2 Presentation Plan Introduction to the LPO business Scope of “Services” renderedPreference for destination-IndiaDifferent Models of OutsourcingPotential of growth in the LPO IndustryImportant Indian Government InitiativesIdentifying major Issues in dealing with foreign clients in an LPO businessEnsuring data protection-Case study-Mphasis BPO FraudPractical experience & suggestions
3 What is Outsourcing?Outsourcing is the contracting out of a company's non-core, non-revenue producing activities to specialists.It differs from contracting in that outsourcing is a strategic management tool that involves the restructuring of an organization around what it does best – its core competencies.Three common types of outsourcing are Information Technology (IT) outsourcing ,legal process outsourcing (LPO) and Business Process Outsourcing (BPO). BPO includes outsourcing related to accounting, human resources, benefits, payroll, and finance functions and activities. All these activities fall under broad category of Knowledge process outsourcing (KPO)
4 What ‘LPO’ means?LPO or Legal Process Outsourcing is a kind of high value added BPO service involving legal work that industry vendors or in-house departments of organizations outsource from off-shore areas where it is costly to performServices rendered may involve low skilled quantitative tasks or high end qualitative tasks
5 Nature of Services High end The Qualitative tasks include: Intellectual Property RightsPatent SearchPatent Application DraftingIPR Portfolio ManagementTM and Copyright RegistrationLegal Research/Opinion workDocument Review and AnalysisIntelligence ServicesContracting and AdministrationLow endThe Quantitative tasks include:Paralegal ServicesLegal TranscriptionLegal Memo DevelopmentMedical TranscriptionDocument ManagementCorporate Secretarial ServicesLitigation Support.Legal CodingData entry
6 Paralegal services Image and Document coding Indexing and Tagging Legal transcriptionArchivingDeposition and TestimonysummarizationDocument/Evidence Review
7 Spheres of law Litigation Arbitration ADR Banking Securities IPR Mergers and acqReal estateTaxationGeneral business lawsInsuranceCorporate consultancy
8 Major International clients –source of work The in-house legal departments of MNCs Legal research firms International law firms Legal publishing companies Independent attorneysWork inflow is observed to be more from USA, Australia, U.K , France ,Japan, China
9 Preference for destination -India? Experienced Legal professionalsCommunication and education advantage-English languageprofessionals skilled in use of ITPresence of IT Infrastructure and Government facilitated schemes for ITES sector, better telecommunication initiatives, power and transport facilitiesExposure to foreign lawsForeign qualifications in legal streamCost reductionAdvantage of time zoneEfficacy at workStaffing 24x7Supports regional assignments
10 Preference for destination-India Laws Governing International Contracts"Proper Law of the Contract"When the parties in the Contract make an express choice of law ,Indian Courts have always recognized such choice of proper lawUnder Indian Law, parties are free to stipulate their terms of contract and lay down the law by which the Contract is to be governed. Courts in India have held that the intention of parties would decide the law of which country would govern the Contract and which Court would have jurisdiction. Sections 13, 15 and 44A of the Indian Civil Procedure Code and Section 41 of the Indian Evidence Act, govern the conclusiveness and enforcement of foreign judgments in IndiaThe parties may also choose a foreign venue for arbitration. A Foreign arbitral award would be recognized in India if the country of venue has signed either the New York or Geneva conventions and has been notified as having reciprocal relations with India in the matter of enforcement of foreign awards. A foreign arbitral award would generally be more easily enforced in India than a foreign court judgment.
11 Preference for destination-India India has ratified the World Trade Organization (WTO) Agreement, which came into force on January 1st 1995 and has also become a party to the Agreement on Trade Related Intellectual Property Rights. It has made several amendments to its laws concerning Intellectual Property to suit the international standards
12 Models of International IT-Enabled Outsourcing Out-tasking model: export a task and, upon completion, import it for use in home country7/24 model: maintain a continuous work schedule by having teams in various time zonesForeign local subsidiary model: outsource tasks in support of operations in that countryGlobal model: establish data and service center overseas to support global operations
13 Different Categories of LPO Players BPO/ITES Players Providing LPO Services e.g Office tiger,Pangea3Law Firms Providing LPO Services e.g Seth Associates, J sagar Associates,, Kocchar & CoThird Party Units (Single-Focus LPO Excluding Patents Services) e.g Lexadigm ,MindcrestThird Party Units (Single-Focus Patents Services)- e.g EvalueserveKPO Players Providing LPO Services e.g Evalueserve, IntegreonCaptives of Law Firms lex sphere, Atlas legal researchCaptives of Corporate Legal Departments e.g GE, Dupont
14 Survey Reports: predicting future of LPO business in India According to a study by the United States-based Forester Research, the current annual value ( ) of legal outsourcing which is worth $80 million can rise up to $4 billion and can fetch 79,000 jobs in India by 2015.The National Association of Software and Service Companies -- Nasscom -- also projected that legal processing outsourcing (LPO) providers in India will soon rise to $3-4 billion industry.
15 Potential of growthValueNotes, a Pune based research firm released a survey report “Offshoring Legal Services to India” claiming Legal Process Outsourcing is expected to be a $640 million by end of 2010 as against $146 nowNumber of people employed in this sector will go up to 32, 000 from 7, 500 now, in next three yearsThe frontrunners are leading due to their strong capabilities, onshore offshore presence, growth strategies, and the strength of their brand in the global LPO marketRising demand, vendor maturity and capability to offer higher value services has led to the 50% growth in this sector in
16 Important Indian Government Initiatives Foreign Direct Investment (FDI) for 100 percent of the equity in BPO companies -options to foreign companies to engage independent service provider, branch office, set up JV or wholly owned subsidiary, acquire exiting companyForeign Investment Regulations Software development and BPO services is now under the automatic route and no foreign investment approvals are required to set up a wholly owned subsidiary; only certain filings need to be made after receipt and issue of share capital. However, acquisition of shares in an existing Indian company may still require a prior foreign investment approval.Most foreign corporations set up their subsidiaries as private limited companies with liability limited by share capital.Duty-free imports of capital goods (under the Export Promotion of Capital Goods scheme)
17 Important Indian Government Initiatives 100% Income tax exemption for export of services: according to CBDT, the exemption would embrace the following (few) services: • Back-office Operations • Content Development or Animation • Engineering & Design services • Human Resource Services • Insurance Claim Processing • Legal Databases
18 Important Indian Government Initiatives Promotions of STPs which provide ready-to-plug IT and telecom infrastructureIndian tax laws have recently included provisions relating to transfer pricing, requiring pricing of transactions between associated enterprises to be at arms lengthallows repatriation of profits, calculated in accordance with approved accounting rules.National Venture Fund for the Software and IT Industry with a corpus of Rs. 100 crore
19 Government Incentives in infrastructure segment The government has been continuously improving infrastructure with better roads, setting up technology parks, opening up telecom for enhanced connectivity, providing uninterrupted power to augment growth.
20 Tax Incentives-Infrastructure sector The tax incentives offered to the investors by the Government of India are a boon for firms involved in IT outsourcing to India. The incentives that facilitate economic growth and development are:1. Infrastructure:A 10 years tax holiday to ventures engaged in developing and / or maintaining and operating an infrastructure facility.2. Power:10 years tax holiday to undertakings, which generate and / or distribute power.3. Telecom:5 years tax holiday for companies providing telecom services including Internet services and broadband services. Also 30 % deduction from profits for the next 5 years in any 10 continuous years out of first 10 years is also offered.4. Industrial Parks and Special Economic Zones10 years tax holiday is applicable to ventures that develop and /or operate or maintain in notified IT parks and special economic zones.
21 Tax Incentives 5. Other Industries: 5-year tax holiday is available for new industrial units to be set up in backward states and districts.6. Incentives for Exports:No Tax is deducted on exporters profits for unit set up on EPZs, STPs, EHTPs, FTZ and SEZs.7. Other Incentives:Tax concessions are allowed for FTI and a weighted deduction of 150% for scientific research and development expenditure have been offered. 10 years tax holiday is available for R&D companies engaged in scientific and industrial research.
22 Government Incentives in SEZ In India units are allowed to be set up in SEZ for rendering of services as well. The units in the zone are required to be a net foreign exchange earner.The units in SEZ set up during the financial year 2005 will get the following exemptions:100% exemption of profits and gains from business for the first 5 years50% exemption of profits and gains from business for the next first 5 years50% exemption to the extent that such amount is reinvested in the SEZ Special Reserve Account.Losses falling under the heads “Profits and gains from Business or profession” and “ Income from Capital Gains” can be carried forward/ set off as long as such loss is related to the business of the SEZ unitExemption from Central sales tax on inter-state sale or purchase of goodsFacility to retain 100% exchange earnings in EEFC account. ( exchange earners foreign currency account) Exemption from Service taxExport proceeds to be realized within 12 monthsSEZ units may import or procure from the domestic sources, duty free, all their requirements of capital goods, raw materials, consumables, spares, packing materials, office equipment, DG sets etc. for implementation of their project in the Zone without any licence or specific approval.
23 The Key issues-dealing with International clients in LPO business Your Market presence How you introduce your organizationIT & systems in placeUnderstanding cultural differencesDue diligenceEstablishing credibility,endorsement of valuesAddressing IPR & data protection issuesExhibit experienceClear terms of engagementCompetence & ManpowerPromptness & Quality Control Payment arrangements
24 Steps in Dealing with an International Client ScrutinyBackground CheckApproachingIntroduce LPODiscussing work possibilitiesUnderstanding Differences in cultureSteps in Dealing with an International ClientServices &QualityCompetenceAgreementIPR & Data protection issuesEstablishingCredibilityPayment
25 The Six Fundamental ‘Value ‘ Parameters ParentageGlobal leader more than 5 decades of customer loyalty & serviceContinuous onsite and global support to handhold and troubleshoot immediatelyPresenceProfessionally qualified, hands-on industry experience, specific domain expertise & proven delivery capabilitiesPeopleMost user friendly, futuristic design, easy scalability, zero vendor dependence, technology backingProductProfessionalContinuous commitment, on-time delivery, reliability, & flexibilityPromiseGuaranteed success
26 LPO Industry ‘s prime challenges: High attrition ratesUnpredictability in regular flow of workHigh cost of training and infrastructure investmentEnsuring information security and confidentiality especially under varying privacy lawsAbdication of responsibilityRisk managementQuality assurances
27 Quality related accreditations International Standards Organization (ISO) 9000 series •Six Sigma •CMMi Model (Capability Maturity Model) •SEI-CMM Model •People Capability Maturity Model (People-CMM) •e Services Capability Model (eSCM)
28 Approaching a client LPO Literature References Past Experience of The firmAdvertisementWebsiteGiving/hosting SeminarsPrinted/Online directoryMedia/press conferencesPublicationsExperience of keypersonnel
29 Agenda for discussion with a foreign client Exchange of GoalsUnderstandingRelationshipAgreementCommitmentEarliest contacts should include a detailed exchange aimed at achieving long term goalsA thorough understanding of the client’s business objectives in the context of political, economic and social systems in the local jurisdictionAn understanding of how different business practices, customs and etiquette can affect the relationship between the firm and its foreign clientAn agreement recording terms of engagement, issues-IPR, Data protection, tax issuesTo avoid unverified assumptions and to address issues when they arise.
30 Working out detailed strategies & plans Appreciate Client’s goalsTune your Business objectives and strategyRisk Implications of the client’s position in the home marketDomestic Market place –Safeguarding LPO Reputation in the local jurisdiction –confidentiality, security concernsAgree on policies and standards for assignment management and client serviceCollect feedback on client satisfaction
31 Understanding common cross border differences Professional precedence and deference Communications HolidaysAdjusting to inevitable time gaps
32 Ready for Scrutiny ? TEAM INFRASTRUCTURE CAPABILITY RELIABILITY SKILLS RELEVANT APPLICABLE LAW
33 What is indispensable to a Foreign Client? A trustworthy & value adding partner- that ensures Quality & service Reliability-that ensures success Values- that goes beyond words Experience- that holds Client in good stead to make right decisions
34 What Clients look for? Expertise - that provide accuracy. Infrastructure- that can ably support & value add to Customer Quality- that assures you error-free and timely project delivery Support- that ensures success
35 Establishing credibility Previous tasksFully skilled TeamStrong infrastructureAppreciation from the clientCompleted Task
36 Background Check on a New Client Conduct due diligence incase of new client .Website checkPersonality analysis over phone discussionsVerify the identity of the company with the corresponding Country’s embassy/government/country recordsConfirm that the signatory is authorized to sign on behalf of the companyVerify that the company is legal and doing real business
37 Collate detailed Information Confirm the Client’s IdentityIf the official name of thecompanyexists in the corporaterecords of the state or regionin which the contract needsto be enforceable.If the signatory signing onbehalf of a legitimate company,is listed as an authorized signatoryof that company.Firms must maintain procedures and obtainsatisfactory evidence of identity for all new clients.
38 Due diligence techniques Check The Client's Backgroundfind some history about the company in the public corporate recordsconsultants who specialize in checking out company backgroundscredit reporting companies (like Equifax)corporate credit and information bureaus (like Dunn & Bradstreet)consolidated information sources (like knowx.com)Identity procedures should not be an end in themselves.
41 Legal Issues Issues relating to the ownership of intellectual property 1Liability for failures, and limitation of liability2The right of termination-exit route3Prohibition on hiring the other’s employees4Data Protection, confidentiality-contractuallyenforceable ,Art 21 of constitution, common law,fiduciary duty, breach of trust-criminal offence –both IPC and IT Act5
42 Types of security related risks Three types of security related risks: Theft of Data and Information Natural Disasters External Acts like virusesThe National Association of Software Services Companies or Nasscom is working with the government to ensure that India's data privacy legislation is more in line with the U.S. It also intends to have the security practices of all its 860 members audited by international accounting firms. A cyber crime unit, which NASSCOM initiated in Bombay's police department where officers were trained to investigate data theft, is planned in nine other cities.
43 Create strong confidentiality protection regimes Dedicated teams to maintain strict security, info -access and staffing rulesSecure transmission and storage of informationProcesses to be streamlined –’only if need to know’ principle be adoptedNDA, adopt foreign data protection principlesIP of projects belongs to clientClient –attorney priviledgeQuality assurance accrediation
44 Data Protection-UKThe Data Protection Act 1998 came into force on 1 March 2000Under the Data Protection Act, anyone processing personal information must comply with eight principles of good information handling.fairly and lawfully processed;processed for limited purposes;adequate, relevant and not excessive;accurate and up to date;not kept longer than necessary;processed in accordance with the individual's rights;secure;not transferred to countries outside the European Economic area, unless there is adequate protection.
45 Legal Provisions dealing with data protection under the IT Act,2000 IT Act, 2000 delineates both civil and criminal liabilities for -“cyber contraventions”[S.43(a) to (h)] and“cyber offences”[Ss.65-74]
46 Legal Provisions dealing with data protection under the IT Act,2000 Sec 2(1)(o) of IT Act 2000 defines “Data”-A representation of information, knowledge, facts, concepts or instructions which are being prepared or have been prepared in a formalized manner, and is intended to be processed, is being processed or has been processed in a computer system or computer network, and may be in any form or stored internally in the memory of the computer;
47 Legal Provisions dealing with data protection under the IT Act,2000 Computer database[ S.43 Exp (ii)-A representation of information, knowledge, facts, concepts or instructions in text, image, audio, video that are being prepared or have been prepared in a formalized manner or have been produced by a computer, computer system or computer network and are intended for use in a computer, computer system or computer network.
48 Cyber ContraventionsDeals primarily in with unauthorized access to computer, computer system or computer network.May result in civil prosecutionLiable to pay for damages by way of compensation not exceeding one crore rupees to the person so affected.
49 Cyber OffencesDeals with computer, computer system, or computer network related “serious” offences such as hacking (Section 66).May result in criminal prosecutionIT Act, 2000 has identified “offences” which are punishable with imprisonment or with fine or both.
50 Computer Related Crimes under IPC and Special Laws Arms ActOnline sale of ArmsSec. 383 IPCWeb-JackingNDPS ActOnline sale of DrugsSec 416, 417, 463 IPCspoofingSec 420 IPCBogus websites, cyber fraudsSec 463, 470, 471 IPCForgery of electronic recordsSec 499, 500 IPCSending defamatory messages bySec 503 IPCSending threatening messages by50
51 Case Study- BPO Data Theft The recently reported case of a Bank Fraud in Pune in which some ex employees of BPO arm of MPhasis Ltd MsourcE, defrauded US Customers of Citi Bank to the tune of RS 1.5 crores has raised concerns of many kinds including the role of "Data Protection".
52 Case Study (contd.)The crime was obviously committed using "Unauthorized Access" to the "Electronic Account Space" of the customers. It is therefore firmly within the domain of "Cyber Crimes".ITA-2000 is versatile enough to accommodate the aspects of crime not covered by ITA-2000 but covered by other statutes since any IPC offence committed with the use of "Electronic Documents" can be considered as a crime with the use of a "Written Documents". "Cheating", "Conspiracy", "Breach of Trust" etc are therefore applicable in the above case in addition to section in ITA-2000.Under ITA-2000 the offence is recognized both under Section 66 and Section 43. Accordingly, the persons involved are liable for imprisonment and fine as well as a liability to pay damage to the victims to the maximum extent of Rs 1 crore per victim for which the "Adjudication Process" can be invoked.
53 Case Study (contd.)The BPO is liable for lack of security that enabled the commission of the fraud as well as because of the vicarious responsibility for the ex-employee's involvement. The process of getting the PIN number was during the tenure of the persons as "Employees" and hence the organization is responsible for the crime.Some of the persons who have assisted others in the commission of the crime even though they may not be directly involved as beneficiaries will also be liable under Section 43 of ITA-2000.Under Section 79 and Section 85 of ITA-2000, vicarious responsibilities are indicated both for the BPO and the Bank on the grounds of "Lack of Due Diligence".At the same time, if the crime is investigated in India under ITA-2000, then the fact that the Bank was not using digital signatures for authenticating the customer instructions is a matter which would amount to gross negligence on the part of the Bank. (However, in this particular case since the victims appear to be US Citizens and the Bank itself is US based, the crime may come under the jurisdiction of the US courts and not Indian Courts).
54 The Outsourcing cycle: Memorandum of Understanding (MOU) Agreement Negotiations Outsourcing Agreement & engagement letter Service Commencement Service Improvement Renewal or termination
55 Points to be addressed in the engagement letter Availability and access Responsiveness. Working language(s) Status reports. Delegation of legal work Communications with the foreign client’s home office and local subsidiaries.Communications with third parties.Conflict and unfair competition issuesStaff sustitution Billing Expenses and disbursements.Payment.Applicable law & settlement of disputes
56 IMPORTANT CONSIDERATIONS-Service Level Agreement Quality- The client should be able to get out of the contract if he finds the quality below par. Quantity- volume of work to be done in an hour/day/week/month as per agreed. Confidentiality- assurance that all the information and data would be not be disclosed to any third party. Pay Cycle- how to remit professional fees Price Increases- dependence of the client-ensure that for large, long-term projects, once the vendor’s personnel have acquired experience on the client projects, the vendor does not result in unreasonable price increases or replacement of key employees
57 Billing How often will fees be billed? How much detail does the client require on the invoice? Billing practices vary considerably. A foreign client who is used to itemized, detailed hourly billing might take exception to the summary form of invoice that is customary for the firm’s local clients.
58 Billing ratesDepending upon the type of services being delivered, the billing charges range from US$ 10 to 150. Mainly in the industry, three kinds of standards are prevalent in terms of charging the clients.One, the flat rate fee – the clients have to pay the fixed amount of charges for the entire month’s working. Second, the packaged fee – wherein the clients pay for buying the entire package of services like patents prior art search would cost them around US$ 900 for 12 hours. Third, on hourly basis. High-end jobs would cost more than even US$ 100. The value for money has to be given by keeping prices relatively reasonable.
59 Billing ratesThe billing charges are as follows: Area Amount (USD per hour) Telemarketing Transaction Processing Tech Support (inbound) Printing Support Services Basic Back Office F&A Document ManagementServices Research & Analysis Patent Drafting &Legal Research
60 Per-transaction price A norm in the US and the concept is fast gaining popularity among top Indian firmsPTP for the uninitiated is a form of pricing where a firm company is paid only on the basis of completed transactions.The client pays a portion of the value that he gains from outsourcing rather than a fixed cost based on the number of seats or hours of effort that a service provider uses to deliver the solution. This ensures that the client pays only for the benefits that he derives and not for inefficiencies ofthe service provider.Transaction-based pricing requires high degree of domain specialization especially for high end work – a firms credibility and proven track record that today is not widespread.
61 Expenses and disbursements. The range of expenses and disbursements that are accepted as reimbursable can vary considerably from country to country. What is customary in one jurisdiction might be viewed as bordering on dishonesty in another?Unless reimbursement of expenses and disbursements is discussed and agreed at the start, the firm should expect the foreign client to challenge some of these charges.
62 Payments provisions Amounts to be paid-(i) Lump sum contract; (ii) Time based contracts;(iii) Success fee based contract;(iv) Percentage contract;(v) Indefinite delivery contract.Schedule of payments-Payment procedures, shall be indicated in the draft contract and agreed upon during negotiations.Payments may be made at regular intervals (as under time-based contracts) or for agreed outputs (as under lump sum contracts).Payments for advances if any should normally be backed by Bank Guarantee. The limit for advance payment will be as prescribed by GFR. Normally, it should not exceed 10% of the cost of the contract.Payments shall be made promptly in accordance with the contract provisions.
63 Three words of Caution-Payment It may be the custom in the foreign client’s country to age professional services invoices for up to 90 to 120 days. A demand for payment within 30 days might be viewed as distrusting and insulting to the client’s integrity. CustomsLaw firms must also be very careful about attempting to charge interest on accounts that are more than 30 days old. In some countries, interest payments, especially to providers of trusted professional services, are considered highly improper or even immoral. InterestLitigation to collect a fee is considered to be a breach of professionalethics in some countries. Even though these professional rules might not apply to a law firm outside the client’s home jurisdiction, even the suggestion of possible legal action to collect a fee could be viewed as highly offensive by the client, especially if the client feels that there are unresolved service issues.Litigation
64 Key Performance Indicators (KPIs) Average Data Value (Sales and Reservations Only)Customer SatisfactionService LevelAbandoned Percent of DataCost Per DataErrors and ReworkForecast Work-load to ActualScheduled Staff to ActualAdherence to ScheduleAverage Handling TimeReviewing strategies for increasing performance levels
65 Dealing with a complaint If the complaint is in writing, acknowledge it immediately Tell your client who will be dealing with the complaint, and what the likely timescale is for dealing with it Keep your client informed of the complaint’s progress if it is unlikely to be resolved quickly Note what the client expects from the complaints process, and whether those expectations are reasonable If your client asks for a meeting, try to arrange one as soon as possible Open a complaint file, and keep a record of what steps you take towards resolving the complaint Finally, remember that speedy resolution of complaints helps to maintain client goodwill, and is frequently the most cost-effective solution for you.