Alternative legal service providers (ALSPs) have increasingly become a solution to companies’ need for more cost-effective legal services. However, the important question to answer is: Can it work in Asia?
Over the past decade, the legal industry has seen the rapid rise of a new category of players: alternative legal service providers (ALSPs). The entrants have been challenging and changing the way legal work is getting done for some of the biggest companies in the world.
ALSPs are usually – but not necessarily – non-firm legal service providers that take on companies’ low-value, repetitive work for a fraction of the cost. This could involve anything from outsourcing work to having a dedicated contract lawyer collaborate with the company’s legal team for a specific project.
Lawyers looking for more flexibility and exposure to a variety of work are attracted to ALSPs, and companies, especially those under headcount freezes and view lawyers as cost centres, are benefitting from a more cost-effective deal.
More than half of law firms and 60 percent of corporate law departments globally are using ALSPs, according to a report by the Thomson Reuters Legal Executive Institute. Released earlier this year, the report was done in partnership with the Georgetown University Law Center for the Study of the Legal Profession and the University of Oxford Saïd Business School.
Presently, the market includes established players like Axiom – one of the pioneers in the space – and Pangea3 of Thomson Reuters Legal Managed Services, as well as up-and-coming startups like Augment General Counsel. Even law firms have established ALSP units, like Singaporean law firm Rajah & Tann’s R&T Asia Resources.
According to the Thomson Reuters Legal Executive Institute’s ALSP report, 85 percent of law firms globally who use ALSPs said they do so in document review for cost saving. In addition, 52 percent said they use them to meet peak document review demand without increasing headcount.
PERSISTENT MISCONCEPTION
That said, the ALSP segment of the legal market is still very much in its infancy in Asia. In Australia, for example, 70 percent of in-house counsels are still not familiar with NewLaw (which has the same concept as ALSPs do,) business models, according to a survey by the Association of Corporate Counsel last year. The survey also showed that only 14 percent of respondents used a NewLaw business in the past 12 months.
One of the major challenges is to shatter the mistaken belief – or stigma for some – that because ALSPs like Axiom offer project-based legal staff to corporations, they are merely temp agencies for lawyers.
“Though it’s less so now, but there’s still a lot of people who think that we’re a temp agency. Some even say we’re just a temp agency on steroids and just provide lawyers at jumped-up costs, and we’re nothing more than that,” explains Kirsty Dougan, managing director for Asia at Axiom. She notes that unlike some other providers, Axiom’s lawyers are full-time employees of the firm.
Augment General Counsel, a licensed law firm with lawyers around the Asia-Pacific region, also faces the same misconception, shares Chris Dancey, its founding director. “We don’t just throw bodies at a problem. We’re not a temp firm, but rather a long-term safety net,” he says. “Clients can turn us off and on to manage work spikes, especially for special projects, like regulatory compliance.”
Though the usage of ALSPs is the same around the world, the take-up is different in Asia. “A lot of what works in the U.S. doesn’t work in Asia,” says Dougan. “You can’t just simply replicate something that’s had a stellar trajectory in New York and ask for the same growth in Asia.”
“The U.S. is one homogenous legal system, albeit with different federal and state laws. But Asia is inherently complex because of the cross-border aspect,” explains Dougan. “There are also no general counsels that run a team in just one country in Asia; instead, they are GCs for the Asia-Pacific region. Doing business in Singapore, for example, is very different from doing business in China.”
Asia’s addiction to brands and hesitancy towards startups also pose a challenge to ALSPs in the region. “The American market is very receptive to disruption – look at Uber and Airbnb – but not so much in Asia,” says Dougan.
Though Augment’s Dancey hasn’t found it particularly difficult in Asia, he understands that pockets of the legal services market are still conservative. “In a Japanese in-house function, for example, when counsel look for external help, they tend to gravitate to a small pool of traditional firms,” he notes. “But regional clients headquartered outside of Japan, are becoming more open to new sourcing models.”
TRADITIONAL THINKING
As with all challengers disrupting a traditional industry, there will always be traditionalists who want to do things the old way, which is hindering the expansion of ALSPs in Asia.
“Regrettably, there is a section of empire building in-house lawyers who misconceive that their value to the business is proven by the amount of people they’ve got in their function or the law firm brands they use. But that’s an outdated approach,” says Dancey.
He continues: “If you’re running your legal function cost-effectively, leanly and innovatively, then both CFO and CEO will be incredibly impressed, because that’s what all your other peers are doing in IT, in marketing, in finance. So why should legal be any different? I think there’s a tendency for lawyers to defend themselves by claiming that lawyers are different, but actually they’re not.”
Dancey believes that another factor holding back the growth of ALSPs is that in-house counsels are too busy to look for help – a problem that could paradoxically be solved by ALSPs.
As he points out, “In-house counsels don’t have the opportunity to put their head above the parapet to see what else is out there because there’s so much day-today firefighting that they do, and that’s a real shame. That’s one of the things that ALSPs can help them with: get the routine and repetitive (and often still complex) work off their hands, and not just on a temporary basis.
ALSPs can help offshore work, such as like NDAs, office leases or procurement agreements. “Why does a five-year, expensive onshore lawyer need to do NDAs?”
GRADUAL ACCEPTANCE
Both Axiom’s Dougan and Augment’s Dancey see a huge opportunity in Asia, which is why they left their stable jobs at Diageo and Hays, respectively, to launch their ALSP startup (Dougan co-founded Asia Counsel, which Axiom acquired in 2010).
“ALSP is a nascent model, and we’ve seen over many, many years in the U.S. and European markets that the ALSP model has mushroomed,” says Dancey. “Asia does have an appetite for it, but there’s not as much knowledge about it here as there is in the U.S. or Europe. But I think once you effectively explain there is a third choice – other than doing it themselves or go to a traditional law firm – that’s when ALSP will really grow.”
“The biggest challenge for ALSPs is that at the moment, they are the best-kept secret of the industry. But I think there’s a generational change taking place in in-house functions,” observes Dancey. “Traditional law firms have exclusively been the choice of in-house counsels in the past. But things are different with the newer generation who are used to disruptive technologies as well as innovative business models like fintech companies. We’re certainly seeing generational movement commencing in Asia.”
Dougan thinks this movement will be beneficial to the industry. “Law firms definitely see us as a real threat, and that’s a good thing,” she says. “It puts pressure on the incumbents to innovate, bringing change in a changeless profession.”
“There’s been no change in a 100 years, and the partnership model is outdated,” she adds. “The likes of Axiom emerged because our clients are telling us they want change, I think now there’s some quiet respect of what we’ve achieved – an acceptance.”
