CASE - 3 Outsourcing to India: Way to Fast Track
By almost any measure, David Galbenski's
company Contract Counsel was a success. It was a
company Galbenski and a law school buddy, Mark Adams, started in 1993; it helps companies find
lawyers on a temporary contract basis. The growth over the past five years had been furious.
Revenue went from less than $200,000 to some $6.5 million at the end of 2003, and the company
was placing thousands of lawyers a year.
At then the revenue growth began to flatten; the company grew just 8% in 2004 despite a robust
market for legal services estimated at about $250 billion in the United States alone. Frustrated and
concerned, Galbenski stepped back and began taking a hard look at his business. Could he get it
back on the fast track? "Most business books say that the hardest threshold to cross is that $10
million sales mark," he says. "I knew we couldn't afford to grow only 10% a year. We needed to blow
right through that number."
For that to happen, Galbenski knew he had to expand his customer base beyond the Midwest
into large legal supermarkets such as Boston, New York, and Washington, D.C. He also knew that in
doing so, he could run into stiff competition from larger publicly traded rivals. Contract Counsel's
edge has always been its low price, Clients called when dealing with large-scale litigation or
complicated merger and acquisition deals, either of which can require as many as 100 lawyers to
manage the discovery process and the piles of documents associated with it. Contract Counsel's
temps cost about $75 an hour, roughly half of what a law firm would charge, which allowed the
company to be competitive despite its relatively small size. Galbenski was counting on using the
same strategy as he expanded into new cities. But would that be enough to spur the hyper growth
that he craved for?
At that time, Galbenski had been reading quite a bit about the growing use of offshore
employees. He knew companies like General Electric, Microsoft and Cisco were saving bundles by
setting up call and data centers in India. Could law firms offshore their work? Galbenski's mind raced
with possibilities. He imagined tapping into an army of discount-priced legal minds that would mesh
with his existing talent pool in the U.S. The two work forces could collaborate over the Web and be
productive on a 24-7 basis. And the cost could be massive.
Using offshore workers was a risk, but the payoff was potentially huge. Incidentally Galbenski
and his eight-person management team were preparing to meet for their semiannual review meeting.
The purpose of the two-day event was to decide the company's goals for the coming year. Driving to
the meeting, Galbenski struggled to figure out exactly what he was going to say. He was still
undecided about whether to pursue an incremental and conservative national expansion or take a big
gamble on overseas contractors.
The next morning Galbenski kicked off the management meeting. Galbenski laid out the facts as he saw
them. Rather than look at just the next five years of growth, look at the next 20, he said. He cited a
Forrester Research prediction that some 79,000 legal jobs, totaling $5.8 billion in wages, would be
sent offshore by 2015. He challenged his team to be pioneers in creating a new industry, rather than
stragglers racing to catch up. His team applauded. Returning to the office after the meeting,
Galbenski announced the change in strategy to his 20 full-timers.
Then he and his team began plotting a global action plan. The first step was to hire a company
out of Indianapolis, Analysts International, to start compiling a list of the best legal services providers
in countries where people had comparatively strong English skills. The next phase was vetting the
companies in person. In February 2005, just three months after the meeting in Port Huron, Galbenski
found himself jetting off on a three months trip to scout potential contractors in India, Dubai, and Sri
Lanka. Traveling to cities like Bangalore, Chennai and Hyderabad, he interviewed executives from
more than a dozen companies, investigating their day-to-day operations firsthand.
India seemed like the best bet. With more than 500 law schools and about 200,000 law students
graduating each year, it had no shortage or attorneys. What amazed Galbenski, however, was that
thanks to the Web, lawyers in India had access to the same research tools and case summaries as
any associate in the U.S. Sure, they didn't speak American English. "But they were highly motivated,
highly intelligent, and extremely process-oriented," he says. "They were also eager to tackle the
kinds of tasks that most new associated at law firms look down upon" such as poring over and coding
thousands of documents in advance of a trial. In other words, they were perfect for the kind of
document-review work he had in mind.
After a return visit to India in August 2005, Galbenski signed a contract with two legal services
companies: QuisLex, in Hyderabad, and Manthan Services in Bangalore. Using their lawyers and
paralegals, Galbenski figured he could cut his document-review rates to $50 an hour. He also
outsourced the maintenance of the database used to store the contact information for his thousands
of contractors. In all, he spent about 12 months and $250,000 readying his newly global company.
Convincing U.S. based clients to take a chance on the new service hasn't been easy. In November,
Galbenski lined up pilot programs with four clients (none of which are ready to publicise their use of
offshore resources). To help get the word out, he launched a website (offshore-legal-services.com),
which includes a cache of white papers and case studies to serve as a resource guide for companies
interested in outsourcing.
1. As money costs will decrease due to decision to outsource human resource, some real costs and opportunity
costs may surface. What could these be?
2. Elaborate the external and internal economies of scale as occurring to Contract Counsel.
3. Can you see some possibility of economies of scope from the information given in the case? Discuss.
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