Editor's comment: Passage to India

Microsoft's CPA deal reboots debate over outsourcing

When a law firm does it, heads are turned - but when a company does it, people really sit up and take notice. Microsoft's decision to follow in the footsteps of the likes of Rio Tinto by outsourcing a chunk of its in-house legal work to CPA Global's offshore operation in Delhi has added further momentum to one of the most talked-about trends of the last few years.

The additional news that Rio Tinto's managing attorney Leah Cooper, the driving force behind the mining giant's offshore move, is to join CPA, makes it a pretty good news week for the outsourcing leader.

Microsoft's move seems to be a clear response to cost-cutting in the downturn. Last year Brad Smith, the technology company's general counsel, told Legal Week's US sister title the National Law Journal that headcount in his in-house team, which had previously stood at around 450, was down by 5% since before the economic crisis, while his legal budget, which had been around $900m (£570m), was down by 15%.

Pushing out basic level work to a team of between three and five CPA staff is hardly going to cause a major sea change in Microsoft's day-to-day legal operations. But even as the economy recovers and cost-cutting pressures ease allowing the company to start growing its legal team once more, it seems unlikely that all the outsourced work will suddenly be brought back in-house.

A clear momentum has built up, which - while it may be slowed by a negligence case involving an outsourced mandate - is not about to be reversed. The question for the market is how it reacts when the experience of the likes of Microsoft leads companies to move their outsourcing habits further up the food chain to take work that has traditionally gone to a law firm.

If firms aren't coming up with solutions then clearly a client will. Thus far, numerous firms have been quick to grab the opportunity to offer their own different, low-cost offshore options. Most recently it was Eversheds, but there are other obvious trailblazers to follow like Clifford Chance in India and Baker & McKenzie, with its base in the Philippines. In the US Orrick Herrington & Sutcliffe has kept its global operations centre closer to home in West Virginia, but the principle remains the same.

What firms offer may differ but for those that are still debating the implications, the case is only going to become more pressing. For some, the opportunity to demonstrate forward thinking in client service presented by outsourcing could quickly turn into quite a threat.

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