet important sectors of its administration on companies specializing in those very individual aspects. Thus, leaving the businessman free to wholly concentrate on other areas
Even though several other reasons can be listed up in favor of outsourcing, one must not overlook the disadvantages of it.
By outsourcing a business process, we tend to loose the managerial control. This happens because it is harder to manage the outsourcing service provider as compare to managing one’s own employees. Also because we generally tend to skip (or miss to calculate) the
potential hidden costs of outsourcing which includes legal costs of putting together a contract between companies and time spent on coordinating the contracts, we feel that outsourcing reduces the overall expenditure of a business process, one of the major reasons why a company goes for outsourcing. This hidden and missed out costs of outsourcing is hard to predict causing overall costs to be underestimated.
Another disadvantage is that outsourcing can also prove to be a threat to the security and confidentiality of issues of a company.
Outsourcing may also result into the possible loss of flexibility in reacting to changing business conditions, lack of internal and external customer focus and sharing cost savings. Loss of internally generated talent is yet another problem associated with the outsourcing as it may hamper the growth of an employee by depriving him from the experience he would have gained by handling the business issue himself then by passing it over to some other external party.
Thus before a company decides to outsource its business process, it must examine all the factors carefully. It may not happen that outsourcing becomes a reason for company to regret later.
