Legal Service Outsourcing in Australia - Essay Example

Running Head: LEGAL SERVICE OUTSOURCING IN AUSTRALIA Name: University: Instructor: Course Title: Date: Probable legal service outsourcing in Australia Executive summary This report is organized to advice on probable legal service outsourcing by an Australian firm with the main backing of being competitive through reduction of operational costs especially labour. In addition, the report is built on fundamental that a low operational cost will be passed to clients as a benefit thus a guaranteed maximum labour output to ensure client satisfaction. After introduction, the first section generally probes what is outsourcing & globalization, constraints & opportunities and theories behind it, it further dwells on legal outsourcing, its challenges, risk and opportunities. The second section, tries to link outsourcing, off-shoring and reduced operational cost thus achieving the main aim of investment which is profitability. Lastly the final section is a conclusion remarks from the observation and recommendations on whether Aussie firm should outsource or off-shore the legal services. Table of Contents Executive summary 2 Table of Contents 3 Introduction 4 Growth of business outsourcing in Australia 4 Theoretical bases for outsourcing 5 Agency theory approach to outsourcing 5 Social capital theory approach to outsourcing 6 Outsourcing reasons 6 Outsourcing arrangements 7 Legal service outsourcing 8 Benefits and constraints of legal service outsourcing/Off-shoring 8 Recommendations 10 Conclusion 10 Introduction Legal services provided in Australia assist people in accessing justice through providing legal advice, legal education and information, and legal representation. Legal outsourcing in Australia has not yet established itself fully as compared to other countries like US and UK (Duffy, 2001).With the dynamics and changing times, firms are exposed to different business environment both nationally and internationally. Aussie Legal is one such firm that consider off-shoring the legal services from UK and US where it is cheaper as compared to the Australian market. The business environment greatly impact on its profitability, operational costs, production cost and internal structuring. With improvement of faster internet, ubiquity has been reinforced thus shrinking of business distance (UNCTAD. 2005). This paper examines how legal service outsourcing can help firms to be competitive & attain profitability by reducing operating costs while at the same time ensuring client satisfaction within the Australian Market. Growth of business outsourcing in Australia According to UNCTAD (2005), business outsourcing entails relinquishing certain services that were usually performed in house to third parties either off shore or onshore. Outsourcing has been a developing business within the Australian Market in the recent past. But in recent years, the growth has been phenomenal due to high speed low cost internet making a number of corporate functions to be mobile. In Australia, many companies large and small have greatly invested in the outsourcing legal services leading to high competition in of the business. Nevertheless, the slow growth of Australian legal market has made some firms such as Aussie Legal consider off-shoring legal services from India, UK, and US where it is cheaper and well established (UNCTAD, 2005). It is important to note that Australia has a great potential of outsourcing legal services if the market is well exploited. Outsourcing is a less expensive for Aussie firm in comparison to off-sourcing. Lastly, the phenomenal growth of outsourcing will continue as indicated with trends like unexpected sources and sophistication of the process within Australian Market (UNCTAD, 2005). The business process outsourcing trend has been supported by many management theories and methodologies as an approach to reducing costs, improving quality and speed time to market (Li & Meissner, 2008). Li & Meissner (2008), notes that the 3 key drivers of outsourcing is lower process cost, reduce risk and increase process quality and flexibility with most respondents at 87% saying quality is the main drive. Theoretical bases for outsourcing Agency theory approach to outsourcing This theoretical concept forms the centrality of business delegation by exploring relationship factors such as governance, mechanism, strategic intent and conditions of the outsourcing arrangements. It identifies the need for principal (client) to apportion some work to the other party which is an agent or vendor through contract in three dimensions. The first dimension is the economic relationship whereby each has different goals. The second is the competitive relationship whereby each has a difference in risk preferences. Lastly is the relationship of partnering whereby each party is uncertain in the process (Logan, 2000). Hence in a nutshell agency theory considers contractual relationship in a perspective of behaviour – based or outcome-based. Behaviour based contract offers the agent a more authority over the client/ contractor since the agent irrespective of outcome does not bear the risk of the venture. Under this approach the contractor can not evaluate the performance of the agent. While on the other hand, outcome based outsourcing allows the client a free hand over the agent (Logan, 2000). Social capital theory approach to outsourcing Outsourcing relationship, can give forth to realization of social capital in the form of the actual and potential resources. Social capital can be seen as being characterized by two aspects, this namely being; social capital constituting an aspect of the social structure of the deal and secondly social capital facilitating the actions of individual within the structure. The concept of social capital is significantly concerned with relationships which provide an avenue for trust and co-operation but it has been applied in terms of its role in economic performance through combination and exchange (Nahapiet &Ghoshal, 1998). The contribution of this approach is the recognition that social capital resides in relationships and relationships are modelled through exchange thus allowing for the creation of social structure throughout the outsourcing period (Nahapiet &Ghoshal, 1998); (Kern & Willcocks, 2000). Outsourcing reasons The business environment dynamics and increased global competition has forced companies to be cost effective, by relinquishing peripheral and non core operations leading to specialization. This allows firms to concentrate on delivering smart product or services which are core to their operations thus an ensured sustained quality. Apart from the above, the other reasons that might act as an attraction to contract outsourcing include; access to new technological skills brought by the agency, reduced head count as the firm will only employ core staff, enhanced capability of to develop new products as the firm will now be directing it resource to innovation. The next cluster of reasons can include; reduction in capital costs, reduction in transaction costs, enhanced capability for change that is internally driven, investment in technology especially information and communication technology and lastly the enhancement of firms’ position in value addition as most of the above considerations are path towards value addition (Kakabadse & Kakabadse, 2002). Outsourcing arrangements The arrangement of outsourcing can be vast ranging from short term contracts for convenience and flexibility or full ownership and merger (Kakabadse & Kakabadse, 2002). At the same time we can have partial ownership, joint development, retainers, single contracts, multiple vendor contracts, joint ventures, individual, joint venture spin-offs and consortia and shared service consortia. The assumption that can be built is that no single vendor can poses beyond reproach capabilities in all areas of business and hence a call for selective outsourcing with multiple vendors (Kakabadse & Kakabadse, 2002). New business supply chain models in relation to outsourcing The new models include; fourth party logistics provider, joint service company and finally virtual network consortia. This if well analysed is connected to different outsourcing arrangements. Fourth party logistics provider is a business model that desires to integrate and assemble the resources, capabilities and technologies of its own and other firms to design, build and run comprehensive supply chain solutions . It aims at transforming of client business through management of variety of services and delivery of complex solutions on behalf of the clients. The one notable about this marketing concept is the ability to provide multi client synergy. The other model is joint service company which is mostly suitable for two or more companies working in strategic partnership and are in need of large transformation while working with minor partners. It is a separate co-owned, co-managed service company built on innovative culture. The last model is the virtual network consortia that propose to deliver a unique value for a particular service (Alpha Research Consortium. 2004). Legal service outsourcing Legal service outsourcing is gaining roots in Australia where more legal firms are outsourcing their services. Up to present, legal outsourcing is still viewed with allot of mistrust and suspicion even though the escalating legal costs might one day lead to review of the stance. The exponential growth of legal service outsourcing in US and Britain has evoked moments of passion in Australian market (Financial Review, 2005). Outsourcing entail giving works that do no require physical court presence like drafting, legal research and writing of patents to Para legal, office assistants and attorneys based in off shore countries like India where business costs are less expensive and the finished products is usually equivalent to what would be produced in the home country. Moreover, some legal firms have even established offshore legal departments where international lawyers perform different assigned legal duties. Analysts separates the legal outsourcing into 3 different categories,; outsourcing of legal work to subsidiaries, direct hiring of foreign law firms and third party vendors or legal process outsourcers. With the first two instances being dominant while the first scenario being most profitable. Since Australia has been reluctant to fray into legal outsourcing, the data and most examples used here will be drawn from countries that have had deeper experience with outsourcing (Peterson, 2008). Benefits and constraints of legal service outsourcing/Off-shoring Control of quality and confidentiality is a problem as the contracting company is not sure of those will handle the data. It raises critical issues of concern such as constitutionality and compliance. This is more so as it leaves the country exposed by allowing other to interpret the laws which she or he might not be familiar with. The other critical concern is about exposure of clients’ information to other third party which at a time might lead to subversion of justice if the outsourcing agents do not hold the ethics of secrecy about a client’s personal information. The next frontier of concern is about the loss of jobs at the host nation that offers the work, it means that any job taken oversee represent a job loss because equally in the home country one would be able to competently do it. This has usually brought about heated political discourse and corporate social responsibility since some view it unethical for companies to make multi million profits yet where they draw bulk of the clients are starved of employment (Peterson, 2008). It is clearly evident that the benefit of outsourcing even the legal issues far much outweighs the risks. This might even force those who are still reluctant to follow suit in order to remain competitive and stay afloat. Further, outsourcing increases efficiency as offshore workers are eager to perform above par for jobs that lack prestige in developed nations (Peterson, 2008). On the other hand, offshoring allows firms to get high quality experts with extensive knowledge and at a cheaper cost. However, most of them do not clearly understand the legal procedures and process of other countries well hence sometimes becoming ineffective. In some instances however, the off-shoring is expensive. It is crucial for the Aussie firm to outsource the services other than off-shoring them due to various benefits associated with it. It is important the Aussie firm outsource the services within the Australia rather than going internationally due to the benefits involved. It would be better to have legal representatives who are more familiar with the legal issues or laws of Australia. This is towards enhancing the delivery of legal services. However, there are several strategies that can be used to overcome any challenges that may arise when legal services are outsourced. There is need to ensure those firms outsourced are qualified and competent. The firm must ensure that it taps skills from only competent firms with highly qualified professionals. Recommendations Australia and business firms within it should be ready and adopt business outsourcing concept. Clearly this is the way to go or else they will be swept out by competitive forces that are global It is clear that outsourcing allows for development of new business concepts like structuring and utilization of information technology in areas like e-commerce and e-marketing Outsourcing offers a strong case for reduction of head count while allowing firms to focus on key function thereby being able to produce quality. So it is important to positively accept it Firms should focus on multiple outsourcing rather than focused one in order to be able to tap from multi talents emanating from different fields There should be proper contractual agreement to avoid low quality and risks that might arise In order to tap into other countries potential market, Australia should also develop its own strong domestic outsourcing firms so as to avoid the heated political debates of job loss Government and professional associations should come up and develop code of conduct to regulate outsourcing business Conclusion It is clear from the above indications that business outsourcing and even particular legal outsourcing is the way to. The benefits accrued from outsourcing are much heavier than the anticipated constraints. Outsourcing allows for; innovation, concentration to core functions and specialization thus ability to produce quality product and services. Australia as a country and firms operating within it should embrace and adopt the culture as a means of reducing operational and production costs in order to be effective in price leadership that can be translated to clients. It should also be adopted as a means of improving quality through tapping of specialized services and talents all over the world since none can be a master and jack of all trades. References Alpha Research Consortium, (2004). Characteristics, strategies and trends for 3PL/4PL in Australia. Retrieved on 4th October 2011 from: http://www.laa.asn.au/pdf/3PL4PL_Report.PDF Duffy, M. N. (2001). Outsourcing a 401(K) plan. Journal of Accountancy, 191(5), 30–35. Kakabadse, A., & Kakabadse, N. (2002). Smart sourcing: International best practice. New York: Palgrave. Kern, T. & Willcocks, L. (2000). Exploring information technology outsourcing relationships: theory and practice, Journal of Strategic Information Systems 9 (2000) 321-350. Li, H and Meissner J (2008). “Improving Quality in Business Process Outsourcing Through Technology,” working paper,Lancaster University Management School. Logan, M.S. (2000). Using Agency Theory to design successful outsourcing relationships, International Journal of Logistics Management, Vol. 11, No. 2. Nahapiet, J. and Ghoshal, S. (1998). Social capital, intellectual capital, and the organizational advantage, Academy of Management Review, Vol. 23, Issue 2. Peterson L, A, (2008) Outsourcing of legal service: a brief survey of the practice and the minimal impact of projectionist legislation .Richmond journal of global law & business, Vol. 7:2 UNCTAD, (2008). Business process off shore outsourcing: untapped opportunities for SMEs. UN: Geneva Read More