LPO INDUSTRY ANALYSIS OF PHILIPPINES

The word “Legal Process Outsourcing” is the global terminology used in the recent age. The Legal field is now-a-day is not only limited to the court practice, but it has crossed its boundaries in this era of globalization.

Legal Process Outsourcing is a promising industry in the coming years. There are many good prospects for the Lawyers worldwide. Law firms are now not only limited to the court practice but has started heading towards the LPO industry. Previously the Lawyer has only limited options either to practice in court or to enter in judiciary. The new alternative has created good opportunity even for the fresh law graduate to earn a handsome amount from the very beginning of his career.

The Legal Process Outsourcing, more commonly known as the LPO industry is the latest kid in the domain of IT / ITES services and though today is only about US$650million in revenues, is expected to reach US$4billion in revenues by 2015. LPO is an industry where most of the Lawyers have to deal / work on the laws of foreign countries or to transact business with foreign lawyers. Presently most of the lawyers keen to make a career in Legal Process Outsourcing Industry. The reason behind it is the wide scope in this fast-paced industry. This industry not only embraces the highly qualified and experienced people but also gives opportunity to the fresh law graduates. Due to the desire of law firms to become a part of the global business, legal process outsourcing is widely spreading and is becoming a hot favorite among legal professional worldwide. The legal services that are outsourced comprises paralegal and research support, contract drafting and revising, contract management, library services, patent and trademark prosecution and litigation support. According to the industry reports, law firms contribute 50% to offshore revenue, while corporate law departments contribute 30%.

The Asian subcontinents were targets for different types of outsourcing with the legal field gaining traction. Philippines is also not an exception to it. Along with India, within a short span of time, Philippines has also established itself as one of the top destinations globally for offshoring and outsourcing (O&O) operations. The Philippines is one such location, which is upcoming player in the global offshored services market. The LPO industry in Philippines is also rising intensely. The atmosphere for LPO industry is getting suitable day by day.

Why Philippines?

Though India presently dominating the global outsourcing market, the wave has started to change. According to the Infosys CEO Nandan M. Nilekani in an International Monetary Fund and World Bank meeting "Some of the countries like Philippines and Malaysia have done fairly well to leverage their unique skills and carved niches for themselves"¹

There are several reasons to choose the Philippines next to India. The most important is that Philippines is charging lesser than India This is the core reason to give priority to the Philippines for its cost saving benefit. That’s why companies are choosing Philippines as their business hub.

Now-a-day in Philippines, not only services of call centers are served but some “higher-end” tasks are also being outsourced like legal services, web design, medical transcription, software development, animation, and shared services. The quality of law graduates from Philippines is better than any other country. To a greater extent students are choosing law as their career, and they are even appearing in the American Bar Law and other international legal examinations to enhance their career.²

FACTS: INFRASTRUCTURE, POLICIES & PLANS

An excellent infrastructure forms the foundation for an offshoring destination. Infrastructure in Philippines has been considered up to the level satisfying all requirements of global outsourcing business. This country produces higher number of graduates, and the place is friendly to investor.

Outsourcing seems favorably towards Philippines as a recent study showed that it has the potential to develop into a 3-billion-dollar industry. Proving that Philippines is the best in the world when it comes to the outsourcing industry, recently three of its cities were identified as among the "Top 50 Emerging Outsourcing Cities" worldwide by the Tholons. Making it to the big wave are the cities of Cebu (No. 4) Pasay (No. 23), and Baguio (No. 36).

Conversely, Manila garnered the position amongst Top 5 Outsourcing Cities along with the cities of Bangalore, Delhi, Mumbai, all in India; and the city of Dublin in Ireland. The study cited that Metro Manila and Cebu City were among the top choices for contact center services as well as finance & accounting services. Manila excelled mostly in legal services while Cebu City was recognized in human resources³.

• Solid economic growth

The Grant Thornton International Business Survey Review for 2007 ranked Philippines 2^nd among 32 economies in business confidence. A very solid economic growth - not jeopardized by economic bubbles - and low inflation and interest rates are the basis for a secure and profitable business ⁴.

• Open Market Oriented Government

Philippine government has established the Philippine Economic Zone Authority (PEZA), a government corporation, whose goal is to “promote the establishment of world class, environment friendly economic zones (ecozones) all over the country to respond to demands for ready-to-occupy locations for foreign investments” as well “PEZA grants fiscal and non-fiscal incentives to developers of economic zones, export producers, and IT service exporters”. The following are some of the proposals have been made by the government to attract the business players in the Philippines ⁵.

1. Income Tax Holiday (ITH) or Exemption from Corporate Income Tax for four years, extendable to a maximum of eight years; After the ITH period, the option to pay a special 5% Tax on Gross Income, in lieu of all national and local taxes.
2. Exemption from wharfage dues and export taxes, imposts and fees.
3. Permanent resident status for foreign investors and immediate family member.
4. Employment of foreign nationals.

• Data Privacy & Security laws

Already in 1997, the Intellectual Property Code has been implemented. E-commerce laws are also in place to establish the provisions for confidentiality and a secure business environment.

1. Electronic Commerce Act of 2000

This law legally acknowledges electronic documents and transactions and defines what is lawful for commercial and non-commercial purposes.

2. The Philippine Constitution and Civil law

Privacy, including privacy of data, is a constitutional right and is recognized in Philippine civil law.

3. Presidential Decree No. 1718

This decree places restrictions on the transfer of documents and information outside Philippines.

4. Bank Secrecy Act, 1995

The Banking Secrecy Act sets out the rules for keeping bank records confidential.

5. Anti-Wire Tapping Act (Republic Act No. 4200)

The law seeks to punish wiretapping and other related violations of the right to privacy of communication. Under this Act, it is illegal to intercept or record private communications.

6. Access Devices Regulation Act of 1998

This Act prohibits unauthorized use of 'Access Devices' (which includes credit cards, account numbers, and electronic serial numbers).

In addition, Philippines have enacted Optical Media Act of 2003 to improve Intellectual Property protection and to reduce piracy. This Step has been appreciated by the Office of US Trade Representative and in return Philippines have been removed from the Office of US Trade Representative’s priority watch list in 2006.

LEGAL PROCESS OUTSOURCING IN PHILIPPINES

Legal Process Outsourcing is an area where Philippines could find a top position in the coming years. Currently, mainly two services are under the growth in the Philippines i.e. medical and legal transcription offshoring services. The reason behind this growth of LPO is that in the Philippines, not only new companies are coming there but also present companies are also offering different services such as Web design, medical transcription, software development, financial services, animation, and other shared services.

While Legal Process Outsourcing in Philippines is in its early years, the possibility for the growth is always there. According to Forrester Research, the overall global legal services market is worth US$260 billion, whereas US alone stands for US$160 billion of the basket. Estimates of the current market potential for legal services outsourcing from the US alone are pegged at US$3-4 billion.

In 2006 only 750 professionals were working in the LPO in Philippines as compared to 1,750 in India. According to the Evalueserve, “The legal outsourcing market for Indian suppliers at just US$56 million, rising to US$300 million in 2011. And it estimates that more than 1,300 full-time lawyers are working in India in the legal outsourcing sector and that this number should reach 16,000 by 2015 – which would still be only 1.2% of all US lawyers”. Philippines market is a little over 40% of the India market, which shows Philippines, is in the US$20-25 million range. It is predicted that the figure will go up to 10,000 till the year 2010. Currently, the Philippines is supplying less than one-half a percent of the potential for legal services outsourcing from the US. Again, this displays the potential for a market opportunity and rapid growth. LPO industry growth in Philippines is very possible, as since 2005 there were approximately 40,000 bar certified lawyers in Philippines⁶. Infact, just two years back, medical and legal transcription posted the highest growth in revenue among all the sub-sectors in Philippines’ BPO industry at 97%.

LPO: WHAT’S EXCLUSIVE IN PHILIPPINES?

There are some of the key features which attract the LPO players to work from Philippines. These features not only attract the local firms to enter into LPO industry, but many international firms are also opening there centers into Philippines. Philippines have many advantages to offer to the business houses operating from there.

As an ex-American colony and apart from cultural affinity, there are so many factors which exert a pull on the LPO players to choose Philippines as their business center. The LPO is more suitable for Philippines because Philippines have leveraged its high cultural compatibility with the United States, including:

• Its status as a former US colony from 1898 to 1946
• Government, business and educational systems modeled on their US equivalents
• English is primary language with a literacy rate of more than 95%
• A constitution and legal system based upon that of the United States
• Philippine law graduates are immediately qualified to take US bar exams in New York, California and Virginia
• Strict bar exam standards (25% pass rate) ensures a rich supply of well-qualified law graduates for document review work
• Philippine law courses are taught in English
• Philippine cases are heard in English
• Philippine case laws are reported in English
• There are nearly 60 law schools runs law courses presently
• Philippine Courts also look to cases decided in the United States for guidance on numerous legal issues, especially in the areas of corporate and securities law which mirror US laws⁷
• Philippine lawyers are thus well versed in common law concepts such as trusts, estoppel, equity, and unjust enrichment. They are also quite capable of researching law that develops through stare decisis, which is a well-established concept under Philippine jurisprudence
• This is partly the result of the Philippine legal education system, which is patterned after that in the US. An aspiring lawyer must first obtain a degree from a four-year undergraduate institution. Thereafter, he or she must attend an accredited law school for another four years. In order to become licensed, law graduates must pass a four-day bar exam covering all the major areas of law. And thereafter, they must take continuing legal education to maintain their membership in the bar. Legal education, as well as the bar exam, is conducted in English
• Philippine lawyers are also well aware of ethical duties to clients. When representing Philippine clients, Philippine lawyers are required to comply with a code of professional responsibility that contains detailed provisions on client confidentiality and diligent representation

These high standard qualities / requirements maintain the value of lawyers in Philippines which is a very big advantage to Philippines LPO industry.

CHALLENGES FOR PHILIPPINES

Most of the companies look at a range of factors beyond labor costs and skills in choosing a business location.

Philippines still need to work on various aspects of the industry in order to bring out its strengths⁸. Weaknesses of the country's IT / ITES industry include:

• Lagging behind in basic infrastructure with limited access to networks, need to continue serious upgrading and expansion
• Competition from neighboring countries such as Malaysia or India who have both the strong labor force along with an infrastructure already established to handle future demands
• Cost of telephony and Internet access are still very high for the market to afford⁹.
• According to the Asean Law Association, only about 30% of bar examinees in Philippines pass this important exam. Procedures for grading are reportedly inconsistent and arbitrary. In 2004, bar exam questions were stolen, resulting in a portion of the exam being voided¹⁰. As of January 2004, the records of the Supreme Court showed that 49,711 lawyers were admitted to the Bar¹¹

Business Process Association of Philippines projects that overall outsourcing in Philippines could be an US$11 billion industry employing 900,000 people by the end of 2010, that will put it close to where India is today.

SOME OF THE LPOs WORKING INTO PHILIPPINES¹²

The following are some of the Companies in LPO space, which are working from Philippines along with their centers established into other countries. The list is inclusive, and it goes on and on day by day.

 

Vendor	Services	Location
24seven biz support	Drafting of Legal Documents, Legal Transcription, Document Review	Philippines + USA
ACT Litigation Services	Document review	Philippines + US (CA, NY, PA)
Adec Solutions	Legal research, contracts, drafting, e-discovery, IP, immigration	Philippines + US (TX)
ADEC Solutions	Litigation Support, Document/Data Management, Research and Data Analysis, - Intellectual Property	Philippines + Global
American Discovery	Document review, litigation support	Philippines + US (LA)
Baker & McKenzie	Network ops & doc processing	Philippines
conventas	Litigation Support Services	Philippines+China
GUZMAN TANEDO & ACAIN	Document Authentication, Business Organization and Incorporation	Philippines
Integreon	Legal Transcription etc	Philippines+ India+ US
Legal network philippines	Intellectual property services, Contract drafting, Litigation support services, Legal research	Philippines
Motif	Litigation Support, Contract management, Document review, Patent support services, Intellectual Property research.	Philippines + India + US
SPi	EDD, litigation coding, strategic advisory services, information structuring, formatting & production	India, Philippines + US (Austin)
TeamEurope	Legal Transcription etc	Philippines

These companies provide most of the services from Philippines. These multi functioned companies are doing very well into Philippines. The opening up of LPO companies in Philippines also seems growing like in India. The ratio is going up and up with the time and it should be limited at least to maintain the quality of the work to some extent.

INDIA VIS A VIS PHILIPPINES:

There is a lot of discussion throughout the world these days as to where to setup an outsourced operation. In this part of the world, the two main choices for now seem to be primarily India and Philippines. In the past, India has dominated the offshore outsourcing industry. Recently, however, several alternatives' locations have come into focus that offer significant value and opportunity to companies looking to take advantage of these services. Among the upcoming countries, Philippines is consistently listed among the top 3 alternatives, and in certain instances is considered to be a better destination for many companies' outsourcings work.

The Philippine legal system is a mixture of the world's major systems which are the Roman Civil law, and the Canon law of the Catholic Church inherited from the Spanish, English Common law from the United States, and Islamic law¹³. Graduation from a Philippine law school constitutes the primary eligibility requirement for the Philippine Bar Examinations conducted by the Supreme Court of Philippines, the national licensure examination for practicing lawyers in the country. In recent years, the annual national bar passing rate ranges from 20% to 30%¹⁴ which maintains the quality of the lawyers who are supposed to enter into the legal field.

Continuing legal education is required of members of the Integrated Bar of Philippines (IBP) to ensure that throughout their career, they keep abreast with law and jurisprudence, maintain the ethics of the profession and enhance the standards of the practice of law¹⁵.

In Philippines, most of the lawyers seem to know what Roe vs. Wade was about. In Chennai, they may have some of the finest legal brains in the world but not everyone has heard about Roe vs. Wade or other key cases in US. Supreme Court," says Joseph Sigelman, co-president of India-based OfficeTiger. Most Filipino lawyers also sit for US bar exam, which provides Manila an advantage over India, China, or Malaysia¹⁶.

Likewise in India, India has a British legal system due to colonization. To get a law decree person have to clear either 5 years integrated LL. B course after 12^th Std. or 3 years LL.B. After getting the law decrees person is immediately eligible to practice in the courts after enrolling his name with Bar Council. Based on the latest estimates, India today has over 500 law schools, 6 million lawyers and up to 200,000 new law students graduating every year¹⁷.

The important thing for Philippines Lawyers is that LPO’s companies are establishing even into the small towns of Philippines like Cebu etc. while the other side most of the LPO’s in India are establishing their business centers into the Metros which denies the opportunity to the Law Graduates from small towns. It’s not that quality you can found only into the metros and not into the small cities.

The India revenues from legal services offshoring are slated to grow from US$146 million for the calendar year 2006 to reach US$640 million by end 2010. The industry employed around 7,500 people in the legal offshoring space in India as of end 2006. The number of employees is expected to reach 32,000 by end 2010¹⁸.

On the depressing side, Filipinos are said to be slower to move and talk too much to co-workers. Indians are more intense at their work. Their more individualistic mind-set makes motivating them through personal recognition easier. Filipinos, on the other hand, are more group oriented and less stimulated by being seen as a superstar among co-workers. Their overall performance is considered more average as a result¹⁹.

According to the chairman of the Ayala Group Mr. Zobel, Philippines’ capacity to become a “powerhouse” in knowledge process services and stated that time is right for Philippines to re-position itself to become a leading global provider of outsourced high-value, professional services. “Our greatest asset is that Filipinos are well-educated and have an excellent ability to operate successfully across both multiple cultures and knowledge domains,” he stressed. The entry of Integreon into Philippines marks a breakthrough for the country into the high value add and rapidly growing KPO and LPO sectors.

The present situation seems favorable to the LPO industry in Philippines. Whether you are for it or against it, the reality of outsourcing is hard to disregard. If Philippines is to capitalize on the opportunities that are undoubtedly there for the taking, the government, together with the private sector, must work to strengthen the perceived attractiveness and reality of offshoring to Philippines.

REFERENCES

1. www.outsourcing-weblog.com/50226711/philippines_the_next_india.php
2. http://next.eller.arizona.edu/courses/student_papers/International%20Management%20Fall%2006/Dane-MAP%20435%20Paperv7.pdf
3. http://www.americandiscovery.com/faq.html
4. www.american.edu/carmel/bree/analysis_1.html
5. http://www.abanet.org/aba-asia/projects/philippines.shtml
6. http://www.aseanlawassociation.org/legal-phil.html
7. http://www.prismlegal.com/index.php?option=content&task=view&id=88&Itemid=70
8. http://en.wikipedia.org/wiki/Legal_education_in_the_Philippines
9. http://en.wikipedia.org/wiki/Philippine_Bar_Examination
10. http://www.chanrobles.com/supremecourtbarmatterno850.htm
11. next.eller.arizona.edu/.../International%20Management%20Fall%2006/Dane-MAP%20435%20Paperv7.pdf
12. http://www.offshore-legal-services.com/knowledge3.htm
13. www.sourcingnotes.com/content/view/71/54/
14. http://www.stag.com.ph/NR/Shared/Public/PhilippinesorIndia.htm
15. http://www.integreon.com/htms/CustomerZone/ContactUs.asp
16. www.businessweek.com/globalbiz/content/sep2006/gb20060919_639997.htm?link_position=link5
17. http://ezinearticles.com/?The-Philippines---Leader-in-the-Outsourcing&id=961200
18. www.internationalbusinessreport.com/files/IBR_2007_Environment_and_Energy_Report_FINAL.pdf
19. http://bpo.box.com.ph/2007-06-08-medical-and-legal-transcription-fastest-growing-philippine-bpo-sector/#more-16