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.
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.
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:
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.