In a very significant event, both for the industry and for UnitedLex, BT (British Telecom) has announced that it is transferring the duties and personnel of its captive legal services unit in India to UnitedLex. (See Full Disclosure below.)
BT, a Fortune Global 500 company that operates in 170 countries, set up a subsidiary legal services unit (a “captive” in industry parlance) in Gurgaon, India five years ago. We know from the very nature of its business that BT is familiar with offshoring generally, and, because it ran a captive legal services center for five years, we also know that it is intimately familiar with legal services offshoring. According to David Eveleigh, General Counsel for BT Global Services, the announced reason to divest was to “gain access to an established Legal Process Outsourcer who can offer industry best practices and provide global scalability.” The deal is important for the industry because it suggests that BT’s experience demonstrated the value of outsourcing legal services, even if it has reconsidered its position in the captive vs. vendor offshoring dilemma.
The Captive vs. Vendor Offshoring Dilemma
While captive services units are not very common in legal services today, they have been commonplace in the BPO (Business Process Outsourcing) and ITO (Information Technology Outsourcing) markets for many years. The classic assumptions about captives are that they can deliver services at a lower cost than vendors, because none of their cost is allocated to vendor profit, and that their owners have greater control over infrastructure, policies and employees. Businesses, or parts of businesses, that are particularly concerned about security or confidentiality often favor outsourcing to captives instead of vendors because of the perceived greater control. Clearly, for most businesses, legal work is an area where security and confidentiality are paramount. Alternatively, vendors are assumed to offer the benefits of increased client focus and higher quality levels because they face continuous competition for their clients. Vendors are also assumed to develop, and/or more quickly adopt, best practices than captive operations, which is particularly important in legal services where offshoring models continue to evolve. [Cindy Carpenter, my partner at Red Bridge Strategy, wrote a related post about captives (here), nearly a year ago.]
The scale of an outsourced operation significantly affects the various elements in the captive/vendor debate. Attracting and retaining employees can be very difficult if there will not be positions into which they can grow. This is especially true in India, where the prospect of a career with a prestigious employer can be a significant recruiting and retention tool. While BT (and similar companies) are well-known global businesses, their local subsidiaries often do not have the same name brand recognition in India that leading outsourcing companies do. In addition, the management and investment required to create and maintain facilities, technological infrastructure, and training for a legal services operation are all significant, particularly for an organization that does not maintain an operation for another purpose in India. Few companies are of sufficient size to justify legal services captive units alone. Law firms with very large litigation practices, which, of course, are generally not companies anyway, are the glaring exception. Captive legal services units may make sense, however, for companies that can share the infrastructure, investment and management with other captive BPO or IT operations.
BT clearly ratified its decision to offshore legal services, and has obviously overcome any misgivings it may have had about outsourcing them. In its press release, David Eveleigh highlighted the “forward thinking” and “scalability” of UnitedLex. Transformation and innovation, as opposed to pure labor cost arbitrage, are common themes in BPO and IT outsourcing engagements, and the BT deal suggests that this thinking is making its way into legal process outsourcing. (See the continuing debate on innovation at Horses for Sources.)
The Selection of UnitedLex
This deal is also a noteworthy win for UnitedLex. According to Legally India, BT chose UnitedLex over Infosys and CPA Global, and as I noted in a previous post, they are two of the more sophisticated vendors. The fact that a very knowledgeable buyer – one much more familiar with legal outsourcing issues than most companies – chose UnitedLex over other credible vendors is an affirmation of UnitedLex’s capabilities.
As I stated at the outset, the deal is very significant, both for the industry and for UnitedLex.
(Full Disclosure: My firm, Red Bridge Strategy, recently conducted a very small engagement for UnitedLex. Fear not, despite the generally positive tone toward UnitedLex in this post, our engagement with them was certainly not significant enough to influence our analysis of the industry! :))