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A perennial question for law firms is “Where should we locate our next office?” At Holland & Hart, we took a regional strategy opening offices in the Rocky Mountain region. Others take a state-wide approach or locate in major cities. You might be thinking about a new office in the suburbs to provide greater convenience for clients who don’t want to drive downtown. Exciting? Nah, this is routine management stuff.

Listen to Tom Friedman and things get a bit more exciting. In The World is Flat, he suggests that while we were wrestling with the dot-com collapse, 9/11, and the fall of Enron, the world was changing beneath our feet. He came back from a recent trip to Bangalore India to tell us that the world is flat, not round as Christopher Columbus and others have reported. If he is right, there are serious implications for the legal profession.

Triple Convergence

What we are talking about is a triple convergence. It starts with the massive investment in technology we made over the past two decades. We spent billions on broadband and fiber connections that now link formerly remote places like Bangalore, India with real time connectivity. At the same time, computers have gotten cheaper and more powerful and now interconnect seamlessly. Add a dash of workflow and you can serve up intellectual capital from anywhere in the world. Talk about a multi-cultural stew. More like takeout on steroids.

Berlin Wall Falls: Think about some of the events over the past decade and a half. Do you recall watching the Berlin wall come down in November of 1989? I was holding my wife’s hand in the delivery room waiting for our first child to be born. As the gleeful East and West Germans tore down chunks of the wall, we all knew that something important was happening. What we couldn’t know was that a chain of events were being set in motion that would add as many as 3 billion people to the global workforce.

As Friedman so cogently explains, the fall of the wall unleashed forces going far beyond the Soviet empire. The cold war was more than a battle between two superpowers. It was a struggle between opposing economic ideologies: capitalism and communism.

Once the wall fell, the debate was over. Socialist countries like India began deregulating and cutting the bureaucracy that held development back. Communist countries like China and Vietnam, albeit still paying lip service to the revolution, quickly adopted a market orientation. Rather than top down—the essence of a command economy—ideas started bubbling up from the bottom, with new businesses springing up right and left.

Most important, millions of bright, well-trained people suddenly joined the global marketplace. Consider this: In 1985, according to one estimate, the global economic marketplace consisted of some 2.5 billion people located primarily in the Western countries. By 2000, the marketplace grew by another 3 billion people, thanks to the fall of communism. True, not all of these folks emerged ready to steal jobs away from American workers. But at five percent, the number still comes to 150 million workers, roughly the size of the current U.S. workforce. That’s a big number.

I don’t want to go too far with this but India graduated 98,000 MBAs last year. China produces twice as many college graduates as we do. All these people are looking for work.

Internet Technology: In a world where you needed a green card to get into the Western economic game, this flood of new workers might not have meant so much. Technology has changed that.

Friedman points to the Netscape IPO in 1995 as the flashpoint. By then we already had Windows 95, which proved to be a universal platform for desktop PCs, one that everyone could use to create electronic documents and other work product. What Netscape did was show the world that connecting people using Internet technology could make you rich.

As it always has in the past, the specter of large sums of money drove people to develop new technology and lay the pipes that would connect people across the world together. Global Crossing, to pick one high flyer, laid thousands of miles of highly conductive fiber across the oceans to formerly remote places like India and China. Other companies quickly followed suit. In a period of five or six years, telecom companies invested about a trillion dollars to wire the world.

In at least one respect, the crash of 2001 was different from the earlier investment bubbles. With railroads, only American businesses could take advantage of the tracks that were left behind after the first wave of companies went bankrupt (because the tracks were in America). Not so with fiber. Since the cable ran to places like India and China, these people also benefited from overinvestment by the U.S.

Sit in the offices of one of the new Indian phenoms like Infosys or Wipro and you will see the results of this new railroad crossing. Huge flat screen panels project faces from across the globe in truly worldwide organizations. In the back rooms, thousands use Internet telephony to provide virtual support to businesses and consumers on the other side of the globe. Programmers can sell their wares to anyone from anywhere. Heck, if you let them they will even manage your computers for you—without ever setting foot on your premises.

In case you have doubts about all this, let me tell you we have two fellows from Bangalore working in our offices at this very minute. Raj and Rakesh are here representing Mar Labs, an organization with 3,000 highly trained programmers at their command. Mar Labs’ approach is to place one or two people in your office to facilitate sending additional programming work overseas. With U.S. programmers charging $100+ per hour, not to mention the cost of office space and computer equipment, the chance to outsource this work at $21 an hour looks pretty attractive.

Web-Based Workflow: Combine people and computer power and all you need to get things really jumping is a workflow platform. It’s here now, in a thousand different ways.

Friedman points to Wild Brain as one example of this new approach to distributed work. Wild Brain creates animations for the likes of Disney and other cartoon networks. The company uses a worldwide supply chain starting with writers based around the world who collaborate using the Internet to plan out their stories. Animation is done in Bangalore with edits in San Francisco. Actors can record their bits from their homes using the Internet to connect audio, images, the real-time script and animation designers seamlessly through a simple login. Remote directors can suggest retakes in real time, while animators change the graphics.

Cool as that sounds, there is more to the new workflow than creating cartoons. To pick one example, litigation support has outgrown boxes of paper and desktop databases. To manage multi-million document cases, you need to link geographically-dispersed teams into a single effort. Internet-based data repositories help this effort by providing a platform for search and review and the workflow needed for extended collaboration.

These days offshore reviewers from places like the Philippines, Argentina and India can collaborate seamlessly with supervisors in New York or Chicago. While their American counterparts sleep, offshore reviewers can review and annotate documents—performing subjective as well as objective review. Their comments and coding annotations can be integrated into the central database just as effectively as if the team were holed up in your conference room.

With VOIP (voice over Internet protocol) connections, your lead paralegal can review the team’s work in real time and relay comments and corrections across the globe. The driving force behind all this? In the U.S., reviewers cost at least $50 per hour. Offshore, you can get highly qualified people for a fraction of that cost.

Of course legal workflow goes well beyond document coding. We recently built a system to help Fairfield Resorts, the largest timeshare company, automate the entire marketing review process. In the past, they had to follow a laborious manual process to create, review and get marketing programs approved by state and federal authorities. Now, we manage it all through Internet work flow.

A property manager in Maui can upload program ideas via the Internet to the marketing department. Immediately, the system generates documents like retail pricing comparisons (for the giveaways), offer letters and even telesales scripts. When marketing is satisfied, the package is forwarded to legal for review and for filing in multiple states. The system generates the filing list, prepares disclosure documents and notifies sales people when the filings have been approved. All of this is done through the Internet with six thousand programs processed over the last two years.

Your Next Office?

“What’s all this got to do with my practice?” you say. As long as we keep charging by the hour and get the kind of rates we’ve been getting, probably not much. But if clients start looking at other options it might mean a whole lot. Outsourcing is the word you need to consider. It is already happening in the business world. (The current rumor that IBM is about to lay off 16,000 workers from the West and hire a like number in India). Similar heretical thoughts are starting to creep into the legal arena.

Consider this: Writing patent applications used to require specialized legal expertise and promised good steady work at high hourly rates. Today, there are dozens of offshore organizations offering patent drafting capabilities. Not surprisingly, corporate America is taking them up on their offer. The legal department at General Electric, for one, uses these kinds of services extensively, just as their business counterparts set up IT operations in India many years ago.

Smaller companies like The Andrew Corp., an Illinois manufacturer of telecom infrastructure equipment, are taking advantage of the outsourcing trend as well, albeit with a twist. Andrews sends patent application work to a law firm in New Zealand. According to the company the process works particularly well because New Zealand's patent rules are similar to those in the United States. And their rates are cheaper.

Legal pioneer Ron Friedmann (no relation) (www.prismlegal.com) and Joy London (www.excitedutterances.blogspot.com) recently started tracking this legal outsourcing phenomenon. They see outsourcing catching on for the following kinds of activities:

• Document drafting by lawyers
• Legal research
• IP legal work, substantive or administrative
• Review of discovery documents
• Paralegal services
• Administrative and secretarial support services, excluding digital dictation

Go to Ron’s site and you will find 29 different examples ranging from companies actively providing outsourcing services to law firms and companies moving services offshore. (The number might be greater by the time you read this.)

To pick a few examples, Baker McKenzie moved its IT center to a facility in Southeast Asia. Bickel & Brewer recently moved litigation support to an Indian facility. Orrick chose another remote location, West Virginia, for its IT center. It appears you can even outsource within the United States.

How about this: Office Tiger is working with Allen & Overy, a large London law firm, to outsource legal secretaries and the word processing department. For approximately $30,000 ( U.S.) a year per lawyer, you can get three personal legal secretaries working for you. Essentially, you get round-the-clock service to handle your documents, travel arrangements and even to make that first cup of coffee. (Just kidding on the coffee.) With digital connections, email and Internet telephony it starts to make you think.

So, the point is that maybe your next office might be in Mumbai or Chennai, rather than Poughkeepsie or Atlanta. What if you hired a crack team of legal researchers who could support all of your offices’ memo and briefing needs? Working at $20 an hour, they would save you quite a bit compared to the $125,000 a year associates coming out of our top law schools. And, these folks would just get better and better at their research and writing skills. In a typical law firm, a third-year associate who gets good at research is rewarded by moving on to other tasks.

What about creating a specialty group for some area of your firm’s practice manned by people offshore? (Like IP or exports or environmental regulations.) Again, the issue isn’t brain power. You can recruit some of the smartest, hardest-working people in the world for a fraction of our wages. Wouldn’t this make for an interesting approach to client service for some forward-thinking law firm?

The rub with all is the billable hour. Why figure out how to outsource research or other services to people in India if you have to pass the savings on to your clients? If an offshore company charges you $10 an hour for paralegal work, you can’t ethically mark it up to the $125 an hour you had been getting for internal people. And what do you do with those internal people? Nobody wants to leave a legacy of sacking all the firm’s secretaries. There would have to be pretty good upside before anyone would even consider it.

As long as we can keep charging by the hour and getting those good rates, I don’t see much impetus for change. Rather, change will come as it always does from upstarts, people outside the system or clients bent on reducing costs. But for a few forward-thinking firms big or small, that next office might be in Bangalore. I look forward to watching their progress.

Postscript

Back in the early 90’s, I can remember sitting at an LPM meeting in rapt attention as Wynne Smith and a few of the early legal-technology pioneers talked about how computers might someday replace lawyers. Wynne was showing a crude AI (artificial intelligence) system he had developed to determine legal fees for a given matter. The program asked the lawyer a series of questions after which it suggested a fee and the reasons for that fee. This was real Buck Rogers stuff.

Seeing the demo, some wondered if computers would replace many of the legal functions we regularly perform. It was an interesting debate and, as automated systems continue to improve, the outcome is still not clear. What we didn’t think about was how the underlying computer connectivity—literally the fiber pipes of an Internet infrastructure—might take that work to the far reaches of the earth, to be performed not by computers but by smart, hungry professionals from what we called the third world. Unimaginable in the early 90’s (before Internet) but quite real today. Plan on it.

Thomas L. Friedman, The World is Flat: A Brief History of the Twenty-First Century, (2005 Farrar, Straus and Giroux)