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America the Gutted: when outsourcing isn't a zero-sum game

For law firms looking to scale back, some of America’s cities are looking better even than New Delhi.

foot in a city like Nashville.

Labor costs, however, make up the biggest part of those savings.

“If you look at the Bureau of Labor stats, places like DC, New York, San Francisco, LA, those are anywhere from 20-30 percent above the national average," said Sean Whelan, Pillsbury CFO, "and Nashville’s, depending on what statistics you look at, could be anywhere from 4-6 percent below the national average."

Pillsbury, newly opened in Nashville, houses 160 employees there so far, or 10 percent of its overall workforce.

For now, Pillsbury has only relocated non-legal processing operations — finance, accounting, IT, HR, document production and some parts of marketing. But Whelan said the firm would consider relocating legal processing, too.

“It’s not that we wouldn’t consider it in the future, but this project is really about realigning our back office operations to make them as efficient as possible,” he said. “Being spread across multiple different offices for functions that operate well in a consolidated environment, it didn’t make sense." 

But if efficiency was the only consideration, surely these firms would settle on the overseas option. The savings in New Delhi easily trump those in Nashville. 

Deloitte's Klender said the lower cost US cities these giant law firms are looking at fall around 100 on a cost of labor index that puts India at a 35 or 40. (New York would be 140, and Boston 125.)

Companies like Pangea3, a legal outsourcing firm that opened in India in 2005, can save law firms up to 80 percent, according to co-CEO David Perla. Pangea3 now employs about 1,000 people worldwide. 

But despite massive savings, the overseas option isn't right for every firm. Whelan said Pillsbury considered moving outside the US but decided against it.

“We talked about it. We just didn’t see that the additional challenges that were introduced by going there were really warranted at this point,” he said, citing "language barriers, time zone barriers, worth ethics, supervision from afar" as among the ultimate deal breakers.

There are simply limits to how much risk one can reduce remotely. 

“No matter how many different layers of protection you can construct, you’re still subject to another country’s laws," said Dow Lohnes' Christmas of offshoring legal services.

Of course, the legal industry is relatively risk-averse and slow to change in general. Many have suggested that Amerisourcing is a baby step on the way to more aggressive offshoring of legal services. Perhaps after firms get more comfortable with the concept of outsourcing in general, more will make the leap overseas. 

"They've got to come along to accepting the concept and then [get] comfortable that it's working, and it's easier for them to do this domestically with a center they can fly to, time zones, et cetera," said Klender.

"It could be 5 years or 10 years down the road that some might get comfortable in moving some of these processes offshore and quite frankly they just simply may decide not to go offshore," he said.

If firms can get the efficiency and quality they're looking for at a reasonable cost in US cities, "you may find a lot of law firms keep things domestically," he added.

There are compelling forces working against the offshoring of legal services. 

“One is automation, because the delta between what a machine can do and what a person in India can do is closing,” said Dow Lohnes’ Brad Christmas. “And then also, a great lawyer. You can’t replicate that.”

Amerisourcing may not be a silver lining that lasts forever. But for Aja Hendrix, 29, it's good enough for now.

Hendrix had been laid off twice since graduating from college in 2005 — first from a subprime mortgage company in 2007 and then from a mid-size law firm in 2010.

She wasn’t particularly hopeful when she saw a friend’s link to the Pillsbury job post on Facebook. But it paid off. Today, Hendrix is senior marketing technology coordinator at Pillsbury's Nashville office, and she feels that she has finally found her professional home.

“Jobs that I thought would turn into a career didn’t. That was just a reflection of the economy at the time, but I do feel like that this is the career path I will take.”

And thanks to her $40,000 yearly salary, she is pursuing a master’s degree in law firm management at George Washington University and has been able to start saving money to someday buy a house — the classic American dream.